-----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, E7/hnwv+mNhfFY1G78uHFbRmVsyZ4JYqMiV9exBCVUhHPf8i27Yz1SNuf/KBPXrF FnA6eR0XMh97QpW9tiCz4w== 0001047469-98-023643.txt : 19980611 0001047469-98-023643.hdr.sgml : 19980611 ACCESSION NUMBER: 0001047469-98-023643 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 32 FILED AS OF DATE: 19980610 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALADDIN GAMING ENTERPRISES INC CENTRAL INDEX KEY: 0001059128 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 880379607 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-49715 FILM NUMBER: 98645792 BUSINESS ADDRESS: STREET 1: P O BOX 94827 CITY: LAS VEGAS STATE: NV ZIP: 89193 BUSINESS PHONE: 702736 MAIL ADDRESS: STREET 1: P O BOX 94827 CITY: LAS VEGAS STATE: NV ZIP: 89193 S-1/A 1 S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE , 1998 REGISTRATION NO. 333-49715 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ ALADDIN GAMING ENTERPRISES, INC. (Exact name of Registrant as specified in its charter) NEVADA 6719 88-0379695 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification incorporation or organization) Number)
------------------------------ 831 PILOT ROAD LAS VEGAS, NEVADA 89119 (702) 736-7114 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ------------------------------ RICHARD J. GOEGLEIN ALADDIN GAMING ENTERPRISES, INC. 831 PILOT ROAD LAS VEGAS, NEVADA 89119 (702) 736-7114 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ Copies to: WALLACE L. SCHWARTZ, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 919 THIRD AVENUE NEW YORK, NEW YORK 10022 (212) 735-3000 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to rule 434, please check the following box. / / ------------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED(1) PER WARRANT OFFERING PRICE FEE Warrants to purchase Class B Common Stock...................... 2,215,000 $6.77 $15,000,000 $4,425.00 Class B Common Stock(2)............. 2,215,000 $0.001 $2,215 $0.65 Total -- -- 15,002,215 $4,425.65
(1) Estimate solely for the purpose of computing the registration fee in accordance with Rules 457(g) and (i) of the Securities Act, based on the book value of the Warrants registered hereunder and the amount payable on exercise of such Warrants. (2) Such shares of Class B Common Stock are issuable upon exercise of the Warrants registered hereunder. This Registration Statement also covers such shares as may be issuable pursuant to anti-dilution adjustments. ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION DATED JUNE , 1998 PROSPECTUS [LOGO] 2,215,000 WARRANTS TO PURCHASE SHARES OF CLASS B COMMON STOCK OF ALADDIN GAMING ENTERPRISES, INC. ------------ This Prospectus relates to the 2,215,000 warrants (the "Warrants") of Aladdin Gaming Enterprises, Inc., a Nevada corporation (the "Issuer") to purchase Class B non-voting common stock, no par value, (the "Common Stock") of the Issuer. The Warrants are exercisable at any time on or after the Separation Date (as defined herein) at an exercise price of $0.001 per Warrant Share (as defined herein), subject to adjustment, and, unless exercised, will expire on March 1, 2010. The Warrants were originally issued and sold on February 26, 1998 (the "Issue Date") to the Initial Purchasers (as defined herein) pursuant to an offering (the "Offering") by Aladdin Gaming Holdings, LLC, a Nevada limited-liability company ("Holdings"), Aladdin Capital Corp., a Nevada corporation ("Capital" and together with Holdings, the "Note Issuers") and the Issuer, (the Issuer, together with the Note Issuers, the "Aladdin Parties") of 221,500 Units (the "Units") each consisting of $1,000 principal amount at maturity of 13 1/2 Senior Discount Notes (the "Notes") due 2010 of the Note Issuers and 10 Warrants, and were simultaneously sold by the Initial Purchasers in transactions exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") in the United States to persons reasonably believed to be qualified institutional buyers as defined in Rule 144A under the Securities Act. The number of shares of Common Stock purchasable upon the exercise of the Warrants and the Exercise Price (as defined herein) will be subject to adjustment on the occurrence of certain events (subject to certain exceptions) including (i) the payment by the Issuer of dividends (and other distributions) in shares of any class of the Issuer's capital stock ("Issuer Stock"), (ii) subdivisions, combinations and reclassifications of Issuer Stock, (iii) issuances to all holders of Issuer Stock of rights, options, or warrants entitling them to subscribe for Issuer Stock or of securities convertible into or exchangeable for Issuer Stock for a consideration per share of Issuer Stock which is less than the current market price per share of Issuer Stock and (iv) the distribution to all holders of Issuer Stock of any of the Issuer's assets, debt securities or any rights or warrants to purchase such securities (excluding those rights and warrants referred to in clause (iii) above and excluding cash dividends less than a specified amount). The net proceeds from the Offering together with the proceeds from the other Funding Transactions (as defined herein), including the new $410.0 million Bank Credit Facility (as defined herein) entered into by Aladdin Gaming, LLC (the "Company"), a Nevada limited-liability company and a wholly-owned subsidiary of Holdings and $80.0 million available under the FF&E Financing (as defined herein), will be used to finance the development, construction and opening of a hotel and casino, the Aladdin Hotel and Casino in Las Vegas, Nevada (the "Aladdin"). Pursuant to the Disbursement Agreement (as defined herein), all of the proceeds from the Offering must be expended before any of the proceeds of the Bank Credit Facility may be disbursed. The security interests in the Company's assets relate to substantially all of the Company's assets and such assets are therefore subject to liens, pledges and other encumbrances for the benefit of third parties. The Company is in the development stage and has no assets or operations other than its interests in the Aladdin, and activities in connection with the Aladdin's development. Therefore, the Company will have no significant revenues until the Aladdin becomes operational. It is expected that the Aladdin will become operational in the first four months of the year 2000. Upon completion of the Aladdin, the Company will be highly leveraged with substantial fixed debt service obligations in addition to operating expenses, and is expected to have $430.0 million of outstanding indebtedness on a consolidated basis, including $410.0 million outstanding under the Bank Credit Facility and an aggregate of $20.0 million outstanding under the loan portion of the FF&E Financing. The FF&E Financing will also consist of $60.0 million of operating leases. Upon the opening of the Aladdin, the Company is also expected to have an aggregate of $10.0 million available under a working capital facility. The indebtedness of Holdings and the Company, including the Notes, collectively, is expected to represent 95% of their total capitalization as of the opening of the Aladdin. The Issuer's sole material asset is its interest in the Holdings Group (as defined herein), which has substantial leverage and so could experience difficulties servicing its indebtedness. Following the Registration Statement (as defined herein) being declared effective by the Securities and Exchange Commission (the "Commission") the Warrants and Warrant Shares may be offered and sold from time to time by holders thereof or by their transferees, pledgees, donees, or successors (collectively the "Selling Holders") pursuant to this Prospectus. The Warrants and the Warrant Shares may be sold by the Selling Holders from time to time directly to purchasers or through agents, underwriters or dealers. See "Plan of Distribution". If required, the names of any such agents or underwriters involved in the sale of the Warrants and the Warrant Shares and the applicable agent's commission, dealer's purchase price or underwriters' discount, if any, will be set forth in an accompanying supplement to this Prospectus. The Selling Holders will receive all of the net proceeds from the sale of the Warrants and the Warrant Shares and will pay all underwriting discounts, selling commissions and transfer taxes, if any, applicable to any such sales. In accordance with the terms of the Warrant Registration Rights Agreement (as defined herein) the Issuer will pay other expenses incident to any such registration of the Warrants and the Warrant Shares. The Selling Holders and any broker dealers, agents or underwriters that participate in the distribution of the Warrants and the Warrant Shares may be deemed to be "underwriters" within the meaning of the Securities Act. See "Plan of Distribution" for a description of indemnification arrangements. SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE WARRANTS OR WARRANT SHARES. ----------------- THE WARRANTS AND THE WARRANT SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY, NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NEITHER THE NEVADA GAMING COMMISSION NOR THE NEVADA STATE GAMING CONTROL BOARD HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES OFFERED HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ----------------------- The date of this Prospectus is , 1998. AVAILABLE INFORMATION The Issuer has filed with the Commission a Registration Statement on Form S-1, including exhibits thereto, (collectively, the "Registration Statement") under the Securities Act, with respect to the Warrants and the Warrant Shares to which this Prospectus relates. This Prospectus does not contain all the information set forth in the Registration Statement to which reference is hereby made. Any statements made in this Prospectus concerning the provisions of certain documents are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement. The Registration Statement may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will be available for inspection and copying at the regional offices of the Commission located at 7 World Trade Center, New York, New York 10048 and at Citicorp Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of such material may also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Issuer is not currently subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon the Commission declaring the Registration Statement effective, the Issuer will become subject to such requirements, and in accordance therewith will file periodic reports and other information with the Commission. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants, such as the Issuer, that file electronically with the Commission and the address of such site is http://www.sec.gov. No person has been authorized to give any information or to make any representation concerning the Warrants or the Warrant Shares other than those contained herein and, if given or made, such other information or representation should not be relied upon as having been authorized by the Issuer. ------------------------ DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS This Prospectus contains certain statements that are "forward looking statements." Those statements include, among other things, the discussions of the business strategies of the Aladdin Parties and the Company (as defined herein) and expectations concerning future operations, margins, profitability and liquidity and capital resources. Forward looking statements are included in "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Prospectus. Although the Issuer believes that the expectations reflected in such forward looking statements are reasonable, the Issuer does not give any assurance that such expectations will prove to be correct. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies of the Aladdin Parties and the Company or financial projections involving anticipated revenues, expenses, earnings, levels of capital expenditures or other aspects of operating results. All phases of the operations of the Aladdin Parties and the Company are subject to a number of uncertainties, risks and other influences, many of which are outside the control of the Aladdin Parties and the Company and any one of which, or a combination of which, could materially affect the results of operations of the Aladdin Parties and the Company and whether the forward looking statements made herein ultimately prove to be accurate. Important factors that could cause actual results to differ materially from the Issuer's expectations are disclosed in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." ------------------------ CERTAIN DEFINITIONS REFERENCES IN THIS PROSPECTUS TO (I) "HOLDINGS" REFER TO ALADDIN GAMING HOLDINGS, LLC, A NEVADA LIMITED-LIABILITY COMPANY; (II) "CAPITAL" REFER TO ALADDIN CAPITAL CORP., A NEVADA CORPORATION WHOLLY-OWNED BY i HOLDINGS; (III) "ISSUER" REFER TO ALADDIN GAMING ENTERPRISES, INC., A NEVADA CORPORATION, THE SOLE ASSET OF WHICH IS A 25% MEMBERSHIP INTEREST IN HOLDINGS; (IV) "NOTE ISSUERS" REFER TO HOLDINGS AND CAPITAL, COLLECTIVELY; (V) "ALADDIN PARTIES" REFER TO HOLDINGS, THE ISSUER AND CAPITAL, COLLECTIVELY; (VI) THE "COMPANY" REFER TO ALADDIN GAMING, LLC, A NEVADA LIMITED-LIABILITY COMPANY WHICH PLANS TO DEVELOP, CONSTRUCT AND OPERATE THE ALADDIN; (VII) "HOLDINGS GROUP" REFER TO EACH OF HOLDINGS AND ITS SUBSIDIARIES; (VIII) "LONDON CLUBS" REFER TO LONDON CLUBS INTERNATIONAL, PLC, A UNITED KINGDOM PUBLIC LIMITED COMPANY AND (IX) "LCNI" REFER TO LONDON CLUBS NEVADA INC., AN INDIRECT WHOLLY OWNED SUBSIDIARY OF LONDON CLUBS. ALADDIN HOLDINGS, LLC ("AHL"), WHICH IS 95% OWNED BY THE TRUST UNDER ARTICLE SIXTH U/W/O SIGMUND SOMMER (THE "TRUST"), DIRECTLY OWNS 98.7% OF THE MEMBERSHIP INTERESTS OF SOMMER ENTERPRISES, LLC ("SOMMER ENTERPRISES"), A NEVADA LIMITED-LIABILITY COMPANY, AND INDIRECTLY OWNS APPROXIMATELY 71% OF THE MEMBERSHIP INTERESTS OF HOLDINGS PRIOR TO THE EXERCISE OF THE WARRANTS. ii PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION (INCLUDING FINANCIAL INFORMATION) APPEARING ELSEWHERE IN THIS PROSPECTUS. THE ISSUER The Issuer is an indirect subsidiary of AHL and was incorporated for the sole purpose of issuing the Warrants and Warrant Shares. The sole material asset of the Issuer is 25% of the Holdings Common Membership Interests (as defined herein). Holdings is a holding company, the material assets of which are 100% of the outstanding Common Membership Interests and 100% of the outstanding Series A preferred interests of the Company (the "Series A Preferred Interests"). The Warrants entitle the holders thereof to purchase an aggregate of 2,215,000 shares of Common Stock of the Issuer, representing a 40% economic interest in the Issuer, at an exercise price of $0.001 per Warrant Share, subject to adjustment, and representing an indirect interest of 10% of the outstanding Holdings Common Membership Interests on a fully-diluted basis as of the Issue Date, after giving effect to such issuance. The Warrants are exercisable at any time on or after the Separation Date and, unless exercised, will expire on March 1, 2010. THE COMPANY The Company plans to develop, construct and operate a new hotel and casino, the Aladdin, as the centerpiece of an approximately 35 acre world-class resort, casino and entertainment complex (the "Complex") located on the site of the original Aladdin hotel and casino in Las Vegas, Nevada, a premier location at the center of Las Vegas Boulevard (the "Strip"). The Aladdin has been designed to include a luxury themed hotel of approximately 2,600 rooms (the "Hotel"), an approximately 116,000 square foot casino (the "Casino"), an approximately 1,400-seat production showroom and seven restaurants. The Casino's main gaming area will contain approximately 2,800 slot machines, 87 table games, keno and a race and sports book facility. Included on a separate level of the Casino will be a 15,000 square foot luxurious gaming section (the "Salle Privee") which is expected to contain an additional 20 to 30 high limit table games and approximately 100 high limit slot machines. The Salle Privee will cater to wealthy clientele and be operated and marketed in conjunction with London Clubs, a prestigious, multi-national casino operator which caters to international premium players. The Complex, which has been designed to promote Casino traffic and to provide customers with a wide variety of entertainment alternatives, will comprise (i) the Aladdin; (ii) a themed entertainment shopping mall with approximately 522,000 square feet of retail space (the "Desert Passage"); (iii) a second hotel and casino, with a music and entertainment theme (the "Music Project"); (iv) a newly renovated 7,000-seat Theater of the Performing Arts (the "Theater"); and (v) an approximately 4,800-space car parking facility (the "Carpark" and, together with the Desert Passage, the "Mall Project"). The Mall Project and the Music Project will be separately owned by affiliates of the Company. The Company's business and marketing strategies are expected to capitalize on the Complex's premier location, its superior designed, mixed-use, themed development, and strong strategic partnering with highly successful public companies. The grand opening date for the Aladdin and the Mall Project is currently anticipated to occur during the first four months of the year 2000, with the opening of the Music Project expected to occur within six months after the opening of the Aladdin. The Company's management team is led by Chief Executive Officer Richard J. Goeglein, the former President and Chief Executive Officer of Harrah's Hotels and Casinos and President and Chief Operating Officer of Holiday Corp., who during his term at Harrah's oversaw the expansion of the Harrah's brand, including the development of Harrah's Hotel and Casino in Atlantic City. Assisting Mr. Goeglein as Senior Vice President of the Company and President/Chief Operating Officer of the Aladdin Hotel and Casino is James H. McKennon, who as President and Chief Operating Officer of Caesars Tahoe was instrumental in its financial turnaround and as President of Caesars World International Marketing Corp. was responsible for the global marketing of the Caesars brand. It is expected that approximately $75 million will be spent on theming in the Aladdin and the Desert Passage, of which approximately $35 million will be spent by the Company on the Aladdin. This theming 1 will create an environment in the Aladdin that will be based upon the Legends of the 1001 Arabian Nights, including the intriguing tales of Aladdin, Ali Baba and the 40 Thieves, Sinbad and other legendary stories woven around ancient wealth and wonders. The Aladdin's exterior will be designed to include a highly articulated streetscape, a themed Casino exterior shaped like a Bedouin tent, fountains, walkways, sculptures and an outdoor restaurant. The sophisticated interior of the Aladdin will utilize rich colors, textures and design, enhancing the fantasy of a mystical romantic time and place. A significant feature of the Desert Passage will be the themed area to be known as the "Lost City." The "Lost City" is expected to contain a re-creation of an ancient mystical mountain city and will house a variety of specialty shops and restaurants underneath a 10-story high ceiling. The Company believes that the Aladdin, with its unique theme, together with the Desert Passage, will ensure its place as a "must-see" destination in one of the world's largest entertainment cities. The Company believes that upon completion, the Aladdin, the Mall Project and the Music Project together will constitute one of the largest and best-planned integrated, mixed-use entertainment resorts in the world. Aladdin Bazaar Holdings, LLC ("Bazaar Holdings"), a subsidiary of the Trust, and TH Bazaar Centers Inc. ("THB"), a subsidiary of TrizecHahn Centers Inc. ("TrizecHahn"), have entered into a joint venture agreement and formed Aladdin Bazaar, LLC ("Bazaar") to develop, construct, own and operate the Mall Project. TrizecHahn is the principal retail subsidiary of TrizecHahn Corporation, one of the largest publicly-traded real estate companies in North America. The Desert Passage is expected to include an array of high-fashion specialty stores, exotic boutiques, themed restaurants, cafes and other entertainment offerings. The Desert Passage will be directly connected to the Casino to maximize Casino traffic. Aladdin Music Holdings, LLC ("AMH"), a wholly owned subsidiary of the Company, and a subsidiary of Planet Hollywood International, Inc. ("Planet Hollywood") have entered into a binding memorandum of understanding (the "Music Project Memorandum of Understanding") and formed Aladdin Music, LLC ("Aladdin Music"), which will own and develop the Music Project. The Music Project Memorandum of Understanding is subject to the finalization of financing commitments. Planet Hollywood is a creator and worldwide developer of themed restaurants and consumer brands, most notably "Planet Hollywood" and the "Official All Star Cafe." Planet Hollywood has announced that it intends to position a brand of music-themed entertainment venues as its third major brand. The Music Project, which will be managed by the Company, is expected to include an approximately 1,000 room hotel, a 50,000 square foot casino, four restaurants, including a music-themed restaurant which will feature its own 1,000-person nightclub, a health spa and an outdoor swimming pool. As part of the development of the Complex, the Company expects to indirectly contribute to Aladdin Music $21.3 million in cash and land having an appraised fair market value of $15.0 million in exchange for a preferred membership interest in Aladdin Music and to lease to Aladdin Music the existing 7,000-seat Theater for a nominal amount. It is anticipated that Aladdin Music will carry out an approximately $8 million renovation of the Theater, improving its decor, light and sound systems and other facilities. A further distinguishing feature of the Music Project is the anticipated active involvement of famous artists and celebrities, some of whom are expected to be stockholders of Planet Hollywood (or its affiliates), participate in the marketing of Planet Hollywood's music-themed brand and perform at the Theater or make other personal appearances at the Music Project. The Music Project, with its music and entertainment theme, will complement the Aladdin and it is expected that together the two hotels will offer an excitement and variety of entertainment alternatives that will further distinguish the Complex from other venues on the Strip. The development of the Aladdin commenced during the first quarter of 1998. The original Aladdin hotel and casino closed for business on November 25, 1997 and the original facility was demolished on April 27, 1998. The development of the Mall Project is expected to commence during the second quarter of 1998, followed thereafter by the expected commencement of the development of the Music Project in the second half of 1998. 2 STRENGTHS The Company believes that several important advantages will contribute significantly to the success of the Aladdin: PREMIER LOCATION. The Aladdin's 800 feet of Strip frontage is located on the section of the Strip between Flamingo Road at the north and Tropicana Boulevard at the south. Based upon independent research and assuming completion of the Bellagio, Paris and Venetian development projects, the average vehicular traffic that will pass the Complex each day is expected to be approximately 54,000. Another major feature of the Complex will be its easy access from Las Vegas' McCarran International Airport ("McCarran Airport"), only 2.5 miles away. According to the Las Vegas Convention and Visitors Authority (the "LVCVA"), the number of visitors to Las Vegas has increased at a steady and significant rate for the last 15 years, growing from approximately 10 million in 1980 to approximately 19 million in 1990 to over 30 million in 1997, with approximately 47% of these visitors in 1997 arriving by air through McCarran Airport. McCarran Airport, the tenth busiest airport in the United States, is currently in the process of expanding its capacity through the addition of 26 new gates, and it is expected that following completion thereof, the number and percentage of visitors arriving in Las Vegas by air will further increase, making easy access from McCarran Airport to Las Vegas' resorts even more crucial. MASTER-PLANNED, MIXED-USE DEVELOPMENT. The Aladdin has been carefully and strategically designed to promote Casino traffic. Each element of the Complex has been sited and planned in a manner that maximizes pedestrian and vehicular traffic so as to facilitate access to and from the Complex, as well as circulation between the different parts of the Complex, with the Casino being the nexus for the vast majority of pedestrian traffic. Significant portions of the Desert Passage and all of the Theater's entrances and exits will be accessed through, or be adjacent to, the Casino. The Casino will be located in front of the Hotel, and unlike many of the newer projects on the Strip, will provide easy access for pedestrians without requiring long walks into the Complex. Pedestrian visitors to the Aladdin entering from the Aladdin's 800 feet of Strip frontage will be able to enter the Hotel directly through the Casino or through the Desert Passage entrances. Through the use of a circular internal roadway, guests arriving by limousine, car service, taxi or private vehicle will be able to enter the Complex directly and easily from the Strip and Harmon Avenue. Furthermore, by the use of bridges and access ways, pedestrians will not be required to cross roadways while moving between different attractions on the Complex, thus facilitating ease of movement between the various parts of the Complex and the Strip. UNIQUE ENTERTAINMENT FACILITIES. The Aladdin is expected to benefit from the Casino traffic generated from the broad variety of entertainment facilities located throughout the Complex. The Aladdin will be adjacent to the existing Theater, which is expected to continue to be used to hold major concerts and theatrical performances and is one of the few venues of its size and type in Nevada. The Theater's approximately $8 million renovation is expected to transform it into a first-class venue and provide an additional source of visitor traffic to the Complex. The Aladdin will include a 1,400-seat showroom featuring a 1001 Arabian Nights-themed production show on its mezzanine level, with elegant, exotic costuming, music, lighting and choreography. In addition, the Desert Passage will be designed to engage the customer in a themed shopping, entertainment and dining experience. Of the approximately 522,000 square feet of retail space within the Desert Passage, it is anticipated that approximately 25% will be devoted to high pedestrian traffic generating food, beverage and entertainment experiences. Furthermore, the Music Project is expected to contain a 1,000-person nightclub featuring regular live performances. PRESTIGIOUS STRATEGIC PARTNERS. The Company and the Complex will benefit from important relationships with several prominent public companies, as follows: 3 - - LONDON CLUBS INVESTMENT. London Clubs, a prestigious multi-national casino operator, indirectly owns 25% of the outstanding common membership interests of Holdings ("Holdings Common Membership Interests"). London Clubs had an equity market capitalization of over $461 million on May 29, 1998. London Clubs has extensive experience in the international marketing of casinos to premium players and maintains a strong presence in the United Kingdom (where it controls the largest share of the London casino market), Europe, Asia and the Middle East. In addition to its 25% ownership of the outstanding Holdings Common Membership Interests, London Clubs, through LCNI, will direct the operations of, and act as marketing consultant to, the Salle Privee. The Company believes that the Salle Privee will be the first of its kind in the United States managed by a European operator and based on the European concept of full service gaming areas for premium players. The Salle Privee's primary business and marketing focus will be to access London Clubs' worldwide base of upscale casino clientele. - - JOINT VENTURE WITH PLANET HOLLYWOOD. Through a subsidiary, Planet Hollywood has agreed to be a 50% partner (on a fully diluted basis) in the Music Project. Planet Hollywood is a creator and worldwide developer of consumer brands, most notably "Planet Hollywood" and the "Official All Star Cafe," that capitalize on the universal appeal of the high energy environment of movies, sports and other entertainment-based themes. The Company believes that the exposure generated by the Music Project will enhance the Aladdin by providing immediate excitement and press coverage for the Complex. Planet Hollywood had an equity market capitalization of over $824 million on May 29, 1998. - - STRATEGIC RELATIONSHIP WITH TRIZECHAHN. The Mall Project will be owned, developed and operated by Bazaar, a joint venture between Bazaar Holdings and THB, a subsidiary of TrizecHahn. TrizecHahn is a wholly-owned subsidiary of TrizecHahn Corporation, one of the largest publicly traded real estate companies in North America. TrizecHahn Corporation had an equity market capitalization of over $3.1 billion on May 29, 1998. TrizecHahn was the developer of Horton Plaza in San Diego, Bridgewater Commons in New Jersey, Valley Fair in San Jose and Park Meadows in Denver. Investors should note that TrizecHahn has announced that it is considering selling its operating portfolio of regional shopping centers and on April 6, 1998 announced the sale of 20 regional shopping centers for over $2.5 billion. See "Risk Factors--Completion of the Mall Project and the Music Project." While TrizecHahn's announcement is limited to the sale of its current operating portfolio of regional shopping centers, there can be no assurance that TrizecHahn will not similarly decide to sell its interest in the Desert Passage. Accordingly, investors cannot be assured that TrizecHahn will own and operate the Desert Passage once it becomes operational, and as a result, pedestrian traffic to the Aladdin may decrease. STRATEGY The Company's business and marketing strategies are expected to capitalize on the Complex's premier location, its superior designed, mixed-use themed development and strong strategic partnering with highly successful public companies. CREATE A "MUST-SEE" DESTINATION. The Company believes that the Aladdin, with its unique design, together with the Desert Passage and the Music Project will ensure its place as a "must-see" destination in one of the fastest growing entertainment cities in the world. The Aladdin theme will be supported by a sophisticated interior design enhancing the fantasy of a mystical and romantic time and place. The Aladdin's main Casino traffic will be driven not only by Hotel guests, but also by the customers directly attracted from the Strip. Visitor traffic to the Aladdin will also be enhanced by the Desert Passage and the adjoining Music Project. TARGETED MARKET POSITIONING. The Company intends to focus on three different market segments to attract customers to the Aladdin: - - UPSCALE CLIENTELE. The Hotel will be designed to appeal to an upscale clientele, providing the amenities and level of service such high-end guests expect. Each of the Hotel's approximately 2,600 guest rooms 4 will have an area of not less than 450 square feet--exceeding that of the average Las Vegas hotel room of approximately 360 to 400 square feet--and 24% of the Hotel's guest rooms will have an area exceeding 620 square feet. The Hotel's room inventory for the upscale market is expected to include 624 "king parlors" and suites, ranging from 585 to 1,162 square feet. The Hotel will provide extensive recreational facilities and amenities for its guests, including a 20,000 square foot health spa with steam, sauna and massage services and an outdoor swimming-pool complex surrounded by gardens and fountains. The Company intends to promote the Aladdin's many features to the upscale market through a variety of media, including high-end print publications, travel agents and events sponsorships. A targeted-relationship marketing program is expected to ensure clientele retention and repeat visitation. - - INTERNATIONAL PREMIUM PLAYER CLIENTELE. The focus of the Salle Privee's business will be the wealthy clientele that form the core of London Clubs' business in London and elsewhere. The Hotel will include 30 suites primarily for use by Salle Privee clientele, including 25 "Salle Privee suites" (ranging from 815 to 930 square feet) and five "mega-suites" (ranging from 2,125 to 3,500 square feet). The Company will maintain the Salle Privee's premium player atmosphere through more sophisticated dining options, higher table limits and more formal levels of service and dress. - - UPPER-MIDDLE MARKET CLIENTELE. The Hotel's variety of guest rooms, six of its seven restaurants and the 1,400-seat production showroom, combined with the heavily themed Casino, Theater and Desert Passage, are expected to appeal broadly to the upper-middle market guest. Additionally, cooperative advertising and promotion through various media, such as television, radio and print, will be used to promote the Complex to the upper-middle market. Furthermore, the Music Project is expected to attract younger, affluent customers to the Complex through, among other things, its music and entertainment-based theme. LEVERAGE FROM STRATEGIC RELATIONSHIPS. The Company and its affiliates have chosen as strategic partners an experienced team of retail, casino and themed entertainment developers and operators. The Company intends to utilize the unique expertise of its partners from the preliminary development stages of the Complex through its promotion and operation. - - DEVELOPMENT EXPERTISE. In establishing a strategic relationship with TrizecHahn, the Company has obtained the knowledge, skills and capital of a partner who has expertise in the coordination, construction and completion in a timely manner of large, high quality projects. - - MANAGEMENT AND OPERATING ABILITIES. The Complex is expected to benefit from the experience of TrizecHahn, London Clubs and Planet Hollywood in its operations. Through its management and ownership of shopping centers, TrizecHahn has demonstrated its ability to successfully design, configure and attract high quality tenants to its retail shopping projects. London Clubs has extensive experience in the international marketing and operation of casinos, in particular to premium players. In addition, Planet Hollywood has successfully grown its concepts to 87 company-owned and franchised Planet Hollywood and Official All Star Cafe units (as of December 31, 1997) since commencing business in 1991. - - CAPITALIZING ON BRAND NAMES. With access to some of the most well-known names in their respective markets, the Company expects to capitalize on the worldwide brand recognition of Planet Hollywood, London Clubs and TrizecHahn, creating unique opportunities for the Complex. - - ACCESSING NEW CLIENT BASE. London Clubs and Planet Hollywood are expected to provide the Complex with access to market segments which the Company believes have not been extensively penetrated by other hotel/casinos in Las Vegas. London Clubs provides the Aladdin with a substantial network of international premium players and superb promotional opportunities. Furthermore, it is expected that Planet Hollywood will introduce a younger, affluent clientele to the Complex through, among other things, celebrity involvement in the Music Project. 5 CAREFULLY MANAGE CONSTRUCTION COSTS AND RISKS. The Company anticipates the total cost of developing, financing, constructing and opening the Aladdin to be approximately $790 million (excluding the Company's $21.3 million planned indirect cash contribution and $15.0 million appraised fair market value land contribution to Aladdin Music as part of the development funds for the Music Project). As part of the Company's strategy of carefully managing construction costs and risks, the Company has hired Tishman Construction Corporation of Nevada ("Tishman"), to be the construction manager. Tishman is a subsidiary of Tishman Realty & Construction Co. Inc., a privately held company with extensive experience in building quality hotels and casinos. As construction manager, Tishman will advise with respect to scheduling, administration and reporting in connection with the construction activities of the Design/ Builder (as defined herein). In addition, the following arrangements have been made to ensure the full and timely completion of the Aladdin. - - BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY. The Trust, London Clubs and Bazaar Holdings have entered into a completion guaranty (the "Bank Completion Guaranty") for the benefit of the lenders under the Bank Credit Facility (the "Bank Lenders"), under which they have agreed to guarantee, among other things, the completion of the Aladdin. The Bank Completion Guaranty, is not subject to any maximum dollar limitations. The Trust, London Clubs and Bazaar Holdings have also entered into a limited completion guaranty for the benefit of the holders of the Notes (the "Noteholder Completion Guaranty"), under which they have guaranteed completion of the Aladdin, subject to certain important exceptions, limitations and qualifications. None of Holdings, the Issuer nor the holders of Warrants or Warrant Shares is a party to the Bank Completion Guaranty or the Noteholder Completion Guaranty. No financial information regarding the Trust is publicly available for the purpose of evaluating the Trust's creditworthiness and, accordingly, purchasers of Warrants or Warrant Shares should not rely upon the Trust's performance under the Bank Completion Guaranty of Noteholder Completion Guaranty when making their investment decision. See "Risk Factors--Limitations Under Bank Completion Guaranty and Noteholder Completion Guaranty," "Description of Noteholder Completion Guaranty and Disbursement Agreement--Noteholder Completion Guaranty" and "Description of Certain Indebtedness and Other Obligations--Completion Guaranty." - - DESIGN/BUILD CONTRACT. Fluor Daniel, Inc. (the "Design/Builder") is the design/builder for the Aladdin. The Design/Builder has entered into a guaranteed maximum price design/build contract (subject to increases based on scope changes) with the Company to design and construct the Aladdin (the "Design/Build Contract"). The Design/Build Contract provides the Design/Builder with incentives for completing the Aladdin ahead of schedule and within budget and for payment of liquidated damages to the Company for certain delays. The Design/Build Contract is guaranteed by Fluor Corporation ("Fluor"), the parent of the Design/Builder, pursuant to the Fluor Guaranty (as defined herein). See "Certain Material Agreements--Design/Build Contract." - - MALL FINANCING AND MALL GUARANTY. Bazaar has entered into a building loan agreement with Fleet National Bank ("Fleet," and together with any other lenders in a financing syndicate to be formed, the "Mall Lenders"), and Fleet as administrative agent for a credit facility to fund the construction of the Mall Project (the "Mall Financing"). Furthermore, TrizecHahn, TrizecHahn Office Properties, Inc. ("THOP"), an affiliate of TrizecHahn, the Trust, Bazaar Holdings and AHL have agreed to guarantee completion of the Mall Project and Bazaar's indebtedness to the Mall Lenders until certain earnings and loan to value targets have been met (collectively, the "Mall Guaranty"). Investors should note that TrizecHahn has announced that it is considering selling its operating portfolio of regional shopping centers and on April 6, 1998, announced the sale of 20 regional shopping centers for over $2.5 billion. While TrizecHahn's announcement is limited to the sale of its current operating portfolio of regional shopping centers, there can be no assurance that TrizecHahn will not similarly decide to sell its interest in the Desert Passage. Accordingly, investors cannot be assured that TrizecHahn will own and operate the Desert Passage once it becomes operational, and as a result, pedestrian traffic to 6 the Aladdin may decrease. See "Risk Factors--Completion of the Mall Project and the Music Project." MANAGEMENT AND DEVELOPMENT TEAM The Complex is being developed by a team with broad expertise in each of the elements of the Complex and which, collectively, have a proven track record in constructing, completing and operating significant hotel casino projects. MANAGEMENT TEAM. The management team of the Company, which will develop and operate the Aladdin and the Music Project, comprises a unique combination of executives with an average of more than 20 years' experience in the management of hotels, casinos, restaurants and large real estate projects. The team includes: - - Jack Sommer, Chairman of the Company, who has been a full-time resident of Las Vegas since 1988 and has more than 25 years of experience as a developer of real estate including luxury projects such as North Shore Towers, in Queens County, New York, The Sovereign at 425 East 58th Street in Manhattan and 280 Park Avenue, an 820,000 square foot office building in Manhattan formerly owned and currently partially occupied by the Bankers Trust Company. - - Richard J. Goeglein, Chief Executive Officer, President and a director of the Company who has spent over 28 years in the hotel/casino and food service industries. Mr. Goeglein has served as President and Chief Executive Officer of Harrah's Hotels and Casinos and as President and Chief Operating Officer of Holiday Corp. (the parent company of Holiday Inns, Harrah's, Hampton Inns and Embassy Suites). Mr. Goeglein oversaw the acquisition of Harrah's and the development of some of Harrah's most successful projects, including Harrah's Hotel and Casino in Atlantic City, and its expansion into Southern Nevada. - - James H. McKennon, Senior Vice President of the Company and President/Chief Operating Officer of the Aladdin Hotel and Casino, whose career spans over 21 years in the hotel and casino industry in a variety of executive positions, including as President and Chief Operating Officer of Caesars World International Marketing Corp. Mr. McKennon was also President and Chief Operating Officer of Caesars Tahoe for 4 years and was instrumental in its financial turnaround. - - Cornelius T. Klerk, Senior Vice President/Chief Financial Officer of the Company, has over 19 years experience in the hotel and casino industry both at the corporate and property level, including as Vice President/Finance of the Hilton Hotels Gaming Division from 1993 to 1997. Mr. Klerk also served in a variety of senior financial management positions during the development and operation of Harrah's Hotel and Casino in Atlantic City and Harrah's Trump Plaza (now Trump Plaza) in Atlantic City. DEVELOPMENT TEAM. The Company and its affiliates have been involved in the design of the Complex for over 24 months and have assembled a development team with proven experience in the development of high quality resort projects. The team includes: - - Tishman, the construction manager for the Aladdin. Tishman or its affiliates have developed or built over 30,000 hotel rooms nationwide, including the Golden Nugget and the Trump Castle Hotel and Casino in Atlantic City, the 400-room expansion of Harrah's Hotel and Casino in Atlantic City, the 2,300 room Walt Disney World Dolphin and Swan Hotel and Convention Complex and the 1,200 room Sheraton Chicago Hotel. - - The Design/Builder, a subsidiary of Fluor. The Design/Builder is recognized internationally as an industry leader in providing architectural, engineering and construction services, including resort projects such as the Guest Inn Timika in Indonesia, the Pan Pacific Hotel in Malaysia and the Hyatt Regency Greenville Hotel. - - ADP/FD of Nevada, Inc. ("ADP"), the Complex architect and an indirect subsidiary of Fluor. ADP is wholly owned by ADP Marshall, Inc. ("ADP Marshall"), which is well-known for its architecture work 7 and mixed-use projects. Its architecture client list includes Princess Hotels, Inc. (Scottsdale and Acapulco) and Carefree Resorts (The Boulders, The Peaks, Carmel Valley Ranch). - - THB, a wholly-owned subsidiary of TrizecHahn and the joint venture partner of ABH in the Mall Project. Prior to its recently announced sale of 20 regional shopping centers, TrizecHahn owned and managed 27 regional shopping centers in major markets throughout the United States, comprising over 25 million square feet. - - Brennan Beer Gorman Monk/Interiors ("BBGM"), the interior designer for the Aladdin. BBGM specializes in hospitality design and has experience in casinos, restaurants, retail, spa/fitness centers and specialty theme projects, including the recently renovated and expanded Caesars Atlantic City hotel, Mohegan Sun Casino and TropWorld. BBGM's hotel projects have included the St. Regis, the Plaza and the Sheraton Hotel & Towers in New York City. 8 [LOGO] 9 USE OF PROCEEDS No proceeds will be received by the Issuer from the registration or sale of the Warrants or the Warrant Shares pursuant to the Registration Statement. The gross proceeds from the sale of the Units were $115.0 million. The net proceeds (net of discounts for Initial Purchasers (as defined herein) and estimated Offering expenses) together with the proceeds from the other Funding Transactions are being used to develop, construct, equip and open the Aladdin and to fund the Company's cash contribution to Aladdin Music with respect to the Music Project. Upon or prior to consummation of the Offering, (i) the proceeds from the sale of the Units were allocated between the Notes and the Warrants, (ii) Sommer Enterprises (a) contributed a portion of the Contributed Land (as defined herein) and $7.0 million consisting of the benefit of certain predevelopment costs incurred by AHL to the Issuer in exchange for Class A Common Stock in the Issuer and (b) contributed a portion of the Contributed Land to Holdings in exchange for Holdings Common Membership Interests, (iii) the Issuer contributed the portion of the Contributed Land, the benefit of the predevelopment costs received from Sommer Enterprises and the net proceeds allocable from the sale of the Warrants to Holdings in exchange for Holdings Common Membership Interests, (iv) Holdings contributed the Contributed Land appraised at $150.0 million, approximately $42 million in cash from the London Clubs Contribution (as defined herein) and the $7.0 million consisting of the benefit of certain predevelopment costs incurred by AHL to the Company in exchange for Common Membership Interests of the Company, and (v) Holdings contributed $115.0 million in cash, consisting of the net proceeds of the sale of the Units and approximately $8 million from the London Clubs Contribution, to the Company in exchange for Series A Preferred Interests of the Company ((iv) and (v) collectively, the "Equity and Series A Preferred Interest Financing"). The London Clubs Contribution, together with a portion of the net proceeds of the Offering, were expended on the Issue Date (as defined herein) to repay certain existing indebtedness assumed by the Company in connection with the Sommer Equity Financing (as defined herein) and to pay certain accrued expenses and certain fees and expenses incurred in connection with the Funding Transactions. The remaining net proceeds from the Offering (approximately $35 million) were deposited in a segregated escrow account ("the Note Construction Disbursement Account") which was pledged as collateral for the benefit of the holders of the Notes, pending disbursement of such funds pursuant to the Disbursement Agreement (as defined herein). The liquidation preference of the Series A Preferred Interests held by Holdings will at all times equal the Accreted Value (as defined herein) of the Notes. Prior to or contemporaneously with the Offering, the following other arrangements (together with the Offering, the "Funding Transactions") for the financing by the Company of the Aladdin were consummated: (i) the Sommer Equity Financing and the indirect equity contribution to Holdings by London Clubs of $50.0 million in cash (the "London Clubs Contribution") in exchange for Holdings Common Membership Interests; (ii) the closing of the $410.0 million Bank Credit Facility between the Company and the funding of the Term B Loan (as defined herein) and the Term C Loan (as defined herein) thereunder into the Cash Collateral Account (as defined herein) and (iii) execution and delivery of a commitment letter by the Company for one or more leases or loans in the aggregate amount of $80.0 million, covering the Specified Equipment and the Gaming Equipment (each as defined herein), to be used in the Aladdin (the "FF&E Financing"). See "Controlling Stockholders--Equity and Series A Preferred Interest Financing," "Description of Certain Indebtedness and Other Obligations--Bank Credit Facility" and "--FF&E Financing." 10 SOURCES AND USES OF FUNDS The estimated sources and uses of funds raised for the development, construction, equipping and opening of the Aladdin are as follows (in millions):
SOURCES USES - --------------------------------------------------------- --------------------------------------------------------- Bank Credit Facility(1)....................... $ 410.0 Hotel and Casino(7)........................... $ 295.6 FF&E Financing(2)............................. 80.0 Off-Site Improvements(8)...................... 6.8 Senior Discount Notes due 2010(3)............. 115.0 Reimbursable Site Work Expenses(6)............ 14.2 Land Contribution(4).......................... 150.0 Furniture, Fixtures and Equipment and Cash Contribution(5).......................... 57.0 Gaming Equipment(9)........................... 107.5 Anticipated Site Work Land(10)...................................... 135.0 Reimbursement(6)............................ 14.2 Retire Existing Debt(11)...................... 74.5 Capitalized Interest, Net(12)................. 44.0 Pre-Opening Costs and Expenses................ 16.9 Reimbursement of Pre-development Costs(13).... 3.9 Working Capital(14)........................... 15.0 Construction and FF&E Contingency(15)......... 31.8 Land Investment in Music Project(16).......... 15.0 Cash Equity Investment in Music Project(17)... 21.3 Financing Fees and Expenses(18)............... 44.7 --------- --------- Total Sources................................. $ 826.2 Total Uses.................................... $ 826.2 --------- --------- --------- ---------
- ------------------------ (1) The Company entered into the Bank Credit Facility with the Bank Lenders. The Bank Credit Facility, which closed concurrently with the closing of the Offering, consists of: (a) a term loan of $136.0 million ("Term A Loan") which matures seven years after the initial borrowing date; (b) a term loan of $114.0 million ("Term B Loan") which matures eight and one-half years after the initial borrowing date; and (c) a term loan of $160.0 million ("Term C Loan", and collectively with the Term A Loan and the Term B Loan, the "Loans") which matures ten years after the initial borrowing date. The Term B Loan and Term C Loan were funded into the Cash Collateral Account on the Issue Date, and subject to satisfaction of the conditions in the Disbursement Agreement, are expected to be drawn down beginning in June 1998 (being approximately four months after the Issue Date). It is anticipated that the Company will begin to draw down the Term A Loan, subject to satisfaction of the conditions in the Disbursement Agreement, in December 1999 (being approximately 21 months after the Issue Date). See "Risk Factors--Conditions to Draw Down of Funds Under Funding Transactions." All of the Loans will convert from construction loans into amortizing loans on the Conversion Date (as defined herein), with substantial amounts due during the final six quarters of the Term B Loan and the Term C Loan. The Company has the option to pay interest at either LIBOR or the alternate base rate ("ABR") published by The Bank of Nova Scotia ("Scotiabank"), in each case plus certain margins. See "Description of Certain Indebtedness and Other Obligations--Bank Credit Facility." (2) The Company has entered into a commitment letter with the FF&E Lender (as defined herein) for provision of the FF&E Financing. The FF&E Financing is expected to consist of $60.0 million of operating leases and $20.0 million in loans and is expected to be used by the Company to obtain the Gaming Equipment and Specified Equipment. See "Description of Certain Indebtedness and Other Obligations--FF&E Financing." (3) Represents the gross proceeds of the Offering, which, net of expenses of approximately $8 million, were contributed, together with approximately $8 million in cash received pursuant to the London Clubs Contribution, by Holdings to the Company in exchange for Series A Preferred Interests. (4) The land on which the Aladdin, the Music Project and the Plant (as defined herein) will be built, including adjacent land of approximately 0.8 acres, comprises a total of approximately 22.75 acres (the "Contributed Land") and was contributed to the Company by Holdings in exchange for Common Membership Interests. The Contributed Land has an appraised fair market value of $150.0 million (book value of $33.6 million as of December 31, 1997). Approximately 18 acres of the Contributed Land, having an appraised fair market value of $135.0 million, have been retained by the Company 11 and approximately 4.75 acres of the Contributed Land, having an appraised fair market value of $15.0 million, will be contributed to Aladdin Music for the Music Project. (5) Represents (i) a $50.0 million cash contribution by London Clubs in exchange for 25% of the Holdings Common Membership Interests and (ii) a $7.0 million deemed equity contribution by the Issuer in exchange for Holdings Common Membership Interests, consisting of certain pre-development costs incurred by AHL in 1996, 1997 and 1998. (6) Pursuant to the Site Work Agreement, the Company has agreed to complete the construction of, among other things, certain shared structural space (the "Mall Shared Space"), construction of which will commence prior to the initial funding of the Mall Financing. Bazaar has agreed to reimburse the Company for up to $14.2 million (including interest) of the costs associated with such construction upon the completion of the Mall Shared Space. See "Certain Material Agreements--Construction, Operation and Reciprocal Easement Agreement and Related Agreements." (7) Represents (i) the guaranteed maximum price of construction of the Aladdin pursuant to the Design/ Build Contract of $267.0 million, less the contingency allowance of $6.8 million and expected reimbursement from Bazaar of $13.6 million (net of approximately $0.6 million of interest) as set forth in note (6) above; (ii) approximately $35 million for theming the Aladdin; (iii) $11.7 million for professional fees and disbursements; and (iv) $2.3 million for permits and taxes. See "Risk Factors-- Completion of the Mall Project and the Music Project." The Design/Build Contract contains financial incentives for the Design/Builder to complete the Aladdin within the construction budget and in a timely manner, as well as liquidated damages payable to the Company for certain unexcused delays. See "Risk Factors--Risks of New Construction," "--Risks Under Design/Build Contract and Fluor Guaranty" and "Certain Material Agreements--Design/Build Contract." (8) Represents the cost of off-site improvements, including overhead pedestrian walkways and widening of certain streets, for those parts of the Project Site (as defined herein) on which the Aladdin will be built. (9) Includes $26.5 million of gaming equipment and $81.0 million of furniture, fixtures and other equipment (including the Specified Equipment consisting of new furniture and equipment other than gaming equipment). (10) Represents the appraised fair market value of the land on which the Aladdin and the Plant will be built, together with adjacent land of approximately 0.8 acres. (11) Represents the retirement on the Issue Date of $68.7 million of existing indebtedness on the Contributed Land (with an interest rate of LIBOR plus 650 bps) and $5.8 million of existing debt owed by the Trust to GW Vegas LLC ("GW Vegas"), assumed by the Company as part of Holdings' equity contribution to the Company. (12) Represents capitalized gross interest under the Bank Credit Facility of $57.4 million and capitalized gross interest of $2.4 million from leasing expenses in connection with the FF&E Financing, from the date of the Offering until the estimated completion of the Aladdin in the first four months of the year 2000, net of interest income anticipated to be earned upon the investment in cash equivalents of the funds (assumed to be at 5% per annum) from the proceeds of the Offering and the proceeds of the Term B Loan and Term C Loan. (13) Represents $3.0 million of certain predevelopment costs incurred by AHL and reimbursed on the Issue Date and up to $0.9 million of certain predevelopment costs expected to be incurred and reimbursed over the expected construction period. (14) Represents cash on hand, inventories, deposits and other cash balances required for the opening of the Aladdin. (15) Comprises (i) the $6.8 million contingency included in the guaranteed maximum price set forth in the Design/Build Contract and (ii) the $25.0 million general project contingency (collectively, the "Contingency"). (16) Represents the appraised fair market value of the approximately 4.75 acres of land on which the Music Project will be built, which land will be contributed by the Company to AMH in exchange for common membership interests in AMH. (17) Represents cash to be contributed by the Company to AMH in exchange for common membership interests in AMH. (18) Represents fees in connection with the organization of the Company and the financing of the Aladdin, including approximately $8 million in expenses incurred in connection with the Offering. 12 THE WARRANTS AND WARRANT SHARES The Warrants were originally issued by the Issuer in the Offering, pursuant to which 221,500 Units were issued and sold. Each Unit consists of $1,000 principal amount of Notes and 10 Warrants. The Notes and the Warrants will be separately transferable, in accordance with the Indenture (as defined herein), upon the filing of the Registration Statement at the option of the holders thereof. The Registration Statement applies solely to the Warrants and the Warrant Shares. The registration of the Warrants and the Warrant Shares is intended to satisfy certain obligations of the Issuer under a registration rights agreement with respect to the Warrants (the "Warrant Registration Rights Agreement") among the Issuer and Merrill Lynch, Pierce, Fenner and Smith Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer Corp. and Scotia Capital Markets (USA) Inc. (the "Initial Purchasers"), dated the Issue Date. There will be no proceeds to the Issuer from the registration or subsequent sale of the Warrants or Warrant Shares. Issuer....................... Aladdin Gaming Enterprises, Inc. Number of Warrants........... The Warrants entitle the holders thereof to acquire an aggregate of 2,215,000 shares of Common Stock of the Issuer (40% of the economic interest in the Issuer) representing an indirect interest in 10% of the outstanding Holdings Common Membership Interests on a fully-diluted basis after giving effect to such issuance. Exercisability; Expiration... The Warrants are exercisable at any time on or after the Separation Date (as defined herein) and prior to March 1, 2010. Exercise Price............... Each Warrant entitles the holder thereof to purchase one share of Common Stock of the Issuer at an exercise price of $0.001 per share, subject to adjustment. Anti-Dilution Provisions..... The Warrants have customary anti-dilution provisions. Such anti-dilution provisions are also reflected in the documents pertaining to the Holdings Common Membership Interests. Warrant Shares............... The Warrants entitle the holders thereof to acquire non-voting Common Stock of the Issuer. Shares of Common Stock of the Issuer or any successor entity and any other securities or property issuable or deliverable upon exercise of the Warrants are collectively referred to herein as the "Warrant Shares." The Issuer is a corporation, the sole material asset of which is 25% of the outstanding Holdings Common Membership Interests. The Warrants represent an effective 10% interest in the outstanding Holdings Common Membership Interests, on a fully-diluted basis after giving effect to such issuance, and the Trust (through Sommer Enterprises) owns interests which represent an effective 58.5% interest in the outstanding Holdings Common Membership Interests on a fully-diluted basis, (44.5% held by a direct ownership and 14.0% held by an indirect equity ownership through the Issuer). Equity Participation The Issuer, the Warrant Agent for and on behalf of the Agreement.................. holders of the Warrants and Warrant Shares, the Trust, London Clubs and Holdings have entered into the Equity Participation Agreement (as defined herein) which provides (among other things) (a) for the grant of certain "tag-along" rights to the holders of Warrant Shares in respect of sales by Sommer Enterprises or LCNI, directly or indirectly, of Holdings Common Membership Interests; (b) for rights of holders of the Warrant Shares to participate in an initial public offering on the same terms and conditions as LCNI and Sommer Enterprises and (c) that the Warrant holders will have the right to convert their Warrant Shares into Common Membership Interests in the Company in the event that the Issuer takes certain actions, including certain mergers
13 or consolidations, disposition of all or substantially all of the Issuer's assets, transfers of the Issuer's Holdings Common Membership Interests, certain recapitalizations of the Issuer, voluntary dissolution or liquidation of the Issuer, repurchases of the Issuer's stock which is not pro-rata among the stockholders, and certain issuances of the Issuer's stock. See "Certain Material Agreements--Equity Participation Agreement." Tag Along.................... The Equity Participation Agreement provides, among other things, that upon certain sales by Sommer Enterprises or LCNI of Holdings Common Membership Interests, the holders of Warrant Shares will be permitted to sell a pro rata share of their Warrant Shares on the same terms and conditions as the sale by Sommer Enterprises, LCNI or Holdings, as the case may be. Holdings Common Membership Interests.................. The Holdings Operating Agreement (as defined herein) contains provisions mirroring the "tag-along" rights set forth in the Equity Participation Agreement and the anti-dilution provisions set forth in the Warrant Agreement. Holders of Warrant Shares do not have any voting rights through the Issuer's ownership of Holdings Common Membership Interests. Upon a default under the Keep-Well Agreement (as defined herein) a resulting decrease or increase in the percentage interest in Holdings indirectly held by the Trust or London Clubs will not affect the percentage of Holdings Common Membership Interests held by the Issuer. Qualified Public Offering.... A Qualified Public Offering is a public offering of common stock registered under the Securities Act and resulting in proceeds of at least $50.0 million. The Issuer, Holdings or another entity which controls the Company (each, an "IPO Entity") may effect a public offering of common stock registered under the Securities Act so long as prior to such public offering, London Clubs, the Trust, or the beneficiaries of the Trust (whether current or contingent) as of the date hereof which control AHL or Sommer Enterprises, and holders of the Warrants and Warrant Shares each hold, directly or indirectly, their respective equity interests in the IPO Entity. London Clubs, the Trust, or the beneficiaries of the Trust (whether current or contingent) as of the date hereof which control AHL or Sommer Enterprises, and the IPO Entity will use their reasonable best efforts to effect such public offering such that holders of the Warrants and Warrant Shares will not recognize income gain or loss for federal income tax purposes (other than as a result of a sale of their Warrant Shares in such public offering) and holders of the Warrants and the Warrant Shares will be subject to federal income tax in the same manner and at the same times as would have been the case if the Warrants were originally issued by the IPO Entity.
For additional information regarding the Warrants and Warrant Shares see "Description of the Warrants," "Description of Capital Stock" and "Certain United States Federal Income Tax Considerations." 14 RISK FACTORS PROSPECTIVE INVESTORS ARE STRONGLY CAUTIONED THAT AN INVESTMENT IN THE WARRANTS AND THE WARRANT SHARES INVOLVES A HIGH DEGREE OF RISK. THE ABILITY OF THE ALADDIN PARTIES TO CAUSE THE COMPLETION OF AND TO SUCCESSFULLY OPERATE THE ALADDIN IS SUBJECT TO AN UNUSUAL NUMBER OF MATERIAL RISKS AND UNCERTAINTIES. THE CONTINGENCIES AND OTHER RISKS DISCUSSED BELOW COULD AFFECT THE ALADDIN PARTIES IN WAYS NOT PRESENTLY ANTICIPATED AND THEREBY MATERIALLY AFFECT THE VALUE OF THE SECURITIES OFFERED HEREBY. A CAREFUL REVIEW AND UNDERSTANDING OF EACH OF THE RISK FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, IS ESSENTIAL FOR AN INVESTOR SEEKING TO MAKE AN INFORMED INVESTMENT DECISION WITH RESPECT TO THE WARRANTS AND THE WARRANT SHARES. SUBSTANTIAL LEVERAGE The Issuer's sole material asset is its interest in the Holdings Group, which has substantial leverage and so could experience difficulties servicing its indebtedness. The Issuer does not have any material assets other than its ownership of 25% of the Holdings Common Membership Interests. Holdings does not and may not in the future have any material assets other than its ownership of 100% of the Common Membership Interests in the Company and its ownership of 100% of the Series A Preferred Interests in the Company, and does not and may not in the future have any material operations or revenues (other than income derived from its interest in the Company). Accordingly, the ability of the Holdings Group to pay principal, interest, premium, if any, or any other payment obligations on its indebtedness will be completely dependent on the operations of the Company. The Holdings Group is, and upon completion of the Aladdin will be, highly leveraged with substantial fixed debt service obligations in addition to operating expenses, and is expected upon completion of the Aladdin to have approximately $583 million of outstanding indebtedness, including $410.0 million outstanding under the Bank Credit Facility, approximately $153 million outstanding under the Notes (representing the approximate Accreted Value (as defined in the Indenture) thereof on April 30, 2000) and an aggregate of $20.0 million outstanding under the loan portion of the FF&E Financing. Such indebtedness is expected to represent 95% of the total capitalization of the Holdings Group as of the opening of the Aladdin and require annual debt service payments ranging from $58.9 million to $91.6 million, depending on the year. Of such aggregate indebtedness, approximately $430 million will be indebtedness of the Company and not Holdings. The FF&E Financing will also consist of $60 million of operating leases. The Company will be required to pay $13.6 million in minimum lease payments annually under the lease portion of the FF&E Financing. Upon the opening of the Aladdin, the Company is expected to have an aggregate of $10 million available under a working capital facility. In addition, the Indenture allows the Company to incur additional indebtedness under certain circumstances. See "Description of Certain Indebtedness and Other Obligations--Senior Discount Notes." The degree to which the Holdings Group is leveraged could have important consequences to the holders of the Warrants and Warrant Shares, including, but not limited to, the following: (i) increasing the Holdings Group's vulnerability to adverse general economic and industry conditions; (ii) affecting the proportion of the Holdings Group's operating cash flow required to pay principal, interest and other amounts on indebtedness, thereby reducing the funds available for operations and dividends or distributions to equity holders; and (iii) impairing the Holdings Group's ability to obtain additional financing for future working capital expenditures, acquisitions or other general corporate purposes. INABILITY TO REPAY DEBT The Holdings Group will be entirely dependent on the operations of the Aladdin in order to repay its debt. Pending the opening of the Aladdin, which is expected to occur in the first four months of the year 2000, it is currently anticipated that the Company will have no operations other than activities in connection with the development of the Aladdin. The ability of the Holdings Group to pay principal, interest and other amounts payable under its various debt facilities will be dependent upon the successful completion of the Aladdin and the Company's future operating performance which is dependent upon a 15 number of factors, many of which are outside the Holdings Group's control, including the successful completion of the Mall Project, prevailing economic conditions and financial, business, regulatory and other factors affecting the Company's operations. If the Company is unable to complete the Aladdin within its construction budget or, once operating, is unable to generate sufficient cash flow, it could be required to adopt one or more alternatives, such as obtaining additional financing to the extent permitted by the Indenture and the Bank Credit Facility, reducing or delaying planned construction or capital expenditures, restructuring debt or obtaining additional equity capital. There can be no assurance that any of these alternatives could be effected on satisfactory terms, and the inability to acquire additional financing could materially and adversely affect the Holdings Group and the Issuer and so the value of the Warrants and the Warrant Shares. Additionally, there can be no assurance that the Aladdin will be able to attract a sufficient number of patrons to achieve the level of activity necessary to permit the Holdings Group to meet its payment obligations in connection with the Funding Transactions and any other indebtedness or obligations of the Holdings Group. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Description of Certain Indebtedness and Other Obligations." CONDITIONS TO DRAW DOWN OF FUNDS UNDER FUNDING TRANSACTIONS There are significant conditions to the draw down of funds under the terms of the various Funding Transactions. The aggregate amount of financing subject to conditions was $496 million as of May 29, 1998, comprising $410 million under the Bank Credit Facility, $6 million from the proceeds of the Offering and $80 million under the FF&E Financing. Failure by the Company to meet any of these conditions could have a material adverse effect on its ability to complete the Aladdin. Financing for the construction and development of the Aladdin and of the other components of the Complex has been provided by multiple parties, including, with respect to the Aladdin, the holders of the Notes, the Bank Lenders and the FF&E Lender, and with respect to the Mall Project, the Mall Lenders. Concurrent with the closing of the Offering, the Company and Holdings entered into the Disbursement Agreement with the Trustee (for the benefit of the holders of the Notes) and Scotiabank, as Administrative Agent under the Bank Credit Facility, Disbursement Agent on behalf of the Bank Lenders and the holders of the Notes, and as securities intermediary (the "Securities Intermediary") and U.S. Bank National Association as servicing agent (the "Servicing Agent"). Pursuant to the Disbursement Agreement, the proceeds from the Offering of the Notes that were not expended on the Issue Date (being approximately $35 million) were deposited in the Note Construction Disbursement Account, which was pledged to the Disbursement Agent for the benefit of the holders of the Notes. Disbursements from the Note Construction Disbursement Account are subject to the conditions established in the Disbursement Agreement. On the Issue Date, the proceeds of the Term B Loan and Term C Loan were deposited in the Cash Collateral Account, which was pledged to the Disbursement Agent for the benefit of the Bank Lenders. Disbursements from the Cash Collateral Account and advances of the Term A Loan are also subject to conditions established in the Disbursement Agreement. The significant conditions on the Bank Lenders' obligations to fund or provide advances, include, among other things, (i) that all of the proceeds of the Offering have been disbursed, (ii) the absence of any material adverse change in the financial condition, business, property or prospects and the ability of the Company and the Project Parties (as defined herein) to perform in all material respects their respective obligations under the Operative Documents (as defined herein) to which they are a party, (iii) the absence of any default or an event of default with respect to material Operative Documents which would be reasonably likely to cause a material adverse effect on the financial condition, business, property or prospects of the Company or to the Company's knowledge, of the Project Parties and their ability to perform in all material respects their respective obligations under the Operative Documents to which they are a party, (iv) there being no failure on the part of the Company to keep the Bank Credit Facility In Balance (as defined herein), and (v) compliance by the Guarantors (as 16 defined herein) under the Bank Completion Guaranty and London Clubs and AHL, as Sponsors (as defined herein), under the Keep-Well Agreement. See "Description of the Noteholder Completion Guaranty and Disbursement Agreement--Disbursement Agreement." The Company does not expect to draw down any funds under the Bank Credit Facility until June 1998 (approximately four months after the Issue Date). If the Company fails to satisfy the conditions to the draw down of funds under the Bank Credit Facility, alternative sources of funding will need to be obtained and/ or the Trust, Bazaar Holdings and London Clubs will be required to make cash contributions to the Company pursuant to the Bank Completion Guaranty in order for the Company to complete the Aladdin. The failure of the Company to satisfy the conditions to the drawdown of funds under the Bank Credit Facility could have a material and adverse effect on the Company's ability to complete the Aladdin and so the value of the Warrants and Warrant Shares. General Electric Capital Corporation (the "FF&E Lender") has entered into a commitment letter to provide the $80.0 million of aggregate financing required to acquire the Specified Equipment and Gaming Equipment. The availability of the FF&E Financing is subject to certain conditions, including negotiation of definitive agreements and successful completion of due diligence. Prior to or upon completion of the Aladdin, the Company is expected to finalize arrangements for the FF&E Financing. However, if the Company is unable to finalize the FF&E Financing for any reason, the financial position and results of operations of the Company, and so the Aladdin Parties and holders of Warrants or Warrant Shares, could be materially and adversely affected. There can be no assurance that each lender will perform its obligations or observe the limitations on the exercise of remedies as set forth under such agreements. Failure of any one or more of the lenders to perform under the Disbursement Agreement could materially and adversely affect the Company, the Aladdin Parties and holders of Warrants or Warrant Shares. In addition, financing by multiple lenders with security interests that are interrelated by use or location of the underlying collateral may result in increased complexity in a debt restructuring or other workout of the Company. LIMITATION ON ACCESS TO CASH FLOW OF SUBSIDIARIES; HOLDING COMPANY STRUCTURE The Bank Credit Facility and the Indenture impose substantial restrictions on the ability of the Company and Holdings, respectively, to make distributions to their equity holders. Accordingly, holders of Warrant Shares are limited in their ability to receive dividends and other distributions from Enterprises. The Issuer does not have any material assets other than its ownership of 25% of the Holdings Common Membership Interests. Holdings is a holding company, and its ability to make distributions to the Issuer is dependent upon the receipt of distributions from its direct and indirect subsidiaries. Holdings does not have and may not in the future have any material assets other than its ownership of 100% of the Common Membership Interests and 100% of the Series A Preferred Interests of the Company. The Company is a party to the Bank Credit Facility which imposes substantial restrictions, including the satisfaction of certain financial conditions, on the Company's ability to make distributions to Holdings. Holdings is a party to the Indenture which imposes substantial restrictions, including the satisfaction of certain financial covenants, on Holdings' ability to make distributions to the Issuer. The ability of the Company to comply with such conditions in the Bank Credit Facility and of Holdings to comply with such conditions in the Indenture may be affected by events that are beyond the control of Holdings. If the maturity of loans under the Bank Credit Facility or the Notes were to be accelerated, all indebtedness outstanding thereunder would be required to be paid in full before the Company or Holdings, as applicable, would be permitted to distribute any assets or cash to its members. In addition, certain remedies available to the Bank Lenders under the Bank Credit Facility could constitute Events of Default under the Indenture and so cause acceleration of the Notes. In such circumstances there can be no assurance that the assets of the Company would be sufficient to repay all of such outstanding debt and then to make distributions to Holdings to enable Holdings to meet its obligations under the Indenture. Future 17 borrowings by the Company can also be expected to contain restrictions or prohibitions on distributions by the Company to Holdings and by Holdings to the Issuer. The Holdings Operating Agreement and the Company Operating Agreement (as defined herein) also contain restrictions on distributions on the Holdings Common Membership Interests and the Common Membership Interests, respectively. In particular, no distributions, other than distributions to cover any tax liability in respect of any Holdings Interests (as defined herein) may be made on Holdings Common Membership Interests while any Holdings Series A Preferred Interests (as defined herein) or Holdings Series B Preferred Interests (as defined herein) are outstanding. Further, distributions by the Company (other than distributions to cover tax liability) on Common Membership Interests are also limited while Series A Preferred Interests are outstanding. Such restrictions could materially and adversely affect holders of Holdings Common Membership Interests such as the Issuer, and holders of Common Stock (such as the Warrant Shares) and the Warrants. In addition, the Indenture contains limitations on Holdings' ability to make distributions to its members. As a result, the amount of distributions made to the Issuer, and therefore dividends to the holders of Warrant Shares and other stockholders, will effectively be restricted by the terms of the Indenture. Such restrictions could materially and adversely affect returns available to holders of Warrant Shares and so the value of the Warrants and Warrant Shares. Any right of Holdings to receive assets of any of its subsidiaries upon such subsidiary's liquidation or reorganization will be effectively subordinated to the claims of that subsidiary's creditors, except to the extent, if any, that Holdings itself is recognized as a creditor of such subsidiary, in which case the claims of Holdings would still be subordinate to the claims of such creditors who hold security in the assets of such subsidiary to the extent of such assets and to the claims of such creditors who hold indebtedness of such subsidiary senior to that held by Holdings. CONTROLLING STOCKHOLDERS; LACK OF VOTING POWER FOR WARRANT SHARES The Warrant Shares will have no voting power, and accordingly decisions in relation to Enterprises will be made by its other shareholders. AHL owns 98.7% of the common membership interests of Sommer Enterprises, a Nevada limited-liability company. Sommer Enterprises owns 100% of the issued and outstanding Class A Common Stock (as defined herein) and the Common Stock of the Issuer, prior to the exercise of the Warrants, and the Issuer holds 25% of the Holdings Common Membership Interests. The remaining Holdings Common Membership Interests are held approximately 47.0% by Sommer Enterprises, 25.0% by LCNI and 3.0% by GAI, LLC ("GAI"), a Nevada limited-liability company 100% beneficially owned by Richard J. Goeglein, the Chief Executive Officer and a director of the Company. Accordingly, AHL, through Sommer Enterprises, indirectly owns 98.7% of the Issuer (prior to the exercise of the Warrants) and approximately 71.1% of the Holdings Common Membership Interests. London Clubs, through LCNI, owns 25% of the Holdings Common Membership Interests. Accordingly, AHL and London Clubs (the "Controlling Stockholders") control the business, policies and affairs of Holdings, and so the Company, including the election of directors and managers and major corporate transactions of the Company. If all of the Warrants are exercised, the holders of Warrant Shares will own 50% of the issued and outstanding Common Stock, representing an indirect economic interest in 10% of the outstanding Holdings Common Membership Interests. However, the holders of the Common Stock are not entitled to vote on any matter submitted to the Issuer's shareholders, including the election of directors of the Issuer, and will receive limited minority shareholder protections. Accordingly, holders of Class A Common Stock will be able, without the approval of the holders of the Common Stock, subject to applicable law, to (i) amend the Issuer's Articles of Incorporation and Bylaws; (ii) effect mergers and certain other major corporate transactions; (iii) elect the Issuer's directors and (iv) otherwise control the outcome of virtually all matters submitted to a general shareholder vote. Accordingly, even if all of the Warrants are exercised, the Trust, through AHL and Sommer Enterprises, will nevertheless continue to retain control of the Issuer and the Controlling Stockholders will nevertheless continue to retain control of Holdings, and so the 18 Company, and the holders of Warrant Shares will be limited in their ability to exercise any degree of control whatsoever over the Issuer, and so Holdings and the Company. See "Certain Material Agreements--Equity Participation Agreement." Under the Holdings Operating Agreement, if the Trust fails to make its required 75% contribution for any amounts required to be made under the Bank Completion Guaranty, LCNI (rather than Sommer Enterprises through the Issuer) will have certain rights to control the Board of Managers of Holdings and LCNI and Sommer Enterprises will each have equal direct or indirect voting rights in deciding matters with respect to Holdings. Furthermore, if AHL fails to make its required 75% contributions for any amounts required to be made under the Keep-Well Agreement, LCNI (in addition to any rights London Clubs may have against AHL and Sommer Enterprises, which may include the ability of London Clubs to obtain ownership of Sommer Enterprises' equity interests in the Issuer) through the Issuer or otherwise will have the right to control the Board of Managers of Holdings and increase its Holdings Common Membership Interests up to a total of 72% of the Holdings Common Membership Interests, and Sommer Enterprises' Holdings Common Membership Interests will correspondingly decrease, subject to receipt of Gaming Approvals. For a description of certain relationships between the Company, AHL and LCNI, see "Controlling Stockholders" and "Certain Transactions." ABSENCE OF DIVIDENDS AND DISTRIBUTIONS The Company currently intends to retain all earnings for reinvestment. Consequently, none of the Issuer, Holdings, or the Company plans to pay any dividend or make any distributions on its common stock or membership interests. None of the Issuer, Holdings or the Company has ever paid any dividends or distributions on its common stock or membership interests and (except for distributions to cover any tax liability in respect of Holdings Interests and distributions on the Series A Preferred Interests) none of the Issuer, Holdings or the Company has any plans to pay any dividends or distributions on its common stock or membership interests in the foreseeable future. Except as stated in the preceding sentence, the Company currently intends to retain all earnings for reinvestment in its business and repayment of indebtedness. The Bank Credit Facility, the Indenture, the Company Operating Agreement and the Holdings Operating Agreement restrict the payment of distributions by the Company and Holdings. Such restrictions could materially and adversely affect the Issuer's ability to pay dividends on, and the value of, the Warrant Shares and so the value of the Warrants. See "Dividends and Distributions", "Certain Material Agreements--Holdings Operating Agreement" and "--Company Operating Agreement" and "Description of Certain Indebtedness and other Obligations--Bank Credit Facility" and "--Senior Discount Notes." RISKS OF NEW CONSTRUCTION Most large scale construction projects involve significant risks and unforeseen contingencies. As a result, the estimated cost of the Aladdin project may exceed current projections. Major construction projects (and particularly one of the anticipated size and scale of the Aladdin) entail significant risks, including shortages of materials or skilled labor, unforeseen engineering, environmental and/or geological problems, work stoppages, weather interference, unanticipated cost increases and unavailability of construction equipment. Construction, equipment or staffing problems or difficulties in obtaining any of the requisite licenses, permits, allocations or authorizations from regulatory authorities could increase the total cost, delay, or prevent the construction or opening of the Aladdin or the other components of the Complex or otherwise affect their respective design and features. The anticipated costs and opening dates for the Aladdin are based on budgets, conceptual design documents (not all of which will be finalized at the commencement of construction) and schedule estimates prepared by the Company with the assistance of the architects and contractors described herein. See "Business--Design and Construction Team." Under the terms of the Design/Build Contract, the Design/Builder is responsible for all construction costs covered by the Design/Build Contract that are in 19 excess of the guaranteed maximum price of $267.0 million, subject to certain qualifications. Pursuant to the Fluor Guaranty, Fluor has made certain guarantees regarding the Design/Builder's performance under the Design/Build Contract. However, the Design/Build Contract provides that the guaranteed maximum price will be equitably adjusted on account of (i) changes in the design documents at the request of the Company; (ii) changes requested by the Company in the scope of the work to be performed pursuant to the Design/Build Contract; and (iii) natural disasters, casualties and certain other "force majeure" events beyond the reasonable control of the Design/Builder. If any such events occur, the construction costs which must be borne by the Company may increase. As a result, the actual price paid for the construction of the Aladdin may increase. The Design/Build Contract requires that all subcontractors engaged by the Design/ Builder to perform work and/or supply materials in connection with the construction of the Aladdin post bonds, at the discretion of the Company and the Design/Builder, guaranteeing timely completion of work and payment for all labor and materials. Nevertheless, there can be no assurance that the Aladdin will commence operations on schedule, that construction costs for the Aladdin will not exceed budgeted amounts or that the Design/Builder will not challenge aspects of the guaranteed maximum price. Failure to complete the Aladdin on budget or on schedule may have a material adverse effect on the Company, and so the Aladdin Parties. The Aladdin is expected to be completed in the first four months of the year 2000. COMPLETION OF THE MALL PROJECT AND THE MUSIC PROJECT There can be no assurance that the Mall Project or the Music Project will be completed and the failure of such projects to be completed could have a material adverse effect on the Aladdin and so Enterprises and the holders of Warrant Shares. A principal part of the Complex will be the Mall Project, which is comprised of the Desert Passage and the Carpark, and the Music Project (including the Theater). The Company's business plan assumes that the Desert Passage and the Music Project will attract a substantial flow of pedestrian traffic to the Casino and that the Carpark will provide essential parking facilities for both overnight and casual guests at the Aladdin. However, the Company will neither develop nor own the Desert Passage, the Carpark or the Music Project and the completion of the Aladdin is not contingent on their completion. Failure of the Mall Project or the Music Project to be developed or to become operating in a timely manner will have a material adverse effect on the Company and the Aladdin Parties. Investors should note that the funding arrangements for the completion of the Music Project have not been finalized, and there can be no assurance that such funding arrangements will be finalized at any time, or that the Mall Project or Music Project will be completed. The Mall Project will be developed and owned by Bazaar. Bazaar is 37.5%-owned by Bazaar Holdings, which is indirectly controlled by the Trust and therefore is an affiliate of the Issuer. Bazaar Holdings and THB have entered into an operating agreement (as amended, the "Bazaar LLC Operating Agreement") under which each party has agreed to cooperate in the development and operation of the Mall Project, and Bazaar Holdings, THB and THOP have provided certain undertakings to effect the development of the Mall Project in an agreed manner and time frame. See "Certain Material Agreements--Bazaar LLC Operating Agreement." Bazaar and the Mall Lenders have entered into a building loan agreement for the Mall Financing. Funding under the Mall Financing is subject to certain conditions. If Bazaar fails to satisfy the conditions to the draw down of funds under the Mall Financing, alternative sources of funding will need to be obtained. TrizecHahn, THOP, the Trust, Bazaar Holdings and AHL have agreed to guarantee the completion of the Mall Project and Bazaar's indebtedness to the Mall Lenders pursuant to the Mall Guaranty. Neither the Company nor any of the Aladdin Parties is a party to the Bazaar LLC Operating Agreement, the Mall Guaranty or the Mall Financing and so neither the Company nor any of the Aladdin Parties may enforce or prevent the amendment or cancellation of any of the rights or obligations thereunder. In addition, there can be no assurance that TrizecHahn, THOP, the Trust, Bazaar Holdings and AHL will be in a position to comply with their obligations under the Mall Guaranty. If the Mall Project is not completed, the Company believes that it may need to incur additional costs to complete the 20 construction of the Aladdin, depending on the Aladdin's stage of construction. If the Mall Project is abandoned after the construction of certain shared structural space has begun, the Company believes that the costs of completing the shared structural space (which would be used as retail space) and demolition and construction expenses necessary to convert the site of the Mall Project into surface parking would be approximately $23 million (including the $14.2 million, including interest, no longer being reimbursed by Bazaar pursuant to the Site Work Agreement). The success of the Mall Project, which is expected to be completed in the first four months of the year 2000, will depend significantly on the skills and experience of TrizecHahn in the management of entertainment shopping malls such as the Mall Project. However, under the Bazaar LLC Operating Agreement, THB is, in certain circumstances, entitled to dispose of its interests in the Mall Project on or after the opening of the Mall Project. Accordingly, there can be no assurance that, after such date, TrizecHahn will continue to manage, or hold an equity interest in, the Mall Project. In addition, on March 5, 1998, TrizecHahn announced that it is considering the sale of its operating portfolio of regional shopping centers and on April 6, 1998 announced the sale of 20 regional shopping centers for over $2.5 billion. TrizecHahn has indicated that its planned sales will not include TrizecHahn's portfolio of development projects, including the Desert Passage. Although TrizecHahn has indicated that it will proceed with and have sufficient financial resources to complete the Desert Passage even if a sale of its entire operating portfolio were to be consummated, no assurance can be made that TrizecHahn will be in a position to satisfy its obligations under the Bazaar LLC Operating Agreement. While TrizecHahn's announcement is limited to the sale of its current operating portfolio of regional shopping centers, there can be no assurance that TrizecHahn will not similarly decide to sell its interest in the Desert Passage. Accordingly, investors cannot be assured that TrizecHahn will own and operate the Desert Passage once it becomes operational, and as a result, pedestrian traffic to the Aladdin may decrease. The Music Project is expected to be completed by October of the year 2000 and developed and owned by Aladdin Music. Pursuant to the London Clubs Purchase Agreement, London Clubs, through its wholly owned subsidiary LCNI, has agreed that so long as Aladdin Music obtains financing for the Music Project on terms satisfactory to LCNI and provided that certain other conditions are met, Aladdin Music may develop and own the Music Project in accordance with the terms described herein. If such conditions are not met, LCNI has the right to select the method in which it will participate in the Music Project, if at all. There can be no assurance that the conditions will be satisfied. If the conditions are not satisfied, there can be no assurance that the Music Project will proceed as described herein, or at all. As currently anticipated, the Company and Planet Hollywood intend to operate the Music Project in a manner conducive to the joint achievement of the Company's and Aladdin Music's business objectives. While the Company has signed the Music Project Memorandum of Understanding with Planet Hollywood in connection with the development, construction and operation of the Music Project, funding for the Music Project has not yet been finalized and certain significant matters, such as the appointment of a general contractor to construct the Music Project, remain incomplete. If the Mall Project is not completed, it may not be feasible to develop the Music Project. If the Music Project is not completed, the Company intends to apply a portion of the funds which it has allocated for its equity contribution to Aladdin Music to the renovation of the Theater. However, without the support of Planet Hollywood through the Music Project, the Company may not be able to attract the same quality of performers to the Theater as it may otherwise have been able to attract. Further, even if the Music Project is completed, there can be no assurance that the Music Project will be operated in a manner conducive to the achievement of the Company's business objectives. In addition, the Music Project and its owners must receive all required Gaming Approvals (as defined herein) from the Nevada Gaming Authorities (as defined herein) in order to conduct gaming operations. There can be no assurance (i) that Bazaar or Aladdin Music will have or obtain sufficient funding to finance the development and operation of the Mall Project or the Music Project, respectively; (ii) that the Desert Passage or the Music Project will be completed; (iii) that if completed, the Desert Passage or the Music Project will attract the number and types of customers expected by the Company; or (iv) that if 21 completed, the Music Project and its owners will obtain all required Gaming Approvals or that if obtained, they will be obtained on a timely basis. Failure of Bazaar or Aladdin Music to develop and operate the Mall Project or the Music Project, respectively, in the manner currently expected could materially and adversely affect the success of the Aladdin and the financial position and results of operations of the Company, and so the Aladdin Parties. COMPLETION OF ENERGY PLANT Although the obligations of the Energy Provider (as defined herein) to complete the Plant in accordance with the Development Agreement (as defined herein) are guaranteed by Unicom (as defined herein), there can be no assurance that the Energy Provider will perform its obligations under the Development Agreement (as defined herein) or that Unicom will perform its obligations under the Unicom Guaranty (as defined herein). Energy will be provided to certain parts of the Complex by an energy plant to be developed and constructed pursuant to the Development Agreement. The Company has entered into the Development Agreement with Northwind Aladdin LLC (the "Energy Provider"), a subsidiary of UT Holdings Inc. ("UTH"). UTH is a subsidiary of Unicom Corporation ("Unicom"). Pursuant to the Development Agreement, the Energy Provider will develop and construct the Plant (as defined herein) to serve the energy requirements of certain parts of the Complex. See "Certain Material Agreements--Development Agreement." The design and construction of the Plant will be at the sole cost and expense of the Energy Provider, however, the Energy Provider shall not be responsible for costs in excess of $40.0 million unless agreed to by the Energy Provider. The obligations of the Energy Provider to complete the Plant in accordance with the Development Agreement and in a manner capable of delivering the energy requirements of such parts of the Complex in accordance with the Energy Service Agreement (as defined herein) are guaranteed by the Energy Provider's ultimate parent, Unicom. Unicom has agreed that if for any reason the Energy Provider shall fail or be unable to punctually and fully perform or cause to be performed any of its obligations under the Development Agreement, Unicom shall perform or cause to be performed such obligations promptly upon demand. Unicom's obligations are limited to an amount equal to $30.0 million (or, under certain circumstances, an amount less than $30.0 million) and shall not be reduced until Substantial Completion (as defined herein) of the Plant. There can be no assurance that the Energy Provider will perform its obligations under the Development Agreement, or that Unicom will perform its obligations under the Unicom Guaranty. Failure of the Energy Provider or Unicom to perform its obligations under the Development Agreement and Unicom Guaranty or failure of the Energy Provider to perform its obligations under the Energy Service Agreement, will materially and adversely affect the Company, the Aladdin Parties and holders of the securities offered hereby. In addition, the Company may have to make alternative arrangements for the provision of energy for the Complex. There can be no assurance that such arrangements could be made, or if made, on terms favorable to the Company. RISKS OF NEW VENTURE The Company is a development stage company with no prior history. Therefore, there can be no assurance that it will be able to manage and operate a hotel/casino on a profitable basis. The Issuer's sole material asset is its 25% interest in the Holdings Common Membership Interests. Holdings' material assets are its interests in the Company. Accordingly, the Issuer's sole material asset is its indirect ownership of 25% of the interests in the Company. The Company is a development stage company formed to develop and operate the Aladdin. The Company has no history of operations and has never been involved in developing, constructing or operating a hotel/casino project. Although certain members of the Company's management have experience developing and operating large scale hotels and casinos, none of these individuals has developed or operated a development of the anticipated size of the Aladdin, and only certain of these individuals have worked together with certain other members of the Company's 22 management team in developing or operating similar projects, none of such projects being the anticipated size of the Aladdin. See "Management." The operation of the Aladdin will be subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which will be beyond the control of the Company and the Aladdin Parties. No assurances can be given that the Company will be able to manage the Aladdin on a profitable basis or attract a sufficient number of guests, gaming customers and other visitors to the Aladdin to make its various operations profitable independently or as a whole or to enable the Note Issuers and the Company to pay the principal of and interest on the Notes and the Bank Credit Facility. The Company will need to recruit a substantial number of new employees prior to the opening of the Aladdin at a time when other major facilities may be approaching completion and also recruiting employees. There can be no assurance that the Company will be able to recruit a sufficient number of qualified employees. Furthermore, it is not known to what extent such employees will be covered by collective bargaining agreements, as that will be a determination ultimately made by such employees. See "Business--Employees." The opening and operation of the Aladdin will be contingent upon the receipt of all regulatory licenses, permits, approvals, registrations, findings of suitability, orders and authorizations from the Nevada Gaming Authorities (as defined herein) (collectively, "Gaming Approvals") by the Company, Holdings and its owners. The scope of the approvals required to construct and open the Aladdin is extensive, and the failure to obtain or maintain such approvals could prevent or delay the completion or opening of all or part of such facilities or otherwise affect the design and features of the Aladdin. In particular, the Company will be required to apply for and obtain approvals from the Nevada Gaming Authorities with respect to the construction, design and operational features of the Casino related to surveillance of gaming areas. In addition, the Company will need to apply for and obtain, prior to commencement of gaming activities at the Casino, a nonrestricted gaming license and Gaming Approvals from the Nevada Gaming Authorities with respect to the operation of the Casino and no assurances can be given that such Gaming Approvals will be obtained, or that if obtained, they will be obtained on a timely basis. Failure by the Company to obtain any such Gaming Approvals could materially and adversely affect the Company's financial position and results of operations. In connection with the Company's receipt of Gaming Approvals, its members and their owners and affiliates will also have to obtain applicable Gaming Approvals and no assurances can be given that such Gaming Approvals will be obtained or if obtained, that they will be obtained on a timely basis. See "--Government Regulation" and "Regulation and Licensing." Capital will also be subject to being called forward for a finding of suitability as a co-issuer of the Notes and the New Notes (as defined herein) in the discretion of the Nevada Gaming Authorities. LACK OF DIVERSIFICATION; DEPENDENCE ON SINGLE SITE Neither the Issuer, Holdings nor the Company anticipates having material assets or operations other than their respective interests in the Aladdin. Accordingly, they are subject to greater risks than a geographically diversified gaming operation. The Issuer does not currently anticipate having material assets and operations other than its interest in Holdings and Holdings does not currently anticipate having material assets and operations other than its interests in the Company. In addition, the Company does not currently anticipate having material assets and operations other than the Aladdin and its membership interests in and advances to AMH, a wholly owned subsidiary of the Company which will own a 50% interest in the Music Project (on a fully diluted basis) through Aladdin Music. Accordingly, the Aladdin Parties and the Company will be subject to greater risks than a geographically diversified gaming operation, including, but not limited to, risks related to local economic and competitive conditions, changes in local and state governmental laws and regulations (including changes in laws and regulations affecting gaming operations and taxes) and natural and other disasters. The Company's, and so the Issuer's, principal sources of income following completion of the Complex will be the Aladdin, and, to a lesser extent, fees received from Aladdin Music for the provision of management services with respect to the Music Project. Accordingly, the ability of the Issuer to pay dividends to holders of Warrant Shares will be directly dependent on the success of the Aladdin and, to a lesser extent, the Music Project. 23 CERTAIN BANKRUPTCY CONSIDERATIONS The structure of the Holdings Group and the fact that Holdings and the Company are limited-liability companies provides certain bankruptcy risks to holders of securities. SUBSTANTIVE CONSOLIDATION Under the Bankruptcy Code, it is possible that if AHL, the Company, the Issuer, London Clubs, the Trust, Holdings or Capital, or any of their affiliates (the "Affiliated Parties") becomes a debtor under applicable bankruptcy law, a bankruptcy court could order substantive consolidation of the assets and liabilities of any or all Affiliated Parties. Substantive consolidation is an equitable, fact-based remedy, not prescribed by statute, with respect to which the court has considerable discretion. While the separate legal existence of each Affiliated Party and its observance of certain formalities and operating procedures could effectively preclude, based on the present state of the case law (i) a finding that the assets of an Affiliated Party is property of the bankruptcy estates of any of the other Affiliated Parties and (ii) the substantive consolidation of the assets and liabilities of an Affiliated Party with those of any of the other Affiliated Parties, there can be no assurance that substantive consolidation would not occur. In addition, there can be no assurance that during litigation of such issues, delays will not occur in payments of indebtedness, even if the court ultimately rules against substantive consolidation, or that parties in interest might determine to settle such issues to avoid the expense and delay of litigation. If the court concludes there is substantive consolidation, however, payments of indebtedness could be delayed or reduced, which in turn could delay distributions (if any) to equity holders, including holders of Warrant Shares. LIMITED-LIABILITY COMPANIES Holdings and the Company are limited-liability companies organized under the laws of the State of Nevada. Limited-liability companies ("LLCs") are relatively recent creations not only under the laws of the State of Nevada but also under the laws of other jurisdictions. Generally stated, LLCs are intended to provide both the limited liability of the corporate form for their members and certain advantages of partnerships, including "pass-through" income tax treatment for members, and thus have attributes of both corporations and partnerships. Given their recent creation, LLCs and their members have been involved in relatively few bankruptcy cases as debtors, and there has been little reported judicial authority addressing bankruptcy issues as they pertain to LLCs. Moreover, the existing judicial authority on such issues in bankruptcies of analogous entities (e.g. partnerships) is not well settled. Consequently, a bankruptcy of Holdings or the Company, its members or any of their affiliates, may be litigated and decided in the absence of dispositive judicial precedent, and thus, no assurance can be made as to any particular outcome. COMPLEXITIES RELATING TO MULTIPLE SECURED LENDERS All of the Company's assets are subject to first priority liens, either to the Bank Lenders under the Bank Credit Facility or the FF&E Lender under the FF&E Financing. The FF&E Lender's security interests relate to assets to be used in the Aladdin, which is pledged to the Bank Lenders. The existence of multiple secured lenders could cause complexities in and prolong the duration of bankruptcy proceedings or a debt restructuring of the Company, which in turn could delay distributions to the direct and indirect holders of membership interests in the Company, such as Holdings, Enterprises and holders of Warrant Shares. RISKS UNDER DESIGN/BUILD CONTRACT AND FLUOR GUARANTY Certain obligations of the Design/Builder under the Design/Build Contract are guaranteed by Fluor (the "Fluor Guaranty"). A default by either the Design/Builder under the Design/Build Contract or Fluor under the Fluor Guaranty could result in the Aladdin not being completed on schedule and have a material adverse effect on the Company and the Aladdin Parties. If a bankruptcy case were to be commenced voluntarily by or involuntarily against Fluor, remedies available under the Fluor Guaranty would be limited or unavailable. The Fluor Guaranty does not cover cost increases caused by certain acts commonly referred to as "force majeure." 24 CHANGE OF CONTROL Upon a Change of Control (as defined in the Indenture), each holder of the Notes will have the right, at such holder's option, to require the Note Issuers to purchase the Notes owned by such holder at a price equal to 101% of the Accreted Value thereof plus accrued and unpaid interest, if any, and Liquidated Damages (as defined in the Indenture), if any, to the date of purchase. There can be no assurance that the Note Issuers will have sufficient funds to purchase the Notes after such a Change of Control. In addition, upon a change of control (as defined in the Bank Credit Facility) all amounts outstanding under the Bank Credit Facility will immediately become due and payable. There can be no assurance that the Company will have sufficient funds to repay the Bank Credit Facility or any other indebtedness that becomes due as a result of such event. See "Description of Certain Indebtedness and Other Obligations--Bank Credit Facility." OPERATING RESTRICTIONS The terms of the Indenture, the Bank Credit Facility and the other agreements governing the indebtedness of the Company impose significant operating and financial restrictions on the Company and the Aladdin Parties. Such restrictions significantly limit or prohibit, among other things, the incurrence of certain additional debt, distributions, transactions with affiliates of the Company and Holdings and the sale of certain assets. These restrictions, in combination with the degree to which the Company is leveraged, could limit the ability of the Company to respond to market conditions or meet extraordinary capital needs or could otherwise restrict corporate activities. There can be no assurances that such restrictions will not materially and adversely affect the ability of the Company to finance its future operations or capital needs and the operation of its business. See "Description of Certain Indebtedness and Other Obligations." POSSIBLE CONFLICTS OF INTEREST Potential for conflicts of interest exists between the Aladdin, on the one hand, and the other businesses to be operated on the Complex, and such conflicts may adversely effect the Company, Holdings and Enterprises. The Trust is expected to hold significant interests in all of these businesses. Mr. Jack Sommer, who is Chairman and a director of the Company and Holdings and President of the Issuer, Mr. Ronald Dictrow, who is Executive Vice President/Secretary and a director of the Company and Holdings and a Secretary and director of the Issuer, are also directors of Bazaar. In addition, certain directors and executives of the Company and Holdings are currently and are likely to continue to be, directors and executives of Aladdin Music, which will develop and own the Music Project. Further, it is expected that in addition to managing the Aladdin, the Company or one of its affiliates, will also manage the Music Project. The objectives for each of these businesses may at times differ and such differences may be material. In addition, all such businesses will share the use of certain facilities on the Complex, including vehicular and pedestrian traffic ways, the Carpark and certain utilities (such as the Plant, which will provide energy to the Complex). For these reasons, potential exists for conflicts of interest, including in relation to the division of management time between each of these businesses, splitting of costs of shared facilities and the sharing of future business opportunities arising in connection with the Complex. For example, certain directors of Holdings may be faced with a potential conflict of interest arising from their interests in and relationship with the Aladdin and the other projects at the Complex. These include the following: - decisions to direct customers to the Aladdin, the Music Project or the Mall Project - allocations of costs and expenses relating to the REA (as defined herein) and Energy Services Agreement - cost allocations during construction for areas such as the Carpark, the Plant and pedestrian traffic ways 25 - cost allocations for shared general and administrative services such as accountancy, purchasing and warehousing, human resources and legal To the Issuer's knowledge, there is no Nevada authority addressing the issue of whether a person acting as a promoter (in this case, AHL), owes fiduciary duties to the entity, its owners or investors. In addition, Planet Hollywood, which is a 50% shareholder in Aladdin Music (on a fully diluted basis) and the developer of the Music Project, is not contractually restricted or otherwise prevented from developing other music or entertainment theme hotel casinos in Las Vegas. The development of a competing Planet Hollywood-owned hotel in Las Vegas could give rise to conflicts of interest for Planet Hollywood and could materially and adversely affect the Music Project and so Aladdin Music, the Company and the Aladdin Parties. London Clubs may have a potential conflict of interest arising from its relationship with the Company. This includes possibly directing clientele to its other interests worldwide instead of the Aladdin and focusing resources on its other projects. The Issuer believes that the agreements executed by London Clubs in connection with the Aladdin deal with this conflict by providing London Clubs with financial incentives which are dependent on certain financial goals being obtained by the Company. SHARED FACILITIES Because the Aladdin, the Mall Project and the Music Project will share certain operational facilities (the "Shared Facilities"), the construction of all such projects will include the construction of the Shared Facilities in sizes and/or capacities that will be sufficient for all such projects together, but are in excess of what is minimally required for the Aladdin. The Shared Facilities will include certain shared structural space, the Strip facade and related retail areas of the Complex. The Company will bear the full cost of constructing the Shared Facilities. However, Bazaar will be obligated to reimburse the Company for a portion of the construction costs related to the Shared Facilities if the Mall Project is completed. It is estimated that Bazaar's share of the cost of constructing the Shared Facilities will be $14.2 million, including interest. If Bazaar is unable to obtain financing for the Mall Project, it is unlikely that Bazaar will be able to reimburse the Company for its share of the construction costs related to the Shared Facilities pursuant to the Site Work Agreement. LIMITATIONS UNDER BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY The Trust, London Clubs and Bazaar Holdings have entered into the Bank Completion Guaranty and the Noteholder Completion Guaranty for the benefit of the Bank Lenders and the Noteholders, respectively. Failure by the parties to perform their obligations under these agreements could result in the Aladdin not being completed in a timely manner, or at all. Pursuant to the Bank Completion Guaranty, the Trust, London Clubs and Bazaar Holdings have agreed among other things jointly and severally to guarantee the development, construction and equipping of the Aladdin for the benefit of the Bank Lenders. None of the holders of the Warrants, Warrant Shares, Holdings or the Issuer is a party to the Bank Completion Guaranty, however, the Trust, Bazaar Holdings and London Clubs have entered into the Noteholder Completion Guaranty for the benefit of the holders of the Notes, subject to certain important qualifications, limitations and exceptions. The Noteholder Completion Guaranty contains certain intercreditor provisions which significantly limit the rights of the State Street Bank and Trust Company, as trustee under the Indenture (the "Trustee") and the holders of the Notes, including certain standstill periods during which the Trustee and the holders of the Notes may not enforce the Noteholder Completion Guaranty or seek remedies thereunder, even if there is a default under the Bank Completion Guaranty and the Bank Lenders are no longer advancing funds. See "Description of Noteholder Completion Guaranty and Disbursement Agreement--Noteholder Completion Guaranty." The Bank Completion Guaranty entered into by the Trust, Bazaar Holdings and London Clubs requires that if the Company has insufficient funds available to complete the Aladdin, the Trust, Bazaar 26 Holdings and London Clubs must contribute cash to the Company to enable such completion, subject to certain qualifications. None of the holders of Warrants or Warrant Shares, Holdings or the Issuer is party to the Bank Completion Guaranty and, accordingly, none of them may enforce any rights thereunder. In addition, none of the holders of Warrants or Warrant Shares, Holdings or the Issuer is party to the Noteholder Completion Guaranty and, accordingly, none of them may enforce any rights thereunder. The parties to the Bank Completion Guaranty have limited obligations under the Bank Completion Guaranty until and unless the proceeds of the Funding Transactions are, in the aggregate, insufficient to cover the construction cost increases covered by the Bank Completion Guaranty. The Bank Completion Guaranty terminates upon the indefeasible payment and performance of the Guaranteed Obligations (as defined herein). See "Description of Certain Indebtedness and Other Obligations--Bank Completion Guaranty." Neither the Bank Completion Guaranty nor the Noteholder Completion Guaranty contain restrictions on the ability of the parties thereto to incur indebtedness junior in respect of right of payment to the Guaranteed Obligations (excluding certain types of indebtedness). While such parties have informed the Company that they believe they will be able to perform their respective obligations thereunder, no assurance can be given that they will have available the financial resources if they are called on under the Bank Completion Guaranty or the Noteholder Completion Guaranty. If the Trust and Bazaar Holdings fail to perform their obligations under the Bank Completion Guaranty or the Noteholder Completion Guaranty, London Clubs is, in certain circumstances, entitled (through its affiliates) to exercise equal voting power to the Trust and its affiliates in the affairs of Holdings. If the parties under the Bank Completion Guaranty or the Noteholder Completion Guaranty are unable to perform their respective obligations thereunder, it may be an Event of Default under the Indenture and the Bank Credit Facility and the Aladdin may not be completed. In addition, should certain London Clubs specified exceptional events (a "Specified Event") under the Bank Completion Guaranty occur, at the option of the required lenders, such Specified Event shall constitute an event of default under the Bank Completion Guaranty and consequently under the Bank Credit Facility, and the Bank Lenders, without any further notice to a Guarantor, shall be entitled to exercise all rights and remedies available under the Bank Completion Guaranty and any other Loan Documents. See "Description of Certain Indebtedness and Other Obligations--Bank Completion" for a description of such Specified Events. Certain historical financial information concerning London Clubs is included herein to assist investors in evaluating the ability of London Clubs to perform its obligations under the Bank Completion Guaranty and the Noteholder Completion Guaranty. Such information has been prepared in accordance with United Kingdom generally accepted accounting principles ("U.K. GAAP"), which principles are not consistent with, and materially differ from, United States generally accepted accounting principles ("U.S. GAAP"). With respect to the historical financial information of London Clubs included herein, such differences relate (among other things) to depreciation and amortization, valuation of fixed assets, recognition of deferred taxes, accounting for employee stock options, and accounting for pension costs. In making their investment decision, investors should consider that if such financial information of London Clubs was restated in accordance with U.S. GAAP, there are likely to be material differences from such information as stated in accordance with U.K. GAAP. Such differences would have no material effect on London Clubs' cash flows or liabilities and, accordingly, also would have no material impact on its ability to meet its obligations. The U.K. Chancellor of the Exchequer has proposed to increase the highest marginal rate of gaming duty (tax on casino betting profits) from 33 1/3% to 40%. If the proposed tax increase were to be enacted into law, London Clubs could suffer a reduction of profits. The proposed tax increase is not certain to be enacted, or if enacted, in the form in which it has been proposed. The Trust, which is indirectly a controlling stockholder of Enterprises, Holdings, Capital and the Company, is a joint and several guarantor (together with London Clubs and Bazaar Holdings) under each of the Bank Completion Guaranty and the Noteholder Completion Guaranty. In addition, the Trust and AHL are guarantors of all Bazaar's obligations under the Mall Financing. Furthermore, the Trust is expected to be an obligor under a keep-well agreement expected to be entered into with respect to the Music Project (the "Music Keep-Well Agreement"). No financial information regarding the Trust is publicly available for the purpose of evaluating the Trust's creditworthiness and, accordingly, purchasers of 27 Warrants or Warrant Shares should not rely upon the Trust's performance under the Bank Completion Guaranty or the Noteholder Completion Guaranty when making their investment decision. RISK OF NON-PERFORMANCE UNDER KEEP-WELL AGREEMENT Under the Keep-Well Agreement (as defined herein), AHL, London Clubs and Bazaar Holdings have agreed to ensure the Company's compliance with certain financial ratios. There can be no assurance that the parties will have available sufficient financial resources if they are called on to make payments under the Keep-Well Agreement. Failure of any of the parties to the Keep-Well Agreement to comply with their material obligations under the Keep-Well Agreement could have a material and adverse effect on the Company and the Aladdin Parties, and will constitute a default under the Bank Credit Facility and the Indenture. AHL, London Clubs and Bazaar Holdings have agreed pursuant to an agreement (the "Keep-Well Agreement") to contribute, if required, funds to the Company to ensure the Company's compliance with certain financial ratios and other requirements under the Bank Credit Facility, subject to certain conditions. Neither Holdings, the Issuer nor the holders of Warrants or Warrant Shares is a party to the Keep-Well Agreement. The Keep-Well Agreement does not constitute a guaranty of the obligations of the Company under the Bank Credit Facility, the Notes or otherwise. In particular, under the Keep-Well Agreement, the parties to the Keep-Well Agreement are not required to contribute an aggregate of more than $150.0 million to the Company ($30.0 million in any fiscal year), and are not required to contribute any amounts to the Company on or after the earlier of the date on which the Company, without the benefit of cash contributions from the Controlling Stockholders or their affiliates, complies with all of the financial covenants set forth in the Bank Credit Facility for six consecutive quarterly periods from and after the Conversion Date (as defined herein) or the date on which the aggregate outstanding principal amounts of the Bank Credit Facility are reduced below certain amounts and prior to certain dates. While the parties to the Keep-Well Agreement have informed the Company that they believe they will be able to perform their obligations under the Keep-Well Agreement, no assurance can be given that they will have available sufficient financial resources if they are called on to make payments under the Keep-Well Agreement. The obligations of London Clubs under the Keep-Well Agreement are subordinated to other obligations of London Clubs under certain of its pre-existing senior debt facilities. Furthermore, although the obligations of London Clubs under the Keep-Well Agreement are guaranteed by certain subsidiaries of London Clubs, such subsidiaries also currently guarantee senior existing indebtedness of London Clubs. In addition, there are certain restrictions on each of the parties' to the Keep-Well Agreement ability to incur indebtedness or sell or transfer assets. If a party defaults in its obligations under the Keep-Well Agreement, such party's (or its affiliate's) interest in Holdings could be subject to dilution, which dilution could affect that party's (or its affiliate's) ability to control or direct the policies of Holdings and so the Company. Failure of each of the parties to the Keep-Well Agreement to comply with their material obligations under the Keep-Well Agreement could have a material and adverse effect on the Company and the Aladdin Parties, and will constitute a default under the Indenture. The payments and issuance of additional securities will be subject to the prior approval of the Nevada Gaming Authorities. See "Controlling Stockholders--Keep-Well Agreement." Certain historical financial information concerning London Clubs is included herein to assist investors in evaluating the ability of London Clubs to perform its obligations under the Keep Well Agreement. Such information has been prepared in accordance with United Kingdom generally accepted accounting principles ("U.K. GAAP"), which principles are not consistent with, and materially differ from, United States generally accepted accounting principles ("U.S. GAAP"). With respect to the historical financial information of London Clubs included herein, such differences relate (among other things) to depreciation and amortization, valuation of fixed assets, recognition of deferred taxes, accounting for employee stock options, and accounting for pension costs. In making their investment decision, investors should consider that if such financial information of London Clubs was restated in accordance with U.S. GAAP, there are likely to be material differences from such information as stated in accordance with U.K. GAAP. Such differences would have no material effect on London Clubs' cash flows or liabilities and, accordingly, also would have no material impact on its ability to meet its obligations. 28 The U.K. Chancellor of the Exchequer has proposed to increase the highest marginal rate of gaming duty (tax on casino betting profits) from 33 1/3% to 40%. If the proposed tax increase were to be enacted into law, London Clubs could suffer a reduction of profits. The proposed tax increase is not certain to be enacted, or if enacted, in the form in which it has been proposed. The Trust, which is indirectly a controlling stockholder of Enterprises, Holdings, Capital and the Company, is a joint and several guarantor (together with London Clubs and Bazaar Holdings) under each of the Bank Completion Guaranty and the Noteholder Completion Guaranty. In addition, the Trust and AHL are guarantors of all Bazaar's obligations under the Mall Financing. Furthermore, the Trust is an obligor under the Music Keep-Well Agreement. No financial information regarding the Trust is publicly available for the purpose of evaluating the Trust's creditworthiness and, accordingly, purchasers of Warrants or Warrant Shares should not rely upon the Trust's performance under the Bank Completion Guaranty or the Noteholder Completion Guaranty when making their investment decision. DEPENDENCE UPON KEY MANAGEMENT AND LACK OF EXPERIENCED PERSONNEL The Company is dependent to a large extent on the services of its senior management. There can be no assurance that such individuals will remain with the Company, and if such members of senior management do not remain with the Company, the Company will be required to hire individuals with adequate experience to replace such members of management on comparable terms, and no assurances can be made as to the Company's ability to do so. The ability of the Company to maintain its competitive position is dependent to a large degree on its ability to retain the services of its senior management team, including Jack Sommer, Richard Goeglein and James McKennon. Although certain of the senior managers of the Company have employment agreements with the Company, there can be no assurance that such individuals will remain with the Company. The loss of the services of any of these individuals or an inability to attract and retain additional senior management personnel could have a material adverse effect on the operation of the Aladdin. There can be no assurance that the Company will be able to retain its existing senior management personnel or to attract additional qualified senior management personnel. See "Management." Until construction of the Aladdin is close to completion, the Company believes that it will not require extensive operational management and, accordingly, has kept and intends to keep its permanent staff at relatively minimal levels. However, the Company will be required to undertake a major recruiting and training program prior to the opening of the Aladdin at a time when other major new facilities may be approaching completion and also recruiting employees. While the Company believes that it will be able to attract and retain a sufficient number of qualified individuals to operate the Aladdin on acceptable terms, the pool of experienced gaming and other personnel is limited and competition to recruit and retain gaming and other personnel is likely to intensify as more casinos are opened. No assurance can be given that such employees will be available to the Company for use in managing the Aladdin. RISK OF OVERCAPACITY; COMPETITION AND PLANNED CONSTRUCTION IN LAS VEGAS Construction of several new major resort projects could lead to increased competition and overcapacity in the Las Vegas hotel/casino market. As a result, the operations and profitability of the Company could be adversely affected. The hotel/casino industry is highly competitive. Hotels located on or near the Strip ("Strip Hotels") compete with other Strip Hotels and with other major hotels in downtown Las Vegas. The Aladdin will also compete with a large number of other hotels and motels located in and near Las Vegas. According to the Las Vegas Convention and Visitors Authority (the "LVCVA"), as of December 31, 1997, there were 105,347 hotel and motel rooms in the Las Vegas area. Direct competitors of the Company will include theme-oriented mega-resorts on the Strip such as Caesars Palace Hotel, The Mirage, Treasure Island Hotel and Casino, New York-New York Hotel and Casino and the MGM Grand Hotel and Casino. Many competitors of the Company are subsidiaries or divisions of large public companies and may have greater financial and other resources than the Company. In addition, the construction of several new major resort 29 projects that will compete with the Company and the expansion of several existing resorts have commenced construction or have recently been announced. These include the planned Bellagio, Paris Casino Resort, Mandalay Bay and Venetian Casino Resort, all currently under construction. Additionally, expansions have recently been completed at Caesars Palace Hotel and Harrah's Las Vegas. These projects and others are expected to add approximately 20,000 hotel rooms to the Las Vegas inventory by 1999. According to the LVCVA, in 1997 the number of hotel rooms in Las Vegas rose to over 105,000, a gain of 6.3%, while the number of visitors rose by only 2.8% to approximately 30 million. Accordingly, while hotel occupancy rates currently stand at 90.3%, a comparison with hotel occupancy rates from 1994 shows only a slight increase. The future operating results of the Company, and so the Aladdin Parties, could be materially and adversely affected by such competitors and excess Las Vegas room and gaming capacity. Such competition and increased supply with steady visitor counts has affected and may continue to affect room prices, occupancy rates and profits. The hotel/casino operations of the Company will also compete, to some extent, with other hotel/casino facilities in Nevada and in Atlantic City, with hotel/casino facilities elsewhere in the world and with state lotteries. In addition, certain states have recently legalized, and others may or are likely to legalize, casino gaming in specific areas, and passage of the Indian Gaming Regulatory Act in 1988 has led to rapid increases in American Indian gaming operations. The Company expects many competitors to enter such new jurisdictions that authorize gaming, some of which competitors may have greater financial and other resources than the Company and the legalization of casino gaming in or near any metropolitan area from which the Company intends to attract potential customers could have a material adverse effect on the business of the Company. Although the Company is unaware of any particular legislation to legalize casino gaming in or near metropolitan areas which could attract potential customers from the Aladdin, such proliferation of gaming activities could significantly and adversely affect the business of the Company, and so the Aladdin Parties. See "Business--The Las Vegas Market." The Desert Passage will compete with retail malls in or near Las Vegas, including the Fashion Show Mall, the Forum Shops at Caesars Palace and retailers in theme-oriented mega resorts, all of which may attract consumers away from the Desert Passage and so the Complex. GOVERNMENT REGULATION The gaming operations of the Aladdin and ownership of securities of the Issuer will be subject to extensive regulation and discretionary oversight by the Nevada Gaming Authorities. Changes in regulations or the denial or revocation of a Gaming Approval could have a material adverse effect on the Company and the Aladdin Parties. The gaming operations and the ownership of securities of the Company and the Holdings Group will be subject to extensive regulation by the Nevada Gaming Authorities. The Nevada Gaming Authorities will have broad authority with respect to licensing and registration of entities and individuals involved with the Company and the Holdings Group. The Issuer may be required to disclose the identities of the holders of the Warrants and Warrant Shares to the Nevada Gaming Authorities upon request. The Nevada Commission (as defined herein) may, in its discretion, require the holder of any security of a Registered Company (as defined herein), such as the Warrants and the Warrant Shares, to file an application, be investigated and be found suitable to own the security of a Registered Company. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act (as defined herein), the Registered Company can be sanctioned, including the loss of its approvals if, without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form, or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. Each holder of the Warrants and the Warrant Shares shall be deemed to have agreed (to the extent permitted by law) that if the Nevada Gaming Authorities determine that a holder or beneficial owner of the Warrants and the Warrant Shares must be found suitable, and if such holder or beneficial owner either 30 refuses to file an application or is found unsuitable, such holder shall, upon request of the Issuer, dispose of such holder's Warrants and the Warrant Shares within 30 days after receipt of such request or such earlier date as may be ordered by the Nevada Gaming Authorities. The Issuer will also have the right to call for the redemption of the Warrants and the Warrant Shares by any holder at any time to prevent the loss or impairment of a Gaming Approval or an application for a Gaming Approval, at a redemption price equal to the cost paid by such holder. The beneficial owners of the Warrants and Warrant Shares will be subject to the requirement of obtaining Gaming Approvals in the discretion of the Nevada Gaming Authorities. Any beneficial owner of more than 10% of the voting securities of the Issuer will be required to obtain a Gaming Approval. However, the Warrants are exercisable only into non-voting shares of common stock of the Issuer. The Nevada Gaming Authorities may also, among other things, revoke the license of any entity licensed by the Nevada Gaming Authorities (a "Company Licensee") or the registration of a Registered Company or any entity registered as an intermediary company or a holding company of a Company Licensee. In addition, the Nevada Gaming Authorities may revoke the license or finding of suitability of any officer, director, manager, member, controlling person, shareholder, noteholder or key employee of a licensed or registered entity. If Gaming Approvals of the Company or Holdings were revoked for any reason, the Nevada Gaming Authorities could require the closing of the Casino, which would result in a material adverse effect on the Company and the Aladdin Parties. The Company, and certain of its officers, directors, manager, members and key employees, have applied for licensing with the Nevada Gaming Authorities. Also, the Company possesses or has applied for all necessary state and local government approvals, licenses and permits, other than Gaming Approvals, necessary to open and operate the facility. In addition, any future public offering of debt or equity securities by the Company, the Note Issuers or the Issuer, including the Exchange Offer (as defined herein), any Qualified Public Offering and the issuance of Common Stock of the Issuer upon the exercise of the Warrants, if the securities or the proceeds from the sale thereof are intended to be used to pay for construction of, or to acquire an interest in, any gaming facilities in Nevada, to finance the gaming operations of an affiliated company or to retire or extend obligations incurred for any such purpose, requires the prior approval of the Nevada Commission or, a ruling from the Chairman of the Nevada Board (as defined herein) that such approval is not required. See "Regulation and Licensing" and "Description of Indebtedness and Other Obligations--Senior Discount Notes." LACK OF PUBLIC MARKET FOR THE WARRANTS AND WARRANT SHARES There are currently no established trading markets for the Warrants and the Warrant Shares. Therefore, there can be no assurance as to the liquidity of any such trading market, if a trading market were to develop, or that an active market for such securities will develop at all. The Warrants and Warrant Shares are each new issues of securities for which there is currently no trading market. There can be no assurance regarding the future development of a market for the Warrants or Warrant Shares, or the ability of the holders of the Warrants or Warrant Shares to sell such securities, or the price at which such holders may be able to sell such securities. If such a market were to develop, the Warrants and Warrant Shares could trade at prices that may be higher or lower than the price paid by selling holders of Warrants or Warrant Shares depending on many factors, including prevailing interest rates, the Aladdin Parties' operating results and the market for similar securities. Each of the Initial Purchasers has advised the Aladdin Parties that it currently intends to make a market in the Warrants and Warrant Shares. However, the Initial Purchasers are not obligated to do so and any market making in respect to such securities may be discontinued at any time without notice. Therefore, there can be no assurance as to the liquidity of any trading market for the Warrants and Warrant Shares or that an active trading market for such securities will develop. The Aladdin Parties do not intend to apply for listing or quotation of the Warrants and Warrant Shares, on any securities exchange or stock market. The Warrants and the Warrant Shares are currently eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market. Following the Registration Statement being declared effective by the Commission, the Warrants and the Warrant Shares will not be eligible for PORTAL trading. 31 USE OF PROCEEDS No proceeds will be received by the Issuer from the registration or subsequent sale of the Warrants or Warrant Shares pursuant to the Registration Statement. The gross proceeds from the sale of the Units were estimated to be $115.0 million. The net proceeds (net of Initial Purchasers' discounts and estimated Offering expenses) together with the proceeds from the other Funding Transactions are being used to develop, construct, equip and open the Aladdin and to fund the Company's cash contribution to Aladdin Music with respect to the Music Project. Upon or prior to the consummation of the Offering (i) the proceeds from the sale of the Units were allocated between the Notes and the Warrants, (ii) Sommer Enterprises (a) contributed a portion of the Contributed Land and $7.0 million consisting of the benefit of certain predevelopment costs incurred by AHL to the Issuer in exchange for Class A Common Stock in the Issuer and (b) also contributed a portion of the Contributed Land to Holdings in exchange for Holdings Common Membership Interests, (iii) the Issuer contributed the portion of the Contributed Land and the benefit of the predevelopment costs received from Sommer Enterprises and the net proceeds allocable from the sale of the Warrants to Holdings in exchange for Holdings Common Membership Interests, (iv) Holdings contributed the Contributed Land appraised at $150.0 million, approximately $42 million in cash from the London Clubs Contribution and $7.0 million consisting of the benefit of certain predevelopment costs incurred by AHL to the Company in exchange for Common Membership Interests of the Company, and (v) Holdings contributed $115.0 million in cash, consisting of the net proceeds of the sale of the Units and approximately $8 million from the London Clubs Contribution, to the Company in exchange for Series A Preferred Interests of the Company. The London Clubs Contribution, together with a portion of the net proceeds of the Offering, were expended on the Issue Date to repay certain existing indebtedness assumed by the Company in connection with the Sommer Equity Financing and to pay certain accrued expenses and certain fees and expenses incurred in connection with the Funding Transactions. The remaining net proceeds from the Offering (approximately $35 million) were deposited in the Note Construction Disbursement Account. The liquidation preference of the Series A Preferred Interests held by Holdings will equal at all times the Accreted Value of the Notes. Prior to or contemporaneously with the Offering the following other Funding Transactions for the financing by the Company of the Aladdin were consummated: (i) the Sommer Equity Financing and an indirect equity contribution to Holdings by London Clubs of $50.0 million in cash in exchange for Holdings Common Membership Interests; (ii) the closing of the $410.0 million Bank Credit Facility and the funding of the Term B Loan and the Term C Loan thereunder into the Cash Collateral Account and (iii) execution and delivery of a commitment letter for the FF&E Financing, consisting of one or more leases or loans in the aggregate amount of $80.0 million, covering the Specified Equipment and the Gaming Equipment, to be used in the Aladdin. See "Controlling Stockholders--Equity and Series A Preferred Interest Financing," "Description of Certain Indebtedness and Other Obligations--Bank Credit Facility" and "--FF&E Financing." SOURCES AND USES OF FUNDS The estimated sources and uses of funds for the development, construction, equipping and opening of the Aladdin are as follows (in millions):
SOURCES USES - ---------------------------------------------------------- ---------------------------------------------------------- Bank Credit Facility(1)........................ $ 410.0 Hotel and Casino(7)............................ $ 295.6 FF&E Financing(2).............................. 80.0 Off-Site Improvements(8)....................... 6.8 Senior Discount Notes due 2010(3).............. 115.0 Reimburseable Site Work Expenses(6)............ 14.2 Land Contribution(4)........................... 150.0 Furniture, Fixtures and Equipment and Cash Contribution(5)........................... 57.0 Gaming Equipment(9)............................ 107.5 Anticipated Site Work Reimbursement(6)......... 14.2 Land(10)....................................... 135.0 Retire Existing Debt(11)....................... 74.5 Capitalized Interest, Net(12).................. 44.0 Pre-Opening Costs and Expenses................. 16.9 Reimbursement of Predevelopment Costs(13)...... 3.9 Working Capital(14)............................ 15.0 Construction and FF&E Contingency(15).......... 31.8 Land Investment in Music Project(16)........... 15.0 Cash Equity Investment in the Music Project(17).................................. 21.3 Financing Fees and Expenses(18)................ 44.7 --------- --------- Total Sources.................................. $ 826.2 Total Uses..................................... $ 826.2 --------- --------- --------- ---------
32 (1) The Company entered into the Bank Credit Facility with the Bank Lenders. The Bank Credit Facility, which closed concurrently with the closing of the Offering, consists of three separate term loans. Term A Loan comprises a term loan of $136.0 million and matures seven years after the initial borrowing date. Term B Loan comprises a term loan of $114.0 million and matures eight and one-half years after the initial borrowing date. Term C Loan comprises a term loan of $160.0 million and matures ten years after the initial borrowing date. The Term B Loan and Term C Loan were funded on the Issue Date into the Cash Collateral Account, and subject to satisfaction of the conditions in the Disbursement Agreement, are expected to be drawn down beginning approximately four months after the Issue Date. It is anticipated that the Company will begin to draw down the Term A Loan, subject to satisfaction of the conditions in the Disbursement Agreement, approximately 21 months after the Issue Date. See "Risk Factors--Drawn Down of Funds Under Funding Transactions." All of the Loans will convert from construction loans into amortizing loans on the Conversion Date. The Company has the option to pay interest at either LIBOR or Scotiabank's ABR, in each case plus certain margins. See "Description of Certain Indebtedness and Other Obligations--Bank Credit Facility." (2) The Company entered into a commitment letter with the FF&E Lender for provision of the FF&E Financing. The FF&E Financing consists of $60.0 million of operating leases and $20.0 million in loans and is expected to be used by the Company to obtain the Gaming Equipment and Specified Equipment. See "Description of Certain Indebtedness and Other Obligations-- FF&E Financing." (3) Represents the gross proceeds of the Offering, which, net of expenses of approximately $8 million, were contributed, together with approximately $8 million in cash received pursuant to the London Clubs Contribution, by Holdings to the Company in exchange for Series A Preferred Interests. (4) The land on which the Aladdin, the Music Project and the Plant will be built, including adjacent land of approximately 0.8 acres, comprises a total of approximately 22.75 acres (the "Contributed Land") and was contributed to the Company by Holdings in exchange for Common Membership Interests. The Contributed Land has an appraised fair market value of $150.0 million (book value of $33.6 million as of December 31, 1997). Approximately 18 acres of the Contributed Land, having an appraised fair market value of $135.0 million, will be retained by the Company and approximately 4.75 acres of the Contributed Land, having an appraised fair market value of $15.0 million, will be used for the Music Project. (5) Represents (i) a $50.0 million cash contribution by London Clubs in exchange for 25% of the Holdings Common Membership Interests and (ii) a $7.0 million deemed equity contribution by the Issuer in exchange for Holdings Common Membership Interests, consisting of certain pre-development costs incurred by AHL in 1996, 1997 and 1998. (6) Pursuant to the Site Work Agreement, the Company has agreed to complete the construction of, among other things, the Mall Shared Space, construction of which will commence prior to the initial funding of the Mall Financing. Bazaar has agreed to reimburse the Company for up to $14.2 million (including interest) of the costs associated with such construction upon the completion of the Mall Shared Space. See "Certain Material Agreements--Construction, Operation and Reciprocal Easement Agreement and Related Agreements." (7) Represents (i) the guaranteed maximum price of construction of the Aladdin pursuant to the Design/Build Contract of $267.0 million, less the contingency allowance of $6.8 million and expected reimbursement from Bazaar of $13.6 million (net of approximately $0.6 million of interest) as set forth in note (6) above; (ii) approximately $35 million for theming the Aladdin; (iii) $11.7 million for professional fees and disbursements; and (iv) $2.3 million for permits and taxes. See "Risk Factors-- Completion of the Mall Project and the Music Project." The Design/Build Contract contains financial incentives for the Design/ Builder to complete the Aladdin within the construction budget and in a timely manner, as well as liquidated damages payable to the Company for certain unexcused delays. See "Risk Factors--Risks of New Construction," "Risks Under Design/Build Contract and Fluor Guaranty" and "Certain Material Agreements--Design/Build Contract." (8) Represents the cost of off-site improvements, including overhead pedestrian walkways and widening of certain streets, for those parts of the Project Site on which the Aladdin will be built. (9) Includes $26.5 million of gaming equipment and $81.0 million of furniture, fixtures and other equipment consisting of new furniture and equipment other than gaming equipment). (10) Represents the appraised fair market value of the land on which the Aladdin and the Plant will be built, together with adjacent land of approximately 0.8 acres. (11) Represents the retirement on the Issue Date of $68.7 million of existing indebtedness on the Contributed Land with an interest rate of LIBOR plus 650 bps and $5.8 million of existing debt owed by the Trust to GW Vegas, assumed by the Company as part of Holdings' equity contribution to the Company. (12) Represents capitalized gross interest under the Bank Credit Facility of $57.4 million and capitalized gross interest of $2.4 million from leasing expenses in connection with the FF&E Financing, from the date of the Offering until the estimated completion of the Aladdin in the first four months of the year 2000, net of interest income anticipated to be earned upon the investment in cash equivalents of the funds (assumed to be at 5% per annum) from the proceeds of the Offering and the proceeds of the Term B Loan and Term C Loan. (13) Represents $3.0 million of certain predevelopment costs incurred by AHL and reimbursed at closing and up to $0.9 million of certain predevelopment costs expected to be incurred and reimbursed over the expected construction period. (14) Represents cash on hand, inventories, deposits and other cash balances required for the opening of the Aladdin. (15) Comprises (i) the $6.8 million contingency included in the guaranteed maximum price set forth in the Design/Build Contract and (ii) the $25.0 million general project contingency. (16) Represents the appraised fair market value of the approximately 4.75 acres of land on which the Music Project will be built, which land will be contributed by the Company to AMH in exchange for common membership interests in AMH. (17) Represents cash to be contributed by the Company to AMH for common membership interests in AMH. (18) Represents fees in connection with the organization of the Company and the financing of the Aladdin, including approximately $8 million for expenses incurred in connection with the Offering. 33 CAPITALIZATION THE ISSUER The following table sets forth the capitalization of the Issuer as of December 31, 1997 and as of the Issue Date. This table should be read in conjunction with the more detailed information and financial statements appearing elsewhere in this Prospectus. See "Use of Proceeds" and "Description of the Warrants and Warrant Shares."
AS OF AS OF DECEMBER 31, 1997 THE ISSUE DATE ------------------- --------------- (IN MILLIONS) Long-term debt: ............................................................... $-- $-- ------ ------ Members' Equity: Class A Common Stock(1)...................................................... -- 0.4 Class B Common Stock......................................................... -- -- Additional Paid-in Capital(2)................................................ -- 15.0 ------ ------ Total Members' Equity...................................................... -- 15.4 ------ ------ Total Capitalization........................................................... $-- $15.4 ------ ------ ------ ------
- -------------------------- (1) Represents: (i) the $6.3 million book value of the Contributed Land (such land having an appraised fair market value of $28.1 million), net of approximately $12.9 million of existing indebtedness repaid from the proceeds of the Offering, and (ii) a $7.0 million deemed equity contribution consisting of certain predevelopment costs incurred by AHL in 1996, 1997 and 1998. (2) Represents $15.0 million of the gross proceeds of the Offering allocated to the sale of the Warrants. 34 HOLDINGS AND SUBSIDIARIES The following table sets forth the consolidated capitalization of Holdings at December 31, 1997, as of the Issue Date after giving effect to the Offering and upon the consummation of the Funding Transactions (assuming all of the Funding Transactions occurred on the Issue Date). The Issuer's sole material asset is 25% of the Holdings Commmon Membership Interests. This table should be read in conjunction with the more detailed information and financial statements appearing elsewhere in this Prospectus. See "Use of Proceeds" and "Description of Certain Indebtedness and Other Obligations."
AS OF AS OF UPON CONSUMMATION DECEMBER 31, 1997 THE ISSUE DATE OF THE FUNDING TRANSACTIONS --------------------- --------------- --------------------------- (IN MILLIONS) Long-term debt: Company: Bank Credit Facility(1)........................... $ -- $ 274.0 $ 410.0 FF&E Financing(2)................................. -- -- 20.0 --- ------ ------ Total Long-term Debt............................ -- 274.0 430.0 --- ------ ------ Holdings: Senior Discount Notes due 2010(3)................. -- 100.0 100.0 Holdings and subsidiaries: Total Long-term Debt and Senior Discount Notes.... -- 374.0 530.0 Members' Equity(4)(5)............................... -- 30.8 30.8 --- ------ ------ Total Capitalization................................ $ -- $ 404.8 $ 560.8 --- ------ ------ --- ------ ------
- -------------------------- (1) The Company entered into the Bank Credit Facility with the Bank Lenders. The Bank Credit Facility, which closed concurrently with the closing of the Offering, consists of three separate term loans. Term A Loan comprises a term loan of $136.0 million and matures seven years after the initial borrowing date. It is anticipated that the Company will begin to draw down the Term A Loan, subject to satisfaction of the conditions in the Disbursement Agreement, approximately 21 months after the Issue Date. Term B Loan comprises a term loan of $114.0 million and matures eight and one-half years after the initial borrowing date. Term C Loan comprises a term loan of $160.0 million and matures ten years after the initial borrowing date. The Term B Loan and Term C Loan (comprising $274.0 million in aggregate) were funded on the Issue Date, and subject to satisfaction of the conditions in the Disbursement Agreement, are expected to be drawn down beginning in June 1998 (being approximately four months after the Issue Date). All of the Loans will convert from construction loans into amortizing loans on the Conversion Date, with substantial amounts due during the final six quarters of the Term B Loan and the Term C Loan. The Company has the option to pay interest at either LIBOR or Scotiabank's ABR, in each case plus a certain margin. See "Description of Certain Indebtedness and Other Obligations--Bank Credit Facility." (2) The Company entered into a commitment letter with the FF&E Lender for provision of the FF&E Financing. The FF&E Financing consists of $20.0 million in loans and $60.0 million in operating leases and is expected to be used by the Company to obtain the Gaming Equipment and Specified Equipment. The FF&E Financing will begin to be funded six months prior to the opening of the Aladdin. See "Description of Certain Indebtedness and Other Obligations--FF&E Financing." (3) The Notes have an initial Accreted Value of $115.0 million which equals the gross proceeds of the Offering, such gross proceeds, net of expenses of approximately $8 million, were contributed, together with approximately $8 million in cash received pursuant to the London Clubs Contribution, by Holdings to the Company in exchange for Series A Preferred Interests. The Aladdin Parties have allocated $100.0 million of the gross proceeds of the Offering to the Notes and $15.0 million of such proceeds to the Warrants. See "Use of Proceeds" and "Certain United States Federal Income Tax Considerations." (4) Represents: (i) the $33.6 million book value of the Contributed Land (such land having an appraised fair market value of $150.0 million) and $15.0 million of the gross proceeds of the Offering allocated by the Aladdin Parties to the sale of the Warrants and contributed by the Issuer to Holdings for Holdings Common Membership Interests, net of approximately $69 million of indebtedness and $5.8 million of debt owed to GW Vegas and repaid from the proceeds of the Offering, (ii) a $50.0 million cash contribution to Holdings by London Clubs in exchange for 25% of the Holdings Common Membership Interests, and (iii) a $7.0 million deemed equity contribution by the Issuer, consisting of certain predevelopment costs incurred by AHL in 1996, 1997 and 1998. (5) Does not include any ascribed value for the Bank Completion Guaranty. 35 DIVIDENDS AND DISTRIBUTIONS The Issuer does not anticipate paying any dividends on any Issuer Stock (including the Warrant Shares) in the foreseeable future. The timing, amount and form of distributions, if any, will depend, among other things, on the Company's results of operations, financial condition, cash requirements and other factors deemed relevant by the Company Board. The Issuer's ability to make any future cash distributions or payments to holders of Issuer Stock, including the Warrant Shares, will depend on the Issuer's receipt of cash distributions on its Holdings Common Membership Interests, which in turn will depend on Holdings' receipt of cash distributions on its Common Membership Interests from the Company. The Company Operating Agreement and the Holdings Operating Agreement restrict the ability of the Company and Holdings to make cash distributions on the Common Membership Interests and Holdings Common Membership Interests, respectively, prior to payment of distributions on preferred membership interests, except for distributions to cover any tax liability in respect of Holdings Common Membership Interests. The Bank Credit Facility and the Indenture also contain significant restrictions on the ability of the Company and Holdings to make distributions to members. See "Certain Material Agreements--Company Operating Agreements," and "-- Holdings Operating Agreement" and "Description of Certain Indebtedness and Other Obligations -- Bank Credit Facility" and "-- Senior Discount Notes." 36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DEVELOPMENT ACTIVITIES The Issuer is an indirect subsidiary of AHL and was incorporated in December 1997 for the sole purpose of issuing the Warrants and Warrant Shares. The sole material asset of the Issuer is 25% of the Holdings Common Membership Interests which represents an indirect interest to the Warrant holders of 10% of the outstanding Holdings Common Membership Interests on a fully diluted basis. Holdings is a holding company, the material assets of which are 100% of the outstanding Common Membership Interests and 100% of the outstanding Series A Preferred Interests of the Company. The Company was organized in January 1997. Since that time and until the Issue Date, the Company's activities have been carried on by AHL on the Company's behalf. To date, the Company's activities have principally been limited to arranging the design, construction and financing of the Aladdin (including the Funding Transactions) and applying for certain permits, licenses and approvals necessary for the development and operation of the Aladdin. The Company plans to develop, construct and operate the Aladdin as the centerpiece of an approximately 35 acre world-class resort, casino and entertainment complex located on the site of the existing Aladdin hotel and casino (the "Project Site"). The Aladdin will be situated at a premier location at the center of the Strip in Las Vegas, Nevada. The original Aladdin hotel and casino was built on the Project Site in 1966. The Theater was added in 1976. The Project Site was purchased by the Trust, through a predecessor-in-interest to AHL, in December 1994. To maintain certain tax attributes obtained in connection with the Trust's acquisition of the Project Site, the original hotel and casino continued to be leased by JMJ, Inc., the company which leased the Project Site from the former owners. On April 27, 1998, the original Aladdin hotel and casino was demolished to clear the Project Site for the development of the Complex. The Aladdin is currently expected to open in the first four months of the year 2000. RESULTS OF OPERATIONS The Aladdin Parties and the Company have had no significant operations to date. Certain financial statements for the Issuer and Holdings (on a consolidated basis), Capital and the Company are included herein. Such historical operating results are not indicative of future operating results. Future operating results of the Company, which will be relevant to the ownership and operation of the Aladdin and so the Issuer, are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the control of the Company and the Aladdin Parties. While the Company believes that the Aladdin will be able to attract a sufficient number of patrons and achieve the level of activity necessary to permit the Note Issuers and the Company to meet their payment obligations on their indebtedness and Holdings to make cash distributions on the Holdings Common Membership Interests, no assurances can be given that they will be able to do so. LIQUIDITY AND CAPITAL RESOURCES The approximately $790 million necessary to fund the development, financing, construction and opening of the Aladdin (excluding the Company's $21.3 million planned indirect cash contribution and $15.0 million appraised fair market value land contribution to Aladdin Music, as part of the development funds for the Music Project) will be derived from a combination of (i) borrowings of up to $410.0 million under the Bank Credit Facility; (ii) operating lease and loan obligations aggregating $80.0 million under the FF&E Financing; (iii) the Equity and Series A Preferred Interest Financing, comprising an equity contribution by London Clubs of $50.0 million in cash, $7.0 million in pre-development costs incurred by AHL in 1996 and 1997, $150.0 million appraised fair market value in land by Holdings and $115.0 million of gross proceeds from the Offering; and (iv) anticipated reimbursement pursuant to the Site Work Agreement of $14.2 million, including interest. See "Use of Proceeds." 37 On the Issue Date the Company entered into the Bank Credit Facility with the Bank Lenders. The Bank Credit Facility consists of three separate term loans. Term A Loan comprises a term loan of $136.0 million and matures seven years after the initial borrowing date. Term B Loan comprises a term loan of $114.0 million and matures eight and one-half years after the initial borrowing date. Term C Loan comprises a term loan of $160.0 million and matures ten years after the initial borrowing date. The Term B Loan and the Term C Loan were funded on the Issue Date into the Cash Collateral Account, and subject to satisfaction of the conditions in the Disbursement Agreement, are expected to be drawn down beginning in June 1998 (approximately four months after the Issue Date). It is anticipated that the Company will begin to draw down the Term A Loan, subject to satisfaction of the conditions in the Disbursement Agreement in December 1999 (approximately 21 months after the Issue Date). See "Risk Factors-- Conditions to Drawdown of Funds under Funding Transactions." All of the Loans will convert from construction loans into amortizing loans on the Conversion Date, with substantial amounts due during the final six quarters of the Term B Loan and the Term C Loan. The Company has the option to pay interest at either LIBOR or Scotiabank's ABR, in both cases plus certain margins. See "Description of Certain Indebtedness and Other Obligations--Bank Credit Facility." On the Issue Date, the Note Issuers issued the Notes pursuant to the Offering. The Notes mature on March 1, 2010. The initial Accreted Value of the Notes was $519.40 per $1,000 principal amount at maturity of the Notes. The Notes accrete at 13 1/2% (computed on a semi-annual bond equivalent basis) based on the initial Accreted Value, calculated from the Issue Date. The Notes will accrete to an aggregate principal amount of $221.5 million by March 1, 2003. Cash interest will not accrue on the Notes prior to March 1, 2003. Commencing on September 1, 2003, cash interest on the Notes will be payable, at a rate of 13 1/2% per annum, semiannually in arrears on March 1 and September 1 of each year until maturity. See "Description of Certain Indebtedness and Other Obligations--Senior Discount Notes." The FF&E Financing provides for the operating lease financing of up to $60.0 million and loans of $20.0 million to obtain the Gaming Equipment and the Specified Equipment. Under the terms of the FF&E Financing, repayments of principal and interest are due in quarterly installments. The FF&E Financing is secured by all of the Gaming Equipment and Specified Equipment financed pursuant thereto. See "Description of Certain Indebtedness and Other Obligations--FF&E Financing." Pursuant to the Equity and Series A Preferred Interest Financing, Holdings contributed to the Company the following property: (a) approximately $107 million in cash (comprising net proceeds from the Offering), (b) an approximately 22.75 acre portion of the Project Site upon which the Aladdin, the Music Project and the Plant will be built (together with adjacent land of approximately 0.8 acres), which has an appraised fair market value of $150.0 million, (c) $7.0 million in the form of certain pre-development costs incurred by AHL in 1996 and 1997, and (d) the London Clubs Contribution, consisting of $50.0 million in cash. The Trust, Bazaar Holdings and London Clubs have entered into the Bank Completion Guaranty for the benefit of the Bank Lenders, and the Noteholder Completion Guaranty for the benefit of the holders of the Notes, pursuant to which the Trust, Bazaar Holdings and London Clubs are required, whenever there are certain construction cost increases in connection with the work to be performed pursuant to the Design/Build Contract, and subject to certain qualifications, to contribute cash to the Company to fund all such increases in construction costs. Neither the Issuer, holders of Issuer Stock (such as the Warrant Shares) nor holders of the Warrants is party to, or entitled to enforce the Bank Completion Guaranty or Noteholder Completion Guaranty. See "Risk Factors--Limitations Under Bank Completion Guaranty and Noteholder Completion Guaranty," "Description of Certain Indebtedness and Other Obligations--Bank Completion Guaranty" and "Description of Noteholder Completion Guaranty and Disbursement Agreement--Noteholder Completion Guaranty." AHL, London Clubs, and Bazaar Holdings have entered into the Keep-Well Agreement for the benefit of the Bank Lenders. Pursuant to the Keep-Well Agreement, AHL, London Clubs and Bazaar 38 Holdings have agreed to contribute funds to the Company to ensure the Company's compliance with certain financial ratios and other requirements under the Bank Credit Facility for the period up to the earlier of the date on which the Company complies with all the financial covenants set forth in the Bank Credit Facility for six consecutive quarterly periods from and after the Conversion Date or the date on which the aggregate outstanding principal amounts of the Bank Credit Facility are reduced below certain amounts and prior to certain dates, subject to certain conditions. See "Controlling Stockholders--Keep-Well Agreement." The funds provided by the Funding Transactions are expected to be sufficient to develop, complete and commence the operations of the Aladdin, assuming no delays or construction cost overruns which (i) are not covered by the $31.8 million Contingency or (ii) Fluor and/or the Design/Builder are not responsible for pursuant to the Fluor Guaranty and the Design/Build Contract, respectively. As of May 31, 1998, the Company expended $1.7 million of the Contingency. The Company does not expect that additional external funding will need to be obtained in order to develop and commence the operations of the Aladdin. Following the commencement of operations of the Aladdin, the Company expects to fund its operating and capital needs, as currently contemplated, with $15.0 million of working capital from the Funding Transactions and operating cash flows. In addition, upon the opening of the Aladdin, the Company is expected to have an aggregate of $10.0 million available under a working capital facility. Although no additional financing is contemplated, the Company will seek, if necessary and to the extent permitted under the Indenture and the terms of the Bank Credit Facility, additional financing through additional bank borrowings or debt or equity financings. There can be no assurance that additional financing, if needed, will be available to the Company, or that, if available, the financing will be on terms favorable to the Company. There can also be no assurance that estimates by the Company of its reasonably anticipated liquidity needs are accurate or that new business developments or other unforeseen events will not occur, resulting in the need to raise additional funds. 39 BUSINESS OVERVIEW OF THE COMPLEX The Company plans to develop, construct and operate the Aladdin as the centerpiece of an approximately 35 acre world-class resort, casino and entertainment complex located on the site of the existing Aladdin hotel and casino in Las Vegas, Nevada, a premier location at the center of the Strip. The Aladdin has been designed to include a luxury theme hotel of approximately 2,600 rooms, an approximately 116,000 square foot casino, an approximately 1,400-seat production showroom and seven restaurants. The Casino's main gaming area will contain approximately 2,800 slot machines, 87 table games, keno and a race and sports book facility. Included on a separate level of the Casino will be the 15,000 square foot luxurious Salle Privee, which is expected to contain an additional 20 to 30 high denomination table games and approximately 100 high denomination slot machines. The Salle Privee will cater to wealthy clientele and be operated and marketed in conjunction with London Clubs, a prestigious, multi-national casino operator which caters to international premium players. The Complex, which has been designed to promote Casino traffic and to provide customers with a wide variety of entertainment alternatives, will comprise (i) the Aladdin; (ii) the themed entertainment Desert Passage shopping mall with approximately 522,000 square feet of retail space; (iii) the Music Project, which will be a second hotel and casino with a music and entertainment theme; (iv) the newly renovated 7,000-seat Theater; and (v) the approximately 4,800-space Carpark. The Mall Project and the Music Project will be separately owned by affiliates of the Company. The Company's business and marketing strategies are expected to capitalize on the Complex's premier location, its superior designed, mixed-use, themed development, and strong strategic partnering with highly successful public companies. The grand opening date for the Aladdin and the Mall Project is currently anticipated to occur during the first four months of the year 2000, with the opening of the Music Project expected to occur within six months after the opening of the Aladdin. The Company's management team is led by Chief Executive Officer Richard J. Goeglein, the former President and Chief Executive Officer of Harrah's Hotels and Casinos and President and Chief Operating Officer of Holiday Corp., who during his term at Harrah's oversaw the expansion of the Harrah's brand, including the development of Harrah's Hotel and Casino in Atlantic City. Assisting Mr. Goeglein as Senior Vice President of the Company and President/Chief Operating Officer of the Aladdin Hotel and Casino is James H. McKennon, who as President and Chief Operating Officer of Caesars Tahoe was instrumental in its financial turnaround and as President of Caesars World International Marketing Corp. was responsible for the global marketing of the Caesars brand. It is expected that approximately $75 million will be spent on theming in the Aladdin and the Desert Passage, of which approximately $35 million will be spent by the Company on the Aladdin. This theming will create an environment in the Aladdin that will be based upon the Legends of the 1001 Arabian Nights, including the intriguing tales of Aladdin, Ali Baba and the 40 Thieves, Sinbad and other legendary stories woven around ancient wealth and wonders. The Aladdin theme will be carefully crafted through the interior and exterior architecture of the facility. The Aladdin's exterior will be designed to include a highly articulated streetscape, a themed Casino exterior shaped like a Bedouin tent, fountains, walkways, sculptures and an outdoor restaurant. The sophisticated interior of the Aladdin will utilize rich colors, textures and design, enhancing the fantasy of a mystical romantic time and place. A significant feature of the Desert Passage will be the themed area to be known as the "Lost City." The Lost City is expected to contain a re-creation of an ancient mystical mountain city and will house a variety of specialty shops and restaurants underneath a 10-story high ceiling. The Company believes that the Aladdin, with its unique theme, together with the Desert Passage and Music Project, will ensure its place as a "must-see" destination in one of the world's largest entertainment cities. The Company believes that upon completion, the Aladdin, the Mall Project and the Music Project together will constitute one of the largest and best-planned integrated, mixed-use entertainment resorts in 40 the world. Bazaar Holdings, a subsidiary of the Trust, and THB, a subsidiary of TrizecHahn, have entered into a joint venture agreement and formed Bazaar to develop, construct, own and operate the Mall Project. TrizecHahn is the principal retail subsidiary of TrizecHahn Corporation, one of the largest publicly-traded real estate companies in North America. The Desert Passage is expected to include an array of high-fashion specialty stores, exotic boutiques, theme restaurants, cafes and other entertainment offerings. The Desert Passage will be directly connected to the Casino to maximize Casino traffic. AMH and a subsidiary of Planet Hollywood have entered into the Music Project Memorandum of Understanding, relating to the ownership and development of the Music Project. The Music Project Memorandum of Understanding is subject to the finalization of financing commitments. Planet Hollywood is a creator and worldwide developer of themed restaurants and consumer brands, most notably "Planet Hollywood" and the "Official All Star Cafe." Planet Hollywood has announced that it intends to position a brand of music-oriented entertainment venues as its third major brand. The Music Project, which will be managed by the Company, is expected to include an approximately 1,000 room hotel, a 50,000 square foot casino, four restaurants, including a music-themed restaurant which will feature its own 1,000-person nightclub, a health spa and an outdoor swimming pool. As part of the development of the Complex, the Company expects to indirectly contribute to Aladdin Music $21.3 million in cash and land having an appraised fair market value of $15.0 million in exchange for a preferred membership interest and to lease the existing 7,000-seat Theater to Aladdin Music for a nominal amount. It is anticipated that Aladdin Music will carry out an approximately $8 million renovation of the Theater, improving its decor, light and sound systems and other facilities. A further distinguishing feature of the Music Project is the anticipated active involvement of famous artists and celebrities, some of whom are expected to be stockholders of Planet Hollywood (or an affiliate), participate in the marketing of the Music Project brand and perform at the Theater or make other personal appearances at the Music Project. The Music Project, with its music and entertainment theme, will complement the Aladdin and it is expected that together the two hotels will offer an excitement and variety of entertainment alternatives that will further distinguish the Complex from other venues on the Strip. The development of the Aladdin commenced during the first quarter of 1998. The existing Aladdin hotel and casino closed for business on November 25, 1997 and the original facility was demolished on April 27, 1998. The development of the Mall Project is expected to commence during the second quarter of 1998, followed thereafter by the expected commencement of the development of the Music Project in the second half of 1998. PREMIER LOCATION The Aladdin's 800 feet of Strip frontage is located on the section of the Strip between Flamingo Road at the north and Tropicana Boulevard at the south. Based upon independent research and assuming completion of the Bellagio, Paris and Venetian development projects, average vehicular traffic that will pass the Complex each day is expected to be approximately 54,000. AIRPORT ACCESS. Another major feature of the Complex will be its easy access from Las Vegas' McCarran Airport, only 2.5 miles away. According to the LVCVA, the number of visitors to Las Vegas has increased at a steady and significant rate for the last 15 years, growing from approximately 10 million in 1980 to approximately 19 million in 1990 to over 30 million in 1997, with approximately 47% of these visitors in 1997 arriving by air through McCarran Airport. McCarran Airport, the tenth busiest airport in the United States, is currently in the process of expanding its capacity through the addition of 26 new gates, and it is expected that following completion thereof, the number and percentage of visitors arriving in Las Vegas by air will further increase, making easy access from McCarran Airport to Las Vegas' resorts even more crucial. 41 VEHICLE ACCESS. The Complex will also offer easy access from other major Las Vegas attractions, including the Las Vegas Convention Center, Hughes Center office park, and the University of Nevada Las Vegas, the site of the Thomas & Mack arena, via the main vehicular access on Harmon Avenue. As part of the Complex, Harmon Avenue, which borders the Project Site, is expected to become a major east/west thoroughfare and be widened from its existing four lanes to six lanes. These improvements will allow visitors to access the Aladdin's approximately 5,000 car spaces (including the approximately 4,800-space Carpark) without having to traverse the traffic congestion on the Strip, but while still utilizing major freeways and roads. In addition, by the use of a circular internal roadway, guests arriving by limousine, car service or private vehicles will be able to enter the Complex directly and easily from the Strip, Audrie Lane and Harmon Avenue, further distinguishing the Hotel from many of its competitors. PEDESTRIAN ACCESS. The main entrance to the Aladdin will be located on the Strip. The Complex's 800 feet of Strip frontage will provide pedestrians with easy access to the Casino and the Desert Passage. A signaled crosswalk is expected to be installed on the Strip to provide pedestrians with easy access from the Bellagio. In addition, overhead pedestrian walkways have been designated for at least two segments of the Harmon Avenue/Strip intersection that will facilitate pedestrian traffic to the Aladdin. MASTER-PLANNED, MIXED-USE DEVELOPMENT The Aladdin has been carefully and strategically designed to promote Casino traffic by an experienced and dedicated team with extensive backgrounds in real estate development and construction; hotel, casino and restaurant operations; and retail development and management. Each element of the Complex has been sited and planned in a manner that maximizes pedestrian and vehicular traffic so as to facilitate access to and from the Complex, as well as circulation between the different parts of the Complex. The combination of the two distinct hotels and casinos (catering to different but complementary market segments), the Mall Project, the Theater and the Salle Privee will make the Complex a unique integration of high-end and upper-middle market uses that benefit each other and distinguish the Complex from other resorts on the Strip. The Casino will be located in front of the Hotel, and unlike many of the newer projects on the Strip, will provide easy access for pedestrians without requiring long walks into the Complex. The Casino will be the nexus for the vast majority of pedestrian traffic in the fully integrated Complex, including the Desert Passage, the Music Project, and the Theater. Significant portions of the Desert Passage and all of the Theater's entrances and exits will be accessed through, or be adjacent to, the Casino. The Complex's 800 feet of Strip frontage will provide pedestrians with easy access to the Casino and the Desert Passage from the Strip. Pedestrian visitors to the Aladdin entering from the Strip will be able to enter directly through the Casino or through the Desert Passage entrances. Another feature of the design of the Complex which will further distinguish the Aladdin from its competitors will be the ease of both vehicular and pedestrian traffic flow. Through the use of a circular internal roadway, guests arriving by limousine, car service or private vehicle will be able to enter the Complex directly and easily from the Strip and Harmon Avenue. Furthermore, by the use of bridges and access ways, pedestrians will not be required to cross roadways while moving between different attractions on the Complex, thus facilitating ease of movement between various parts of the Complex and the Strip. UNIQUE ENTERTAINMENT FACILITIES The Aladdin is expected to benefit from the Casino traffic generated from the broad variety of entertainment facilities located throughout the Complex. The Aladdin will be adjacent to the existing Theater, which will continue to be used to hold major concerts and theatrical performances, and is one of the few venues of its size and type in Nevada. The Company expects to lease the existing Theater for a nominal amount to Aladdin Music, which intends to carry out an approximately $8 million renovation of 42 the Theater, improving its decor, light and sound systems and other facilities. The Theater's renovation is expected to transform it into a first-class venue and provide an additional source of visitor traffic to the Complex. Under the Theater Lease (as defined herein), the Company will retain certain rights to use the Theater for Company-promoted events at agreed commercial rates. The Aladdin will also include a 1,400-seat showroom which will provide live nightly entertainment on its mezzanine level for the Hotel, Casino, Desert Passage and other guests. The showroom will feature a 1001 Arabian Nights-themed production show, including elegant, exotic costuming, music, lighting and choreography. Furthermore, the Music Project will contain a 1,000-person nightclub featuring regular live performances. The Desert Passage will be designed to engage the customer in a themed shopping, entertainment and dining experience. Of the approximately 522,000 square feet of retail space within the Desert Passage, it is anticipated that approximately 25% will be devoted to high pedestrian traffic-generating food, beverage and entertainment experiences. A significant feature of the Desert Passage will be the themed area to be known as the "Lost City." The "Lost City" is expected to contain a re-creation of an ancient mystical mountain city and will house a variety of specialty shops and restaurants underneath a 10-story high ceiling. PRESTIGIOUS STRATEGIC PARTNERS The Company has assembled a unique combination of partners for the development of the Complex - London Clubs, TrizecHahn, Planet Hollywood and Unicom Corporation. These partners bring a wealth of knowledge, capital, networks and experience to the Complex. LONDON CLUBS INVESTMENT. London Clubs, a prestigious multi-national casino operator, owns through LCNI 25% of the outstanding Holdings Common Membership Interests. London Clubs had an equity market capitalization of over $461 million on May 29, 1998. As reflected on pages A-16 and A-39 hereof, respectively, London Clubs' Cash Flow From Operating Activities for the 53 weeks ended March 30, 1997 was L44.8 million and for the 26 weeks ended September 28, 1997 was L6.8 million. London Clubs believes that based on its current financial condition and business operations, it will be able to meet its commitments under the Bank Completion Guaranty, the Noteholder Completion Guaranty and the Keep-Well Agreement. London Clubs has extensive experience in the international marketing of casinos to premium players and maintains a strong presence in the United Kingdom (where it controls the largest share of the London casino market), Europe, Asia and the Middle East. In addition to its 25% ownership of the outstanding Holdings Common Membership Interests, London Clubs, through LCNI, will direct the operations of, and act as marketing consultant to, the Salle Privee, the luxurious 15,000 square foot gaming area to be located on the mezzanine level of the Casino which will be designed to cater to the needs of the international premium-play guest. The Company believes that the Salle Privee will be the first of its kind in the United States managed by a European operator and based on the European concept of full service gaming areas for premium players. The Salle Privee's primary business and marketing focus will be to access London Clubs' worldwide member base of upscale casino clientele. Salle Privee Hotel guests will be escorted through a private entrance to a dedicated registration lobby and then taken via a private elevator to the Salle Privee's five private floors of suites at the apex of the Aladdin's main tower. Once there, the 24-hour butler and concierge will cater to the care and comfort of the Salle Privee guest. In the elegantly appointed Salle Privee casino, the customer may dine in the 100-seat exclusive restaurant, offering fine cuisine from around the world. London Clubs provides the Aladdin with an extensive international network of premium casino players, having established substantial goodwill and customer loyalty from high-end customers in the United Kingdom, Europe, Asia and the Middle East. In addition, London Clubs is an experienced service provider to high-end gaming customers and brings a wealth of knowledge to the Aladdin in building and maintaining relationships with and customer loyalty from such clientele. London Clubs also provides the 43 Company with superb promotional opportunities, not only by word of mouth through its network of contacts, but also through international sporting sponsorships, including horse racing and motor racing, which are well recognized in the United Kingdom, Cyprus, Hong Kong, Dubai and Malaysia, and its international print publications, which are distributed to members worldwide utilizing London Clubs' substantial database of premium clientele. JOINT VENTURE WITH PLANET HOLLYWOOD. Through a subsidiary, Planet Hollywood has agreed to be a 50% partner (on a fully diluted basis) in the Music Project. Planet Hollywood is a creator and worldwide developer of consumer brands, most notably "Planet Hollywood" and the "Official All Star Cafe," that capitalize on the universal appeal of the high energy environment of movies, sports and other entertainment-based themes. As of December 31, 1997, there were 78 Planet Hollywood brand restaurants and nine Official All Star Cafe brand restaurants worldwide. Planet Hollywood has announced that it intends to position its brand of music-themed entertainment venues as its third major brand. A distinguishing feature of the Music Project is the anticipated active involvement of famous artists and celebrities, some of whom are expected to be stockholders of Planet Hollywood, participate in the marketing of Planet Hollywood's music-oriented brand and help generate significant media attention and publicity. Planet Hollywood plans to utilize its strategy of celebrity involvement with its music-themed brand. The Company believes this exposure will enhance the Aladdin by providing immediate excitement and press coverage for the Complex. Planet Hollywood had an equity market capitalization of over $824 million on May 29, 1998. STRATEGIC RELATIONSHIP WITH TRIZECHAHN. The Mall Project will be owned, developed and operated by Aladdin Bazaar, a joint venture between Bazaar Holdings and TBH, a wholly-owned subsidiary of TrizecHahn. TrizecHahn is a wholly-owned subsidiary of TrizecHahn Corporation, one of the largest publicly traded real estate companies in North America, with an equity market capitalization of over $3.1 billion on May 29, 1998. TrizecHahn was the developer of the Fashion Show Shopping Mall on the Strip and other major shopping malls including Horton Plaza in San Diego, Bridgewater Commons in New Jersey, Valley Fair in San Jose and Park Meadows in Denver. The Company believes that TrizecHahn's proven ability in designing well laid-out retail centers, attracting high quality tenants and successfully promoting and operating its retail projects will benefit the Aladdin by attracting a consistent stream of visitors to the Complex and its various attractions. Investors should be aware that TrizeHahn has announced that it is considering selling its operating portfolio of regional shopping centers and on April 6, 1998 announced the sale of 20 regional shopping centers for over $2.5 billion. While TrizecHahn's announcement is limited to the sale of its current operating portfolio of regional shopping centers, there can be no assurance that TrizecHahn will not similarly decide to sell its interest in the Desert Passage. Accordingly, investors cannot be assured that TrizecHahn will own and operate the Desert Passage once it becomes operational, and as a result, pedestrian traffic to the Aladdin may decrease. See "Risk Factors--Completion of the Mall Project and the Music Project." ENERGY PLANT CONTRACT WITH ENERGY PROVIDER. The Energy Provider is a subsidiary of UTH. The predecessor entity of UTH was founded in 1993 to develop district energy projects, and UTH has developed the largest district cooling system in the world, located in Chicago, Illinois. UTH is also a partner in energy ventures in Boston, Houston and Windsor, Ontario. The Energy Provider's obligations under the Development Agreement up to $30.0 million will be guaranteed by its ultimate parent, Unicom. Unicom, which is listed on the New York Stock Exchange, had an equity market capitalization of over $7.6 billion on May 29, 1998. See "Risk Factors--Completion of the Energy Project." CLOSE RELATIONSHIP BETWEEN MANAGEMENT AND OWNERS. On completion, it is expected that the Complex will be one of only two independently constructed hotel, casino and retail major Strip projects in Las Vegas (the other being the Venetian Hotel and Casino). All other major competitors of the Aladdin are corporate projects, such as the Bellagio, owned by Mirage Resorts, Inc. and Paris Casino owned by Hilton. 44 Management believes that the close relationship between the Company's members and management will be conducive to more efficient decision making and ultimately assist in the successful development and operation of the Complex. STRATEGY The Company's business and marketing strategies are linked together by the Complex's premier location, its superior design, mixed-use theme development and strong strategic partnering with highly successful public companies. CREATE A "MUST-SEE" DESTINATION. The Company believes that the Aladdin, with its unique, well-executed design, together with the Desert Passage and the Music Project (including the newly renovated Theater), will ensure its place as a "must-see" destination in one of the fastest growing entertainment cities in the world. The Aladdin theme will be supported by a sophisticated interior design enhancing the fantasy of mystical and romantic time and place. The Aladdin's main Casino traffic will be driven not only by Hotel guests, but also by the customers directly attracted from the Strip. Visitor traffic to the Aladdin will also be enhanced by the attractiveness of the Desert Passage. With the addition of the Music Project, which will address a somewhat younger clientele, the Complex will have a combined room count of approximately 3,600 rooms and appeal to a broader customer demographic. MARKET POSITIONING. The Company intends to focus on three different market segments to attract customers to the Aladdin: - UPSCALE CLIENTELE. The Hotel will be designed to appeal to upscale clientele, providing the amenities and level of service such high-end guests expect. In particular, each of the Hotel's approximately 2,600 guest rooms and suites will have an area of not less than 450 square feet--exceeding that of the average Las Vegas hotel room of approximately 360 to 400 square feet--and 24% of the Hotel's guest rooms and suites will have an area exceeding 620 square feet. The Hotel's room inventory for the upscale market will include 400 "king parlors" (ranging from 620 to 680 square feet), 136 "tower end-cap suites" (ranging from 732 to 1,162 square feet) and 58 "center king suites" (585 square feet). Each of the rooms and suites will have a large four or five fixture bathroom with a separate shower, bathtub, up to two washbasins and an enclosed watercloset. A special feature of each of the rooms and suites will be the added width given to the interior design allowing for a more residential feel. The Hotel will provide extensive recreational facilities for its guests, including a 20,000 square foot health spa with steam, sauna and massage services and an outdoor swimming-pool complex located above the Desert Passage and surrounded by gardens and fountains. The Company intends to promote the Hotel's many features to the upscale market through a variety of media, including high-end print publications, travel agents and events sponsorships. A targeted relationship marketing program is expected to ensure clientele retention and repeat visitation. - INTERNATIONAL PREMIUM PLAYER CLIENTELE. The Company believes that the Salle Privee will be the first of its kind in the United States managed by a European operator and based on the European concept of full-service gaming areas for premium players. The focus of the Salle Privee's business will be the wealthy clientele that form the core of London Clubs' business in London and elsewhere. The Hotel will include 30 suites primarily for use by Salle Privee clientele, including 25 "Salle Privee" suites (ranging from 815 to 930 square feet) and five "mega-suites" (ranging from 2,125 to 3,500 square feet). The Company will maintain the Salle Privee's premium player atmosphere through more sophisticated dining options, higher table limits and more formal levels of service and dress. - UPPER-MIDDLE MARKET CLIENTELE. The Hotel's variety of guest rooms, six of its seven restaurants and the 1,400-seat production showroom, combined with the heavily-themed Casino, Theater and 45 Desert Passage, are expected to appeal broadly to the upper-middle market guest. In addition, the Music Project is expected to appeal to the upper-middle market by attracting younger, affluent customers to the Complex through its music and entertainment-based theme. The Music Project is expected to include an approximately 1,000 room hotel, four restaurants, including a music-themed restaurant which will feature its own 1,000-person nightclub, a health spa and outdoor swimming pool, together with a 50,000 square foot casino. The Theater, which will be a major feature of the Complex, will be central to the Company's promotional strategies for this market segment, with publicity expected to be gained through the booking of popular performers, many of which are expected to be broadcast live to Planet Hollywood's other music-themed entertainment venues. Cooperative advertising and promotion through various media, such as television, radio and print, will be used to promote the Complex to the upper-middle market. LEVERAGE FROM STRATEGIC RELATIONSHIPS. The Company and its affiliates have chosen as strategic partners an experienced team of retail, casino and themed entertainment developers and operators. The Company intends to utilize the unique expertise of its partners from the preliminary development stages of the Complex through its promotion and operation. - DEVELOPMENT EXPERTISE. In establishing a strategic relationship with TrizecHahn, the Company has obtained the knowledge, skills and capital of a partner who has expertise in the coordination, construction and completion in a timely manner of large, high quality projects. - MANAGEMENT AND OPERATING ABILITIES. The Complex will benefit from the experience of TrizecHahn, London Clubs and Planet Hollywood in its operations. Through its management and ownership of several shopping centers, TrizecHahn has demonstrated its ability to successfully design, configure and attract high quality tenants to its retail shopping projects. London Clubs has extensive experience in the international marketing and operation of casinos, in particular to premium players. In addition, Planet Hollywood has successfully grown its concepts to 87 company-owned and franchised Planet Hollywood and Official All Star Cafe units (as of December 31, 1997) since commencing business in 1991. - CAPITALIZING ON BRAND NAMES. With access to some of the most well-known names in the relevant markets, the Company expects to capitalize on the worldwide brand recognition of Planet Hollywood, London Clubs and TrizecHahn. - ACCESSING NEW CLIENT BASE. London Clubs and Planet Hollywood are expected to provide the Complex with access to market segments which the Company believes have not been extensively penetrated by other hotel/casinos in Las Vegas. London Clubs provides the Aladdin with one of the best networks of international premium players in the world and superb promotional opportunities. Furthermore, it is expected that Planet Hollywood will introduce a younger, affluent clientele to the Complex through, among other things, celebrity involvement in the Music Project. CAREFULLY MANAGE CONSTRUCTION COSTS AND RISKS. The Company anticipates the total cost of developing, financing, constructing and opening the Aladdin to be approximately $790 million (excluding the Company's $21.3 million planned indirect cash contribution and $15.0 million appraised fair market value land contribution to Aladdin Music as part of the development funds for the Music Project). As part of the Company's strategy of carefully managing construction costs and risks, the Company has hired Tishman, a privately held company with extensive experience in building quality hotels and casinos, to be the construction manager. As construction manager, Tishman will advise with respect to scheduling, administration and reporting in connection with the construction activities of the Design/Builder. In addition, the following arrangements have been made to ensure the full and timely completion of the Aladdin. 46 BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY. The Trust, London Clubs and Bazaar Holdings have entered into the Bank Completion Guaranty for the benefit of the Bank Lenders, under which they have agreed, among other things, to guarantee the completion of the Aladdin. The Bank Completion Guaranty, which became effective as of the closing of the Offering, is not subject to any maximum dollar limitations. The Trust, London Clubs and Bazaar Holdings have entered into the Noteholder Completion Guaranty for the benefit of the holders of the Notes, under which they guarantee completion of the Aladdin, subject to certain important exceptions, limitations and qualifications. Neither Holdings, the Issuer nor the holders of the Warrants or Warrant Shares are party to the Bank Completion Guaranty or Noteholder Completion Guaranty. No financial information regarding the Trust is publicly available for the purpose of evaluating the Trust's creditworthiness and, accordingly, purchasers of Warrants or Warrrant Shares should not rely upon the Trust's performance under the Bank Completion Guaranty of Noteholder Completion Guaranty when making their investment decision. See "Risk Factors--Limitations Under Bank Completion Guaranty and Noteholder Completion Guaranty," "Description of Certain Indebtedness and Other Obligations--Bank Completion Guaranty" and "Description of Noteholder Completion Guaranty and Disbursement Agreement--Noteholder Completion Guaranty." DESIGN/BUILD CONTRACT. Fluor Daniel, Inc. is the design/builder for the Aladdin. The Design/Builder has entered into a guaranteed maximum price design/build contract (subject to scope changes) with the Company to construct the Aladdin. The Design/Build Contract provides the Design/Builder with incentives for completing the Aladdin ahead of schedule and within budget and for payment of liquidated damages to the Company for certain delays. The Design/Build Contract is guaranteed by Fluor Corporation, the parent of the Design/Builder, pursuant to the Fluor Guaranty. See "Certain Material Agreements-- Design/Build Contract." MALL FINANCING AND MALL GUARANTY. Bazaar has entered into a building loan agreement with the Mall Lenders to fund the construction of the Mall Project. Furthermore, TrizecHahn, THOP, the Trust, Bazaar Holdings and AHL have agreed to guarantee completion of the Mall Project and Bazaar's indebtedness to the Mall Lenders until certain earnings and loan to value targets have been met. Funding under the Mall Financing is subject to certain conditions. See "Risk Factors--Completion of the Mall Project and the Music Project" and "Certain Material Agreements--Mall Financing." THE ALADDIN OVERVIEW. The Aladdin will comprise the Hotel and the Casino and will be owned, developed and operated by the Company. The Aladdin will be constructed of high quality materials, including floors covered in stone, marble and granite set in intricate patterns; carpeting of wool axminster; and wall surfaces of covered architectural veneers, tiles of stone, ceramic and mosaic. The main ceiling treatment will combine actual tent drape with texture and design of a matching motif. THE ALADDIN HOTEL. The Hotel building is expected to comprise a 34-story, 400 foot main tower attached to two 17 story towers. The approximately 2,600-room Hotel room inventory will include standard rooms, 400 "king parlors" (ranging from 620 to 680 square feet), 136 "tower end-cap suites" (ranging from 732 to 1,162 square feet), 58 "center king suites" (585 square feet), 25 "Salle Privee Suites" (ranging from 815 to 930 square feet) and five "mega-suites", the largest of which will be approximately 3,500 square feet. The design and furnishings of the rooms will be spacious and luxurious, with appointments inspired by the Aladdin theme. All guest rooms will include such amenities as a dual line phone in the bathroom and two additional dual line speakerphones with modem hook-up. The king parlors, tower end-cap, center king and Salle Privee suites and the mega-suites will include a king-size or two queen-size beds, with over-sized bathrooms featuring a separate bathtub and shower, dual sinks, enclosed watercloset and, for the center king, Salle Privee and mega-suites, such amenities as a separate living area with a fully-stocked minibar and a work area with modem hook-up, fax machine/printer and video telephone technology. The suites will be 47 designed to accommodate informal business meetings involving both business travelers and convention attendees. Approximately 93 of the suites will be of a larger size, allowing for the possibility of casually entertaining up to forty persons in the living area. The main tower will also house luxury suites designed for Salle Privee and other VIP guests, including premium casino players and convention and trade show attendees who require additional space for entertaining. The Hotel is expected to provide extensive recreational facilities designed to pamper its guests, including a 20,000 square foot health spa with steam, sauna and massage services and an outdoor swim-ming-pool complex located above the Desert Passage and surrounded by gardens and fountains. The Aladdin is expected to include seven restaurants, with combined seating capacity for over 2,300 customers, offering a wide range of dining selections. Food service facilities at the Aladdin will include a buffet and food plaza seating 800 customers, a 24-hour casual dining facility seating 575 customers and a high-energy restaurant with indoor and outdoor seating which will overlook the Strip and be located on the Casino level. This "al fresco" dining experience, one of the first on the Strip, will further distinguish the Aladdin from its competitors and will provide a lively attraction for pedestrians traversing the Strip. The mezzanine level, which will offer a panoramic view of the main casino floor, will feature a themed restaurant of 150 seats and a steakhouse of 150 seats, both of which will offer indoor and outdoor terrace dining. A Sushi/Chinese noodle shop with 50 seats and a casual dining/coffee bar will complete the food offerings on the mezzanine. There will also be a poolside restaurant with capacity to seat 150 people. To ensure consistent, high quality service throughout the Aladdin, the Company will own and operate all food service facilities in the Aladdin (other than the exclusive Salle Privee restaurant, which will be operated by London Clubs). THE SHOWROOM. In keeping with the Aladdin's Arabian Nights theme, the Aladdin will include, on its mezzanine level, a 1,400-seat showroom which will provide nightly entertainment for Hotel, Casino and other guests. The showroom will feature a 1001 Arabian Nights-theme production show including elegant, exotic costuming, music, lighting and choreography. CONVENTION, MEETING AND RECEPTION FACILITIES. The Aladdin is expected to include on the mezzanine floor of the main building over 70,000 square feet of convention, conference, trade show and reception facilities, including a 28,500 square foot main ballroom, 25,600 square feet of pre-function space and 17,400 square feet of breakout space in 16 separate rooms. These facilities will be made available for business and other conventions, trade shows, private receptions and conferences throughout the year. The Company believes that convention, meetings and special events customers will represent an important market for the Aladdin, helping the Hotel obtain consistently high occupancy rates and levels. See "-- Guest Mix--Conventions, Meetings and Special Events Customers." GUEST MIX. The Hotel guest mix, in order of magnitude, is expected to include free and independent travelers, targeted casino customers (both complimentary and at casino rates), convention, meetings and special events customers, and tour and travel customers. Of these groups, all but one (convention, meeting and special events customers) generally have substantial leisure time to take advantage of the Complex's many attractions. According to the LVCVA, approximately 72% of the visitors to Las Vegas came to Las Vegas for vacation and pleasure in 1997. The planned guest mix by category is as follows:
SEGMENT MIX - ------------------------------------------------------------------------------------ ------------- Free and Independent Travelers...................................................... 30% Casino Customers.................................................................... 30% Convention/Meeting.................................................................. 20% Tour & Travel....................................................................... 20%
48 FREE AND INDEPENDENT TRAVELERS. Free and independent travelers will be the primary focus of the Complex with its array of resort services including luxurious rooms, swimming pool and spa, fine restaurants (both in the Hotel, Casino and the Desert Passage), extensive retail opportunities, and the multiple entertainment offerings of the Theater, the Aladdin/Arabian Nights production show and the Desert Passage. Free and independent travelers include persons who travel to Las Vegas from throughout the world who are not affiliated with a traveling group and make their reservations at the property of their choice. These travelers are characterized by travel budgets higher on average than the typical "tour group" traveler budget. They generally pay higher room rates, are predominantly weekend customers and have a relatively high non-gaming budget but still spend more money on gaming activities than the typical Las Vegas visitor. Management believes the Aladdin's emphasis on high-quality accommodation and an upscale integrated entertainment complex will broadly appeal to this market. CASINO CUSTOMERS. Casino customers will be drawn from the upscale, international premium and upper-middle segments of the market. Utilizing both the resources of London Clubs and those internal to the Company, the Casino marketing network will cover Europe, the Middle East, the Pacific Rim, Mexico and Latin America, as well as the United States. The Company believes that the Aladdin's high levels of service, distinctive and private accommodations and the Salle Privee and its amenities will help differentiate it from its competitors. Where appropriate, management will offer complementary suites to high quality, repeat casino players and other premium players. In addition, the Casino will offer a range of popular gaming alternatives, designed to attract the upper-middle market guest. CONVENTIONS, MEETINGS AND SPECIAL EVENTS CUSTOMERS. Conventions, meetings and special events customers are expected to fill the mid-week time periods when the demand by free and independent travelers is lower. Las Vegas is currently the largest trade show market and the fourth largest convention market in the United States, with Las Vegas hotels obtaining premium occupancy rates during large conventions. By utilizing the Aladdin's 70,000 square feet of convention and meeting space, the Aladdin will focus on groups that have both a good hotel and gaming revenue profile. Demand for convention and meeting room nights will be supplemented by convention guests being displaced from neighboring hotels. TOUR AND TRAVEL CUSTOMERS. The tour and travel market consists of customers who utilize "packages" to reduce the cost of travel, lodging and entertainment. According to the LVCVA, approximately 28% of Las Vegas' visitors utilized such tour packages in 1997. These "packages" are produced by wholesalers and travel agents and emphasize mid-week stays in Las Vegas. Management believes that it will be able to capture a significant portion of this market segment by offering the extensive facilities (including non-gaming attractions and amenities) of the Complex to tour and travel visitors during off-peak periods. The tour and travel market will be utilized to fill rooms mid-week with nominal room blocks on the weekends when demand by free and independent travelers is at its peak. With the upper-middle and upscale focus of the Hotel, the Aladdin will focus on the higher-end tour and travel guest from both domestic and international tour operators. THE CASINO. A highly-themed approximately 116,000 square foot casino will be at the center of the Complex. The Casino's main gaming area will contain approximately 2,800 slot machines, 87 table games, keno and a race and sports book facility. Included on a separate level of the Casino will be the luxurious 15,000 square foot Salle Privee, which is expected to contain an additional approximately 100 high limit slot machines and 20 to 30 high limit table games. The Salle Privee will cater to wealthy clientele and will be operated and marketed in conjunction with London Clubs, a prestigious, multi-national casino operator which caters to international premium players. The Casino will be located in front of the Hotel, and unlike many of the newer projects on the Strip, will provide easy access for pedestrians without requiring long walks into the Complex. The Casino will be the nexus for the vast majority of pedestrian traffic on the fully integrated Complex, including the Desert Passage, the Music Project and the Theater. The Casino's exterior will be designed in the style of a large Bedouin sheik's tent, helping to introduce the Aladdin theme to visitors even before they reach the Complex. On entering the Casino, patrons will be surrounded 49 by the Aladdin theme through sculptured surroundings, rich fabrics, strategic lighting and music, evoking the mystery and luxury of the Legends of the 1001 Arabian Nights. At the center of the Casino will be "Scheherazade's Palace," a series of themed architectural elements of domes, arches, and 65 foot polished stone columns. The main level of Scheherazade's Palace will have a bar and live entertainment lounge overlooking the Casino and across to the Mezzanine level. THE SALLE PRIVEE AND THE SALLE PRIVEE MANAGEMENT AGREEMENT. A distinctive feature of the Casino will be the Salle Privee, located on the mezzanine level which will be designed to cater to the needs of the international premium guest. The Salle Privee will contain 20 to 30 high limit table games including baccarat, double zero roulette, single zero roulette and blackjack, and approximately 100 high limit slot machines. The Company believes that the Aladdin's Salle Privee will be the first of its kind in the United States managed by a European operator and based on the European concept of a luxurious, full-service, gaming area for international and domestic premium players. The focus of the Salle Privee's business will be the wealthy clientele that form the core of London Clubs' business in London and elsewhere. The Company will maintain the Salle Privee's premium player atmosphere through more sophisticated dining options, higher table limits and more formal levels of service and dress. The Company believes that the Salle Privee will prove to be a significant attraction for premium players to stay at the Hotel and play at the Casino. In order to take full advantage of this potential, the Company has entered into a consulting and marketing services agreement (the "Salle Privee Management Agreement") with London Clubs, one of the Controlling Stockholders, under which London Clubs will promote the Salle Privee, marketing this aspect of the Aladdin through its international network of premium casino customers. See "Certain Material Agreements -- Salle Privee Management Agreement." With an equity market capitalization of over $461 million as of May 29, 1998, London Clubs has extensive experience in the international marketing of casinos to premium players. London Clubs operates seven casinos in London, one in Cannes, France, three in Egypt and one in Lebanon. Each of London Clubs' casinos offer their own individual style, but with comparable internationally recognized standards of service. In recent years, London Clubs has embarked upon a period of expansion, acquiring the Park Tower Casino in London's Knightsbridge in October 1995 and re-opening and managing the casino operations of the famous Casino du Liban in Lebanon in December 1996. London Clubs maintains a strong presence in the United Kingdom (where it controls a leading share of the London casino market), Europe, Asia and the Middle East. Its international sporting sponsorships, including horse racing and motor racing, are widely recognized, particularly in the United Kingdom, Cyprus, Hong Kong, Dubai and Malaysia. In addition, London Clubs produces a print publication for its clientele utilizing its substantial database of premium customers which is a valuable means of direct communication with its clientele worldwide. Each issue features developments in London Clubs' clubs, lifestyle articles, member profiles and a popular social diary. Under the Salle Privee Management Agreement, London Clubs will earn an incentive fee based on the operating performance of the Salle Privee. As a result of London Clubs' substantial network of casino players in the United Kingdom, Europe, Asia and the Middle East and management's own extensive network in North and South America and the Pacific Rim, the Company believes that the Salle Privee will provide the Aladdin with a significant competitive advantage over other hotels and casinos on the Las Vegas Strip in attracting customers from the profitable international premium player market. Through London Clubs' involvement in the promotion of the Salle Privee, its equity interest in Holdings and its commitment to the Aladdin (demonstrated in part by the Keep-Well Agreement and the Completion Guaranty), the Company also believes that the Aladdin's international profile and financial stability will be significantly strengthened. 50 THE MALL PROJECT OVERVIEW. Located on the Complex adjacent to the Aladdin will be the Desert Passage, a shopping mall with approximately 522,000 square feet of retail space, and the approximately 4,800-space Carpark, each of which will be developed, owned and operated by Bazaar, a joint venture between Bazaar Holdings and THB, a wholly-owned subsidiary of TrizecHahn. TrizecHahn has extensive experience in developing retail properties, and prior to its recently announced sale of 20 regional shopping centers, TrizecHahn owned and managed 27 regional centers throughout the United States, comprising over 25 million square feet. TrizecHahn is a wholly-owned subsidiary of TrizecHahn Corporation, one of the largest publicly traded real estate companies in North America, with an equity market capitalization of over $3.4 billion as of April 2, 1998. Investors should note that TrizecHahn has announced that it is considering selling its operating portfolio of regional shopping centers and on April 6, 1998 announced the sale of 20 regional shopping centers for over $2.5 billion. While TrizecHahn's announcement is limited to the sale of its current operating portfolio of regional shopping centers, there can be no assurance that TrizecHahn will not similarly decide to sell its interest in the Desert Passage. Accordingly, investors cannot be assured that TrizecHahn will own and operate the Desert Passage once it becomes operational, and as a result, pedestrian traffic to the Aladdin may decrease. See "Risk Factors--Completion of the Mall Project and the Music Project." THE DESERT PASSAGE. The Desert Passage entertainment shopping mall will constitute a key aspect of the Complex, and, like the Aladdin, will be heavily themed on the Arabian Nights legends. With a strong presence and entrances on the Strip, the Desert Passage will wrap around the Casino and Hotel buildings and the Theater. The Desert Passage will consist of two stories of prime retail space in the area closest to the Strip, reducing to one-level in the areas near the rear of the Hotel, the Carpark and the Music Project. While the Desert Passage will be of a similar size to the successful Forum Shops at Caesars Palace, it will not be set back from the Strip, but will instead be located close to the Strip, allowing passing pedestrian traffic to gain easy access. Pedestrian visitors to the Aladdin entering from the Strip will be able to enter directly through the Casino or through the Desert Passage entrances and significant portions of the Desert Passage will flow directly into the Casino. It is expected that the Desert Passage will provide a steady source of pedestrians and Hotel guests to the Complex, many of whom it is expected will also want to visit the Casino or dine at the Hotel. The Desert Passage will be designed to engage the customer in a highly themed shopping, entertainment and dining experience. Of the approximately 522,000 square feet of retail space within the mall, it is anticipated that approximately 25% will be devoted to high pedestrian traffic-generating food, beverage and entertainment experiences. The food service facilities located in the Desert Passage will consist predominantly of establishments which complement the dining alternatives in the Aladdin. A significant feature of the Desert Passage will be the themed area to be known as the "Lost City." The "Lost City" is expected to contain a re-creation of an ancient mystical mountain city and will house a variety of specialty shops and restaurants underneath a 10-story high ceiling. CARPARK. As part of the Mall Project, Bazaar will develop an approximately 4,800-space carpark facility, to be located at the rear of the Complex, together with an additional approximately 350 surface level parking spaces. The Carpark will be accessible from Audrie Lane, the same street from which the Paris Casino public carpark will be accessed, and from the circular internal roadway on the Complex (accessible from Harmon Avenue and the Strip) which will provide direct vehicular access to the Hotel. The Carpark will be directly linked through the Desert Passage to the Hotel and Casino and the Music Project. Bazaar is considering retaining an independent management company to operate the Carpark. The Carpark and related surface level parking areas will include certain car parking spaces to be used principally for valet parking. In addition, in connection with the development of the Aladdin, parking facilities for approximately 500 vehicles will be developed beneath the Hotel. 51 THE MUSIC PROJECT THE MUSIC PROJECT HOTEL AND CASINO. The Music Project is the second stage of development to the Complex. The Music Project will involve the development of a second hotel and casino, with a music and entertainment theme, on the southeast edge of the Complex on the corner of Audrie Lane and Harmon Avenue. AMH and a subsidiary of Planet Hollywood have entered into the Music Project Memorandum of Understanding to own and operate the Music Project, subject to finalization of financing, with each joint venture partner holding a 50% interest (on a fully-diluted basis). See "Risk Factors--Completion of the Mall Project and the Music Project" and "Certain Material Agreements--Music Project Memorandum of Understanding." The Music Project is expected to include an approximately 1,000 room hotel, four restaurants, including a music-themed restaurant which will feature its own 1,000-person nightclub with regular live entertainment, a health spa and outdoor swimming pool, together with a 50,000 square foot casino. The Music Project will aim to expand the market by having a different theme and attracting a different market segment to the Aladdin. The Music Project is expected to appeal to the upper-middle market, attracting younger, affluent customers to the Complex through its music and entertainment-based theme. In order to enhance the Complex, the Music Project is intended to be integrated through walkways, bridges and the internal circular roadway with the Aladdin, the Desert Passage and the Carpark, providing yet another attraction on the Complex and contributing to its mixed-use nature. Through a subsidiary, Planet Hollywood will be a 50% partner (on a fully diluted basis) in the Music Project. Planet Hollywood is a creator and worldwide developer of consumer brands, most notably "Planet Hollywood" and the "Official All Star Cafe," that capitalize on the appeal of the high-energy environment of movies, sports and other entertainment-based themes. As of December 31, 1997, there were 78 Planet Hollywood brand restaurants and nine Official All Star Cafes brand restaurants worldwide. Planet Hollywood has announced that it intends to position a brand of music-themed hotels and entertainment venues as its third major brand. A distinguishing feature of the Music Project is the anticipated active involvement of famous artists and celebrities, some of whom are expected to be stockholders of Planet Hollywood, participate in the marketing of Planet Hollywood's music-themed brand, perform at the Theater or make other personal appearances at the Music Project, and help to generate significant media attention and publicity. Brand recognition is expected to be further enhanced through the high visibility of Planet Hollywood's music brand's merchandise, such as jackets, T-shirts, sweatshirts and hats. The Company believes this exposure will enhance the Aladdin by providing immediate excitement and press coverage for the Complex. It is currently anticipated that construction of the Music Project will commence during the second half of 1998. Neither the development of the Aladdin nor the Mall Project is contingent on the development of the Music Project. THEATER OF THE PERFORMING ARTS. The Aladdin and the Desert Passage will be adjacent to the Theater, a 7,000-seat entertainment facility that will be accessible through the Casino. The Theater is an entertain-ment auditorium with high-quality sight lines and acoustics and, with its 15,000 square foot stage, is one of the few venues of its size and type in Nevada. As part of the development of the Complex, the Company intends to enter into a 69-year lease of the existing Theater for a nominal amount with Aladdin Music, which expects to carry out an approximately $8 million renovation of the Theater, improving its decor, light and sound systems and other facilities. The renovation will also allow the Theater to be condensed into a smaller, approximately 2,000-seat auditorium for more intimate performances. The Company will retain certain rights to use the Theater for Company-promoted events at agreed commercial rates. In the past the Theater has hosted major concert artists, championship boxing matches and Broadway shows and it is expected that the Theater will continue to be used to hold major concerts and theatrical performances. The renovation and integration of the Theater into the first class resort Complex is expected to provide another source of visitor traffic to the Complex. 52 THE LAS VEGAS MARKET OVERVIEW. Las Vegas is one of the fastest growing entertainment markets in the country. Las Vegas hotel occupancy rates are among the highest of any major market in the United States. According to the LVCVA, the number of visitors traveling to Las Vegas has increased at a steady and significant rate for the last ten years from 16.2 million in 1987 to 30.4 million visitors in 1997, a compound annual growth rate of 6.5%. Aggregate expenditures by these visitors increased at a compound annual growth rate of 10.2% from $8.6 billion in 1986 to approximately $25 billion in 1997. Although the number of visitors to Las Vegas has increased, there has been a greater increase in the supply of hotel rooms. Such competition and increased supply, with steady visitor counts, has affected and may continue to affect room prices, occupancy rates and profits. See "Risk Factors--Risk of Overcapacity; Competition and Planned Construction in Las Vegas." EXPANDING HOTEL AND GAMING MARKET. Las Vegas has one of the strongest and most resilient hotel markets in the country and is the largest gaming market in the world. The number of hotel and motel rooms in Las Vegas has increased by 71.6% from 61,394 in 1988 to 105,347 in 1997. Major properties on the Strip opening over this time period include the Mirage, Excalibur, MGM Grand, Treasure Island, the Luxor, Monte Carlo and New York New York. In addition, a number of existing properties on the Strip embarked on expansions including Harrah's Las Vegas, Caesars Palace, Circus Circus and the Luxor. Despite this significant increase in the supply of rooms in Las Vegas, hotel occupancy rates exceeded on average 90.4% for the years 1990 to 1996, averaged 93.4% in 1996 and averaged 90.3% in 1997. By the end of 1999, it is estimated that approximately 20,000 additional hotel rooms will be opened on the Strip, including the Bellagio, the Venetian, Mandalay Bay and Paris resorts, all of which are currently under construction. 53 VISITOR STATISTICS LAS VEGAS VISITOR VOLUME A trend analysis of the Las Vegas visitor volume for the past ten years is presented in the following chart. The number of visitors to Las Vegas has grown by 77.1% since 1988.
VISITOR PERCENTAGE YEAR VOLUME CHANGE - --------- ------------- ----------- 1988 17,199,808 6.1% 1989 18,129,684 5.4% 1990 20,954,420 15.6% 1991 21,315,116 1.7% 1992 21,886,865 2.7% 1993 23,522,593 7.5% 1994 28,214,362 19.9% 1995 29,002,122 2.8% 1996 29,636,361 2.2% 1997 30,464,635 2.8%
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MILLIONS 1988 17.2 1989 18.1 1990 21.0 1991 21.3 1992 21.9 1993 23.5 1994 28.2 1995 29.0 1996 29.6 1997 30.5
SOURCE: Las Vegas Convention and Visitors Authority 54 VISITOR STATICSTICS VISITOR DOLLAR CONTRIBUTION (INCLUDES GAMING REVENUES) Tourists and conventioneers spent approximately $25.0 billion in the Las Vegas area during 1997. An analysis of the visitor dollar contribution since 1988 for Las Vegas is presented below.
VISITOR DOLLAR PERCENTAGE YEAR CONTRIBUTION CHANGE - --------- ------------------ ----------- 1988 $ 10,039,448,236 16.7% 1989 11,912,941,021 18.7% 1990 14,320,745,600 20.2% 1991 14,326,553,719 0.0% 1992 14,686,644,065 2.5% 1993 15,127,266,781 3.0% 1994 19,163,212,044 26.7% 1995 20,686,800,160 8.0% 1996 22,533,257,750 8.9% 1997 24,952,188,808 10.7%
PER VISIT EXPENDITURES EXCLUDING GAMING FOR 1997: Trade show delegates: $1,517 Convention/meeting delegates: $963 Tourists: $551 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
BILLIONS 1988 $ 10.0 1989 $ 11.9 1990 $ 14.3 1991 $ 14.3 1992 $ 14.7 1993 $ 15.1 1994 $ 19.2 1995 $ 20.7 1996 $ 22.5 1997 $ 25.0
SOURCE: Las Vegas Convention and Visitors Authority 55 ROOM INVENTORY NUMBER OF HOTEL/MOTEL ROOMS The total hotel/motel room inventory for Las Vegas increased by 43,953 rooms from 1988 to 1997. This represents a percentage increase of 71.6%. The inventory analysis follows.
NUMBER OF PERCENTAGE YEAR HOTEL/MOTEL ROOMS CHANGE - --------- ----------------- ----------- 1988 61,394 5.0% 1989 67,391 9.8% 1990 73,730 9.4% 1991 76,879 4.3% 1992 76,523 (0.5%) 1993 86,053 12.5% 1994 88,560 2.9% 1995 90,046 1.7% 1996 99,072 10.0% 1997 105,347 6.3%
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
1988 61,394 1989 67,391 1990 73,730 1991 76,879 1992 76,523 1993 86,053 1994 88,560 1995 90,046 1996 99,072 1997 105,347
SOURCE: Las Vegas Convention and Visitors Authority 56 AIRPORT STATISTICS TOTAL ENPLANED AND DEPLANED PASSENGERS Since 1988, the total number of passengers enplaning and deplaning at McCarran International airport has increased by 87%.
TOTAL ENPLANED/ PERCENTAGE YEAR DEPLANED PASSENGERS CHANGE - --------- ------------------- ----------- 1988 16,231,199 4.2% 1989 17,106,948 5.4% 1990 19,089,684 11.6% 1991 20,171,557 5.7% 1992 20,912,585 3.7% 1993 22,492,156 7.6% 1994 26,850,486 19.4% 1995 28,027,239 4.4% 1996 30,459,965 8.7% 1997 30,305,822 (0.5%)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MILLIONS 1988 16.2 1989 17.1 1990 19.1 1991 20.2 1992 20.9 1993 22.5 1994 26.9 1995 28 1996 30.5 1997 30.3
SOURCE: McCarran International Airport 57 AUTOMOBILE TRAFFIC AVERAGE DAILY TRAFFIC (ALL FOUR DIRECTIONS COMBINED) The Nevada Department of Transportation provides average daily traffic counts on the four principal highways servicing travelers to and from Las Vegas. The traffic counters are located on I-15 South (MEASURING SOUTHERN CALIFORNIA TRAFFIC), I-15 North (MEASURING UTAH TRAFFIC), US 95 North (MEASURING TONOPAH, RENO TRAFFIC), and US 95 South (MEASURING ARIZONA TRAFFIC). The figures reported include both inbound and outbound traffic.
TOTAL PERCENTAGE YEAR VEHICLES CHANGE - --------- ----------- ----------- 1988 41,234 7.4% 1989 45,222 9.7% 1990 48,607 7.5% 1991 50,150 3.2% 1992 51,411 2.5% 1993 53,467 4.0% 1994 56,875 6.4% 1995 58,917 3.6% 1996 59,777 1.5% 1997 63,261 5.8%
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
THOUSANDS 1988 41.2 1989 45.2 1990 48.6 1991 50.2 1992 51.4 1993 53.5 1994 56.0 1995 58.9 1996 59.8 1997 63.3
SOURCE: Nevada Department of Transportation 58 GAMING REVENUE CLARK COUNTY GROSS GAMING REVENUE A summary of the gross gaming revenue in Clark County for the period covering 1988 through 1997 is shown in the following table.
GROSS PERCENTAGE YEAR GAMING REVENUE CHANGE - --------- --------------- ----------- 1988 3,136,901,000 12.5% 1989 3,430,851,000 9.4% 1990 4,104,001,000 19.6% 1991 4,152,407,000 1.2% 1992 4,381,710,000 5.5% 1993 4,727,424,000 7.9% 1994 5,430,651,000 14.9% 1995 5,717,567,000 5.3% 1996 5,783,735,000 1.2% 1997 6,152,415,000 6.4%
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
BILLIONS 1988 3.1 1989 3.4 1990 4.1 1991 4.2 1992 4.4 1993 4.7 1994 5.4 1995 5.7 1996 5.8 1997 6.2
SOURCE: Nevada State Gaming Control Board 59 Gaming has continued to be a strong and growing business in Las Vegas. According to the LVCVA, Clark County gaming revenues have increased at a compound annual rate of 7.3% from approximately $2.8 billion in 1986 to approximately $6.1 billion in 1997. As a result of the increased popularity of gaming, Las Vegas has sought to increase its popularity as an overall vacation resort destination. Management believes that the growth in the Las Vegas market has been enhanced as a result of a dedicated program by the LVCVA and major Las Vegas hotels to promote Las Vegas as a major vacation and convention site, the increased capacity of McCarran Airport and the introduction of large, themed destination resorts in Las Vegas. Notwithstanding, there has recently been volatility in stock prices of Las Vegas-based gaming companies. The Issuer believes this volatility is a result of a perceived saturation of the Las Vegas market and uncertainty arising from the Asian economic downturn and its effect on Asian gaming customers. GROWTH OF LAS VEGAS RETAIL SECTOR AND NON-GAMING REVENUE EXPENDITURES. The Las Vegas market continues to evolve from its historical gaming focus to a broader entertainment offering. In addition to the traditional attractiveness of gaming, the market is continuing to expand to include retail, sporting activities, major concerts and other entertainment facilities. This diversification has contributed to the growth of the market and broadened the universe of individuals who would consider Las Vegas as a vacation destination. The more diversified entertainment offerings present significant growth opportunities. An increasing number of destination resorts are developing non-gaming entertainment to complement their gaming activities in order to draw additional visitors. According to the LVCVA, while gaming revenues in Clark County have increased from approximately $2.8 billion in 1986 to $6.1 billion in 1997, the percentage of an average tourist's budget spent on gaming has declined from 32.6% in 1986 to 25.8% in 1996 with non-gaming tourist revenues increasing from $5.8 billion in 1986 to $16.7 billion in 1996. The newer large theme destination resorts have been designed to capitalize on this development by providing better quality sleeping rooms at higher rates and by providing expanded shopping, dining and entertainment opportunities to their patrons in addition to gaming. LAS VEGAS AS A CONVENTION CENTER ATTRACTION. Las Vegas is one of the largest convention and trade show destinations in the country. In 1987, approximately 1.7 million persons attended conventions in Las Vegas providing approximately $1.2 billion in non-gaming convention revenue. In 1997, the number of convention attendees increased to more than 3.5 million, providing $4.4 billion in non-gaming convention revenue. Las Vegas offers convention and trade shows unique infrastructure for handling the world's largest shows, including a concentration of high-end hotel rooms located on the Strip, two convention centers with a total of over 2.3 million square feet of convention and exhibition space and unparalleled entertainment options. The proposed expansion of the Las Vegas Convention Center ("LVCC") and the planned construction of the Congress Center will further increase convention and exhibit space. Management believes that Las Vegas will continue to evolve as one of the country's preferred convention destinations. MCCARRAN AIRPORT EXPANSION. During the past five years, the facilities of McCarran Airport, the tenth busiest airport in the United States, have been expanded to accommodate the increased number of airlines and passengers which it services. The number of passengers traveling through McCarran Airport has increased from approximately 15.6 million in 1987 to approximately 30.3 million in 1997, a compound annual growth rate of 6.7%. According to the LVCVA, in 1997 visitors to Las Vegas arrived by the following methods of transportation: 47% by air; 41% by auto; 6% by bus; and 5% by recreational vehicle. An approximately $500 million expansion project at McCarran Airport is scheduled for completion in 1998. Long-term expansion plans for McCarran Airport provide for additional runways, three new satellite concourses, 65 additional gates, improved public transportation, roads and other infrastructure leading from McCarran Airport to the Strip and other facilities which would allow McCarran Airport to significantly increase visitor capacity. To the extent that McCarran Airport is not expanded in accordance with its plans, the occupancy rates and average daily hotel room rates in Las Vegas could be adversely affected due to the planned construction of new hotel rooms. During the first quarter of 1998, visitor 60 counts at McCarran Airport were down 4.1% from the same period in 1997. Airline traffic is a significant contributor to the overall visitor volume to Las Vegas, as approximately 44% of visitors arrive by air. A reduction in visitation to the market could result in lower average room rates, lower hotel occupancy percentages and reduced revenues for the Company. STATISTICS ON THE LAS VEGAS GAMING INDUSTRY. The following table sets forth certain information derived from published reports of the LVCVA and the Nevada State Gaming Control Board concerning Las Vegas Strip gaming revenues and visitor volume and hotel data for the years 1986 to 1997. As shown in the table, the Las Vegas market has achieved significant growth in visitor volume and tourist revenues and favorably absorbed significant additional room capacity despite the occurrence of a series of adverse economic, regulatory and competitive events during the past decade such as the recession of the early 1990s, the expansion of gaming into new jurisdictions, the modification of existing regulations in other jurisdictions and the expansion of Native American gaming. 61 HISTORICAL DATA FOR LAS VEGAS GAMING INDUSTRY(1)
1987 1988 1989 1990 1991 1992 1993 1994 --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Las Vegas Visitor Volume..... 16,216,102 17,199,808 18,129,684 20,954,420 21,315,116 21,886,865 23,522,593 28,214,362 Percentage Change............ 6.7% 6.1% 5.4% 15.6% 1.7% 2.7% 7.5% 19.9% Total Visitor Expenditures(2)............ $8,602,966 $10,039,448 $11,912,941 $14,320,746 $14,326,554 $14,686,644 $15,127,267 $19,163,212 Percentage Change............ 15.3% 16.7% 18.7% 20.2% 0.0% 2.5% 3.0% 26.7% Las Vegas Convention Attendance................. 1,677,716 1,702,158 1,508,842 1,742,194 1,794,444 1,969,435 2,439,734 2,684,171 Percentage Change............ 10.4% 1.5% (11.4)% 15.5% 3.0% 9.8% 23.9% 10.0% Las Vegas Hotel Occupancy Rate....................... 87.0% 89.3% 89.8% 89.1% 85.2% 88.8% 92.6% 92.6% Las Vegas Hotel/Motel Room Supply..................... 58,474 61,394 67,391 73,730 76,879 76,523 86,053 88,560 Percentage Change............ 3.5% 5.0% 9.8% 9.4% 4.3% (0.5)% 12.5% 2.9% 1995 1996 1997 --------- --------- --------- Las Vegas Visitor Volume..... 29,002,122 29,636,631 30,464,635 Percentage Change............ 2.8% 2.2% 2.8% Total Visitor Expenditures(2)............ 20,686,800 22,533,258 24,952,189 Percentage Change............ 8.0% 8.9% 10.7% Las Vegas Convention Attendance................. 2,924,879 3,305,507 3,519,424 Percentage Change............ 9.0% 13.0% 6.5% Las Vegas Hotel Occupancy Rate....................... 91.4% 93.4% 90.3% Las Vegas Hotel/Motel Room Supply..................... 90,046 99,072 105,347 Percentage Change............ 1.7% 10.0% 6.3%
- ------------------------ (1) Sources: LVCVA and Nevada State Gaming Control Board for the fiscal years ended December 31. (2) In thousands. 62 CONSTRUCTION SCHEDULE AND BUDGET The development of the Aladdin commenced during the first quarter of 1998. The original Aladdin hotel and casino closed for business on November 25, 1997 and the implosion of the original facility occurred on April 27, 1998. The development of the Mall Project is expected to commence during the second quarter of 1998, followed soon thereafter by the commencement of the development of the Music Project in the second half of 1998. The Company anticipates the cost of developing, financing, constructing and opening the Aladdin to be approximately $790 million (excluding the Company's $21.3 million planned indirect cash contribution and $15.0 million appraised fair market value land contribution to Aladdin Music, as part of the development funds for the Music Project). Pursuant to the Design/Build Contract, the Design/Builder has committed itself to a 26 month work schedule to complete the Aladdin, subject to certain scope changes. An equitable adjustment in the Contract Date (as defined herein) and guaranteed maximum price will be made for changes that either increase or decrease the Design/Builders' time for performance and/or cost of construction. See "Certain Material Agreements--Design/Build Contract." The Company believes that the construction budget is reasonable and the Design/Build Contract sets forth a procedure designed to ensure the timely completion of the Aladdin. However, given the risks inherent in the construction process, it is possible that construction costs could be significantly higher than budget and that delays could occur. If construction costs do exceed the amounts set forth in the construction budget, it is expected the potential sources to pay such excess include (a) the $31.8 million Contingency; (b) the Trust, London Clubs and Bazaar Holdings pursuant to their obligations under the Bank Completion Guaranty; and (c) the Design/Builder, a subsidiary of Fluor, pursuant to its liability under the Design/Build Contract, which liability is guaranteed by Fluor pursuant to the Fluor Guaranty. As of May 31, 1998, the Company has expended $1.7 million under the Contingency. See "Risk Factors--Risks of New Construction" and "--Risks Under Design/Build Contract and Fluor Guaranty" and "Certain Material Agreements." The Mall Project is not being developed by the Company, but is being developed by Bazaar. The Mall Project is budgeted to cost approximately $259.0 million, all of which amount will be paid by Bazaar. Upon completion of the Mall Financing, TrizecHahn, the Trust, Bazaar Holdings and AHL agreed to guarantee completion of the Mall Project and Bazaar's indebtedness to the Mall Lenders until certain earnings and loan to value targets have been met. See "Risk Factors--Risk of New Construction" and "--Completion of the Mall Project and the Music Project," "Use of Proceeds" and "Certain Material Agreements--Bazaar LLC Operating Agreement." The Aladdin, together with the Mall Project, will be developed as the first phase of a planned two-phase redevelopment of the Complex. In the second phase, Aladdin Music will develop the Music Project which, like the Mall Project, will be financed independently and such financing will not be guaranteed by the Company. On commencement of construction of the Music Project, the Company is required to transfer ownership of the land parcel upon which the Music Project will be built to Aladdin Music. The opening of the Music Project is expected to occur within six months after the opening of the Aladdin. See "Risk Factors--Completion of the Mall Project and the Music Project," "--Possible Conflicts of Interest" and "Certain Material Agreements--The Music Project Memorandum of Understanding." The completion and full operation of the Aladdin is not contingent upon the subsequent financing or completion of the Mall Project or the Music Project. Investors should note that funding arrangements for the completion of the Music Project have not yet been finalized and funding under the Mall Financing is subject to certain conditions, and there can be no assurance that such funding arrangements for the Music Project will be finalized at any time or that the Mall Project or Music Project will be completed. See "Risk Factors--Completion of the Mall Project and the Music Project." 63 DESIGN AND CONSTRUCTION TEAM The Company has assembled what it believes to be a highly qualified team of specialists to design and construct the Aladdin. TISHMAN. Tishman has been appointed as the construction manager for the Aladdin. Tishman is a privately-held construction firm. Tishman or its affiliates have built or renovated over 30,000 hotel rooms nationwide, including the 500-room, one million square foot Golden Nugget hotel and casino in Atlantic City, the 635-room, two million square foot Trump Castle Hotel and Casino in Atlantic City, the 400-room expansion of Harrah's Hotel and Casino in Atlantic City, the 2,300-room Walt Disney World Dolphin and Swan Hotel and convention complex, the 1,200-room Sheraton Chicago Hotel & Towers, the 800-room Hilton in Walt Disney World Village and the 600-room Westin Rio Mar Beach Resort & Country Club. Entertainment projects built by Tishman include Caesars Magical Empire in Las Vegas, several Official All Star Cafes throughout the United States, the Goodwill Games '98 Aquatics Center, Pacific Park in California, restoration of the New Amsterdam Theater in New York and EPCOT Center in Orlando, Florida. FLUOR DANIEL. Fluor Daniel, Inc. is the design/builder for the Aladdin. The Design/Builder is a subsidiary of Fluor, a Fortune 500 Company offering architectural, engineering, construction management, construction and maintenance services to projects around the world. The Design/Builder has been ranked the number one engineering and construction company in the United States based on total revenue by Engineering News-Record for nine of the last ten years. In October 1997, the Design/Builder was recognized by Fortune as the most admired public engineering firm in the world. The Design/Builder has entered into a guaranteed maximum price Design/Build Contract (subject to scope changes) with the Company to design and construct the Aladdin. The Design/Build Contract provides the Design/Builder with incentives for completing the Aladdin ahead of schedule and within budget and for payment of liquidated damages to the Company for certain delays. The Design/Build Contract is guaranteed by Fluor, the parent of the Design/Builder, pursuant to the Fluor Guaranty. See "Certain Material Agreements-- Design/Build Contract." On May 29, 1998, Fluor had an equity market capitalization of over $3.9 billion. ADP/FD OF NEVADA, INC. ADP, an indirect subsidiary of Fluor, will be the Complex architect. ADP is wholly-owned by ADP Marshall, Inc. ("ADP Marshall"). ADP Marshall, which is based in Phoenix, Arizona, is well-known for its architecture work and mixed-use projects. Such projects include resorts, hotels, timeshare/vacation ownership, gaming, mixed-use/planning, recreational (golf clubs, spas, tennis centers, etc.) and specialty entertainment/retail/restaurant projects. Among ADP Marshall's many award-winning efforts are Five Star ranked properties. Its client list includes Princess Hotels, Inc. (Scottsdale and Acapulco), Carefree Resorts (The Boulders, The Peaks, Carmel Valley Ranch) and PGA Family Golf Center (Scottsdale). ADP's philosophy is that design and systems efficiency must support the operations of a project, especially where the client has a long-term involvement in the completed development. The firm aims to establish strong client relationships by thoroughly understanding its clients' needs, the intricacies of their operations and their development, financial and market specific goals. TRIZECHAHN. THB, a wholly-owned subsidiary of TrizecHahn, is the joint venture partner of Bazaar Holdings in the Mall Project. Prior to its recently announced sale of 20 regional shopping centers, TrizecHahn owned and managed 27 regional centers in major markets throughout the United States, comprising over 25 million square feet and was one of the largest owners, developers and managers of regional shopping centers in the United States. Investors should note that TrizecHahn has announced that it is considering selling its entire operating portfolio of regional shopping centers and on April 6, 1998 announced the sale of 20 regional shopping centers for over $2.5 billion. While TrizecHahn's announcement is limited to the sale of its current operating portfolio of regional shopping centers, there can be no assurance that TrizecHahn will not similarly decide to sell its interest in the Desert Passage. Accordingly, 64 investors cannot be assured that TrizecHahn will own and operate the Desert Passage once it becomes operational, and as a result, pedestrian traffic to the Aladdin may decrease. See "Risk Factors-- Completion of the Mall Project and the Music Project." BBGM. The interior designer for the project, BBGM, specializes in hospitality design and has experience in casinos, restaurants, retail, spa/fitness centers and specialty/theme projects. BBGM's experience includes the recently renovated and expanded Caesars Atlantic City hotel, casino, restaurants and public space. Other projects have included the Mohegan Sun Casino in Connecticut and TropWorld in Atlantic City. BBGM's hotel projects have included the St. Regis, The Plaza and the Sheraton Hotel & Towers located in New York City. THE ENERGY PROVIDER. The Energy Provider, a wholly-owned subsidiary of UTH, will be the energy provider for certain parts of the Complex, including the Aladdin. The predecessor to UTH was founded in July 1993 as a subsidiary of Unicom to develop district energy projects. Unicom, which is listed on the New York Stock Exchange, had an equity market capitalization of over $7.6 billion on May 29, 1998. Unicom is also the parent of Commonwealth Edison Company, one of the largest electric utilities in the United States. Since 1993, UTH has developed the largest district cooling system in the world, located in Chicago, Illinois, and is a partner in energy ventures in Boston, Houston and Windsor, Ontario. OPERATIONAL FACILITIES The Complex has been designed to include certain operational facilities and advantages which will assist the Company in providing a high level of service to guests. SERVICE FACILITIES. The north side of the Complex will border on a service road, which will include service elevators, loading docks, receiving and purchasing facilities and storage areas. These service facilities will be located near the majority of the Complex's restaurants and food service areas, which will be the principal users of such facilities. ELEVATOR BANKS. The Hotel will be designed so that elevator banks are located at strategic locations, enabling Hotel guests and employees to access the Hotel guest areas easily. Within the Hotel, special waiter elevators will provide waiters with direct access from Hotel kitchens to rooms and suites, allowing guests to receive full room service on a timely basis. ENERGY. The Complex, once fully constructed, will require substantial amounts of electricity, hot and cold water and heating and cooling. For this purpose, the Company has entered into certain agreements with the Energy Provider for the supply of electricity and heating and cooling to certain parts of the Complex. The Energy Provider has agreed to provide the Aladdin with all its electricity, heating and cooling needs, as specified by the Company, from the date of completion of the Aladdin. Pursuant to the Development Agreement, in order to supply the Aladdin's energy requirements, the Energy Provider has agreed to construct and operate, at its own cost, a thermal energy plant (the "Plant") on an approximately 0.64 acre portion of the Complex (the "Plant Site"). The Energy Provider's obligations under the Development Agreement are guaranteed up to $30.0 million by the Energy Provider's ultimate parent, Unicom, one of the largest electric utility companies in the United States. See "Certain Material Agreements--Development Agreement," "--Unicom Guaranty" and "--Energy Service Agreement." The Music Project will also use electricity, hot and cold water and heating and cooling supplied by the Energy Provider. TrizecHahn will utilize the Plant for the provision of electricity and cold water for the Mall Project. SECURITY. The Aladdin will include state-of-the-art security systems, including internally operated camera surveillance systems for the Casino. The Company will employ extensive supervision and accounting procedures to control the handling of cash in the Casino. These measures will include security personnel, closed-circuit television for observation of critical areas of the casino, locked cash boxes, 65 independent auditors and observers, strict sign-in and sign-out procedures which ensure, to the extent practicable, that gaming chips issued by and returned to the Casino cashiers' cages are accurately accounted for, and procedures for the regular observation of gaming employees. EMPLOYEES The Company anticipates that immediately prior to completion of the Aladdin, it will employ approximately 3,600 employees in connection with the Aladdin. The Company will be required to undertake a major recruiting and training program prior to the opening of the Aladdin at a time when other major new facilities may be approaching completion and also recruiting employees. The Company believes it will be able to attract and retain a sufficient number of qualified individuals to operate the Aladdin. However, there can be no assurance that it will be able to do so. Furthermore, the Company does not know whether or to what extent such employees will be covered by collective bargaining agreements, as that determination will be ultimately made by such employees. SERVICE MARKS On the Issue Date, AHL transferred to the Company four federally registered service marks involving the word "Aladdin" and used in connection with the provision of casino and casino entertainment services and hotel and restaurant services (the "Marks"). Two of the Marks were registered on July 13, 1993, a third on July 29, 1993 and the fourth on August 24, 1993. A statement of continuing use with respect to each of the Marks must be filed with the United States Patent and Trademark Office (the "PTO") between the fifth and sixth anniversary of the date such Mark was registered in order to maintain the effectiveness of the registration with respect to such Mark. Although the Company will not be using the Marks during the period of the Aladdin's construction, the Company does not expect that this will adversely affect the registration of the Marks, provided that the reason for the non-use of the Marks is explained to the PTO at the time the statement of continuing use is filed. Each of the registrations for the Marks has a duration of ten years and, unless renewed, will expire on the tenth anniversary of such Mark's date of registration. The Company has recorded its ownership of the Marks with the PTO. A lien on the Marks was granted to the Bank Lenders on the Issue Date. See "Description of Certain Indebtedness and Other Obligations--Bank Credit Facility." INSURANCE Prior to the commencement of operation of the Aladdin, the Company intends to obtain the types and amounts of insurance coverage that it considers appropriate for a company in its business. While management intends to ensure that the Company's insurance coverage will be adequate, if the Company were held liable for amounts exceeding the limits of its insurance coverage or for claims outside of the scope of its insurance coverage, the Company's business and results of operations could be materially and adversely affected. With respect to the construction of the Aladdin, the Company and the Design/Builder have elected to implement a controlled insurance program (the "CIP") whereby the Design/Builder will provide General Liability, Workers' Compensation, Excess Liability, Contractual Liability, Builders Risk and Transit coverages for the Design/Builder and all subcontractors. The Company will pay the Design/Builder for all premiums and costs associated with the CIP. Where necessary, the Company will be named as a named insured or as an additional insured on each policy procured by the Design/Builder pursuant to the CIP. In addition, in lieu of procuring a liquidated damages insurance policy or a business interruption insurance policy to compensate for late completion of the Aladdin, the Company has paid the Design/Builder $2.0 million as a bonus advance. The Design/Builder may elect to purchase liquidated damages insurance or it may elect to self-insure. In either event, the Design/Builder is entitled to keep the bonus advance if the Aladdin is finished on or before the date set for Substantial Completion (as defined herein) (the "Contract Date"). As a further bonus, the Design/Builder will receive $100,000 for each day, up to but not 66 to exceed 90 days, that the Aladdin is substantially completed in advance of the Contract Date. If the Aladdin is not substantially completed by the Contract Date, the Design/Builder must pay back the advance bonus plus $100,000 per day commencing on the first day following the Contract Date and continuing up to 90 days thereafter. See "Certain Material Agreements--Design/Build Contract." LITIGATION The Company and the Aladdin Parties are not currently party to any pending claim or legal action. However, Mr. Jack Sommer, who is the Chairman of the Holdings Board and the Company Board (each as defined herein), a director of Holdings, Capital, the Company and the Issuer, and a trustee of the Trust, and the other trustees of the Trust are currently co-defendants in a legal action relating to the original Aladdin hotel and casino. See "Controlling Stockholders--Trust Litigation." 67 REGULATION AND LICENSING The ownership and operation of casino gaming facilities in the State of Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, the "Nevada Act"); and (ii) various local regulations. The operation of the Casino by the Company will be subject to the licensing and regulatory control of the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State Gaming Control Board (the "Nevada Board"), and the Clark County Liquor and Gaming Licensing Board (the "CCLGLB"). The Nevada Commission, the Nevada Board, and the CCLGLB are collectively referred to as the "Nevada Gaming Authorities." The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy that are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) providing a source of state and local revenues through taxation and licensing fees. Any change in such laws, regulations and procedures could have a material adverse effect on the proposed gaming operations of the Aladdin and the financial condition and results of operations of the Company and so the Holdings Group. As operator and manager of the Aladdin, the Company will conduct nonrestricted gaming operations at the Casino and so will be required to be licensed by the Nevada Gaming Authorities. A nonrestricted gaming license permits the holder to operate sixteen or more slot machines, or any number of slot machines with at least one table game. The gaming license will require the periodic payment of fees and will not be transferable. No person will be able to become a member of, or receive any percentage of the profits of, the Company without first obtaining Gaming Approvals. In connection with licensing of the Company, Holdings will be required to be registered and found suitable as a holding company of the Company and to be licensed as a member of the Company. In connection with the registration and licensing of Holdings as a holding company and a member, each direct and indirect owner of Holdings, including, but not limited to, the Issuer, London Clubs, LCNI, London Clubs Holdings Ltd. (a wholly owned subsidiary of London Clubs and the holding company for LCNI) AHL, the Trust, Sommer Enterprises, GAI and their respective owners (all such parties collectively, the "Aladdin Owners") will be required to obtain from the Nevada Gaming Authorities applicable Gaming Approvals. Capital will also be subject to being called forward for a finding of suitability as a co-issuer of the Notes and the New Notes in the discretion of the Nevada Gaming Authorities. Upon the effectiveness of the Exchange Offer, Holdings will be a "publicly traded corporation" as that term is defined in the Nevada Act. If the Company becomes an IPO Entity, it will also become a "publicly traded corporation" as that term is defined in the Nevada Act. In order for a company that is a publicly traded corporation to receive a gaming license, the Nevada Commission must exempt the company from a regulatory provision in the Nevada Act which makes publicly traded corporations ineligible to apply for or hold a gaming license. However, the Nevada Commission has exempted companies from this provision in the past and has granted gaming licenses to publicly traded corporations. If the Company becomes an IPO Entity, the Company intends to apply for an exemption from this eligibility requirement (the "Exemption") in connection with its application for a gaming license. In connection with licensing and receipt of the Exemption, the Issuer Holdings, London Clubs and the Company will each also be required to be registered by the Nevada Commission as a publicly traded corporation (a "Registered Company"). The following regulatory requirements will be applicable to the Company, Holdings and the Aladdin Owners upon their receipt of all necessary Gaming Approvals from the Nevada Gaming Authorities. The Company, Holdings and the Aladdin Owners have not yet obtained from the Nevada Gaming Authorities the Gaming Approvals required in order for the Company to conduct gaming operations at the Aladdin 68 and there can be no assurances given that such Gaming Approvals will be obtained, or that they will be obtained on a timely basis. There can also be no assurances that the Company's officers, managers and key employees will obtain Gaming Approvals from the Nevada Gaming Authorities. As a Registered Company and Company Licensee, the Company will be required to periodically submit detailed financial information and operating reports to the Nevada Commission and furnish any other information that the Nevada Commission may require. No person may become a member of, or receive any percentage of profits from a Company Licensee without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company, Holdings and the Aladdin Owners to determine whether such individual is suitable or should be licensed as a business associate of a Company Licensee. Officers, managers and certain key employees of the Company and Holdings must file applications with the Nevada Gaming Authorities and will be required to be licensed by the Nevada Gaming Authorities in connection with the Company's application. The Nevada Gaming Authorities may deny an application for licensing or a finding of suitability for any cause they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability, or the gaming licensee by whom the applicant is employed or for whom the applicant serves, must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities, and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a company position. If the Nevada Gaming Authorities were to find an officer, manager or key employee of the Company or Holdings unsuitable for licensing or to continue having a relationship with the Company or Holdings, the Company or Holdings, as the case may be, would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company or Holdings, as the case may be, to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. The Company will be required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by the Company will be required to be reported to or approved by the Nevada Commission. If it were determined that the Nevada Act was violated by the Company or Holdings, the Gaming Approvals they hold could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, the Company, Holdings and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate the Aladdin and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the Aladdin) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any Gaming Approval or the appointment of a supervisor could (and revocation of any Gaming Approval would) materially adversely affect the gaming operations of the Aladdin and the financial position and results of operations of the Company and the Aladdin Parties. Any beneficial holder of a Registered Company's voting or non-voting securities (including warrants exercisable into such securities), regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as a beneficial holder of the Registered Company's securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the state of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. 69 The Nevada Act requires any person who acquires beneficial ownership of more than 5% of a Registered Company's voting securities (including warrants exercisable into voting securities) to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of a Registered Company's voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing. Under certain circumstances, an "institutional investor," as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of the Registered Company's voting securities (including warrants exercisable into voting securities) may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Registered Company, and change in the Registered Company's corporate charter, bylaws, management, policies or operations of the Registered Company, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders or interest holders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable in a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability or a license within thirty days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder or beneficial owner found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock or other equity securities of a Registered Company beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Registered Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company, the Registered Company (i) pays that person any dividend, distribution or interest upon voting securities of the Registered Company, (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pays remuneration in any form to that person for services rendered or otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities including, if necessary, the immediate purchase of said voting securities for cash at fair market value. The holders of the Warrants and the Warrant Shares will be subject to being called forward for a finding of suitability in the discretion of the Nevada Commission. The Company will be required to maintain a current members' ledger in Nevada that may be examined by the Nevada Gaming Authorities at any time. The Nevada Commission has the power to require that their respective members' certificates bear a legend indicating that such securities are subject to the Nevada Act. It is unknown at this time whether the Nevada Commission will impose this requirement on the Company. After becoming a Registered Company, the Issuer, London Clubs, the Company and Holdings may not make a public offering of any securities (including, but not limited to, the Common Stock of the Issuer upon the exercise of the Warrants) without the prior approval of the Nevada Commission if the securities or the proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. Such approval, if given, does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to 70 the accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary is unlawful. The regulations of the Nevada Board and the Nevada Commission also provide that any entity which is not an "affiliated company," as such term is defined in the Nevada Act, or which is not otherwise subject to the provisions of the Nevada Act or such regulations, such as the Issuer, which plans to make a public offering of securities intending to use such securities, or the proceeds from the sale thereof for the construction or operation of gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes, may apply to the Nevada Commission for prior approval of such offering. The Nevada Commission may find an applicant unsuitable based solely on the fact that it did not submit such an application, unless upon a written request for a ruling, the Nevada Board Chairman has ruled that it is not necessary to submit an application. The sale of securities pursuant to the Warrant Shelf Registration Statement (the "Warrant Public Offering") will qualify as a public offering. The Issuer has filed a written request (the "Ruling Request") with the Nevada Board Chairman for a ruling that it is not necessary to submit the Warrant Public Offering for prior approval. No assurance can be given that the Ruling Request will be granted or that it will be considered on a timely basis. If the Nevada Board Chairman rules that approval of the Warrant Public Offering is required, the Issuer will file an application for such approval. If the Ruling Request is not granted, the Warrant Public Offering could be significantly delayed while the Issuer seeks approval of the Nevada Board and the Nevada Commission for the Warrant Public Offering. No assurance can be given that approval of the Warrant Public Offering, if required, will be granted. If Holdings or the Company shall become an IPO Entity prior to receiving its Gaming Approvals, they intend to file a Ruling Request with the Nevada Board Chairman for a ruling that it is not necessary to submit the Qualified Public Offering for prior approval. No assurance can be given that such a Ruling Request will be granted or that it will be considered on a timely basis. If the Nevada Board Chairman rules that approval of the Qualified Public Offering is required, the Company or Holdings, as applicable, will file an application for such approval. If the Ruling Request is not granted, the Qualified Public Offering could be significantly delayed while the Company or Holdings seeks approval of the Nevada Board and the Nevada Commission for the Qualified Public Offering. No assurance can be given that approval of the Qualified Public Offering, if required, will be granted. Changes in control of a Registered Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby he obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Company must satisfy the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of such Registered Company. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction. The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licensees, and Registered Companies that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before the Registered Company can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Registered Company's Board of Directors in response to a tender offer 71 made directly to the Registered Company's stockholders or interest holders for the purposes of acquiring of the Registered Company. License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to Clark County, Nevada. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. A casino entertainment tax also will also be paid by the Company where certain entertainment is provided in a cabaret, nightclub, cocktail lounge or casino showroom in connection with admissions and the serving or selling of food, refreshments or merchandise. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Board and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the Nevada Board of their participation in such foreign gaming. The revolving fund is subject to increase or decrease at the discretion of the Nevada Commission. Thereafter, Licensees are also required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Nevada Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities or enter into associations that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employ, contract with or associate with a person in the foreign operation who has been denied a license or a finding of suitability in Nevada on the ground of personal unsuitability. The sale of alcoholic beverages by the Company on the premises of the Aladdin is also subject to licensing, control and regulation by the CCLGLB. All licenses are revocable and are not transferable. The CCLGLB have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material adverse effect on the financial position and results of operations of the Company and the Aladdin Parties. 72 MANAGEMENT The following table sets forth the executive officers and the directors of the Company, which will own, develop and operate the Aladdin, and of the Issuer, Holdings and Capital. A "director" of the Company or Holdings, as such term is used in this Prospectus, shall refer to a person who sits on the Board of Managers of the Company (the "Company Board") or Holdings (the "Holdings Board").
NAME AGE POSITION - --------------------------------------------- --- ------------------------------------------------------------ Jack Sommer.................................. 51 Chairman of the Company Board and the Holdings Board; Director of the Issuer and Capital; President of the Issuer Richard J. Goeglein.......................... 64 Chief Executive Officer and President of the Company, Holdings and Capital; Director of the Company, Holdings and Capital Ronald Dictrow............................... 54 Executive Vice President/Secretary and Director of the Company, Holdings and Capital; Director and Secretary of the Issuer Alan Goodenough.............................. 54 Director of the Company, Holdings and Capital G. Barry C. Hardy............................ 50 Director of the Company, Holdings and Capital James H. McKennon............................ 44 Senior Vice President of the Company, Holdings and Capital; President/Chief Operating Officer of the Aladdin Hotel and Casino Cornelius T. Klerk........................... 44 Senior Vice President/Chief Financial Officer/ Treasurer of the Company, Holdings and Capital; Treasurer of the Issuer Lee A. Galati................................ 55 Senior Vice President/Human Resources of the Company, Holdings and Capital Jose A. Rueda................................ 61 Senior Vice President/Electronic Gaming of the Company, Holdings and Capital David Attaway................................ 43 Senior Vice President of the Company, Holdings and Capital; President and Chief Operating Officer of the Music Project Patricia Becker.............................. 46 Senior Vice President/General Counsel of the Company, Holdings and Capital
JACK SOMMER is the Chairman of the Holdings Board and the Company Board, director of the Issuer and Capital and President of the Issuer. Mr. Sommer has been a full time resident of Las Vegas since 1988. Mr. Sommer is both a trustee and contingent beneficiary of the Trust. He has over 25 years of experience in developing residential and commercial real estate, including luxury residential projects such as North Shore Towers, in Queens County, New York, and The Sovereign at 425 East 58th Street in Manhattan. The Sommer family has been in the real estate development business for over 100 years, operating for part of that time as Sommer Properties ("Sommer Properties") founded by Mr. Sommer's father (who passed away in 1979), and which is controlled by Mr. Sommer and his mother, Mrs. Viola Sommer. Other well known developments of Sommer Properties have included 280 Park Avenue, Manhattan, an 820,000 square foot office building in Manhattan formerly owned and currently partially occupied by the Bankers Trust Company; 135 West 50th Street, Manhattan, an 800,000 square foot office building also known as the AMA Building; and 600 Third Avenue, Manhattan, a 500,000 square foot office building. Sommer Properties has also developed over 35,000 single family homes, primarily in New Jersey. 73 RICHARD J. GOEGLEIN is Chief Executive Officer and a director of the Company, Holdings and Capital. Mr. Goeglein has spent over 28 years in the hotel/casino and food service industry. He was an Executive Vice President and a member of the Board of Directors of Holiday Inns and Holiday Corp. from 1978 through 1987 and led the management team that consummated the 1980 acquisition of Harrah's Hotels and Casinos ("Harrah's") for Holiday Inns. Mr. Goeglein subsequently served as President and Chief Executive Officer of Harrah's from 1980 to the Fall of 1984 and as President and Chief Operating Officer of Holiday Corp. (the parent company of Holiday Inns, Harrah's, Hampton Inns and Embassy Suites) from October 1984 through 1987. From 1988 to 1992, Mr. Goeglein participated in several corporate turnarounds in the technology and consumer services fields. In 1992, Mr. Goeglein formed Gaming Associates, Inc. ("Gaming Associates") to take management control of Dunes Hotel and Casino in Las Vegas and to prepare a plan of closure for and carry out the closure of the property. He remains a principal of that company. Gaming Associates provided consulting services to the lodging and gaming industries. Mr. Goeglein recently served as a member of the Gaming Oversight Committee of Marriott Corporation ("Marriott") and through Gaming Associates, provided consulting services to Marriott's gaming operations situated outside of the United States through December 1997. Mr. Goeglein is also a director of Hollywood Park, Inc. RONALD DICTROW is Executive Vice President/Secretary and a director of the Company, Holdings and Capital and a director and Secretary of the Issuer. Mr. Dictrow spent the first 12 years of his professional career as a CPA with the New York accounting firm of David Berdon & Company and has a master's degree in accounting and taxation. In 1979, he was hired by Sigmund Sommer as Controller with financial responsibility for all of Mr. Sommer's properties. In 1984, Mr. Dictrow became Treasurer and Chief Financial Officer of the Trust with the additional responsibility for the operations and management of these properties. Mr. Dictrow is an advisor and consultant to Mrs. Viola Sommer and has been an officer and director of Sovereign Apartments, Inc., a New York City cooperative apartment building since 1979. Mr. Dictrow has had business dealings with the Sommer family for over 20 years. ALAN GOODENOUGH is a director of the Company, Holdings and Capital. Mr. Goodenough, who is chief executive officer of London Clubs, has over 30 years of experience in the leisure and gaming industry, having worked as a public company director and at other senior levels with several major public leisure and casino companies in the United Kingdom. In 1990 Mr. Goodenough founded Lyric Hotels Limited, a United Kingdom hotel company, raising over $40 million from United Kingdom-based institutions. He remains Chairman of the Lyric Group which currently operates three and four star hotels throughout England. As chief executive officer of London Clubs, Mr. Goodenough was instrumental in that company's initial public offering on the London Stock Exchange in June 1994. Mr. Goodenough is also presently a fellow of the United Kingdom Hotel and Catering Institute and a member of the Institute of Directors of England and Wales. G. BARRY C. HARDY is a director of the Company, Holdings and Capital. Mr. Hardy has served as Finance Director of London Clubs since 1989. Before joining London Clubs, Mr. Hardy had extensive business experience in the leisure and gaming industries. Such experience included executive level positions with Pleasurama, plc where he held the offices of Development Director, Group Finance Director and Company Secretary. In addition, Mr. Hardy was actively involved in the development of Pleasurama's leisure and casino interests. In 1988, after the acquisition of Pleasurama by Mecca Leisure Ltd., Mr. Hardy was appointed to Mecca's Board as Managing Director of its casino division. JAMES H. MCKENNON is Senior Vice President of the Company, Holdings and Capital and President/ Chief Operating Officer of the Aladdin Hotel and Casino. Mr. McKennon's career spans over 21 years in the hotel and casino industry in a variety of executive positions. He was President and Chief Operating Officer of Caesars World International Marketing (the casino marketing division of Caesars World) from 1994 to 1996 and served as the President and Chief Operating Officer of Caesars Tahoe from 1991 to 1994. Mr. McKennon first joined Caesars as the Senior Vice President-Hotel Operations for Caesars Palace in 74 Las Vegas, a position he held until his promotion in 1991. From 1976 to 1988 he held a variety of managerial positions at both the property and corporate level for Westin Hotels. CORNELIUS T. KLERK is the Senior Vice President/Chief Financial Officer of the Company, Holdings and Capital and Treasurer of the Issuer. He has over 19 years of experience in the hotel and casino industry both at the corporate and property level. From 1993 to 1997 Mr. Klerk was Vice President--Finance for Hilton Gaming Division (the gaming division of Hilton Hotels Corporation ("Hilton")). In that position he was responsible for the financial oversight of all gaming properties owned and operated by Hilton. He was employed by Harrah's from 1979 to 1985 and again from 1989 to 1993 in a variety of financial management positions ranging from Casino Controller for Harrah's Atlantic City to Vice President, Finance--Southern Nevada. From 1985 to 1987, Mr. Klerk was Vice President of Gilpin, Peyton and Pierce, a regional advertising agency and from 1987 to 1989, he was Corporate Controller for Forte Hotels International in San Diego, California. Mr. Klerk was previously a CPA with the accounting firm of Price Waterhouse. LEE A. GALATI is the Senior Vice President/Human Resources of the Company, Holdings and Capital. Mr. Galati has 22 years of human resources experience in a variety of industries in both the public and private sectors. He was most recently the Director of Human Resources for Sky Ute Casino in Durango, Colorado from 1996 to 1997. Mr. Galati served as the Director of Human Resources for La Plata County, Colorado from 1993 to 1995. From 1990 to 1993, Mr. Galati served as an adjunct professor in the School of Business at Fort Lewis College in Durango, Colorado. His experience also includes serving as Director of Operations Support Services and Human Resources for Northern Telecom in San Diego from 1984 to 1990 as well as Director of Human Resources for Beckman Instruments in Fullerton, California from 1980 to 1984. Mr. Galati earned a Masters in Human Resources and Organization Development from the University of San Francisco in 1984. JOSE A. RUEDA is the Senior Vice President of Electronic Gaming for the Company, Holdings and Capital. Mr. Rueda's 28 years experience in the gaming industry includes gaming operations as well as the sale and distribution of gaming equipment. He was the Vice President, North East Region of Mikohn Gaming Corporation from 1995 to 1997. Mikohn is a leading supplier of gaming equipment to the casino industry. Prior to joining Mikohn, Mr. Rueda was with Harrah's for 24 years in a variety of management positions that included Director of Slot Operations, Harrah's Atlantic City, from 1986 to 1994; Vice President of Gaming/Slots, Harrah's Corporate from 1984 to 1986; Vice President of Operations, Harrah's at Trump Plaza from 1983 to 1984 and Vice President of Gaming, Harrah's Corporate from 1980 to 1983. Mr. Rueda has extensive experience in property research and development along with creative product positioning. He holds a business management degree from the University of Nevada at Reno. DAVID ATTAWAY is the Senior Vice President of the Company, Holdings and Capital and President and Chief Operating Officer of the Music Project. Mr. Attaway has 17 years experience in the entertainment, hotel and casino industry in a variety of executive positions. He joined Caesars Tahoe in 1986 and held the following positions during his 12 year tenure: Senior Vice President and General Manager from 1996 to 1998; Senior Vice President of Casino Operations and Marketing, 1996 and Senior Vice President of Marketing, 1992 to 1996. Prior to joining Caesars Tahoe, Mr. Attaway was the Director of Marketing and Finance for Lawlor Event Center in Reno, Nevada from 1983 to 1985. He held management positions with Five Flag Center in Dubuque, Iowa from 1981 to 1983. Mr. Attaway holds a Bachelors Degree in Theater Management from Ohio University and he completed the Masters Program in Marketing at the same institution. PATRICIA BECKER is the Senior Vice President/General Counsel of the Company, Holdings and Capital. Ms. Becker currently is a director of Powerhouse Technologies, Inc. and Fitzgeralds Gaming Corporation and chairs the Compliance Committee for both companies. From 1993 to 1995, Ms. Becker was Chief of Staff for Nevada Governor, Bob Miller. From 1985 to 1993 Ms. Becker was with Harrah's Hotels and Casinos, where she held the position of Senior Vice President and General Counsel. Prior to joining 75 Harrah's, she was a member of Nevada State Gaming Control Board. She holds a Juris Doctorate degree from California Western School of Law. COMMITTEES There are currently no committees of the board of directors of the Issuer (the "Issuer Board"). The Holdings Operating Agreement provides that there will be Executive Management Committees which will be responsible for the day to day management of Holdings and the Company. The Executive Management Committee of the Company includes the following persons: the President and Chief Executive Officer of the Company, the Chief Financial Officer of the Company, the President and Chief Operating Officer of the Aladdin, the President and Chief Operating Officer of the Music Project, the Senior Vice President of Human Resources of the Company, the Senior Vice President of Electronic Gaming of the Company, the Senior Vice President/General Counsel of the Company and the Managing Director of the Salle Privee. See "Certain Material Agreements--Holdings Operating Agreement." The Holdings Board may also establish committees of the Holdings Board as it may deem necessary or advisable. Each of London Clubs and Sommer Enterprises is entitled to have one of its nominee Holdings Board members on each such committee. Presently, no committees of the Holdings Board have been established. COMPENSATION The following table summarizes the compensation earned during 1997 by the Company's, Holdings' and Capital's Chief Executive Officer and the only other executive officer of the Company, Holdings, Capital or the Issuer who earned over $100,000 in 1997.
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION(1) --------------------------------- ------------------------------------------ NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED STOCK OCCUPATION(2)(3) SALARY COMPENSATION AWARDS OTHER - ------------------------------- ---------- --------------------- ------------------- --------------------- Richard J. Goeglein; Chief Executive Officer............ $ 650,000(4) --(5) $ 0(6) $16,343(7) James H. McKennon; Senior Vice President.................... $ 243,750(8) --(9) $ 0(10) $635(7)
- ------------------------------ (1) All of the executive officers of the Company, Holdings and Capital (other than Mr. Dictrow) are compensated by the Company. Mr. Dictrow is principally employed by the Trust and is compensated by the Trust. Compensation has been paid on the Company's behalf by AHL since the Company's inception in January 1997. (2) The executive officers of the Issuer received no compensation from the Issuer in 1997. (3) No other executive officer of the Company, Holdings or Capital received a total annual salary and bonus exceeding $100,000 in 1997 from the Company, Holdings or Capital. (4) Includes $150,000 paid to GAI in 1997 for consulting fees. (5) GAI purchased vested Holdings Common Membership Interests representing 3% of the outstanding Holdings Common Membership Interests for $1,800. The price paid by GAI for such interests was equal to the fair market value of such interests at the time of purchase. The aggregate amount of all perquisites and other personal benefits received by Mr. Goeglein in 1997 was less than $50,000. (6) Mr. Goeglein purchased unvested Holdings Common Membership Interests representing 2% of the outstanding Holdings Common Membership Interests for a purchase price of $1,200. Such interests had a fair market value of $1,200 on the date of purchase and vest on the earlier of (a) July 1, 2002 and (b) the date on which such interests become publicly traded. (7) Represents life insurance premiums paid on behalf of the executive in 1997. (8) Mr. McKennon's employment with the Company began mid-year 1997. Mr. McKennon's Employment Agreement provides for an annual salary of $325,000 per year ($350,000 effective April 1998), plus certain other benefits. See "--Employment Agreements." (9) The aggregate amount of all perquisites and other personal benefits received by Mr. McKennon were less than 10% of the salary and bonus he was paid in 1997. 76 (10) Mr. McKennon purchased unvested Holdings Common Membership Interests representing approximately 1.0% of the outstanding Holdings Common Membership Interests for a purchase price of $600. Such interests had a fair market value of $600 on the date of purchase. Twenty-five percent of such interests vest on the date of the opening of the Aladdin and an additional 25% vests on each annual anniversary of such opening date. EMPLOYMENT AGREEMENTS Richard J. Goeglein, James H. McKennon, Cornelius T. Klerk, Lee A. Galati and Jose A. Rueda (the "Officers") each signed an employment agreement (each, an "Employment Agreement") with the Company during 1997. David Attaway and Patricia Becker are currently negotiating employment agreements with the Company which are expected to be comparable to the employment agreements discussed herein. The terms of the Employment Agreements were amended on February 26, 1998, such that Holdings became a party and the Officers contributed their Restricted Membership Interests in the Company to Holdings in return for Restricted Membership Interests in Holdings. The initial term of Mr. Goeglein's Employment Agreement is five years and six months, and the remaining Officers' Employment Agreements have an initial duration of four years. Pursuant to each Employment Agreement, the Officers have such authority, responsibilities and duties as are customarily associated with their positions with the Company. The Employment Agreements provide that, during the term of their employment, the Officers will devote their full time, efforts and attention to the business and affairs of the Company. The terms of the Employment Agreements provide for an annual base salary for Mr. Goeglein, Mr. McKennon, Mr. Klerk, Mr. Galati and Mr. Rueda of $500,000 ($600,000 after the opening of the Aladdin), $325,000 ($350,000 effective April 1998), $200,000, $150,000 and $250,000, respectively, plus any bonus granted by the Board of Directors based on relevant criteria and performance standards. All of the Officers have been receiving and are expected to continue to receive their compensation from the Company, except that prior to the Issue Date, such amounts have been and will continue to be paid by AHL on the Company's behalf. Mr. Goeglein's Employment Agreement provides for annual bonuses based upon "on target" performances, ranging from 50% to 75% of his base salary, and is subject to certain tax provisions. The Company Board will consider increases to the Officers' base salary no less frequently than annually, commencing at the end of each Officer's first employment year. Any increase in base salary shall be within the sole discretion of the Company Board. The Employment Agreements provide that the Officers' salary cannot be reduced. After the initial term of Mr. Goeglein's Employment Agreement, the Company has agreed to retain Mr. Goeglein as a consultant to the Company for an additional five years at $100,000 per year. The Officers are entitled to receive other employee benefits from the Company, such as health, pension and retirement and reimbursement of certain expenses. Pursuant to the terms of the Employment Agreements, as amended, Mr. Goeglein, Mr. McKennon, Mr. Klerk, Mr. Galati and Mr. Rueda have purchased for a total purchase price of $1,200, $600, $450, $150 and $450, respectively, unvested Common Membership Interest which were contributed to Holdings on February 26, 1998 in return for unvested Holdings Common Membership Interests representing approximately 2.0%, 1.0%, .75%, .25% and .75% (subject to dilution upon exercise of the Warrants, whether vested or unvested at such time), respectively of the Holdings Common Membership Interests (the "Restricted Membership Interests"), subject to the receipt of applicable Gaming Approvals. The Officers' Restricted Membership Interests will be diluted upon exercise of the Warrants so that Sommer Enterprises and the Officers share pro rata the ultimate dilutive effect of the exercise of the Warrants. Sommer Enterprises' percentage interest will be adjusted upward to the same degree. Enterprises' interest in Holdings will be unaffected by the vesting of the Officers' Restricted Membership Interests. Except with respect to Mr. Goeglein, during the terms of the Employment Agreements, 25% of each Officer's Restricted Membership Interests vest on the date of the opening of the Aladdin, and a further 25% vest on each annual anniversary of the opening of the Aladdin. If the Company continues to employ each Officer after the expiration of the term of each Officer's Employment Agreement, 25% of the Officer's Restricted Membership Interests will continue to vest on each anniversary of the opening date until such interests are fully vested. After the terms of the Employment Agreements, if the Company does not continue to employ 77 the Officer other than for Cause, or if the Officer no longer continues his employment for Good Reason, only an additional 25% of the Officer's Restricted Membership Interests vests. Mr. Goeglein's Restricted Membership Interests are expected to become fully vested at the earlier of July 1, 2002 and the date on which such interests become publicly traded, conditioned upon Mr. Goeglein's continued relationship with the Company. If an Officer's employment with the Company and Holdings terminates, the Company and Holdings are expected to have the right to repurchase any unvested portion of the Officer's Restricted Membership Interest for an amount equal to the purchase price originally paid by the Officer for the Common Membership Interest. Under certain circumstances as set forth in the Employment Agreements, including if an initial public offering with respect to the Restricted Membership Interests has not occurred prior to the full vesting of such interests, the Officers have the right to sell their vested Restricted Membership Interests to Holdings at fair market value (subject to the receipt of applicable Gaming Approvals and to certain restrictions on restricted payments set forth in the Indenture and the Bank Credit Facility). If Holdings does not satisfy its obligation to purchase the Restricted Membership Interests within seven days, the Officers have the right to require the Company to purchase such interests at fair market value (subject to certain restrictions on Restricted Payments set forth in the Indenture). After the Company has satisfied its obligation to purchase the Restricted Membership Interests, Holdings has the right to call such interests from the Company for nominal consideration. If, prior to the date of an initial public offering with respect to the Restricted Membership Interests, an Officer is terminated for Cause, except with respect to Mr. Goeglein, the Company and Holdings have the right to purchase any vested Restricted Membership Interests from the Officers at two times the original price paid by the Officer for such interests, (in each case with corresponding rights in Holdings to purchase the Common Membership Interests which correspond to such Restricted Membership Interests for nominal consideration). The Employment Agreements may be terminated by the Company with or without Cause (as defined in each Employment Agreement) or by the Officers for Good Reason (as defined in each Employment Agreement). If an Officer is terminated for Cause, he shall be entitled only to such salary, bonus and benefits then accrued or vested. If an Officer is terminated without Cause or upon a Change in Control (as defined in the Employment Agreements), the Officer shall be entitled to such salary, bonus and benefits he would have been entitled for the remainder of the four-year term or twelve months, whichever is longer (in the case of Mr. Goeglein, any such amount remaining in connection with his term plus certain other amounts). Each Officer has agreed not to compete with the Company during the term of the Employment Agreements (plus one additional year if the Officer was terminated for Cause) and has agreed to refrain from certain other activities in competition with the Company. Each of the Employment Agreements provides that the Company shall indemnify and hold the Officers harmless to the fullest extent permitted by Nevada law against costs, expenses, liabilities and losses, including reasonable attorney's fees and disbursements of counsel, incurred or suffered by the Officer in connection with his services as an employee of the Company during the term of the respective Employment Agreement. Mr. Goeglein's Employment Agreement provides Mr. Goeglein with relocation expense reimbursement, an interest-free mortgage loan of up to $500,000, and certain excise tax gross-up provisions. GAI CONSULTING AGREEMENT The Company has entered into a consulting agreement (as amended, the "Consulting Agreement") with GAI, LLC ("GAI"), a Nevada limited-liability company 100% beneficially owned by Richard Goeglein, which was subsequently amended on February 26, 1998 to add Holdings as a party and pursuant to which amendment GAI contributed its Common Membership Interests in the Company to Holdings in return for Holdings Common Membership Interests. Pursuant to the Consulting Agreement, GAI will render such consulting services as are reasonably requested by the Company Board until June 30, 2002. 78 During the term of the Consulting Agreement, the Company shall pay GAI a retainer of $12,500 each month as payment for remaining on call to provide services and expertise for such month. In addition, GAI purchased a 3% Common Membership Interests in the Company which was contributed to Holdings on February 26, 1998 in return for a 3% Holdings Common Membership Interest (the "GAI Membership Interest") for a purchase price of $1,800. The GAI Membership Interest is fully vested and is subject to certain anti-dilution provisions contained in the Consulting Agreement (but subject to dilution upon exercise of the Warrants). In addition, (a) if Richard Goeglein is terminated from his employment with the Company other than for "Cause" or voluntarily terminates for "Good Reason" (as such terms are defined in Mr. Goeglein's Employment Agreement with the Company) after the consummation of the Funding Transactions and the Offering or (b) if an initial public offering in respect of the GAI Membership Interest has not occurred prior to July 1, 2002, GAI has the right to sell any shares purchased under the Consulting Agreement back to Holdings at their fair market value at the time of such sale (subject to the receipt of applicable Gaming Approvals and to certain restrictions on restricted payments set forth in the Indenture and the Bank Credit Facility). If Holdings does not satisfy its obligation to purchase the GAI Membership Interest within seven days, GAI has the right to require the Company to purchase such interests at fair market value. After the Company has satisfied its obligation to purchase the GAI Membership Interest, Holdings will have the right to call such interests from the Company at nominal value. Pursuant to the Consulting Agreement, GAI has certain "piggyback" registration rights with respect to its interests purchased pursuant to the Consulting Agreement. Holdings has agreed to indemnify GAI, its legal counsel and independent accountants against all expenses, claims, losses, damages and liabilities which may arise out of certain acts or omissions committed in connection with the registration of such membership interests, and, in connection with certain acts or omissions not committed in connection with the registration of such membership interests, to the same extent that other senior management and directors of the Company and Holdings are indemnified. BONUS AND INCENTIVE PLANS The Company and Holdings currently do not have any bonus or incentive plans. However, the Company anticipates adopting such a plan at such time as it may deem appropriate (subject to supermajority approval by the Holdings Members (as defined herein), such approval not to be unreasonably withheld). It is expected that the terms of any such plan would be comparable to those customary in the industry. 79 CONTROLLING STOCKHOLDERS OVERVIEW AHL owns 98.7% of the common membership interests of Sommer Enterprises, a Nevada limited-liability company. Sommer Enterprises currently owns 100% of the Issuer Stock and, on a fully diluted basis assuming full exercise of the Warrants, will own 60% of the Issuer Stock (comprising 100% of the Issuer's Class A Common Stock, no par value, and 50% of the Common Stock). The Holdings Common Membership Interests are held, 25.0% by the Issuer, 47.0% by Sommer Enterprises, 25.0% by London Clubs, through LCNI, and the remaining 3.0% by GAI. Holdings owns all of the outstanding Common Membership Interests and Series A Preferred Interests of the Company. AHL, which indirectly owns approximately 71.1% of the Common Membership Interests and Series A Preferred Interests, is a 95%-owned subsidiary of the Trust, a private New York discretionary trust, the trustees of which are Mrs. Viola Sommer, Mr. Eugene Landsberg and Mr. Jack Sommer and the beneficiaries of which are certain members of the Sommer family. The Sommer family has been in the business of developing residential and commercial real estate, predominantly in the metropolitan areas of the States of New York and New Jersey, for over 100 years. The former Aladdin hotel and casino located on the Project Site was acquired by a predecessor-in-interest to AHL in December, 1994. Mr. Jack Sommer and the other trustees of the Trust are currently co-defendants in a legal action relating to the acquisition of the Project Site in December, 1994. See "--Trust Litigation". There is a potential conflict of interest for the Trust with respect to its indirect interest in the Mall Project, on the one hand, and its indirect interest in the Aladdin on the other hand. If the Trust directs attention to operations at the Mall Project and to increasing customers to the Desert Passage, it may decrease the pedestrian traffic to the Aladdin, which could have a material adverse effect on operations of the Company, and accordingly Holdings and Enterprises. London Clubs (together with AHL, the "Controlling Stockholders") owns 25% of the Holdings Common Membership Interests through subsidiaries. On the opening date of the Aladdin, 0.5% of the Holdings Common Membership Interests will be transferred from London Clubs to Sommer Enterprises and, upon the vesting of certain employees' membership interests in Holdings, London Clubs' percentage of the Holdings Common Membership Interests, and Sommer Enterprises' percentage of the Holdings Common Membership Interests, will be further diluted proportionately to account for such vesting, subject to applicable Gaming Approvals. London Clubs is one of the world's leading casino operators, with seven casinos in London (including Les Ambassadors Club and the Ritz Club), one in Cannes, France, three in Egypt and one in Lebanon. Each of London Clubs' casinos offers its own individual style, but with the same internationally-recognized standards of service. In recent years, London Clubs has embarked upon a period of expansion, acquiring the Park Tower Casino in London's Knightsbridge in October 1996 and in December 1996 re-opening and managing the casino operations of the famous Casino du Liban in Lebanon. On May 29, 1998 London Clubs had an equity market capitalization of over $461 million. London Clubs is listed on the London Stock Exchange. See "Risk Factors--Controlling Stockholders" and "--Possible Conflicts of Interest." HOLDINGS OPERATING AGREEMENT The members of Holdings (the "Holdings Members") are parties to the Holdings Operating Agreement which sets forth their agreement as to the relationships between Holdings and the Holdings Members and among the Holdings Members themselves and as to the conduct of the business and internal affairs of Holdings and its subsidiaries. For a summary of certain key provisions of the Holdings Operating Agreement, see "Certain Material Agreements--Holdings Operating Agreement." 80 EQUITY AND SERIES A PREFERRED INTEREST FINANCING Concurrent with or prior to the Offering, the following contributions were made in order to effect the equity and Series A Preferred Interest contribution to the Company by Holdings: (i) Sommer Enterprises (a) contributed a portion of the Contributed Land and $7.0 million consisting of the benefit of certain predevelopment costs incurred by AHL to the Issuer in exchange for Class A Common Stock in the Issuer and (b) contributed a portion of the Contributed Land to Holdings in exchange for Holdings Common Membership Interests, (ii) the Issuer contributed the portion of the Contributed Land and the benefit of the $7.0 million of certain predevelopment costs received from Sommer Enterprises and the net proceeds allocable from the sale of the Warrants to Holdings in exchange for Holdings Common Membership Interests ((i) and (ii) collectively, the "Sommer Equity Financing"), (iii) Holdings contributed the Contributed Land appraised at $150.0 million, approximately $42 million from the London Clubs Contribution and the $7.0 million consisting of the benefit of certain predevelopment costs incurred by AHL to the Company in exchange for Common Membership Interests in the Company and (iv) Holdings contributed $115.0 million in cash, consisting of the net proceeds of the sale of the Units and approximately $8 million of the London Clubs Contribution, to the Company in exchange for Series A Preferred Interests of the Company. LAND APPRAISAL. The Project Site represents the Company's most material asset. The Bank of Nova Scotia, as arranger of the Bank Credit Facility retained HVS International, a division of Hotel Consulting, Inc., to prepare and deliver an appraisal of the Project Site and the Hotel/Casino (the "Appraisal"). The Appraisal was completed and delivered to the Bank of Nova Scotia and the Company on October 7, 1997. The Appraisal states that as of August 7, 1997, the "market value" of the Project Site was $180.0 million and of the site on which the Aladdin and the Plant will be built (as well as an adjacent approximately 0.8 acre portion of the Project Site) was $135.0 million. KEEP-WELL AGREEMENT AHL, Bazaar Holdings and London Clubs (collectively, the "Sponsors") have entered into the Keep-Well Agreement in favor of the Administrative Agent and the Bank Lenders. Neither the Issuer, Holdings nor holders of the Warrants or Warrant Shares are party to the Keep-Well Agreement. Capitalized terms used and not defined in this section have the meanings assigned to such terms in the Keep-Well Agreement. The Keep-Well Agreement is the joint and several agreement of the Sponsors to make certain quarterly Cash Equity Contributions (as defined below) to the Company from and after the Conversion Date if the Company fails to comply with the Minimum Fixed Charges Coverage Ratio set forth in the Bank Credit Facility. The Bank Credit Facility defines the Minimum Fixed Charges Coverage Ratio as the ratio of the Company's EBITDA for any period of four consecutive fiscal quarters to the Company's fixed charges for such period. For the Company's first three fiscal quarters after the Conversion Date, the Minimum Fixed Charges Coverage Ratio shall be calculated by annualizing the Company's Minimum Fixed Charges Coverage Ratio for such fiscal quarters. The Cash Equity Contributions to the Company shall be in an amount that, when added to the Company's EBITDA for the four quarter period ending on the last day of such fiscal quarter, would rectify such breach. In no event shall the aggregate Cash Equity Contributions required to be made by the Sponsors in any fiscal year of the Company exceed $30.0 million. The $30.0 million annual limitation on Cash Equity Contribution shall not apply to, or in any way limit, any obligation of the Sponsors to pay the Accelerated Payment Amount (as defined below). The Cash Equity Contributions are cash contributions by the Sponsors to the Company in exchange for Holdings Series A Preferred Interests or Holdings Series B Preferred Interests having terms and conditions satisfactory to the Bank Lenders (including, without limitation, no mandatory redemption provisions and no requirements for the distribution of cash). The Holdings Operating Agreement makes 81 provision for adjustment of the proportion of Holdings Common Membership Interests held by Sommer Enterprises and London Clubs for circumstances where the portion of payment made by either Sponsor is in excess of 25% with respect to London Clubs and 75% with respect to Sommer Enterprises. The Cash Equity Contributions and the issuance of Holdings Common Membership Interests or the Holdings Series A Preferred Interests and Holdings Series B Preferred Interests will require the approval of the Nevada Gaming Authorities. Cash Equity Contributions made under the Bank Completion Guaranty will not count for purposes of the Keep-Well Agreement, and vice-versa. The Keep-Well Agreement will terminate (the "Keep-Well Termination Date") on the date which is the earliest of (i) the day on which full and indefeasible payment of the Obligations of the Company under the Bank Credit Facility has been made to reduce the commitments of the Bank Lenders thereunder (the "Commitments") to $145.0 million or less, (ii) the last day of the period of six consecutive fiscal quarters from and after the Conversion Date during which the Company has satisfied each of the financial covenants set forth in the Bank Credit Facility (without giving effect to any payments to or investments by the Sponsors in or for the benefit of the Company), (iii) the date on which both of the following shall have been satisfied: (a) construction of the Aladdin and renovation of the Theater have been completed in accordance with the terms of the Bank Credit Facility and (b) the Commitments and the aggregate outstanding principal amount of the Obligations under the Bank Credit Facility shall have been reduced to an amount not in excess of a certain amount specified for such date pursuant to a schedule of the 20 quarters following the Conversion Date, (iv) the date on which the Sponsors shall have made full payment of the Accelerated Payment Amount (as defined below) or (v) in the case of London Clubs only, the date on which it shall have made full payment of the Accelerated Payment Amount in respect of certain London Clubs specified events. The Accelerated Payment Amount is, as of any date, an amount equal to the sum of (a) the product of (i) $7.5 million times (ii) the number of scheduled quarterly amortization payments remaining under the Bank Credit Facility (which have not been paid by or on behalf of the Company) plus (b) any accrued and unpaid amounts owed by the Sponsors under certain provisions of the Keep-Well Agreement; provided, however, that at no time shall the Accelerated Payment Amount exceed the lesser of (x) the outstanding Obligations of the Company under the Bank Credit Facility and (y) $150.0 million plus amounts due under clause (b) above, minus the product of (A) $7.5 million and (B) the number of complete calendar quarters that have elapsed since the Conversion date which is six calendar quarters after the Conversion Date. The maximum amount of the Accelerated Payment Amount will be $150.0 million plus any unpaid Cash Equity Contributions previously required to be made under the Keep-Well Agreement. The maximum amount of the Accelerated Payment Amount shall decrease by $7.5 million for each quarterly amortization payment which is paid or prepaid. Should certain specified exceptional events under the Keep-Well Agreement occur, London Clubs is obligated to pay the Accelerated Payment Amount. The specified exceptional events will include breaches by London Clubs of various financial covenants and a covenant limiting the amount of secured debt which London Clubs can incur, as well as certain events which will be triggered if other indebtedness of London Clubs is accelerated or if London Clubs becomes insolvent. Any such payments by London Clubs shall be used to repay bank indebtedness under the Bank Credit Facility. The obligations of London Clubs under the Keep-Well Agreement are subordinated to other obligations of London Clubs under certain of its pre-existing senior debt facilities. In addition, obligations of London Clubs under the Keep-Well Agreement are guaranteed by certain subsidiaries of London Clubs, which subsidiaries currently guarantee other indebtedness of London Clubs. 82 Pursuant to the Salle Privee Management Agreement, London Clubs will receive certain fees in consideration for its obligations under the Keep-Well Agreement. See "Certain Transactions--Other Payments to Controlling Stockholders." The Keep-Well Agreement contains representations and warranties, covenants and events of default that are customary for the type of transaction. TRUST LITIGATION Mr. Jack Sommer, who is a trustee of the Trust, and the other trustees of the Trust, are co-defendants in a legal action relating to the existing Aladdin hotel and casino commenced by members of the Aronow family (the "Aronow Plaintiffs") in May 1995 in the Supreme Court of the State of New York, County of New York. In their complaint, the Aronow Plaintiffs allege that Mr. Jack Sommer and the Aronow Plaintiffs were parties to a joint venture to acquire and develop the existing Aladdin hotel and casino and that Mr. Sommer breached such alleged agreement when the Trust acquired an interest in the Aladdin hotel and casino in December, 1994. The Aronow Plaintiffs are seeking (among other remedies) to impress a constructive trust upon the Trust's interest in the Aladdin hotel and casino, an accounting, compensatory damages of not less than $200.0 million and punitive damages of not less than $500.0 million. Mr. Sommer and the trustees of the Trust have informed the Company that they intend to vigorously defend such action. However, in the event that the action is successful, the Trust might be required to pay substantial damages and/or the Aronow Plaintiffs might be entitled to part of the Trust's interest in the Aladdin hotel and casino. An adverse decision could have a material and adverse effect on the Company and the Aladdin Parties. Mr. Sommer and the other trustees of the Trust were also co-defendants in a legal action commenced by Edward Kanbar, Romano Tio and Adina Winston (the "Kanbar Plaintiffs" and together with the Aronow Plaintiffs, the "Plaintiffs") in January 1997 in the Supreme Court of the State of New York, County of New York. In their complaint, the Kanbar Plaintiffs alleged that they were partners in an alleged partnership with Joseph Aronow, which partnership was formed to seek and develop business opportunities with Mr. Sommer. The Kanbar Plaintiffs were seeking (among other remedies) to impress a constructive trust upon the Trust's interest in the Aladdin hotel and casino, compensatory damages of not less than $20.0 million and punitive damages of not less than $50.0 million. On January 15, 1998, the court granted the trustees of the Trust's motion to dismiss this action in its entirety. In 1988, the Trust and two related entities commenced an action in the Southern District of New York against certain entities owned and controlled by Bronfman family interests (the "Bronfman Defendants") alleging, among other things, that the Bronfman Defendants committed violations of Rule 10b-5 under the Securities Exchange Act of 1934, as amended, as well as multiple breaches of fiduciary duties as general partner of a partnership in which the Trust owns limited partnership interests. Relief requested includes an accounting, imposition of a constructive trust and damages in excess of $100.0 million. The Bronfman Defendants have asserted counterclaims against plaintiffs and certain Sommer family members individually alleging causes of action for breach of contract, fraud and various related torts. The Bronfman Defendants claim damages in excess of $100.0 million. The trustees of the Trust have informed the Company that they intend to vigorously defend the counterclaim. However, in the event the Bronfman Defendants are successful, the Trust might be required to pay substantial damages. An adverse decision could have a material and adverse effect on the Trust. 83 CERTAIN TRANSACTIONS SALLE PRIVEE MANAGEMENT AGREEMENT The Company, London Clubs and LCNI are parties to the Salle Privee Management Agreement which relates to the Salle Privee. Under the Salle Privee Management Agreement, London Clubs has agreed to guaranty the obligations of LCNI. In consideration for the services to be furnished by London Clubs under the Salle Privee Management Agreement, the Company will pay to London Clubs a performance-based incentive fee (the "Incentive Marketing and Consulting Fee") calculated as follows: (i) 10% of the Salle Privee EBITDA (defined in the Salle Privee Management Agreement to mean gross revenue attributable to the Salle Privee, less all costs and expenses directly attributable to the Salle Privee), up to and including $15.0 million of EBITDA; plus (ii) 12.5% of the Salle Privee EBITDA, in excess of $15.0 million, up to and including $17.0 million; plus (iii) 25% of the Salle Privee EBITDA, in excess of $17.0 million, up to and including $20.0 million; plus (iv) 50% of the Salle Privee EBITDA, in excess of $20.0 million. The foregoing thresholds will be adjusted in accordance with consumer price index changes every five years. See "Certain Material Agreements--Salle Privee Management Agreement." OTHER PAYMENTS TO CONTROLLING STOCKHOLDERS In consideration for certain expenses incurred by the Trust prior to the Issue Date relating to the management and coordination of the development of the Aladdin, the Company reimbursed $3.0 million to the Trust on the Issue Date. In addition, the Company will reimburse certain ongoing out-of-pocket expenses of the Trust relating to the development of the Aladdin, not to exceed $0.9 million. In consideration for its obligations under the Keep-Well Agreement and related arrangements, under the London Clubs Purchase Agreement, the parties agreed that London Clubs receive (a) an initial fee of 1.0% of the Company's indebtedness with respect to a $265.0 million portion of the Bank Credit Facility, which is supported and enhanced by the Keep-Well Agreement (such fee was paid on the Issue Date) and (b) an annual fee of 1.5%, payable in arrears, of the Company's annual average indebtedness with respect to a $265.0 million portion of the Bank Credit Facility, which is supported and enhanced by the Keep-Well Agreement for each relevant twelve month period ending on an anniversary of the closing date of the Bank Credit Facility, which amount shall reflect the extent, if any, by which the obligations under the Keep-Well Agreement are reduced or eliminated over time (such fees accrue from the closing date of the Bank Credit Facility, and shall be paid from available proceeds after the opening date of the Aladdin). KEEP-WELL AGREEMENT On the Issue Date, the Sponsors entered into the Keep-Well Agreement in favor of the Administrative Agent and the Bank Lenders. The Keep-Well Agreement is the joint and several agreement of the Sponsors to make certain quarterly Cash Equity Contributions to the Company from and after the Conversion Date if the Company fails to comply with certain financial ratios set forth in the Bank Credit Facility. See "Controlling Stockholders--Keep-Well Agreement." BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY On the Issue Date, the Trust, London Clubs and Bazaar Holdings entered into the Bank Completion Guaranty in favor of the Bank Lenders. Pursuant to the Bank Completion Guaranty, the parties guaranteed, among other things, the timely completion of the Aladdin. The Bank Completion Guaranty is not subject to any maximum dollar limitations. On the Issue Date, the Trust, London Clubs and Bazaar Holdings also entered into the Noteholder Completion Guaranty for the benefit of the holders of the Notes. Neither Holdings, the Issuer nor holders of the Warrants or the Warrant Shares are party to the Bank Completion Guaranty or Noteholders Completion Guaranty. See "Risk Factors--Limitations Under 84 Bank Completion Guaranty and Noteholder Completion Guaranty," "Description of Noteholder Completion Guaranty and Disbursement Agreement--Noteholder Completion Guaranty" and "Description of Certain Indebtedness and Other Obligations--Bank Completion Guaranty." ARRANGEMENTS WITH RICHARD GOEGLEIN AND GAI The Company has entered into the Consulting Agreement with GAI. Pursuant to the Consulting Agreement, GAI will render such consulting services as are reasonably requested by the Board of the Company until June 30, 2002. During the term of the Consulting Agreement, the Company shall pay GAI a retainer of $12,500 per month as payment for remaining on call to provide services and expertise for such month. Pursuant to the Consulting Agreement, GAI purchased 3% of the Common Membership Interests in the Company (which were contributed to Holdings on February 26, 1998 for a 3% interest in Holdings) for $1,800. Such membership interest is fully vested, subject to certain anti-dilution provisions, put rights and certain "piggyback" registration rights. See "Management--GAI Consulting Agreement." In addition, Mr. Goeglein's Employment Agreement provides Mr. Goeglein with relocation expense reimbursement, an interest free mortgage loan of up to $500,000 and certain excise tax gross-up provisions. MUSIC PROJECT MANAGEMENT AGREEMENT AND DEVELOPMENT AGREEMENT It is anticipated that Aladdin Music will contract with the Company for the construction, development and day-to-day management and operations of the Music Project and the Theater and certain promotional development and the services, pursuant to a development agreement (the "Music Project Development Agreement") and a management agreement (the "Music Project Management Agreement"), each in form and substance satisfactory to Aladdin Music and the Company. The terms of the Music Project Management Agreement are expected to be at least as favorable to the Company as those which are available from an independent third party vendor. See "Certain Material Agreements--Music Project Memorandum of Understanding." 85 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following tables set forth certain information with respect to the beneficial ownership of and the capital stock of the Issuer and the membership interests of Holdings by (i) each person who, to the knowledge of the Aladdin Parties, beneficially owns more than 5% of the outstanding capital stock or membership interests (as the case may be); (ii) the directors of the Issuer and Holdings; (iii) all executive officers of the Issuer and Holdings named in "Management"; and (iv) all directors and executive officers of the Issuer and Holdings, respectively, as a group. Neither the capital stock of the Issuer is, nor the membership interests of Holdings are, presently listed or traded on any securities exchange or securities market.
ALADDIN GAMING ENTERPRISES, INC. ---------------------------------------------------------------------------------- COMMON STOCK ---------------------------------------------------------------------------------- PRIOR TO EXERCISE ASSUMING FULL EXERCISE PRIOR TO EXERCISE OF THE OF THE WARRANTS--CLASS A OF THE WARRANTS--CLASS A WARRANTS-CLASS B COMMON COMMON STOCK(6) COMMON STOCK(6)(7) STOCK -------------------------- -------------------------- -------------------------- NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF SHARES CLASS SHARES CLASS SHARES CLASS NAME OF BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIAL OWNER OWNED OWNED OWNED OWNED OWNED OWNED - -------------------------------------- ----------- ------------- ----------- ------------- ----------- ------------- Viola Sommer, Jack Sommer and Eugene Landsberg, as trustees of the Trust(1)(2)......................... 1,093,103 98.7% 1,093,103 98.7% 2,186,205 98.7% Jack Sommer(1)(2)..................... 1,093,103 98.7% 1,093,103 98.7% 2,186,205 98.7% Ronald Dictrow(3)..................... 14,398 1.3% 14,398 1.3% 28,795 1.3% Cornelius T. Klerk(4)................. 0 0.0% 0 0.0% 0 0.0% All Directors and Executive Officers as a group(5).............. 1,107,500 100.0% 1,107,500 100.0% 2,215,000 100.0% ASSUMING FULL EXERCISE OF THE WARRANTS--CLASS B COMMON STOCK(6)(7) ---------------------------- NUMBER OF PERCENTAGE OF SHARES CLASS NAME OF BENEFICIALLY BENEFICIALLY BENEFICIAL OWNER OWNED OWNED - -------------------------------------- ----------- --------------- Viola Sommer, Jack Sommer and Eugene Landsberg, as trustees of the Trust(1)(2)......................... 2,186,205 49.4% Jack Sommer(1)(2)..................... 2,186,205 49.4% Ronald Dictrow(3)..................... 28,795 * Cornelius T. Klerk(4)................. 0 0.0% All Directors and Executive Officers as a group(5).............. 2,215,000 50.0%
- ------------------------ * Represents less than one percent of the outstanding shares of Class B Common Stock. (1) The Trust has an option to acquire 5% of the common membership interests in AHL from GW Vegas (representing all of GW Vegas' common membership interests in AHL). Such option is exercisable at any time prior to December 2001. The address of the Trust is 280 Park Avenue, New York, New York. (2) Mr. Jack Sommer, who is Chairman and a director of the Company and Holdings and a director of Capital and the Issuer, is a trustee and contingent beneficiary of the Trust. Mrs. Sommer, Mr. Sommer and Mr. Landsberg are each deemed to beneficially own the same interest as the Trust owns in the Issuer because each of them is a trustee of the Trust. (3) Mr. Ronald Dictrow is the Secretary and a director of the Issuer. Mr. Dictrow's address is 280 Park Avenue, New York, New York. (4) Mr. Cornelius Klerk is the Treasurer of the Issuer. Mr. Klerk's address is 831 Pilot Road, Las Vegas, Nevada. (5) The directors of the Issuer are Messrs. Sommer and Dictrow. The executive officers of the Issuer are Messrs. Sommer, Dictrow and Klerk. (6) The Class A Common Stock and Class B Common Stock in the Issuer held by Sommer Enterprises were on the closing date pledged to the Bank Lenders. (7) Upon the exercise of the Warrants, holders of the Warrant Shares will own 50.0% of the outstanding Class B Common Stock and 0.0% of the outstanding Class A Common Stock of the Issuer. 86
ALADDIN GAMING HOLDINGS, LLC ------------------------------------------------------------------------ PERCENTAGE OWNERSHIP OF HOLDINGS PERCENTAGE OWNERSHIP OF HOLDINGS COMMON MEMBERSHIP INTERESTS COMMON MEMBERSHIP INTERESTS NAME OF BENEFICIALLY OWNED PRIOR TO BENEFICIALLY OWNED ASSUMING FULL BENEFICIAL OWNER EXERCISE OF THE WARRANTS(9) EXERCISE OF THE WARRANTS(10) - ------------------------------------------ ----------------------------------- ----------------------------------- Viola Sommer, Jack Sommer and Eugene Landsberg, as trustees of the Trust(1)(2)............................. 71.1% 61.6% Jack Sommer(2)............................ 71.1% 61.6% London Clubs(3)........................... 25.0% 25.0% Alan Goodenough(3)........................ 0.0% 0.0% G. Barry.................................. 0.0% 0.0% C. Hardy(3)............................... 0.0% 0.0% Ronald Dictrow(4)......................... * * Richard J. Goeglein(5)(7)................. 3.0% 2.6% James H. McKennon(6)(7)................... 0.0% 0.0% Cornelius T. Klerk(6)(7).................. 0.0% 0.0% Jose A. Rueda(6)(7)....................... 0.0% 0.0% Lee A. Galati(6)(7)....................... 0.0% 0.0% All Directors and Executive Officers as a group (eight persons)(8)................ 75.0% 65.0%
- ------------------------------ * Represents less than one percent of the outstanding Holdings Common Membership Interests. (1) The Trust has an option to acquire 5% of the common membership interests in AHL from GW Vegas (representing all of GW Vegas' common membership interests in AHL). Such option is exercisable at any time prior to December, 2001. The address of the Trust is 280 Park Avenue, New York, New York. (2) Mr. Jack Sommer, who is Chairman and a director of the Company and Holdings and a director of Capital and the Issuer, is a trustee and contingent beneficiary of the Trust. Mrs. Sommer, Mr. Sommer and Mr. Landsberg are each deemed to beneficially own the same interest as the Trust owns in Holdings because each of them is a trustee of the Trust. (3) Mr. Alan Goodenough is Chief Executive Officer of London Clubs and a director of the Company and Holdings. As of March 16, 1998, Mr. Goodenough held approximately 202,000 ordinary shares (representing less than one percent of the share capital) of London Clubs. Mr. Barry Hardy is Finance Director of London Clubs and a director of the Company and Holdings. As of March 16, 1998, Mr. Hardy held approximately 901,000 ordinary shares (representing less than one percent of the share capital) of London Clubs. As of March 16, 1998, Mr. Hardy also held options to purchase 516,395 ordinary shares (options to purchase 512,400 ordinary shares presently exercisable) of London Clubs. The address of London Clubs is 10 Brick Street, London, W1Y, 8HQ, United Kingdom. (4) Mr. Ronald Dictrow is a director of the Issuer and the Executive Vice President/Secretary and a director of the Company, Holdings and Capital. Mr. Dictrow's address is 280 Park Avenue, New York, New York. (5) Mr. Richard J. Goeglein, who is Chief Executive Officer, President and a director of the Company, Holdings and Capital, beneficially owns 100% of GAI, which holds 3% of the Holdings' Common Membership Interests. Mr. Goeglein's address is 831 Pilot Road, Las Vegas, Nevada. (6) The address of Messrs. McKennon, Klerk, Rueda and Galati is 831 Pilot Road, Las Vegas, Nevada. (7) Messrs. Goeglein, McKennon, Klerk, Rueda and Galati have rights to acquire beneficial ownership of Holdings Common Membership Interests representing an aggregate of 4.75% of such interests (prior to exercise of the Warrants) and 4.12% of such interests (assuming full exercise of the Warrants), which rights do not vest within 60 days. See "Management--Employment Agreements." (8) The directors of Holdings are Messrs. Sommer, Goodenough, Dictrow, and Goeglein. The executive officers of Holdings are Messrs. Goeglein, Dictrow, McKennon, Klerk, Rueda and Galati. (9) Holdings owns 100% of the Common Membership Interests and Series A Preferred Interests of the Company. The Common Membership Interests were, on closing of the Bank Credit Facility, pledged to the Bank Lenders. The Series A Preferred Interests were, on the closing of the Offering, pledged to the Trustee for the benefit of the Holders. (10) The Issuer owns 25% of the Holdings Common Membership Interests. Upon full exercise of the Warrants, holders of the Warrant Shares will indirectly own 10% of the outstanding Holdings Common Membership Interests. 87 [LOGO] 88 ALADDIN BAZAAR, LLC OWNERSHIP STRUCTURE [LOGO] 89 DESCRIPTION OF CAPITAL STOCK The Issuer's Articles of Incorporation, as amended, authorize the issuance of 10,000,000 shares of Issuer Stock without par value, of which 2,000,000 shares are designated as Class A Voting Common Stock (the "Class A Common Stock") and 8,000,000 shares are designated as the Common Stock, which is the Class B Non-Voting Common Stock. As of the date hereof, the Issuer had 1,107,500 shares of Class A Common Stock issued and outstanding and 2,215,000 shares of Common Stock issued and outstanding. THE CLASS A COMMON STOCK Each holder of Class A Common Stock is entitled to one vote per share owned of record on all matters that are voted on by stockholders. All stockholder action requires the affirmative vote of a majority of the voting power of the issued and outstanding Class A Common Stock except for the removal of a director from office which requires a vote of not less than two-thirds of the voting power of the issued and outstanding Class A Common Stock. The Class A Common Stock bears no preemptive rights and is not subject to redemption. Once the subscription price of any share of Class A Common Stock has been paid, such share becomes non-assessable. Holders of Class A Common Stock are entitled to receive dividends if, as and when declared by the Issuer's Board of Directors and such dividends may be paid in cash, property, shares of corporate stock, or any other medium. THE COMMON STOCK Except as may otherwise be provided by Nevada law, the holders of Common Stock have no right to vote on any matters that are voted on by Issuer's stockholders including, without limitation, any election or removal of directors. However, holders of Warrants and Warrant Shares are entitled to certain minority protections pursuant to the Equity Participation Agreement. See "Certain Material Agreements--Equity Participation Agreement." In all other matters, holders of Common Stock and Class A Common Stock have the same rights, privileges and restrictions and rank equally, share ratably and are identical in all respects as to all matters, including rights to dividends, rights in liquidation and the non-assessability of shares. THE WARRANTS On February 26, 1998, the Issuer issued 2,215,000 Warrants which entitle the holders thereof to purchase an aggregate of 2,215,000 shares of Common Stock at an exercise price of $0.001 per share, subject to certain adjustments (the "Exercise Price"). The Warrants become exercisable at any time on or after the Separation Date and, unless exercised, the Warrants will automatically expire on March 1, 2010 (the "Expiration Date"). The holders of Warrants have no right to receive dividends and are not entitled to share in the assets of the Issuer in the event of liquidation, dissolution or winding up of the Issuer's affairs. The Issuer has authorized for issuance such number of shares of Common Stock as shall be issuable upon the due exercise of all outstanding Warrants. RESTRICTIONS ON INTERESTED TRANSACTIONS Pursuant to Nevada law, each director is subject to restrictions relating to the misappropriation of corporate opportunities by such director or such director's affiliates. Nevada law requires that a transaction with the Issuer in which a director or officer of the Issuer has a direct or indirect interest is not voidable by the Issuer solely because of the director's or officer's interest in the transaction if (i) the material facts of the transaction and the director's or officer's interest therein are disclosed to or known by the directors or a committee noted in the minutes, and the transaction is approved, authorized, or ratified by the disinterested directors, (ii) the material facts of the transaction and the director's or officer's interest therein are disclosed to or known by the stockholders entitled to vote and the transaction is approved or ratified by the stockholders, (iii) the material facts are not disclosed or known to the director or officer at 90 the time the transaction is brought before the directors for action, or (iv) the transaction is established to have been fair to the Issuer at the time it was authorized or approved. NEVADA ANTI-TAKEOVER LEGISLATION Nevada's Combinations with Interested Stockholders statute (NRS SectionSection78.411-78.444), which applies to Nevada corporations having at least 200 stockholders, prevents an "interested stockholder" and an applicable Nevada corporation from entering into a "combination" unless certain conditions are met. A "combination" means any merger or consolidation with an "interested stockholder," or any sale, lease exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions, with an "interested stockholder" having: (i) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (ii) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, or (iii) 10% or more of the earning power or net income of the corporation. An "interested stockholder" means a person who, together with affiliates and associates, beneficially owns (or within the prior three years, did beneficially own) 10% or more of the voting power of the corporation. A corporation to which this statute applies may not engage in a "combination" within the three years after the interested stockholder acquired its shares unless the combination or purchase is approved by the board of directors before the interested stockholder acquired such shares. If this approval is not obtained, then after the expiration of the three-year period, the business combination may be consummated with the approval of the board of directors or a majority of the voting power held by disinterested stockholders, or if the consideration to be paid by the interested stockholder is at least equal to the highest of: (i) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, (ii) the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder acquired the shares, whichever is higher, or (iii) for holders of preferred stock, the highest liquidation value of the preferred stock, if it is higher. Nevada's Acquisition of Controlling Interest statute (NRS SectionSection78.378-78.3793) applies only to Nevada corporations with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and which conduct business directly or indirectly in Nevada. As of the date of this Prospectus, the Issuer does not have 100 stockholders of record who are residents of Nevada, although there can be no assurance that in the future the Acquisition of Controlling Interest statute will not apply to the Issuer. The Acquisition of Controlling Interest statute prohibits an acquiror, under certain circumstances, from voting its shares of a target corporation's stock after crossing certain ownership threshold percentages, unless the acquiror obtains approval of the target corporation's disinterested stockholders. The statute specifies three thresholds: one-fifth or more by less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power. Once an acquiror crosses one of the above thresholds, those shares in an offer or acquisition and acquired within 90 days thereof become "Control Shares" and such Control Shares are deprived of the right to vote until disinterested stockholders restore the right. The Acquisition of Controlling Interest statute also provides that in the event Control Shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of authorizing voting rights to the Control Shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters' rights. 91 DESCRIPTION OF THE WARRANTS The Warrants were issued pursuant to a Warrant Agreement (the "Warrant Agreement") between the Issuer and State Street Bank and Trust Company, as warrant agent (the "Warrant Agent"). The following summary of certain provisions of the Warrant Agreement and the Warrants does not purport to be complete and is qualified in its entirety by reference to the Warrant Agreement and the Warrants, including the definitions therein of certain terms. GENERAL The Warrants entitle the holders thereof to purchase an aggregate of 2,215,000 shares of Common Stock at the Exercise Price, subject to adjustment. The Warrants are exercisable at any time on or after the Separation Date prior to March 1, 2010. Unless exercised, the Warrants will automatically expire on the Expiration Date. The Warrants entitle the holders thereof to purchase in the aggregate 40% of the outstanding Common Stock of the Issuer, representing an indirect interest in 10% of the outstanding Holdings Common Membership Interests on a fully diluted basis as of the date of issuance after giving effect to such issuance. The Warrants may be exercised at any time on or after the Separation Date by surrendering to the Issuer at the office of the Warrant Agent the Warrant certificates evidencing such Warrants with the accompanying form of election to purchase properly completed and executed, together with payment of the Exercise Price. Payment of the Exercise Price may be made in the form of cash or a certified or official bank check payable to the order of the Issuer. Upon surrender of the Warrant certificate and payment of the Exercise Price, the Warrant Agent will deliver or cause to be delivered, to or upon the written order of such holder, a stock certificate representing the number of whole Warrant Shares or other securities or property to which such holder is entitled under the Warrant Agreement and the Warrants, including, without limitation, any cash payment to adjust for fractional interests in Warrant Shares issuable upon such exercise in accordance with the Warrant Agreement. If less than all of the Warrants evidenced by a Warrant certificate are to be exercised, a new Warrant certificate will be issued for the remaining number of Warrants. No fractional Warrant Share will be issued upon exercise of the Warrants. If any fraction of a Warrant Share would, except for the foregoing provision, be issuable on the exercise of any Warrants (or a specified portion thereof), the Issuer shall pay an amount in cash equal to the current market price per Warrant Share, as determined on the day immediately preceding the date the Warrant is presented for exercise, multiplied by such fraction, computed to the nearest whole U.S. cent. Certificates for Warrants have been and will be issued in registered form only, and no service charge will be made for registration of transfer or exchange upon surrender of any Warrant certificate at the office of the Warrant Agent maintained for that purpose. The Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration, transfer or exchange of Warrant certificates. The holders of the Warrants have no right to receive dividends. The holders of the Warrants are not entitled to share in the assets of the Issuer in the event of liquidation, dissolution or winding up of the Issuer's affairs. In the event of taxable distribution to holders of Issuer Stock which results in an adjustment to the number of Warrant Shares or other consideration for which a Warrant may be exercised, the holders of the Warrants may, in certain circumstances, be deemed to have received a distribution subject to United States federal income tax as a dividend. See "Certain United States Federal Income Tax Considerations." 92 SEPARATION Each Warrant was originally issued as part of a Unit consisting of: (i) $1,000 principal amount at maturity of Notes of the Note Issuers; and (ii) 10 Warrants to purchase 10 shares of Common Stock. Pursuant to the terms of the Indenture and the Warrant Agreement, the Notes and the Warrants were to become separately transferable on the "Separation Date," being the earliest of: (i) September 1, 1998; (ii) the date on which a registration statement with respect to the Notes or a registration statement with respect to the Warrants and the Warrant Shares was filed with the Commission under the Securities Act; (iii) the occurrence of a Change of Control (as defined in the Indenture) or a sale or recapitalization of the Issuer, Holdings or the Company occurs (a "Triggering Event"); (iv) 30 days after a Qualified Public Offering; (v) the occurrence of an Event of Default (as defined in the Indenture); or (vi) such earlier date as determined by Merrill Lynch & Co. in its sole discretion. The Separation Date occurred on filing of the Registration Statement. NO VOTING RIGHTS Neither the holders of the Warrants nor, prior to a Qualified Public Offering, the holders of the Warrant Shares will have any right to vote on any matter submitted to shareholders, including any right to vote for the election of directors of the Issuer. Upon the consummation of a Qualified Public Offering, holders of the Warrant Shares will have full voting rights as shareholders of the IPO Entity. Prior to the Issue Date, the Trust, Sommer Enterprises, London Clubs, LCNI, the Issuer and the Warrant Agent on behalf of the holders of Warrants and Warrant Shares entered into the Equity Participation Agreement under which the parties agreed that they would not effect a Qualified Public Offering unless the Trust and London Clubs (directly or indirectly) and the holders of the Warrants and the Warrant Shares each hold their respective equity interests in the IPO Entity. ADJUSTMENTS The number of shares of Common Stock purchasable upon the exercise of the Warrants and the Exercise Price both will be subject to adjustment in certain events (subject to certain exceptions) including (i) the payment by the Issuer of dividends (and other distributions) on Issuer Stock payable in Issuer Stock, (ii) subdivisions, combinations and reclassifications of Issuer Stock, (iii) the issuance to all holders of Issuer Stock of rights, options or warrants entitling them to subscribe for Issuer Stock or of securities convertible into or exchangeable for Issuer Stock, for a consideration per share of Issuer Stock which is less than the current market price per share of such Issuer Stock and (iv) the distribution to all holders of Issuer Stock of any of the the Issuer's assets, debt securities or any rights or warrants to purchase securities (excluding those rights and warrants referred to in clause (iii) above and excluding cash dividends less than a specified amount). In addition, the Exercise Price may be reduced in the event of purchases of Issuer Stock pursuant to a tender or exchange offer made by the Issuer or any subsidiary thereof at a price greater than the sale price of such Issuer Stock at the time such tender or exchange offer expires. No adjustment in the Exercise Price will be required unless such adjustment would require an increase or decrease of at least 1% in the Exercise Price; PROVIDED, HOWEVER, that any adjustment which is not made will be carried forward and taken into account in any subsequent adjustment. In the case of certain consolidations or mergers of the Issuer, or the sale of all or substantially all of the assets of the Issuer to another corporation, each Warrant shall thereafter be exercisable for the right to receive the kind and amount of shares of stock or other securities or property to which such holder would have been entitled as a result of such consolidation, merger or sale had the Warrants been exercised immediately prior thereto. 93 AUTHORIZED SHARES The Issuer has authorized for issuance such number of shares of Common Stock as shall be issuable upon the due exercise of all outstanding Warrants. Such shares of Common Stock, when paid for and issued, will be duly and validly issued, fully paid and non-assessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof (other than any such tax, lien, charge or security interest imposed upon or granted by the holder of the Common Stock). AMENDMENT From time to time, the Issuer and the Warrant Agent, without the consent of the holders of the Warrants, may amend or supplement the Warrant Agreement for certain purposes, including curing defects or inconsistencies or making changes that do not materially adversely affect the rights of any holder. Any amendment or supplement to the Warrant Agreement that has a material adverse effect on the interests of the holders of the Warrants shall require the written consent of the holders of a majority of the then outstanding Warrants (excluding Warrants held by the Issuer or any of its affiliates). The consent of each holder of the Warrants affected shall be required for any amendment pursuant to which the Exercise Price would be increased or the number of Warrant Shares purchasable upon exercise of Warrants would be decreased (other than pursuant to adjustments provided in the Warrant Agreement). GOVERNING LAW The Warrant Agreement and the Warrants are governed by, and construed in accordance with, the laws of the State of New York without regard to the principles of conflicts of law thereof. ADDITIONAL INFORMATION Any holder of Warrants or prospective investor may obtain a copy of the Warrant Agreement and the Warrant Registration Rights Agreement without charge by writing to Aladdin Gaming Enterprises, Inc., c/o Aladdin Gaming, LLC, 831 Pilot Road, Las Vegas, Nevada 89119; Attention: Corporate Secretary. REPORTS Whether or not the Issuer is subject to the reporting requirements of the Exchange Act, the Issuer shall cause copies of (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Issuer was required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Holdings Group, and, with respect to the annual information only, a report therein by the Issuer's certified independent accountants and (ii) all current reports that would be required to be filed with the Commission on Form 8-K if the Issuer was required to file such reports, in each case within the time periods specified in the Commissions's rules and regulations, to be filed with the Commission (to the extent permitted) and the Warrant Agent and mailed to the holders of the Warrants at their addresses appearing in the registrar of Warrants maintained by the Warrant Agent to the same extent as such reports are furnished to the holders of the Notes in accordance with the Indenture. 94 DESCRIPTION OF NOTEHOLDER COMPLETION GUARANTY AND DISBURSEMENT AGREEMENT NOTEHOLDER COMPLETION GUARANTY The Trust, London Clubs and Bazaar Holdings (collectively, the "Guarantors") have entered into a guaranty of performance and completion (the "Noteholder Completion Guaranty") in favor of the Trustee (for the benefit of the Noteholders). The following summary of the material terms and provisions of the Noteholder Completion Guaranty does not purport to be a complete summary of the Noteholder Completion Guaranty and is qualified in its entirety by reference to the Noteholder Completion Guaranty, including definitions of certain terms used below. The Noteholder Completion Guaranty provides that the Guarantors jointly and severally guarantee, among other things, to the Trustee (for the benefit of the Noteholders) and covenant and agree to make any and all payments to or on behalf of the Company as may be necessary in order to permit and assure that: (i) the Company will promptly carry out the work required for the construction of the Aladdin with due diligence and continuity, in an expeditious and first-class workmanlike manner in accordance with the Approved Plans and Specifications (as defined below) in all material respects and will correct as soon as possible any material defect in such work or material deviation from the Approved Plans and Specifications; (ii) the Company will punctually pay all costs, expenses and liabilities incurred by the Company in connection with the construction of the Aladdin in accordance with the Approved Plans and Specifications, and all claims and demands for labor, material and services incurred by the Company prior to completion of the work and in connection with cost overruns of any type and all amounts which the Company may be required to pay from time to time in order to keep the project "In Balance" as such term is defined in the Noteholder Completion Guaranty; (iii) the Company will complete the construction of the required Minimum Aladdin Facilities on schedule and in accordance with the Approved Plans and Specifications lien-free other than Permitted Liens; (iv) the Company will provide the expertise necessary to supervise such work at no cost to the Trustee; (v) in the event the Guarantors fail to pay and/or perform their respective obligations under the Noteholder Completion Guaranty, the Trustee (in addition to any other rights and remedies afforded by applicable law) may pay and perform the Guaranteed Obligations on behalf of the Guarantors, in which case the Guarantors, upon demand, must reimburse the Trustee for all costs, expenses and liabilities incurred in connection therewith; and (vi) the Guarantors shall pay the Trustee all reasonable out-of-pocket costs and expenses of the Trustee in connection with the enforcement of the Noteholders' rights and remedies under the Noteholder Completion Guaranty. The obligations of the Guarantors under the Noteholder Completion Guaranty are subject to certain important qualifications. In particular, the Trustee may not exercise any rights or declare any default under the Noteholder Completion Guaranty and shall not pursue any remedies thereunder including, but not limited to demanding payment or performance during any period that the Bank Completion Guaranty is in effect and the Guarantors thereunder have not been released in writing by the Bank Lenders. Notwithstanding the foregoing, however, the Trustee shall be permitted to exercise any and all rights, declare a default, commence enforcement proceedings and pursue any and all remedies under the Noteholder Completion Guaranty: 95 (i) at any time prior to the date that any funds have been advanced or disbursed to the Company pursuant to the Bank Credit Facility; (ii) at any time prior to Completion and from after the date on which all indebtedness evidenced and secured by the Bank Credit Facility has been indefeasibly paid in full and the Bank Lenders have released the Guarantors in writing from their obligations under the Bank Completion Guaranty; and (iii) at any time after which all of the following events have occurred and are continuing: (a) an event of default under the Bank Completion Guaranty has occurred and is continuing and such event of default has remained uncured for the number of applicable Trigger Days (as defined herein); (b) a Funding Cessation (as defined herein) has occurred and is continuing for the aggregate number of applicable Trigger Days; PROVIDED, HOWEVER, in no event shall aggregate Funding Cessations exceed 180 days in the aggregate (which shall be extended for the number of days during which a Force Majeure Event (as defined below) or Insolvency Proceeding of the Company which impairs the Bank Lenders directly or indirectly from enforcing the Bank Completion Guaranty has occurred and is continuing which such extension shall terminate upon the filing by the Bank Lenders of an action against the Guarantors under the Bank Completion Guaranty to enforce the obligations of the Guarantors thereunder which are susceptible of performance notwithstanding the Insolvency Proceeding of the Company) in any consecutive 365 day period; and (c) the construction work which has been substantially completed in accordance with the Approved Plans and Specifications (as certified by the Construction Consultant) on the date in question has not progressed to the stage of completion set forth for such date (subject to any extensions based upon Force Majeure Events or an Insolvency Proceeding of the Company which impairs the Bank Lenders, directly or indirectly, from enforcing the Bank Completion Guaranty has occurred and is continuing, which such extension shall terminate upon the filing by the Bank Lenders of an action against the Guarantors under the Bank Completion Guaranty to enforce the obligations of the Guarantors thereunder which are susceptible of performance notwithstanding the Insolvency Proceeding of the Company) in the Construction Benchmark Schedule (as defined in the Noteholder Completion Guaranty). The Noteholder Completion Guaranty also provides that performance in all material respects of the obligations of the Guarantors under the Bank Completion Guaranty (as in effect on the Issue Date, or as may be amended from time to time so long as in connection with each such amendment the Construction Consultant certifies to the Trustee that, after giving effect to such amendment, (i) the Minimum Aladdin Facilities are still capable of being completed by the Operating Deadline, and (ii) the Guarantors have consented to such amendment) shall be deemed to be performance of the corresponding obligations under the Noteholder Completion Guaranty and performance in all material respects of the obligations of the Guarantors under the Noteholder Completion Guaranty shall be deemed to be performance of the corresponding obligations under the Bank Completion Guaranty. Under the Noteholder Completion Guaranty, the Trustee covenants and agrees that (i) the right of the Trustee to demand payment and/or performance of the obligations under the Noteholder Completion Guaranty, to exercise any rights, remedies and options and/or to commence enforcement proceedings under the Noteholder Completion Guaranty shall be subject to the delivery by the Trustee of a written notice to the Administrative Agent no later than 10 business days prior to the making of such demand for payment and/or performance, exercise of rights remedies and options, or commencement of enforcement proceedings, as applicable, (ii) the Bank Lenders shall have all rights at law and equity including, without 96 limitation, the right to seek an injunction or other extraordinary remedy to prevent or prohibit the making of any demand for payment and/or performance, exercise of rights remedies and options, or commencement of enforcement proceedings by the Trustee which is in contravention of the "standstill" provisions of the Noteholder Completion Guaranty described above, and (iii) the Noteholder Completion Guaranty shall not have been amended, modified, and/or amended and restated without the prior written consent of the Administrative Agent in its sole discretion; provided that the consent of the Administrative Agent shall not be required in connection with to corrective amendments required to be made to the Noteholder Completion Guaranty as and when corresponding amendments are made to the Bank Completion Guaranty. In addition, the Trustee on its own behalf and on behalf of the Noteholders has covenanted and agreed that the rights, remedies and options of the Trustee under the Noteholder Completion Guaranty in no way restrict the rights and remedies of the Administrative Agent and the Bank Lenders under the Bank Credit Facility or any security therefor including, without limitation, the right to commence and prosecute to completion enforcement of the Bank Credit Facility and any documents evidencing or securing the obligations under the Bank Credit Facility. The Trustee agreed on its own behalf and on behalf of the Noteholders that no Person shall have any right whatsoever to interpose a right of offset, defense, claim or counterclaim with respect to any enforcement of the Bank Credit Facility documents based upon a claim that the Trustee has the right to performance of the guaranteed obligations before such enforcement can be commenced or prosecuted or judgment thereon can be executed by or on behalf of the Bank Lenders. "Approved Plans and Specifications" shall mean all plans, specifications, design documents, schematic drawings and related items for the design, architecture and construction of the Aladdin, as delivered to the Trustee on the Issue Date, as the same may be (x) finalized in a manner that reflects a natural evolution of their status on the date hereof and in a manner consistent with the standards set forth in the Credit Agreement with respect to the Bank Credit Facility (the "Bank Credit Agreement") and (y) amended in accordance with the Bank Credit Agreement. "Construction Benchmark Schedule" shall have the meaning set forth in the Noteholder Completion Guaranty and the Bank Credit Agreement. A "Funding Cessation" shall occur at any time that funds are unavailable to the Company (from any source whatsoever) to fund draws under the Bank Credit Facility in an amount equal to 75% of the draw request in question or the Construction Consultant fails to deliver the On Schedule Certificate as contemplated by the Engagement Letter among Rider Hunt (NV) L.L.C., the Administrative Agent, the Disbursement Agent, the Trustee, and others. "Force Majeure Event" shall mean any event which is defined as a "Force Majeure" in the Design/ Build Contract and/or that causes a delay in the construction of the Aladdin and is outside the Company's control but only to the extent (a) such event does not arise out of (i) the negligence, willful misconduct or inefficiencies of the Company, (ii) late performance by the Design/Builder or ADP, (iii) any cause or circumstances resulting in delays, stoppage or any other interference with the construction of the Aladdin caused by the insolvency, bankruptcy or any lack of funds by the Company, any of the other Project Parties (as defined herein), the Energy Provider, Unicom, and/or ADP, or (iv) delays, stoppage or other interference with the construction of the Aladdin caused by the insolvency, bankruptcy or any lack of funds by Bazaar, Aladdin Music and/or the construction contractors and project architects with respect to the Mall Project, the Music Project and/or the Energy Project, and (b) such event consists of an Act of God (such as tornado, flood, hurricane, etc.), fires and other casualties; strikes, lockouts or other labor disturbances (except to the extent taking place at the Project Site only); riots, insurrections or civil commotions; embargoes, shortages or unavailability of materials, supplies, labor, equipment and systems that first arise after the Issue Date, but only to the extent caused by another act, event or condition covered by this clause (b); sabotage; vandalism; the requirements of law, statutes, regulations and other legal requirements enacted after the Issue Date (unless the Company should, in the exercise of due diligence 97 and prudent judgment, have anticipated such enactment); orders or judgments; or any similar types of events, provided, that (x) the Company has sought to mitigate the impact of the delay, (y) any delay resulting from the foregoing shall not exceed 365 days, and (z) the period during which a Force Majeure Event exists shall commence on the date that the Company has given the Trustee and the Administrative Agent written notice describing in reasonable detail the event which constitutes a Force Majeure Event and the Trustee and the Administrative Agent have confirmed the existence of such Force Majeure Event on the date of such notice and shall end on the date that such Force Majeure Event no longer exists, whether or not notice is given to the Trustee and the Administrative Agent, as determined by the Construction Consultant. "Trigger Days" shall be defined as follows: (i) an aggregate of 60 calendar days during any period in which the Bank Lenders have disbursed more than $1 and up to and including $35.0 million of the Bank Credit Facility to the Company; (ii) an aggregate of 90 calendar days during any period in which the Bank Lenders have disbursed more than $35.0 million and up to and including $70.0 million of the Bank Credit Facility to the Company; (iii) an aggregate of 120 calendar days during any period in which the Bank Lenders have disbursed more than $70.0 million and up to and including $110.0 million of the Bank Credit Facility to the Company; and (iv) an aggregate of 180 calendar days during any period in which the Bank Lenders have disbursed more than $110.0 million of the Bank Credit Facility to the Company. DISBURSEMENT AGREEMENT The Company, Holdings, Scotiabank, as the Administrative Agent under the Bank Credit Facility, the Trustee, Scotiabank, as the Disbursement Agent on behalf of the Bank Lenders and the Trustee (the "Disbursement Agent"), and as Securities Intermediary and the Servicing Agent entered into the Disbursement Agreement concurrently with the closing of the Offering. The following summary of the material provisions of the Disbursement Agreement does not purport to be a complete summary of the Disbursement Agreement and is qualified in its entirety by reference to the Disbursement Agreement, including the definitions therein of certain terms used below. Capitalized terms that are used hereunder but not otherwise defined in this Prospectus have the meanings assigned to them in the Disbursement Agreement. Pursuant to the Disbursement Agreement, on the Issue Date approximately $35 million of the net proceeds of the Offering were deposited into the Note Construction Disbursement Account, which is subject to the sole dominion and control of the Disbursement Agent on behalf of the Trustee (for the benefit of the Noteholders) and the proceeds from the Term B Loan and the Term C Loan were advanced to the Company and thereafter deposited by the Company into the Cash Collateral Account, which will be subject to the sole dominion and control of the Disbursement Agent on behalf of the Bank Lenders who have made the Term B Loans and the Term C Loans. All funds in the Note Construction Disbursement Account are pledged to the Disbursement Agent for the benefit of the Trustee to secure repayment of the Notes and all funds in the Cash Collateral Account are pledged to the Disbursement Agent to secure repayment of the Term B Loans and Term C Loans. The Disbursement Agreement establishes the conditions to, and the sequencing of, the making of disbursements of the proceeds of the Offering, the funds from the Term B Loan and Term C Loan and the advances of the Term A Loan and from other sources. Pursuant to the Disbursement Agreement, (i) all of the proceeds from the Offering must be expended before any proceeds from the Term B Loan and Term C Loan may be disbursed; (ii) the proceeds from the Term B Loan and the Term C Loan will be disbursed pro rata; and (iii) advances under the Term A Loan will only be made after all of the proceeds of the Term B Loan and Term C Loan are 98 expended (other than to fund draws under Letters of Credit which are issued as part of the Bank Credit Facility). The drawdown of funds under the FF&E Financing will not be subject to the provisions of the Disbursement Agreement. The Disbursement Agreement authorizes disbursement from the Note Construction Disbursement Account and the Cash Collateral Account only upon the satisfaction of various conditions precedent set forth in the Disbursement Agreement. These conditions include, among other things: (i) delivery by the Company of a disbursement request and certificate certifying as to, among other things, (a) the application of funds to be disbursed, (b) the substantial conformity of construction undertaken to date with the Approved Plans and Specifications, as amended from time to time, in accordance herewith, (c) the expectation that the Aladdin will be completed by the Operating Deadline, (d) the accuracy of the budget for the construction of the Aladdin, as amended from time to time in accordance with the Bank Credit Agreement, (e) the sufficiency of remaining funds to complete the Aladdin by the Operating Deadline, (f) compliance with line item budget allocations, taking into account allocations for contingencies; (g) the accuracy of the representations and warranties contained in the Disbursement Agreement, the other Loan Documents, the Bank Completion Guaranty, the Noteholder Completion Guaranty, and the other material project documents (collectively, the "Operative Documents"), as if made on such date (except those that relate to a different date) unless the failure of the foregoing to be the case would not have a material adverse effect on the financial condition, business, property, prospects or the ability of the Company, and to the Company's knowledge each of AHL, Holdings, London Clubs, LCNI, Design/Builder and Fluor (collectively, the "Project Parties") to perform in all material respects their respective obligations under the Operative Documents to which they are a party; (h) the Operative Documents continue to be in full force and effect and (i) the absence of an event of default with respect to certain material covenants in the Operative Documents which would be reasonably likely to cause a material adverse effect on the financial condition, business, property, prospects or the ability of the Company or (to the Company's knowledge) any of the Project Parties to perform their respective obligations under the Operative Documents to which they are a party; (ii) the absence of any default or an event of default (each as defined in the Bank Credit Agreement) with respect to the Operative Documents which would be reasonably likely to cause a material adverse effect on the financial condition, business, property or prospects of the Company, or to the Company's knowledge of the Project Parties and their ability to perform in all material respects their respective obligations under the Operative Documents to which they are a party; (iii) delivery by the Construction Manager, the Construction Consultant and the Project Architect of certificates corroborating various matters set forth in the Company's disbursement request and certificate; (iv) compliance by the Guarantors under the Bank Completion Guaranty and London Clubs and AHL, as Sponsors, of their respective obligations under the Keep-Well Agreement; (v) receipt by the Company of the governmental approvals required to be in effect at such time; (vi) delivery by the Company to the Disbursement Agent of the acknowledgment of payment and lien releases required under the Disbursement Agreement; (vii) the procurement of all insurance policies required under the Disbursement Agreement, including required endorsements, (viii) the absence of pending material litigation which materially and adversely affects the financial condition, business, property, prospects or ability of the Company or the Project Parties to 99 perform in all material respects their respective obligations under the Operative Documents to which they are a party; (ix) all of the documents evidencing the Disbursement Agent's security interest in the proceeds, if any, in the Note Construction Disbursement Account (for the sole and exclusive benefit of the Trustee and the Noteholders) and in the Series A Preferred Interests, and the Bank Lenders' security interest in the collateral pledged as security under the Bank Credit Facility being in full force and effect; (x) the absence of any material adverse change in the financial condition, business, property, prospects or the ability of the Company and the Project Parties to perform in all material respects their respective obligations under the Operative Documents to which they are a party; (xi) delivery of title insurance endorsements which increase the amount of title insurance coverage by the amount of such advances and which insure the first priority of the Deed of Trust; (xii) payment of all applicable fees and expenses; and (xiii) delivery of amounts required in order for the Project Budget and all contingencies and reserves to be In Balance. The Disbursement Agreement establishes procedures for the approval by the Bank Lenders of amendments to the Approved Plans and Specifications. Pursuant to the Disbursement Agreement, the Approved Plans and Specifications may be amended by the Company, the Guarantors and the Bank Lenders at any time so long as in connection with each such amendment, the Construction Consultant certifies to the Trustee that (i) after giving effect to the amendment, the Approved Plans and Specifications (as so amended) continue to call for the construction of the Aladdin Minimum Facilities; (ii) after giving effect to the amendment, the Approved Plans and Specifications (as so amended), will continue to permit the Aladdin Minimum Facilities to be completed on or prior to the Operating Deadline, and (iii) the Guarantors have consented in writing to such amendment. Pursuant to the Disbursement Agreement, with the approval of each disbursement, the Construction Consultant (to the extent that the circumstances factually permit the Construction Consultant to do so in good faith) has agreed to provide the Lenders and the Trustee with a certificate which provides in substance that as of such date the Minimum Aladdin Facilities continue to be capable of being completed in accordance with the Approved Plans and Specifications on or before the Operating Deadline (the "On Schedule Certificates"). In addition, the Administrative Agent has agreed to send to the Trustee a copy of each written notice of any default or event of default under the Bank Credit Agreement which the Administrative Agent sends to the Company. 100 DESCRIPTION OF CERTAIN INDEBTEDNESS AND OTHER OBLIGATIONS The following discussion summarizes the material terms of certain material financing agreements which are either in place or are currently being negotiated between the Company (and/or the Controlling Stockholders) and various other parties. This summary does not purport to be complete and is qualified in its entirety by reference to the full agreements described herein once finalized and executed. Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to such terms in the agreement being described (unless otherwise indicated). BANK CREDIT FACILITY GENERAL DESCRIPTION OF THE BANK CREDIT FACILITY. The Company has entered into the Bank Credit Facility with a syndicate of lenders (the "Bank Lenders"), Scotiabank, as Administrative Agent, CIBC Oppenheimer Corp., as the documentation agent ("Documentation Agent"), and Merrill Lynch Capital Corporation ("Merrill"), as the syndication agent ("Syndication Agent"). The Bank Credit Facility, which comprises senior secured construction/term loan facilities, consists of three construction/term loans: (i) the $136.0 million Term A Loan that has a stated maturity date of seven years from the closing date of the Bank Credit Facility (the "Bank Closing Date"), (ii) the $114.0 million Term B Loan that has a stated maturity date of eight and one half years from the Bank Closing Date, and (iii) the $160.0 million Term C Loan that has a stated maturity date of ten years from the Bank Closing Date (each term loan, a "Loan"). The Loans will convert from construction loans into amortizing term loans on a date (the "Conversion Date") which is the earlier of (x) the issuance of a permanent certificate of occupancy for the Aladdin (which must include appropriate parking facilities) and operating permits for the Plant or (y) the completion of the Aladdin and the Plant as determined by the Administrative Agent and the Construction Consultant. The proceeds of the Bank Credit Facility shall be used by the Company to finance a portion of the main Project Costs. The maximum amount of the Bank Credit Facility is $410.0 million plus, subject to certain conditions, certain additional amounts as described under "Description of the Notes--Certain Covenants." On the date on which the initial Advance was made, the Bank Lenders that had committed to make the Term B Loan and the Term C Loan, advanced their respective committed amounts thereof to an account (the "Cash Collateral Account") over which the Disbursement Agent has dominion and control over, and a perfected first security interest for the benefit of the Bank Lenders which have advanced the Term B Loan and the Term C Loan. The proceeds of the Term B Loan and the Term C Loan will not be disbursed from the Cash Collateral Account until all of the proceeds of the Offering have been expended, and the proceeds of the Term B Loan and the Term C Loan shall be fully disbursed from the Cash Collateral Account prior to any advance of the Term A Loan (other than advances of the Term A Loan which are made to reimburse Scotiabank (in such capacity, the "LC Issuer") for disbursements made in respect of Letters of Credit which have been drawn upon). Disbursements from the Cash Collateral Account (with respect to the Term B Loan and the Term C Loan) and advances of the Term A Loan shall be made in accordance with the Disbursement Agreement but no advances under the Bank Credit Facility shall be made on or after the Conversion Date. LETTERS OF CREDIT. The Bank Credit Facility provides that the Company may from time to time (prior to a certain period preceding the Conversion Date) request that one or more letters of credit (the "Letters of Credit") be issued or extended if required as a deposit by suppliers and/or contractors providing materials to the Aladdin; PROVIDED, HOWEVER, no Letter of Credit shall be issued for the Gaming Equipment and Specified Equipment which is covered by the FF&E Financing. The aggregate amount of such Letters of Credit shall not exceed $20.0 million. MATURITY DATE OF THE BANK CREDIT FACILITY. The entire outstanding principal balance of the Loans, together with all unpaid interest thereon and other amounts due to the respective Bank Lenders under the 101 documents pursuant to which the Loans were made (the "Loan Documents") is due and payable in immediately available funds on the stated maturity date of each Loan. The maturity dates of the Loans shall be the earlier of (a) the date upon which the Loans become immediately due and payable by reason of the occurrence of an event of default under the Loan Documents (beyond the expiration of applicable grace, notice and cure periods) and (b) the above mentioned stated maturity date for each Loan. INTEREST RATE. At the Company's option, the Loans will bear interest at either Scotiabank's (i) alternate base rate (the "Alternate Base Rate" or "ABR") or (ii) reserve adjusted LIBOR plus, in each case, the applicable following margins. (a) In the case of the Term A Loan and prior to the date on which is 6 months after the Conversion Date, the following margin applies: Alternate Base Rate +200 bps and reserve adjusted LIBOR +300 bps. (b) As regards the Term A Loan, from and after the date which is six months after the Conversion Date, the applicable margin set forth in the currently effective compliance certificate applies:
ALTERNATE BASE TOTAL DEBT TO EBITDA RATE LIBOR - ----------------------------------------------------------- ------------------ ------------ greater than or equal to 4.0x.............................. +175 bps +275 bps less than 4.0x and greater than or equal to 3.5x........... +150 bps +250 bps less than 3.5x and greater than or equal to 3.0x........... +100 bps +200 bps less than 3.0x and greater than or equal to 2.5x........... +75 bps +175 bps less than 2.5x............................................. +50 bps +150 bps
(c) With respect to the proceeds of the Term B Loan and the Term C Loan which are being held in the Cash Collateral Account, the Alternate Base Rate margin shall be +100 bps and the reserve adjusted LIBOR margin is +200 bps. (d) With respect to all portions of the Term B Loan and the Term C Loan which have been disbursed from the Cash Collateral Account, the Term B Loan and Term C Loan will bear interest based at either LIBOR or the Alternate Base Rate, in both cases, plus a certain margin. OPTIONAL PREPAYMENTS. The Bank Credit Facility allows the Company to prepay, at its option, certain of the Loans under certain conditions. SCHEDULED AMORTIZATION. From and after the Conversion Date, the principal amount of the Bank Credit Facility will be amortized (the "Scheduled Amortization") on certain scheduled quarterly dates (ranging from 20 scheduled quarters for the Term A Loan, 26 scheduled quarters for the Term B Loans and 32 scheduled quarters for the Term C Loan) and in certain amounts (ranging from $4.0 million to $10.0 million per quarter for the Term A Loan, $300,000 to $20.0 million per quarter for the Term B Loan, and $400,000 to $25.5 million per quarter for the Term C Loan). MANDATORY PREPAYMENTS. From and after the Conversion Date, the Company shall make mandatory prepayments of principal (the "Mandatory Prepayments") in addition to the Scheduled Amortization on certain scheduled quarterly dates and in certain amounts based on a percentage of the Excess Cash Flow from the Aladdin. In addition to the foregoing payments and the Scheduled Amortization, the entire outstanding principal balance of the Bank Credit Facility shall become immediately due and payable (and any outstanding Letters of Credit shall be cash collateralized) and the obligation of any Bank Lender which has committed to make a Term A Loan or participate in the Letters of Credit shall automatically terminate (a) upon a sale, transfer or conveyance of or borrowing against (whether or not secured by) the Aladdin not otherwise permitted by the Loan Documents, (b) a change in control (as defined in the Bank Credit Facility) or (c) if no disbursement of any proceeds of the Term B Loan or the Term C Loan is made 102 from the Cash Collateral Account within twelve months after the Bank Closing Date (subject to Force Majeure Events). Subject to certain Bank Lenders' rights to elect not to receive a Mandatory Prepayment, Mandatory Prepayments of the Bank Credit Facility will be applied in the inverse order against the Scheduled Amortization PRO RATA among the Term A Loan, the Term B Loan and the Term C Loan. The Loan Documents provide, in relevant part, that the amount of any Mandatory Prepayment of the Term B Loan and the Term C Loan which is due from the Company with respect to a change of control of the Company or the interests of the Sponsors (excluding a transfer of the Sponsor interests resulting from the exercise of warrants issued in connection with the Notes) shall be 101% of the principal amount of the Term B Loan and the Term C Loan. COMMITMENT FEE. From and after the Bank Closing Date and until the Conversion Date, a non-refundable fee (the "Term A Loan Commitment Fee") in the amount of 0.5% per annum of the unfunded portion of the Term A Loan shall accrue on the daily average unfunded portion of the Term A Loan. The Term A Loan Commitment Fee shall be payable to the Bank Lenders which have made a commitment to make the Term A Loan on the last business day of each calendar quarter in arrears in proportion to their respective unfunded commitments of the Term A Loan. SECURITY. As security for the Bank Credit Facility, the Company has entered into a deed of trust in favor of the Bank Lenders securing the Notes and all obligations of the Company under the Loan Documents, encumbering the Aladdin (including any and all leasehold interests) as a first priority lien, subject only to those title exceptions approved by the Administrative Agent. The Company has also assigned all present and future of leases, rents, issues and profits in favor of the Bank Lenders, assigning to the Bank Lenders such leases pertaining to the Aladdin, including the Ground Leases and the Theater Lease and, to the extent they are assignable, the contracts, agreements, proposals, permits, approvals, plans and specifications pertaining to the Aladdin. In addition, the Company has entered into security agreements granting to the Bank Lenders a continuing first priority security interest in all accounts, accounts receivable, all reserves, all licenses (other than liquor licenses and those granted pursuant to Gaming Approvals to the extent they cannot be assigned), Specified Equipment and Gaming Equipment installed in, affixed to, placed upon and used in connection with the Aladdin which are owned or leased by the Company (subject to the rights of the FF&E Lender under the FF&E Financing), the Marks and all other tangible or intangible personal property owned by the Company. As further security for the Bank Credit Facility, (a) AHL has entered into a pledge and security agreement pledging all of its interest in Sommer Enterprises to the Bank Lenders; (b) Sommer Enterprises has entered into a pledge and security agreement pledging all of its interests in the Issuer and Holdings to the Bank Lenders; (c) the Issuer has entered into a pledge and security agreement pledging all of its interests in Holdings (other than the interests relating to the Warrants which have been issued by the Issuer in connection with the Offering) to the Bank Lenders; (d) Holdings has entered into a pledge and security agreement pledging all of its interest in the Company to the Bank Lenders other than the Series A Preferred Interests; (e) the Company has entered into a pledge and security agreement pledging all of its interest in AMH to the Bank Lenders; and (f) AMH has entered into a pledge and security agreement pledging all of its interest in Aladdin Music to the Bank Lenders; (g) LCNI has entered into a pledge and security agreement pledging all of its interest in Holdings to the Bank Lenders; and (h) Holdings has entered into a pledge and security agreement pledging all of its interest in Capital to the Bank Lenders. The pledges of the equity securities of those entities registered as holding companies or licensed by the Nevada Commission will require the approval of the Nevada Commission in order to remain effective. In addition, if such companies are registered and licensed (as applicable), separate approvals will be required to foreclose on the pledges and such approvals will require the licensing of the Bank Lenders unless such requirement is waived by the Nevada Gaming Authorities upon application by the Bank Lenders. Furthermore, if the Company is licensed by the Nevada Gaming Authorities at any time during the term of 103 the Bank Credit Facility, the Bank Lenders will be subject to being called forward by the Nevada Gaming Authorities, in their descretion, for licensing or a finding of suitablility as lenders to a Company Licensee. IN BALANCE REQUIREMENTS. The Bank Credit Facility and the Disbursement Agreement include loan balancing provisions requiring the Company to deposit additional monies into the Cash Collateral Account if the Administrative Agent and the Bank Lender's Consultant reasonably determine that the Bank Credit Facility is not "In Balance." The Bank Credit Facility will be considered "In Balance" when undisbursed portions of the Bank Credit Facility allocated to each line item category in the Budget equals or exceeds such line item category, contingency requirements have been satisfied and the guaranteed maximum price is in effect. AFFIRMATIVE COVENANTS. The Bank Credit Facility contains customary affirmative covenants for the type of transaction proposed, including, without limitation, the following: (a) the Company will construct the Aladdin and perform all the work required under the other Loan Documents, (b) the Company will operate the Aladdin as a first-class casino hotel, (c) the Company will maintain adequate reserves and (d) the Company will provide the Administrative Agent with certain financial information. NEGATIVE COVENANTS. The Bank Credit Facility contains customary negative covenants for the type of transaction proposed, including, without limitation, the following: (a) restrictions on the incurrence of debt, sale leasebacks and contingent liabilities; (b) restrictions on making dividends or similar distributions; (c) restrictions on the incurrence of liens or other encumbrances; (d) restrictions on the sale of assets or other similar transfers; (e) restrictions on investments or acquisitions; (f) restrictions on mergers, consolidations and similar combinations; (g) restrictions on transactions with affiliates; (h) limitations on capital expenditures; (i) restrictions on adjustments or reallocations against line items in the Budget; and (j) restrictions on any amendment or modification of certain material agreements. Any restrictions on the transfer of and agreements not to encumber the equity securities of any registered holding company of the Company will require the approval of the Nevada Commission in order to remain effective. FINANCIAL COVENANTS. The Bank Credit Facility contains certain financial covenants, including, without limitation, the following: minimum fixed charge coverage; minimum interest coverage; maximum debt to EBITDA; minimum EBITDA and minimum net worth. EVENTS OF DEFAULT. The Bank Credit Facility contains events of default customary for the type of transaction proposed including, without limitation, a cross-default to other indebtedness or agreements of the Company, London Clubs, the other Sponsors and the Guarantors under the Bank Completion Guaranty. SENIOR DISCOUNT NOTES GENERAL DESCRIPTION OF THE NOTES. Pursuant to an Indenture dated as of February 26, 1998 (the "Indenture"), the Note Issuers issued 221,500 $1,000 principal amount at maturity of 13 1/2% Senior Discount Notes due 2010 (the "Notes"). The Notes were issued as part of 221,500 Units, each Unit consisting of one Note and 10 Warrants. Pursuant to their terms the Notes and Warrants became separately transferrable on the Separation Date, which date occurred upon filing of the Registration Statement and the registration statement with respect to the New Notes (the "Exchange Offer Registration Statement") with the Commission. MATURITY. The Notes mature on March 1, 2010. ACCRETED VALUE AND INTEREST. The initial Accreted Value of the Notes was $519.40 per $1,000 principal amount at maturity of the Notes. The Notes accrete at 13 1/2% (computed on a semi-annual bond equivalent basis) based on the initial Accreted Value, calculated from February 26, 1998 (the "Issue Date"). The Notes will accrete to an aggregate principal amount of $221.5 million by March 1, 2003. Cash interest will not accrue on the Notes prior to March 1, 2003. Commencing on September 1, 2003, cash 104 interest on the Notes will be payable, at a rate of 13 1/2% per annum, semiannually in arrears on March 1 and September 1 of each year until maturity. SECURITY. The Notes are secured by a first priority pledge of the proceeds deposited in the Note Construction Disbursement Account and by a first priority pledge of all of the issued and outstanding Series A Preferred Interests. SERIES A PREFERRED INTERESTS. On the Issue Date, the Series A Preferred Interests had a liquidation preference of $115.0 million. The liquidation preference of the Series A Preferred Interests accretes on a semi-annual bond equivalent basis using a 360 day year comprised of twelve 30-day months. On March 1, 2003, the liquidation preference of the Series A Preferred Interests will be $221.5 million. All Series A Preferred Interests are held by Holdings and pledged to the Trustee for the benefit of the holders of the Notes. From and after September 1, 2003, distributions on the Series A Preferred Interests will be payable in cash. Holdings is obligated under the Indenture to utilize such cash distributions to make payments on the Notes. The Series A Preferred Interests are mandatorily redeemable on March 1, 2010. After March 1, 2003, the Series A Preferred Interests are redeemable at the option of the Company, so long as the proceeds thereof are used by Holdings to make a redemption of the Notes or an offer to purchase Notes, in each case, in accordance with the terms of the Indenture. See "--Optional Redemption" and "--Gaming Redemption." Except for the pledge to the Trustee for the benefit of the holders of the Notes, the exercise of remedies in respect of such pledge or any transfer after foreclosure under such pledge, the Series A Preferred Interests are nontransferable. OPTIONAL REDEMPTION. The Notes are redeemable at the option of the Note Issuers, in whole or in part, on or after March 1, 2003, at a declining premium to their Accreted Value, plus accrued and unpaid interest and Liquidated Damages (as defined in the Indenture), if any, to the date of redemption. Notwithstanding the foregoing, on or prior to March 1, 2001, the Note Issuers may redeem up to an aggregate of 35% of the Accreted Value of the Notes at a redemption price of 113 1/2% of the Accreted Value thereof, plus Liquidated Damages, if any, thereon to the redemption date, with the proceeds of a Qualified Public Offering resulting in aggregate net proceeds of at least $50.0 million. GAMING REDEMPTION. The Notes are subject to mandatory disposition and redemption requirements following certain determinations by any Gaming Authority. CHANGE OF CONTROL. Upon the occurrence of a Change of Control (as defined in the Indenture) of Holdings, the holders of the Notes have the right to require the Note Issuers to purchase their Notes at a price equal to 101% of the Accreted Value thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of purchase. COVENANTS. The Indenture contains certain covenants that (subject to certain exceptions) restrict the ability of the Note Issuers and certain of their subsidiaries to, among other things: (i) make restricted payments; (ii) incur additional Indebtedness (as defined in the Indenture) and issue preferred stock; (iii) incur Liens (as defined in the Indenture); (iv) pay dividends or make other distributions; (v) enter into mergers or consolidations; (vi) enter into certain transactions with affiliates; or (vii) enter into new lines of business. See "Risk Factors." EVENTS OF DEFAULT. The Indenture provides for customary events of default, including: (i) default for 30 days or more in the payment when due of interest on, or Liquidated Damages, if any, with respect to, the Notes; (ii) default in payment when due of the Accreted Value of or premium, if any, on the Notes; (iii) failure by the Note Issuers to comply with certain covenants; (iv) default under certain other indebtedness of Holdings or its restricted subsidiaries (subject to certain grace periods and minimum thresholds); (v) failure by Holdings or any of its restricted subsidiaries to pay certain final judgments; (vi) certain events of bankruptcy or insolvency with respect to Holdings or any of its significant subsidiaries; (vii) certain defaults 105 under the Keep-Well Agreement which remain uncured for 180 days, or in the performance of the Noteholder Completion Guaranty; (viii) certain breaches by Holdings of the pledge agreements securing the Notes; (ix) the termination or unavailability of the Bank Credit Facility in certain circumstances prior to the date the Aladdin is Operating; (x) (a) failure of the Desert Passage to be Operating on or prior to 90 days after the date the Aladdin becomes Operating and (b) at any time thereafter and prior to the date on which the Desert Passage becomes Operating, the Company's fixed charge coverage ratio for its most recently ended four full fiscal quarters is not at least 1.75 to 1.0; (xi) after the Aladdin becomes Operating, revocation, termination, suspension or other cessation or suspension of gaming operations for a period of more than 90 days at the Aladdin; (xii) the failure of the Aladdin to be Operating by the Operating Deadline; (xiii) the transfer of the Aladdin Site as a result of the exercise of remedies by the Bank Lenders or the acceptance by the Bank Lenders of a deed in lieu of foreclosure; and (xiv) the transfer of the Common Membership Interests as a result of the exercise of remedies by the Bank Lenders in respect of the pledge of such Common Membership Interests pursuant to Bank the Lender's security documents. REGISTRATION RIGHTS. Pursuant to a registration rights agreement (the "Note Registration Rights Agreement") dated as of February 26, 1998 between the Note Issuers and the Initial Purchasers, the Note Issuers agreed to (a) file within 45 days after the Issue Date with the Commission the Exchange Offer Registration Statement with respect to an offer to exchange the Notes (the "Exchange Offer") for new notes of the Note Issuers with terms substantially identical to the Notes (the "New Notes") (except that the New Notes generally will not contain terms with respect to restrictions on the resale or transfer thereof) and (b) use their reasonable best efforts to cause such Exchange Offer Registration Statement to become effective under the Securities Act within 150 days after the Issue Date. In the event that applicable law or interpretations of the staff of the Commission do not permit the Note Issuers to effect the Exchange Offer, or if certain holders of the Notes (having a reasonable basis to do so) notify the Note Issuers that they are not permitted to participate in, or would not receive freely traceable New Notes pursuant to, the Exchange Offer, the Note Issuers will use their reasonable best efforts to cause to become effective a registration statement (the "Shelf Registration Statement") with respect to the resale of the Notes. The Note Issuers, under certain circumstances, will be required to pay certain liquidated damages if the Note Issuers are not in compliance with certain of their obligations under the Note Registration Rights Agreement. Contemporaneously with the filing of the Registration Statement with the Commission, the Note Issuers filed the Exchange Offer Registration Statement with the Commission relating to the Exchange Offer. The Note Issuers expect to complete the Exchange Offer in August, 1998. For purposes of the Notes, "Accreted Value" means, (i) as of any date of determination prior to March 1, 2003, with respect to any Note, the sum of (a) the initial offering price (which shall be calculated by discounting the aggregate principal amount at maturity of such Note at a rate of 13 1/2% per annum, compounded semi-annually on each March 1 and September 1 from March 1, 2003 to the date of issuance) of such Note and (b) the portion of the excess of the principal amount of such Note over such initial offering price which shall have been accreted thereon through such date, such amount to be so accreted on a daily basis at a rate of 13 1/2% per annum of the initial offering price of such Note, compounded semi-annually on each March 1 and September 1 from the date of issuance of the Notes through the date of determination, computed on the basis of a 360-day year of twelve 30-day months and (ii) as of any date of determination on or after March 1, 2003, with respect to any Note, $1,000. FF&E FINANCING LEASE FACILITY. The Company has entered into a commitment letter for a lease facility (the "Lease Facility") with the FF&E Lender for the purpose of acquiring approximately $60 million of new furniture and equipment (other than gaming equipment) for the Aladdin. The Lease Facility is expected to contain provisions as described herein and is structured as a lease intended for security (the "Lease"). The Company will be considered the owner of the Specified Equipment (as defined herein) for tax purposes and the lease will be treated as an operating lease for accounting purposes. The lease will commence on 106 the date on which the Aladdin will be completed (the "Construction Completion Date" or the "Basic Lease Term Commencement Date") and will terminate three years from the Basic Lease Term Commencement Date (the "Basic Lease Term"), however, the Lease may be renewed up to two one-year renewals from the end of the Basic Lease Term (the "Renewal Lease Term"). Payments will be made quarterly, in arrears, calculated such that there will be 80% amortization of principal at the end of the Basic Lease Term and the maximum two Renewal Lease Terms. The remaining balloon payment will be twenty percent of the principal. A lease rental factor (the "Lease Rental Factor") will be calculated to be 5.6639% of 100% of the Company's acquisition cost of the Specified Equipment up to $60.0 million (the "Lease Funding Amount") per quarter. The Lease Rental Factor was calculated at an interest rate of 10.444% which represents a spread of 478 bps over the reserve adjusted 90-day LIBOR (the "Base Index") (5.9375%). Five days prior to the Basic Lease Term Commencement Date, the Lease Rental Factor will be adjusted and calculated on the basis of the floating rate Base Index plus the higher of (a) 478 bps, or (b) the weighted average spread used to calculate the interest rate on the Bank Credit Facility plus 125 bps, and such spread shall be maintained throughout the Basic Lease Term and any available Renewal Lease Terms. The Lease Rental Factor will be adjusted quarterly based on changes to the Base Index. Subject to the satisfaction of the conditions precedent and to there being no default, the FF&E Lender will commence funding of deliveries of the Specified Equipment and/or the Gaming Equipment (as defined herein) up to six months prior to the Construction Completion Date (the "Interim Funding Date"). An interim lease funding amount (the "Interim Lease Funding Amount") of up to $60.0 million will be available, subject to no default then having occurred and continuing under the Company's financing, construction or other material agreements, and satisfaction of all conditions precedent to funding. Advances of the Interim Lease Funding Amount shall be made once per month during the Interim Funding Period. Any Interim Lease Funding Amount advanced under the Lease Facility shall be made under an interim schedule, which shall be converted to a final schedule under the Lease on the Basic Lease Term Commencement Date. The interim lease repayment terms (the "Interim Lease Repayment Terms") will be floating rate interest-only payments due monthly in arrears during the period from the Interim Funding Date through the Construction Completion Date (the "Interim Funding Period") based on the Interim Lease Funding Amount. At the Company's option, interest will be calculated at either (a) the reserve adjusted 30-day LIBOR on the date of determination ("30-day LIBOR") plus the higher of (i) 478 bps, or (ii) the weighted average spread used to calculate the interest rate of the Bank Credit Facility plus 125 bps, or (b) the prime rate published in the Wall Street Journal on the date of the determination (the "Prime Rate") plus 275 bps, and such spread shall be fixed throughout the Interim Funding Period, and 30-day LIBOR or the Prime Rate will be adjusted monthly based on changes thereto. Subject to certain provisions, at the end of the Basic Lease Term or any Renewal Lease term, the Company may (i) purchase all, but not less than all, of the Specified Equipment at a fixed purchase price, estimated to represent the Specified Equipment's then fair value, (ii) renew the Lease for all, but not less than all, of the Specified Equipment for up to two additional one-year terms, or (iii) return all, but not less than all, of the Specified Equipment to the FF&E Lender subject to certain return conditions, including payment of a contingent rental amount. Upon termination of the Lease at the end of the Basic Lease Term or any Renewal Lease term, should the Specified Equipment be returned to the FF&E Lender by the Company, the FF&E Lender will calculate a contingent rental for the full lease term, on a quarterly basis, based on certain factors. TERM LOAN FACILITY. The Company has entered into a commitment letter for an approximately $20 million five year term loan facility (the "Term Loan Facility") with the FF&E Lender for the purposes 107 of purchasing new gaming equipment for the Aladdin. The Term Loan Facility is expected to contain terms as described herein. The term loan commencement date is the Construction Completion Date (the "Term Loan Commencement Date"). Payments shall be made quarterly, in arrears, calculated such that principal will be amortized as follows:
QUARTER PERCENT AMORTIZATION - --------- --------------------- 1-4 3.25 5-8 3.5 9-12 4.0 13-16 4.5 17-19 4.75 20 24.75
The interest rate (the "Interest Rate") will be calculated five days prior to the Term Loan Commencement Date on the basis of the floating rate Base Index plus the higher of (a) 478 bps, or (b) the weighted average spread used to calculate the interest rate on the Bank Credit Facility on such date plus 125 bps, and such spread shall be maintained throughout the five year term. The Interest Rate will be adjusted quarterly, based on changes to the Base Index, if applicable. An interim term loan funding amount (the "Interim Term Loan Funding Amount") of up to $20.0 million will be available, subject to no default then having occurred and continuing under the Company's financing, construction or other material agreements and satisfaction of all conditions precedent to funding. Advances of the Interim Term Loan Funding Amount shall be made once per month during the Interim Funding Period. An Interim Term Loan Funding Amount advanced under the Term Loan Facility shall be evidenced by an interim promissory note, which shall be converted to a final promissory note on the Term Loan Commencement Date. The interim term loan repayment terms (the "Interim Term Loan Repayment Terms") will be floating rate interest-only payments due monthly in arrears during the Interim Funding Period based on the Interim Term Loan Funding Amount. At the Company's option, interest will be calculated at either (a) the 30-day LIBOR plus the higher of (i) 478 bps, or (ii) the weighted average spread used to calculate the interest rate of the Bank Credit Facility plus 125 bps, or (b) the Prime Rate plus 275 bps, and such spread shall be fixed throughout the Interim Funding Period and 30-Day LIBOR or the Prime Rate will be adjusted monthly based on changes thereto. SECURITY. The security interests granted by the Company will be a first priority security interest in a pool of new furniture and equipment (other than gaming equipment) (the "Specified Equipment"), and specified new gaming equipment including gaming devices such as slot machines, cashless wagering systems and associated equipment (the "Gaming Equipment"), and assignment of all improvements and/or additions to the Specified Equipment and the Gaming Equipment hereafter acquired. The Specified Equipment and the Gaming Equipment will be required to be free of all junior liens or encumbrances. Any and all existing and to be issued obligations of the Company shall acknowledge that the Term Loan Facility and the Lease Facility have a first priority lien on the Gaming Equipment and the Specified Equipment. During the Interim Funding Period, the Company shall assign to the FF&E Lender its rights under the purchase contracts for the Specified Equipment. CONDITIONS PRECEDENT. The FF&E Financing is subject to customary conditions precedent. COVENANTS AND EVENTS OF DEFAULT. Except for covenants related to the Specified Equipment or the Gaming Equipment, the covenants and events of default in the FF&E Financing will be similar to those in the Bank Credit Facility. The disposition of collateral consisting of Gaming Equipment is subject to the 108 requirements of the Nevada Act, including the approval of the Nevada Board or the licensing of the Lenders before foreclosure, taking possession or other disposition of such Gaming Equipment. BANK COMPLETION GUARANTY The Trust, London Clubs and Bazaar Holdings (collectively, the "Guarantors") have entered into a guaranty of performance and completion (the "Bank Completion Guaranty") in favor of each of the Administrative Agent and the Bank Lenders. The Bank Completion Guaranty provides that the Guarantors jointly and severally guarantee to the Bank Lenders under the Bank Credit Facility, among other things (the "Guaranteed Obligations"), that: (i) the Company will promptly carry out the work required for the redevelopment of the Aladdin in accordance with the approved plans and specifications and to correct as soon as possible any material defect in such work or material deviation from the approved plans and specifications; (ii) the Company will punctually pay all costs, expenses and liabilities in connection with the redevelopment of the Aladdin, including all construction period interest incurred on the Bank Credit Facility, prior to completion of the work and in connection with cost overruns of any type; (iii) the Company will complete the redevelopment lien-free and on schedule; (iv) the Company will provide the expertise necessary to supervise the redevelopment of the Aladdin at no cost to the Bank Lenders; (v) in the event the Guarantors fail to pay their respective obligations under the Bank Completion Guaranty, the Bank Lenders may pay and perform the Guaranteed Obligations on behalf of the Guarantors, in which case the Guarantors, upon demand, must reimburse the Bank Lenders all cost, expenses and liabilities in connection with the completion of the redevelopment of the Aladdin; and (vi) the Guarantors shall pay the Bank Lenders all reasonable out-of-pocket costs and expenses of the Bank Lenders in connection with the enforcement of the Bank Lenders' rights and remedies under the Bank Completion Guaranty. The Bank Completion Guaranty has (i) negative covenants which, among other things, prohibit the Guarantor from incurring certain liens and certain types of indebtedness and (ii) affirmative covenants which, among other things, require that each of the Guarantors provide certain financial information and maintain the corporate existence of each Guarantor and its subsidiaries. Should certain London Clubs specified exceptional events (a "Specified Event") under the Bank Completion Guaranty occur, at the option of the required lenders, such Specified Event shall constitute an event of default under the Bank Completion Guaranty and consequently under the Bank Credit Facility, and the Bank Lenders, without any further notice to a Guarantor, shall be entitled to exercise all rights and remedies available under the Bank Completion Guaranty and any other Loan Documents. The following is a summary of the Specified Events: (i) any time London Clubs fails to comply with certain covenants, including but not limited to financial covenants, in the Bank Completion Guaranty and to the extent such non-compliance is curable, such non-compliance is not cured within twenty-five (25) days; (ii) any borrowed money for a sum in excess of L2,500,000 or the equivalent in any other currency of London Clubs or any material subsidiary has by reason of breach or default become due and payable prior to its stated maturity or due date or if such borrowed money is not paid at the maturity thereof or due date therefor, or if payable on demand, is not paid on demand; 109 (iii) London Clubs or any material subsidiary becomes insolvent or applies for or consents to the appointment of a liquidator, receiver or trustee in bankruptcy or similar official or London Clubs or any material subsidiary fails generally to pay its debts as and when they become due; (iv) a petition is presented (but only if such petition remains undischarged 90 days after presentation thereof) or a meeting is convened or an order is made or other action or proceedings are taken with a view to the appointment of an administrator, winding-up, liquidation or dissolution of London Clubs or any material subsidiary or London Clubs or any material subsidiary stops or threatens to stop payments generally or ceases or threatens to cease to carry on its business or a substantial part thereof or London Clubs or any material subsidiary merges, consolidates or amalgamates with any other company or entity in a transaction not otherwise permitted under the L65,000,000 Facilities Agreement among, London Clubs, various banks and National Westminster PLC (the predecessor-in-interest to the The Bank of Nova Scotia) as arranger and agent; (v) a distress, execution or other legal process is levied against any of the assets of London Clubs or any material subsidiary and is not discharged or paid out within 90 days, except where such distress, execution or legal process is in the reasonable opinion of the required lenders being contested in good faith by London Clubs or the relevant material subsidiary; or (vi) an encumbrancer takes possession or a receiver or an administrative receiver is appointed of the whole or any substantial part of the assets or undertaking of London Clubs or any material subsidiary. 110 CERTAIN MATERIAL AGREEMENTS The following discussion summarizes the material terms of certain material agreements which have been entered into or are currently being negotiated between the Company (and/or the Controlling Stockholders) and various other parties. This summary does not purport to be complete and is qualified in its entirety by reference to the full agreements described herein once finalized and executed. Capitalized terms used but not otherwise defined in this Prospectus shall have the meaning ascribed to such terms in the agreement being described (unless otherwise indicated). AGREEMENTS WITH RESPECT TO THE ALADDIN HOLDINGS OPERATING AGREEMENT The Holdings Members have entered into an operating agreement (the "Holdings Operating Agreement") setting forth their agreement as to the relationships between Holdings and the Holdings Members and among the Holdings Members themselves and as to the conduct of the business and internal affairs of Holdings. The following is a summary of certain key provisions of the Holdings Operating Agreement. PURPOSE. Holdings was organized for the purposes of developing, constructing, financing, owning and operating hotels and casinos and related businesses and to engage in such other lawful enterprises as may be incidental or appurtenant thereto. CLASSES OF INTERESTS. Holdings is capitalized with three classes of shares (which represent units of membership interests in Holdings): Common Shares (the "Holdings Common Membership Interests"), Series A Preferred Shares (the "Holdings Series A Preferred Interests") and Series B Preferred Shares (the "Holdings Series B Preferred Interests" and together with the Holdings Common Membership Interests and the Holdings Series A Preferred Interests, the "Holdings Interests"). Holdings' authorized capital stock consists of 10,000,000 Holdings Common Membership Interests, 1,500,000 Holdings Series A Preferred Interests and 1,500,000 Holdings Series B Preferred Interests. Holdings will periodically distribute cash, to the extent available, to the holders of Holdings Common Membership Interests (or, if any such holder is a pass-through entity, its equity interest holders) to the extent of the increase in their cumulative United States federal, state or local income tax liability in respect of their interests in Holdings for such period and make any additional distributions of cash to Holdings Members that may be necessary to cover United States federal, state or local income taxes arising from the ownership of an interest in Holdings. No other distributions shall be made to any Holdings Interests until all distributions to cover tax liability in respect of any Holdings Interests for such period have been made. The Holdings Series A Preferred Interests will be issued to LCNI or Sommer Enterprises in consideration for any payment required pursuant to the Bank Completion Guaranty, the Noteholder Completion Guaranty or the Keep-Well Agreement (or a payment to the Company to cover any EBITDA shortfall under the Bank Credit Facility) which is made by Sommer Enterprises, LCNI or their respective affiliates to the Company where such payment is not required to be made to pay down the Company's bank debt pursuant to Section 13 of the Keep-Well Agreement. Except for distributions to cover any tax liability in respect of any Holdings Interests, the Holdings Series A Preferred Interests will have a distribution, redemption and liquidation preference over all Holdings Common Membership Interests and Holdings Series B Preferred Interests. To the extent of any net profits left to be allocated after special allocations, the capital account in respect of the Holdings Series A Preferred Interests will cumulate and compound semi-annually at the rate of 12% per annum on the capital account balance in respect thereof at the time of compounding and, subject to the limitations on Restricted Payments set forth in the Indenture, will be paid when a supermajority of the Holdings Board determines that there is sufficient cash available to do so. Holdings Series A Preferred Interests will be automatically redeemed when distributions have been made to the extent of the capital account balance in respect thereof. Should Holdings liquidate at any time prior to the redemption of the Holdings Series A Preferred Interests, the Holdings Series A Preferred Interests will be entitled to a distribution of cash, to the extent available, before any distributions are made 111 to the Holdings Series B Preferred Interests or Holdings Common Membership Interests, in an amount equal to the capital account of the Holdings Series A Preferred Interests. The Holdings Series B Preferred Interests will be issued to LCNI in the event of and in exchange for a payment required by London Clubs to pay down the Company's bank debt pursuant to Section 13 of the Keep-Well Agreement. Except for distributions to cover any tax liability in respect of any Holdings Interests, the Holdings Series B Preferred Interests will have a distribution, redemption and liquidation preference over all Holdings Common Membership Interests. To the extent of any net profits left to be allocated after special allocations and allocations to Holdings Series A Preferred Interests, the capital account in respect of Holdings Series B Preferred Interests will cumulate and compound quarterly at a rate equal to the rate on the bank debt of the Company which was paid down by the payment required pursuant to the Keep-Well Agreement, such rate to be applied to the capital account balance in respect of the Holdings Series B Preferred Interests at the time of compounding and, subject to the limitations on Restricted Payments set forth in the Indenture, will be paid when a supermajority of the Holdings Board determines that there is sufficient cash available to do so after all Holdings Series A Preferred Interests have been redeemed. Holdings Series B Preferred Interests will be automatically redeemed when distributions have been made to the extent of the capital account balance in respect thereof. Should Holdings liquidate at any time prior to the redemption of the Holdings Series B Preferred Interests, the Holdings Series B Preferred Interests will be entitled to a distribution of cash, to the extent available, before any distributions are made to the Holdings Common Membership Interests, in an amount equal to the capital account of the Holdings Series B Preferred Interests. Other than distributions to cover any tax liability in respect of any Holdings Interests, the Holdings Common Membership Interests will be entitled to distributions only after all discretionary and mandatory distributions have been made to all other interests in Holdings. The Indenture contains restrictions on the payment of distributions to the Holdings Interests. Distributions to all Holdings Interests are payable only out of the assets of Holdings at the time of such distribution, and in no event shall any holder of an interest in Holdings be obligated to make a contribution to Holdings for the payment of distributions. Except for matters affecting rights of the holders of Holdings Series A Preferred Interests and Holdings Series B Preferred Interests to distributions, including upon redemption, (which may not be diminished or affected without the vote of the holders of at least two-thirds of the issued and outstanding shares of the affected class) and matters affecting the anti-dilution protections, rights to move their investment directly into Holdings in certain circumstances and tag-along participation rights of the holders of the Warrants and the Warrant Shares (which may not be amended without the consent of the Issuer), all management and voting rights are vested in the Holdings Common Membership Interests. ADJUSTMENTS IN INTERESTS. Subject to the receipt of applicable Gaming Approvals, the percentages of the Holdings Common Membership Interests held directly by each Holdings Member (each, a "Holdings Percentage Interest") will be adjusted by the issuance of additional Holdings Common Membership Interests and/or cancellation of issued and outstanding Holdings Common Membership Interests in the following circumstances: (i) on the opening date of the Aladdin (the "Opening Date") LCNI's Holdings Percentage Interest shall be decreased by 0.5% and Sommer Enterprises' Holdings Percentage Interest shall be increased by 0.5%; (ii) in the event of defaults in payment of a Holdings Member's or its Affiliates' share of payments required pursuant to the Keep-Well Agreement (or payments to the Company to cover any EBITDA shortfall under the Bank Credit Facility), the defaulting Holdings Member's Holdings Percentage Interest shall be reduced and the non-defaulting Holdings Member's Holdings Percentage Interest shall be increased by 1, 1.5 or 2 times (depending on whether the defaulting Holdings 112 Member is in default for 30 days, 45 days or 60 days from the date of such default) multiplied by a dilution fraction, the numerator of which is the delinquent contribution and the denominator of which is $200 million; (iii) upon the exercise of any Warrants, the relative Holdings Percentage Interests of all Holdings Members other than LCNI and the Issuer will be adjusted so that all such Holdings Members share proportionately the dilutive effect of such exercise on their directly and indirectly held Holdings Percentage Interests (unvested Holdings Common Membership Interests will also be adjusted thereupon); (iv) upon any adjustment of the Issuer's Holdings Percentage Interest pursuant to the Warrant Agreement (which may occur in the event of: dividends or distributions by Holdings; subdivisions or combinations of Holdings Common Membership Interests; issuance of Holdings Common Membership Interests or any rights to purchase Holdings Common Membership Interests for less than fair value; and similar events that typically trigger anti-dilution protection adjustments for holders of warrants), the Holdings Percentage Interest of the Holdings Members other than the Issuer will be correspondingly adjusted to accommodate such adjustment in the Issuer's Holdings Percentage Interest, so that all such Holdings Members share proportionately the effect of such adjustment on their directly and indirectly held Holdings Percentage Interest (unless such Holdings Members agree to some other arrangement for sharing such effect); and (v) Upon vesting of any Restricted Membership Interests, the Percentage Interests of LCNI and Sommer Enterprises shall be reduced so that LCNI bears 25% of the dilutive effect thereof (assuming that no adjustments of the type described in (iii) above have occurred) and Sommer Enterprises bears all the remaining dilutive effect thereof, and their capital amounts shall be correspondingly reduced to accommodate the capital account of the new member. In certain circumstances provided in the Equity Participation Agreement, the holders of Warrants and Warrant Shares will have the right to move their investment directly into Holdings, in which event the Percentage Interest of the Issuer will be reduced to accommodate such interest. SPECIAL CAPITAL ACCOUNT ADJUSTMENT. Upon the redemption of any Notes by Holdings, upon receipt of applicable Gaming Approvals, Sommer Enterprises' capital account in Holdings in respect of its Holdings Common Membership Interests will be reduced by the product of LCNI's Holdings Percentage Interest at the time of such redemption multiplied by the Accreted Value on the Issue Date of the Notes being redeemed and LCNI's capital account shall be increased by the same amount. SUPERMAJORITY APPROVALS. The following actions by Holdings or the Company will require approval of the holders of at least 80% of the Holdings Common Membership Interests: (i) the admission of a new Holdings Member, the acceptance of any capital contributions not provided for in the Holdings Operating Agreement, the Bank Completion Guaranty, the Noteholder Completion Guaranty, the Keep-Well Agreement or the Contribution Agreement (as defined in the Holdings Operating Agreement), or the issuance of additional shares or securities of Holdings convertible into or exchangeable for shares or the granting of any options or other rights to acquire from Holdings, or other obligation of Holdings to issue, any shares or securities convertible into or exchangeable for shares (other than in respect of the matters referred to in item (xvi), below); (ii) other than distributions by subsidiaries of Holdings or Priority Distributions to Holdings Common Membership Interests or distributions to cover any tax liability in respect of any Holdings Interests, any declaration, setting aside or payment of any distribution; (iii) any voluntary dissolution or liquidation of Holdings or the Company or the sale of all or substantially all of the assets of Holdings and the Company; (iv) any merger or consolidation of Holdings with any person; (v) any amendment to the articles of Holdings or the Holdings Operating Agreement; (vi) (A) during the period that the Keep-Well Agreement is in force, the creation, incurrence, assumption or guarantee of any indebtedness (excluding obligations under leases made in the ordinary course of business) and (B) after the 113 Keep-Well Agreement is no longer in force, the creation, incurrence, assumption or guarantee of any indebtedness (excluding obligations under leases made in the ordinary course of business) in excess of $10 million in any individual transaction (such threshold limit to be increased at the end of each fiscal year by an amount determined by the Holdings Board to correspond to increases in consumer prices in the United States for such fiscal year); (vii) the creation of any lien, pledge or other security interest in assets of Holdings or any subsidiary of Holdings securing indebtedness of any third party which is not for the benefit of any business carried on by Holdings or the Company; (viii) the commencement of a voluntary case under Title 11 of the United States Code entitled "Bankruptcy" (the "Bankruptcy Code") or any other voluntary proceeding under any debtor relief laws or any voluntary general assignment for the benefit of creditors; (ix) any material transactions (other than transactions provided for in Sections 6.7(a) or 6.9 of the London Clubs Purchase Agreement) between Holdings or the Company, on the one hand, and any Holdings Member or any affiliate of any Holdings Member, on the other hand; (x) any entry into any new business opportunity unrelated to the Aladdin; (xi) the appointment or removal of Holdings' independent auditors; (xii) any material amendment to, or any material waiver under, the Bazaar Lease (such consent not to be unreasonably withheld); (xiii) any material amendment to, or any material waiver under, the Reciprocal Easement Agreement (such consent not to be unreasonably withheld); (xiv) any arrangement or agreement for Holdings to pay a salary to any Holdings Member or any affiliate of any Holdings Member (other than pursuant to the Consulting and Employment Agreements and other than in respect of the matters referred to in (xvi), below); (xv) the employment of any member of an Executive Management Committee (as defined herein) of Holdings or the Company or any material amendment to the terms of employment of any such person; (xvi) the adoption of, or any material amendment to, any employee benefit, profit sharing, incentive, bonus, pension, retirement or employee stock option plans (such consent not to be unreasonably withheld in the context of industry practice); (xvii) any license of the Aladdin trademark to any person other than a subsidiary of Holdings or in connection with the Complex and the operations in respect thereof (such consent not to be unreasonably withheld); (xviii) any contract (including leases) outside the ordinary course of business or for capital expenditure not included in Holdings' annual budgets (such consent not to be unreasonably withheld); and (xix) the initiation or settlement of any material litigation outside the ordinary course of business and the selection of counsel therefor (such consent not to be unreasonably withheld). Unless London Clubs has appointed a majority of the Holdings Board, the above supermajority approval rights will cease in the event that London Clubs is bankrupt or responsible for an event of default under the Keep-Well Agreement, the Bank Completion Guaranty or the Noteholder Completion Guaranty. London Clubs will also have broad approval and consultation rights in respect of material contracts and decisions relating to the Redevelopment (as defined in the Holdings Operating Agreement), including (without limitation) relating to certain aspects of the construction phase of the Aladdin, the Mall Project and the Music Project. MANAGEMENT. The business and affairs of Holdings are managed by the Holdings Board, which holds Board meetings at least quarterly. Holdings' Board consists of three nominees of the Issuer and two nominees of London Clubs, each of which shall serve for a 3 year term unless they resign, are removed or are otherwise disqualified to serve at an earlier time. The initial members of the Holdings Board (the "Holdings Board Members") are Jack Sommer, Ronald B. Dictrow and Richard J. Goeglein as appointees of the Issuer and Alan L. Goodenough and G. Barry C. Hardy as appointees of London Clubs. Jack Sommer is Chairman of the Holdings Board. A Holdings Board Member appointed by London Clubs and a Holdings Board Member appointed by the Issuer will have the right to be on each committee of the Board. The Holdings Board Members may be removed at any time by their appointing Holdings Member. In the event of a vacancy on the Holdings Board, the Holdings Member who appointed the previous Holdings Board Member shall appoint the new Holdings Board Member. 114 In certain circumstances related to (i) a failure to make its share of payments under the Bank Completion Guaranty and the Keep-Well Agreement, or (ii) the requirement to make a certain level of payments under the Keep-Well Agreement (other than payments caused by certain losses of the Salle Privee), whether or not London Clubs and Sommer Enterprises each pay their share of such payments, Sommer Enterprises shall cause the Issuer to change the composition of Holdings' Board by the appointment of new Holdings Board Members designated by the non-defaulting Holdings Member and/or the removal of Holdings Board Members appointed by the defaulting Holdings Member and/or the appointment of a new independent Board Member designated by the non-defaulting Holdings Member. If a Holdings Member holding a majority of Holdings Common Membership Interests has defaulted in its payment obligations under the Keep-Well Agreement, the Bank Completion Guaranty or the Noteholder Completion Guaranty, London Clubs and Sommer Enterprises also will be required to vote all Holdings Common Membership Interests owned or controlled by them so that they have equal voting power as Holdings Members. The Holdings Members will agree to take all necessary action to ensure that each Holdings Member shall have identical rights to those they have in respect of Holdings with respect to the board of management (or comparable bodies) and management of the Company. TRANSFERS OF SHARES. Except for transfers pursuant to the Loan Documents, transfers of Holdings Common Membership Interests are only permitted: (i) to affiliates of the transferring Holdings Member or persons approved by all Holdings Members holding Holdings Common Membership Interests; (ii) to persons other than certain prohibited transferees after giving other Holdings Members holding Holdings Common Membership Interests a right of first refusal and the right to tag-along ratably; and (iii) in some circumstances related to estate planning by Holdings Members. Certain transfers in ownership interests in Holdings Members holding Holdings Common Membership Interests and in any entity owning a majority of a Holdings Member (other than London Clubs) holding Holdings Common Membership Interests are also prohibited without first affording the other Holdings Members holding Holdings Common Membership Interests a right of first refusal over such Holdings Member's Holdings Common Membership Interests. The exercise and transfer of Warrants or the transfer of Warrant Shares will not be restricted by this provision. Holdings or its nominee have the right to call a Holdings Member's Holdings Common Membership Interests (but not the Holdings Common Membership Interests held by Enterprises) at seventy-five percent of the fair market value of such Holdings Common Membership Interests if there is (i) a change in control of such Holdings Member, other than a permitted transfer of an ownership interest in a Holdings Member as described above or a change in control of London Clubs, (ii) a transfer of Holdings Common Membership Interests by such Holdings Member in breach of the Holdings Operating Agreement or (iii) a breach by such Holdings Member of the non-compete covenants described below. INITIAL PUBLIC OFFERING. The Holdings Operating Agreement provides that the Holdings Members anticipate executing an initial public offering ("IPO") as soon as it is commercially reasonable to do so after the Opening Date. Sommer Enterprises and LCNI have rights to demand an IPO if one has not occurred within 3 years of the Opening Date, although Sommer Enterprises may defer such a demand by LCNI for up to a year. The members or stockholders of the IPO entity immediately prior to the IPO will enter into a Stockholders and Registration Rights Agreement substantially in the form scheduled to the Holdings Operating Agreement providing for arrangements between such members or stockholders as to certain management matters, transfer restrictions, tag along rights and registration rights. If permitted by law and market requirements, LCNI and Sommer Enterprises have rights to acquire additional Holdings Common Membership Interests (or their equivalents in an IPO Entity) as part of or prior to an IPO at a price based on the IPO price discounted to reflect the absence of underwriting fees and costs. LCNI also has rights to effect purchases from Holdings or Sommer Enterprises to maintain a Percentage Interest of 20% or more. 115 LIABILITY, EXCULPATION AND INDEMNIFICATION. The Holdings Operating Agreement contains provisions relieving members, officers, employees and the Holdings Board Members and those of Holdings' subsidiaries from certain liability, fiduciary duties and conflicts and will also provide for various indemnities to such persons, payment of expenses and provision of errors and omissions insurance. GAMING MATTERS. Admission of new Holdings Members, transfers of Holdings Interests and payment of distributions by Holdings will be subject to receipt of Nevada Gaming Approvals. Holdings Members and their affiliates, directors and employees will cooperate to obtain applicable Gaming Approvals from the Nevada Gaming Authorities, as necessary. If Nevada gaming problems arise prior to a finding of unsuitability by the Nevada Gaming Authorities, a Holdings Member causing such problem (or whose director, officer or affiliate caused such problem) shall cooperate to remedy it, and, if not remedied, may be forced to sell its Holdings Common Membership Interests to Holdings or its nominee at fair market value. NON-COMPETE. LCNI and Sommer Enterprises have agreed that they and their affiliates will refrain from certain competitive activities (with appropriate geographic and temporal limitations and exceptions for certain existing activities of their affiliates), unless Holdings (without the participation of the Holdings Member affected or its nominee Holdings Board Members) has first refused to pursue such activities. TERM. Holdings shall continue until December 1, 2097, or such other time as agreed in writing by all Holdings Members. In the event of the death or bankruptcy of a Holdings Member, Holdings and the other Holdings Members will have certain rights to purchase such bankrupt or deceased member's Holdings Common Membership Interests. COMPANY OPERATING AGREEMENT Holdings and the Company have entered into an operating agreement (the "Company Operating Agreement") which sets forth provisions governing the conduct of the business and internal affairs of the Company. The following is a summary of certain key provisions of the Company Operating Agreement. PURPOSE. The Company was organized for the purposes of developing, constructing, financing, owning and operating hotels and casinos and related businesses and to engage in such other lawful enterprises as may be incidental or appurtenant thereto. CLASSES OF INTERESTS. The Company is capitalized with two classes of shares (which represent units of membership interests in the Company): Common Membership Interests and Series A Preferred Interests. The Company's authorized capital stock will consist of 10,000,000 Common Membership Interests and 1,150,000 Series A Preferred Interests. The Series A Preferred Interests have a distribution, redemption and liquidation preference over the Common Membership Interests. Beginning in the sixth year after the initial issuance of the Series A Preferred Interests, periodic distributions of cash, to the extent available, will be made by the Company first to the Series A Preferred Interests in an amount equal to the interest payable on the Notes for such period and, prior to the end of the twelfth year after the issuance of the Series A Preferred Interests, the Company will distribute cash, to the extent available, in redemption of the Series A Preferred Interests in an amount equal to their redemption preference. The redemption preference of the Series A Preferred Interests will accrete so that such preference will, at all times, equal the Accreted Value of the Notes (plus any premium payable to the holders of the Notes). In addition, should the Company liquidate at any time prior to the redemption of the Series A Preferred Interests or should all or any part of the Series A Preferred Interests be redeemed prior to the end of the twelfth year after their issuance as a result of the Change of Control Payment, the Series A Preferred Interests shall be entitled to a distribution of cash, to the extent available, before any distributions are made to any other classes of Interests, in an amount equal to their liquidation preference which will accrete so that such preference at all times equals the Accreted Value of the Notes (plus any premium payable to the holders of the Notes) at such time. 116 After all discretionary or required distributions of cash are made to the Series A Preferred Interests for any period, the Company will distribute cash, to the extent available, to the holders of Common Membership Interests to the extent of the increase in the cumulative United States federal, state or local income tax liability of such holders of Common Membership Interests (or, if any such holder is a pass-through entity, its equity interest holders) in respect of their interests in the Company for such period and make any additional distributions of cash to Members that may be necessary to cover United States federal, state or local income taxes arising from ownership of an interest in the Company ("Company Tax Distributions"). After distributions to the Series A Preferred Interests and Company Tax Distributions, the Board will make a priority distribution of cash, to the extent available, on the Common Membership Interests to permit Holdings to satisfy any additional obligations it may have to make payments on the Notes ("Priority Distributions to Common Interests"). MANAGEMENT. The business and affairs of the Company are managed by the Company's Board. Pursuant to the Holdings Operating Agreement, the Holdings Members will have identical rights with respect to the Company's Board and management as they have in respect of the Holdings Board and management. The Company's Board is responsible for establishing and overseeing all policies and procedures in connection with the operation of the Company's business, but shall delegate the day-to-day management responsibility to an executive management committee (the "Executive Management Committee"). The Executive Management Committee includes the following persons: the President and Chief Executive Officer of the Company, the Chief Financial Officer of the Company, the Senior Vice President of the Company who is the President and Chief Operating Officer of the Aladdin, the Senior Vice President of the Company who is the President and Chief Operating Officer of the Music Project and Casino, the Senior Vice president Human Resources of the Company, the Senior Vice President Electronic Gaming of the Company and the Managing Director of the Salle Privee. LIABILITY, EXCULPATION AND INDEMNIFICATION. The Company Operating Agreement contains provisions relieving members, officers, employees and the members of the Company's Board ("Company Board Members") and those of the Company's subsidiaries from certain liability, fiduciary duties and conflicts and will also provide for various indemnities to such persons, payment of expenses and provision of errors and omissions insurance. TERM. The Company shall continue until January 24, 2097, or such other time as agreed in writing by all Company Members. EQUITY PARTICIPATION AGREEMENT The Issuer, Sommer Enterprises, LCNI and the Warrant Agent, for and on behalf of the holders of the Warrants and the Warrant Shares, have entered into an agreement (the "Equity Participation Agreement") under which (a) the parties agreed that they will not effect a public offering of common stock of any IPO Entity unless LCNI, Sommer Enterprises and the holders of the Warrants and Warrant Shares each are given the right to hold their respective equity interests in the IPO Entity; (b) the Issuer agreed that prior to any such public offering (or if the Issuer is the IPO Entity, at all times), it will not become an "investment company" (as that term is defined in the Investment Company Act of 1940, as amended) required to register under that Act (c) the parties granted the holders of the Warrant Shares certain rights to participate in the tag along arrangements under the Holdings Operating Agreement and agree to effect certain adjustments to the percentage ownership of Holdings Common Membership Interests and certain redemptions of Warrant Shares to give effect to such tag along rights, as described below and (d) the Warrant holders will have the right to convert their Warrant Shares into Common Membership Interests in the Company in the event that the Issuer takes certain actions, including certain mergers or consolidations, disposition of all or substantially all of the Issuer's assets, transfers of Issuer's Holdings Common 117 Membership Interests, certain recapitalizations of Issuer, voluntary dissolution or liquidation of Issuer, repurchases of Issuer's stock which is not pro-rata among the stockholders, and certain issuances of Issuer's stock. Pursuant to the Equity Participation Agreement, holders of Warrant Shares are entitled to cause the Issuer to partially exercise its rights to participate in certain sales by Holdings Members of Holdings Common Membership Interests to a non-affiliated party. The proceeds of any such sale of Holdings Common Membership Interests by the Issuer will be used to redeem the Common Stock in the Issuer of such holders who elected to exercise such rights. Holders of Warrants and Warrants Shares should note, however, that under the Indenture certain sales of Holdings Common Membership Interests could constitute a change of control under the Indenture. In that event, Holdings would be required to redeem the Notes at a redemption price equal to 101% of their Accreted Value. SALLE PRIVEE MANAGEMENT AGREEMENT The Company, London Clubs and a subsidiary of London Clubs, LCNI, are parties to the Salle Privee Management Agreement in respect of the Salle Privee. Under such agreement, LCNI will (a) provide advice and consulting services regarding the development and fitting out of the Salle Privee, (b) provide certain worldwide marketing and promotional services in relation to the Salle Privee and (c) direct the operations of the Salle Privee in accordance with certain policies and procedures developed by LCNI in consultation with the Company, and in accordance with the Company's budgets and marketing plans. Under such agreement, London Clubs has agreed to guaranty the obligations of LCNI. OPERATIONS AND MANAGEMENT. Under the Salle Privee Management Agreement, LCNI will direct the operations of the Salle Privee in consultation with the Executive Management Committee of the Company. LCNI will also provide worldwide marketing and promotional services targeted at its international clientele, including a plan for cross-marketing the Salle Privee with London Clubs' and its affiliates' other gaming facilities throughout the world. CREDIT MANAGEMENT/GAMING LIMITS. The Salle Privee will be subject to the Company's financial control facilities and credit management will be administered by the Company's central credit oversight committee, in consultation with LCNI. Basic risk management policies regarding gaming limits and credit facilities for the Salle Privee will be established by the Company's Board based upon the input and recommendations of LCNI. LCNI will have the right to permit certain clientele from time to time to exceed the normal wagering limits. In consideration for such flexibility, LCNI has agreed to reimburse the Company for any net losses suffered by the Company in connection with such above-limit wagering. LONDON CLUBS FEE. In consideration for the services to be furnished by London Clubs under the Salle Privee Management Agreement, the Company will pay to London Clubs an Incentive Marketing and Consulting Fee calculated as follows: (i) 10% of the Salle Privee EBITDA (defined in the Salle Privee Management Agreement as gross revenues attributable to the Salle Privee, less all costs and expenses directly attributable to the Salle Privee), up to and including $15.0 million in Salle Privee EBITDA; plus (ii) 12.5% of the Salle Privee EBITDA, in excess of $15.0 million, up to and including $17.0 million; plus (iii) 25% of the Salle Privee EBITDA, in excess of $17.0 million, up to and including $20.0 million; plus (iv) 50% of the Salle Privee EBITDA, in excess of $20.0 million. The foregoing thresholds will be adjusted in accordance with consumer price index changes every five years. TERM. The term of the Salle Privee Management Agreement is sixty-nine (69) years unless terminated earlier by either party after the other's default, in connection with Nevada or United Kingdom gaming problems, by mutual agreement, by a party upon London Clubs, LCNI's or the Company's bankruptcy or upon LCNI no longer having an equity interest in Holdings. 118 LONDON CLUBS PURCHASE AGREEMENT Pursuant to an Amended and Restated Purchase Agreement dated as of February 26, 1996 by and among London Clubs, LCNI, AHL, Sommer Enterprises, the Trust and the Company (the "London Clubs Purchase Agreement") LCNI acquired 25.0% (subject to adjustment pursuant to the Holdings Operating Agreement as described above) of the Holdings Common Membership Interests for a purchase price of $50.0 million. The Music Project is expected to be developed and owned by Aladdin Music. Pursuant to the London Clubs Purchase Agreement, London Clubs, through its wholly owned subsidiary LCNI, has agreed that so long as Aladdin Music obtains financing for the Music Project on terms satisfactory to LCNI, and provided that certain other conditions are met, Aladdin Music may develop and own the Music Project in accordance with the terms described herein. If such conditions are not met, LCNI has the right to select the method in which it will participate in the Music Project, if at all. See "Risk Factors--Completion of the Mall Project and the Music Project." Pursuant to the London Clubs Purchase Agreement, the Company has reimbursed the Trust on the Issue Date $3 million for certain costs relating to the development of the Aladdin incurred by the Trust during 1996 and 1997 and has agreed to reimburse the Trust for out of pocket expenses of the Trust related to the development of the Aladdin after the Issue Date not to exceed $900,000. In consideration for its obligations under the Keep-Well Agreement and related arrangements, under the London Clubs Purchase Agreement, the parties have agreed that London Clubs will receive (a) an initial fee of 1.0% of a $265.0 million portion of the Company's bank debt which is supported and enhanced by the Keep-Well Agreement (such fee to be payable on the closing date of the Bank Credit Facility), and (b) an annual fee of 1.5%, payable in arrears, of the Company's annual average indebtedness with respect to a $265.0 million portion of the Company's bank debt which is supported and enhanced by the Keep-Well Agreement for each relevant twelve month period ending on an anniversary of the Bank Closing Date, which amount shall reflect the extent, if any, by which the obligations under the Keep-Well Agreement are reduced or eliminated over time (such fees shall accrue from the closing date of the Bank Credit Facility and shall be paid from available proceeds after the opening date of the Aladdin). DESIGN/BUILD CONTRACT OVERVIEW. The Company and the Design/Builder have entered into the Design/Build Contract for the design and construction of the Aladdin, the strip facade and related retail space of the Mall Project (the "Work") for a guaranteed maximum price ("GMP"). The GMP is guaranteed by the Design/Builder to be a maximum of $267.0 million. The GMP includes the Design/Builder's Fee (as defined in the Design/Build Contract), the cost of the Design/Builder's Controlled Insurance Program ("CIP") and the Design/ Builder's costs necessarily incurred by Design/Builder in the proper performance of its design/build obligations under the Design/Build Contract (such costs collectively, the "Costs"). The Design/Builder's Fee shall be the lesser of (a) the lump sum fixed amount of $13.6 million and (b) 6.5% of the aggregate of all trade subcontracts plus the price of any trade work performed by the Design/Builder. The Design/ Builder's General Conditions Costs shall not exceed the total sum of $22.0 million. Any costs incurred in excess of $22.0 million are nonreimbursable and will be paid by the Design/Builder. The Costs shall not be higher than prices and rates approved in advance by the Company, unless the Design/Builder has received the Company's prior written consent to incur premium expenses. The Costs include only: (i) labor costs for the Design/Builder in connection with the Work; (ii) trade subcontract costs; (iii) costs of materials and equipment incorporated in the completed construction; (iv) costs of other materials and equipment, temporary facilities and related items; (v) miscellaneous costs, such as premiums for insurance not covered by the CIP, but required by the Design/Build Contract, sales, use or similar taxes, fees and assessments associated with permits, licenses and inspections that are the responsibility of the Design/Builder; (vi) other costs incurred in the performance of the Work and to the extent approved in advance in writing 119 by the Company; and (vii) costs associated with emergency repairs to damaged, defective or nonconforming Work. As an incentive to control costs, the Company has agreed to pay the Design/Builder 60% of the aggregate net savings made by the Design/Builder in incurring costs below the trade budget of $230.0 million with respect to labor, equipment and materials from the various subcontractors and vendors performing work under the Design/Build Contract. The Design/Builder will be liable for any costs exceeding the GMP, unless the Company changes the scope of the Work. If the Company requests certain changes to the scope of the Work, then pursuant to the Bank Completion Guaranty, the Trust, Bazaar Holdings and London Clubs have jointly and severally agreed, whenever there is a construction cost increase caused by any such change, and subject to certain qualifications, to contribute cash to the Company to fund such increases. COMPENSATION FOR EARLY/LATE COMPLETION. In lieu of the Company procuring, at the Design/Builder's cost, a liquidated damages insurance policy or a business interruption insurance policy to compensate the Company for late completion of the Work, the Company has paid the Design/Builder $2.0 million as a bonus advance (the "Bonus Advance"). The Design/Builder may use the Bonus Advance to buy liquidated damages insurance or it may choose to self-insure. In either event, the Design/Builder can keep the Bonus Advance if the project is finished on or before the date set for Substantial Completion. The Substantial Completion Date (as defined in the Design/Build Contract) is 790 calendar days from either January 12, 1998 or the date notice to proceed is received from the Company, whichever is later. Said period is referred to in the Design/Build Contract as the "Contract Time" and may only be adjusted in accordance with the Design/Build Contract. As a further bonus, the Design/Builder shall be entitled to receive $100,000 for each day, up to but not to exceed 90 days, that the Work is substantially completed in advance of the date of Substantial Completion. If the Design/Builder fails to achieve Substantial Completion of the Work within the Contract Time, the Design/Builder must pay back the $2.0 million Bonus Advance to the Company. Furthermore, the Design/Builder must pay the Company, as liquidated damages, $100,000 per day starting on the first day after the Substantial Completion date and continuing up to, but not exceeding, 90 days thereafter. PAYMENT. The Design/Builder must make an itemized application for payment, on or about the 25th day of each month, based on an approved schedule of values certified by the Design/Builder and ADP and supported by such data to substantiate the Design/Builder's right to payment. Simultaneously with each payment the Design/Builder must and must cause all subcontractors and vendors to waive their mechanics lien rights for the labor, equipment and materials covered by the payments made to the Design/Builder. The Design/Builder agrees to pay when due all bills for labor, materials, equipment or services connected with the Work. If a person or entity who provided any service, labor, equipment or materials to the Design/ Builder in connection with the Complex files a lien against the Company's property, the Design/Builder shall promptly bond the lien with a legally sufficient undertaking. The Company may also deduct the amount of the lien from any payments due to the Design/Builder until such lien is bonded or otherwise discharged. The Company is entitled to retain 10% of all monies due to the Design/Builder under the monthly applications for payment (excluding the Design/Builder's fee and General Conditions) until the Work is 50% complete. The Design/Builder may, at its sole cost and expense, substitute an irrevocable letter of credit for any retainage held by the Company or on the Company's behalf. WARRANTIES AND GUARANTEES. The Design/Builder's construction warranties and/or guarantees extend for one year after the Substantial Completion date. The Design/Builder guarantees that its construction workmanship shall conform to good construction practices applicable to projects of this type and that the Work shall comply with the Design/Build Contract requirements, all applicable laws, codes and regulations. The Design/Builder also guarantees that all materials, equipment and supplies incorporated into the Work will be new, of the best quality of the kind specified in accordance with industry standards, and shall be fit for its intended purpose. Furthermore, the Design/Builder warrants that: (i) the Design/Builder and 120 its subcontractors are experienced, qualified and, where required by law, licensed to perform their respective portions of the Work; and (ii) the design of the Work will be in accordance with all agreed upon requirements, and all applicable federal, state and local codes, rules, ordinances and regulations. The Design/Builder agrees to prosecute the enforcement of all subcontractor and vendor warranties at its sole costs and expense during the one year period after the Substantial Completion Date. The Design/Builder shall assign to the Company all subcontractor or vendor warranties and/or guarantees still surviving and in effect more than one year after the Substantial Completion Date. The Design/Builder's warranties and/or guarantees exclude damages or defects caused by modifications to the Work directed by the Company and not performed by the Design/Builder or its subcontractors, if the modifications to the Work were performed without the knowledge and written consent of the Design/Builder. The Design/Builder's warranty shall not apply to damages or defects caused by ordinary wear and tear, insufficient maintenance, improper operation or improper use by the Company. INSURANCE. The Company and the Design/Builder have elected to implement the CIP whereby the Company shall pay the Design/Builder for all associated premiums to provide the following insurances: General Liability, Workers' Compensation, Excess Liability, Contractual Liability and All Risk Builder's Risk for the Company, the Design/Builder and all subcontractors of every tier. The Design/Builder agreed that, where necessary or requested, each policy it procures will identify the Company as either a Named Insured or an Additional Insured and must contain full waivers of subrogation. The following is a synopsis of the coverage for each of the required policies: - - WORKERS' COMPENSATION. The Workers' Compensation policy covers liability imposed by the workers' compensation and/or occupational disease statute of the State of Nevada and any other state or governmental authority having jurisdiction or related to the Work being performed. Employers' liability is limited to $1.0 million bodily injury per accident per employee, $1.0 million bodily injury per disease per employee and $1.0 million policy limit by disease. The extensions of coverage include other states, voluntary compensation and employer's liability coverage, 60 day notice of cancellation except 10 days for non-payment, Borrower/Servant coverage as necessary, designated work place endorsement, alternate employer endorsement and amendment of Notice of Occurrence. - - COMMERCIAL GENERAL LIABILITY INSURANCE. Commercial General Liability Insurance shall be provided with a combined single limit for bodily injury and property damage of not less than $2.0 million per occurrence with a $2.0 million annual aggregate. Coverage includes, but is not limited to, personal injury liability, blanket contractual liability covering contractual liability assumed under the Design/ Build Contract, employees included as additional insureds, broad form property damage liability, cross liability, incidental medical malpractice coverage, excavation, collapse and underground hazard. Extensions of coverage includes blanket waiver of subrogation, fellow employee amendment-supervisor and above, unintentional errors and omissions, stop gap liability for monopolistic fund states, cancellation and non-renewal-60 days, except 10 days for non-payment, amendment of notice of occurrence, contingent loading and unloading of vehicles-excess, limitation of coverage to designated premises of project and absolute asbestos exclusion. - - EXCESS INSURANCE. Design/Builder shall provide excess insurance on a following form basis with limits for bodily injury and property damage of not less than $100.0 million per occurrence and annual aggregate. This insurance policy or policies will contain three years extended coverage on products and completed operations after that portion of the Complex is put to its intended use or a notice of final completion of the Work has been issued by the Company, whichever occurs last. - - RISK OF LOSS. The Design/Builder shall insure for all risk of loss to property of the Company, the Design/Builder or any subcontractor on a "completed value basis." The Design/Builder's risk of loss under the Design/Build Contract is limited to all work in place, and all materials and equipment not in place but stored on or off the work site and intended for permanent use therein. Furthermore, the Design/Builder agrees to insure or self-insure all inland or ocean transit damage losses (in excess of 121 carrier liability) to the property of the Company and to the property purchased for the account of the Company for incorporation in the Work. ADDITIONAL INSURANCE. Additionally, the Design/Builder has agreed to procure and maintain the following, which is not included in the CIP: (i) Automobile Liability Insurance, with limits of not less than $1.0 million combined single limit for bodily injury and property damage; (ii) "all risk" coverage the Design/Builder may deem necessary for protection against loss of owned or rented capital equipment and tools, including any tools owned by mechanics, and any tools, equipment, scaffolding, staging, towers and forms owned or rented by it or its subcontractors; (iii) "Off-Site Work," including Workers' Compensation and Commercial General Liability Insurance; (iv) umbrella liability in excess of Employer's Liability, General Liability and Automobile Liability (no more restrictive than the underlying insurance) with limits of $5.0 million; and (v) a project-specific insurance policy for errors and omissions in the amount of $5.0 million from ADP. The policy referred to in (v) is subject to the Company's review and approval and covers all aspects of the design of those parts of the Complex covered by the Work. TERMINATION OF CIP. In the event of non-enrollment or termination of the CIP, the Design/Builder and/or its subcontractors agree to provide, pay for, and maintain in effect the following types of coverage with insurance companies satisfactory to the Company: Commercial General Liability Insurance, Workers' Compensation, Automobile Liability Insurance, Tools and Equipment Floater Policy, Insurance for "Off-Site Work," and Umbrella Liability. For all of these policies the Design/Builder must obtain a waiver of subrogation against the Company and all other named insureds and their agents and employees. INDEMNIFICATION. The Design/Builder agrees and will cause each of its subcontractors and vendors to agree in writing to defend, indemnify and hold harmless to the fullest extent permitted by law the Company from and against all liability incurred by the Company in the defense, settlement or satisfaction of any claim of third parties which arise or are alleged to arise out of any negligence, act or omission by the Design/Builder, subcontractor, or vendor or their employees or agents or which arise or are alleged to arise from the performance of the Work or any warranty and/or guarantee work pursuant to the Design/Build Contract or any subcontract or purchase order with any subcontractor or vendor. Neither the Design/ Builder nor any of its subcontractors or vendors agree to indemnify the Company to the extent harm results from the Company's gross negligence or willful misconduct, or where indemnity is precluded pursuant to the applicable provisions of the laws of the State of Nevada. FORCE MAJEURE. Any delays in or failure of performance by either the Company or the Design/Builder arising from a "Force Majeure" occurrence, which includes, but is not limited to, labor disputes, civil disturbances, riots, fire, weather which is both severe and unusual, governmental actions, acts of war, or acts of God, shall not constitute a default under the Design/Build Contract. A Force Majeure occurrence shall not constitute a waiver of either party's obligations under the Design/Build Contract; however, time adjustments shall be made to the Contract Time. CANCELLATION OF DESIGN/BUILD CONTRACT. The Design/Build Contract may be canceled for convenience by the Company in whole or in part, at any time, and due to any circumstances by written notice. After such cancellation, the Design/Builder shall do only such work as may be necessary to preserve and protect the Work already in progress. The Design/Builder shall make every reasonable effort to process cancellation, upon terms least costly to the Company, of all existing orders to vendors and subcontractors. Upon such cancellation, the Design/Builder agrees to waive any claims for delays, acceleration, disruptions, or consequential damages, direct or indirect, including, but not limited to, loss of anticipated income or profits and unabsorbed or unrealized overhead for home office or field office on account thereof, and agrees that the sole remedy is to receive payment of: (i) the contract sum earned for work completed and accepted, equivalent to the portion of the Work partially completed, based on the percentage of the Work performed using the approved schedule of values for the Design/Builder's monthly payment requisition, (ii) the actual reasonable cost incurred by the Design/Builder in securing and protecting the Work in progress against loss, damage or deterioration, (iii) reasonable demobilization costs, (iv) standby costs, 122 (v) reasonable cancellation or deferment charges of suppliers, (vi) the actual cost to the Design/Builder of materials, and equipment in possession of the Company not sold or disposed of, and left at the Project Site, (vii) all actual costs associated with relocation of key personnel, who were specially transferred by the Design/Builder to Las Vegas specifically for the Work, and (viii) other special reasonable costs and fees for terminating or suspending the Work, preserving the Work accomplished, and turning such Work product over to the Company. CLAIMS AND DISPUTES. All claims arising under the Design/Build Contract shall be directed by the Design/Builder in the first instance to the entity that is the on-site representative of the Company promptly after the claim arises. The decision of the Company's on-site representative may be appealed by notice in writing directly to the Company. If the Company has not made a decision in writing within 10 days thereafter, either party may invoke arbitration. Any controversy, claim, or dispute arising out of or in connection with the Design/Build Contract shall, upon the written request of either party, be settled by arbitration in accordance with the Construction Industry Rules and the Supplementary Procedures for Large, Complex Disputes of the American Arbitration Association then in effect. The judgment of the award may be entered in any court having jurisdiction thereof. All arbitration hearings shall be held in Las Vegas, Nevada and will be administered by the Nevada Regional Office of the American Arbitration Association. FLUOR GUARANTY In lieu of performance and payment bonds, Fluor has entered into the Fluor Guaranty. Fluor has made certain guarantees regarding the performance by the Design/Builder of all the Design/Builder's obligations under the Design/Build Contract. The Fluor Guaranty is absolute, irrevocable and continuing. If Design/Builder fails to perform any of its obligations under the Design/Build Contract, or commits any breach, Fluor shall immediately take such steps as may be necessary to have the Design/Builder perform the Design/Builder's obligations under the Design/Build Contract, or remedy any breach or take such steps as may be necessary itself, or through a third party other than the Design/Builder, to perform all of the Design/Builder's obligations under the Design/Build Contract, or to remedy any breach. The Company is not required to proceed first or at all against the Design/Builder or any other person before enforcing the terms of the Fluor Guaranty. ENERGY AGREEMENTS Pursuant to a development agreement (the "Development Agreement"), the Energy Provider will design, engineer, procure and construct a facility (the "Plant") capable of serving the Company's specified electricity requirements, chilled water requirements and hot water requirements (collectively, the "Services") of certain parts of the Complex. Pursuant to an energy services agreement (the "ESA"), the Energy Provider will own and operate the Plant to distribute the Services to the Aladdin and the Music Project for an initial twenty year term. TrizecHahn will utilize the Plant for the provision of electricity and cold water for the Mall Project. DEVELOPMENT AGREEMENT The Company has entered into a Development Agreement with the Energy Provider, pursuant to which the Energy Provider will develop and construct the Plant to serve the energy requirements of certain parts of the Complex. Once developed and constructed in accordance with the Development Agreement, the Plant will supply the Services to such parts of the Complex pursuant to the Energy Service Agreement, described below. The design and construction of the Plant will be at the sole cost and expense of the Energy Provider; provided, however, the Energy Provider shall not be responsible for costs in excess of $40 million unless agreed to by the Energy Provider. Specifically, the Energy Provider will be responsible, at its sole cost and expense, for, among other things: (i) designing, engineering, procuring, constructing, start-up, and performance testing of the Plant; (ii) compliance with applicable Laws and Government 123 Approvals; (iii) safeguards for the protection of the Plant; (iv) obtaining all necessary construction materials, equipment and supplies; (v) providing all necessary labor and personnel; (vi) developing and complying with a Quality Control and Inspection Program; and (vii) completing the Plant in accordance with the schedule set forth in the Development Agreement. As discussed below, payments to the Energy Provider for the Capacity Charge (as defined herein) under the Energy Service Agreement will be based, in part, on the costs incurred by the Energy Provider for the design and construction of the Plant. The Energy Provider will appoint a Project Manager who will be responsible for daily supervision of all activities relating to the design and construction of the Plant. The Project Manager will serve as a single point of contact for the Company with the Energy Provider. The Energy Provider also will develop a Project Plan, which will be comprised of a schedule for the development and construction of the Plant. The Project Plan will include a definition of the work to be completed as well as a schedule of milestones and Critical Path Activities. In consultation with the Company, the Energy Provider will prepare a request for proposals for an Engineering, Procurement and Construction Contractor ("EPC Contractor"), and will solicit bids from at least three qualified contractors. From the bids that are received that are acceptable to the Company, the Energy Provider will retain an EPC Contractor. The EPC Contractor will provide a guaranteed maximum price for the design and construction of the Plant. The Energy Provider and the EPC Contractor will then prepare design development plans and specifications for the Plant. The Plant will be constructed in accordance with such plans and specifications. The Company has the right to inspect all of the work performed and to comment on all aspects of the design and construction of the Plant. In the event the Energy Provider has failed to achieve Critical Path Activities when and as set forth in the Project Plan, and the Company reasonably and in good faith believes that such failure is reasonably likely to prevent the Energy Provider from achieving Substantial Completion by the Substantial Completion Deadline and Final Completion by the Final Completion Deadline, the Company may so inform the Energy Provider. If the Energy Provider does not improve performance to the Company's satisfaction, the Company may require an increase in the Energy Provider's labor force, number of shifts, overtime operations, days of work per week and/or equipment, all costs of which shall be borne by the Energy Provider. The Energy Provider also will have a Contingency Plan in place which provides for the rental by the Energy Provider of transportable boiler and chiller plants to ensure delivery of hot water and chilled water in accordance with the terms of the Energy Service Agreement in the event completion of the Plant is delayed for any reason. Unless the delay is due to a Force Majeure Event or the fault of the Company, the Contingency Plan will be implemented at the Energy Provider's sole cost and expense. If the Energy Provider is in default of its obligations pursuant to the Development Agreement and the Energy Provider either fails to cure such default within ten days or fails to satisfy the Company that the default can be cured within a time period reasonably satisfactory to the Company and promptly commences and pursues remedial action, the Company may terminate the Development Agreement. As explained below, Unicom, the Energy Provider's ultimate parent, has guaranteed completion of the Plant in accordance with the Development Agreement up to a maximum liability of $30.0 million. See "--Unicom Guaranty." Upon the Company's termination of the Development Agreement, Unicom Corporation either will complete the Plant in accordance with the terms of the Development Agreement or will pay up to $30.0 million to have the Plant so completed. In the event the performance of the Company or the Energy Provider is delayed or prevented due to a Force Majeure Event (as defined in the Energy Service Agreement) and such delay or prevention could not reasonably be avoided or mitigated, the party claiming such delay or prevention will be excused from performing its obligations under the Development Agreement for the period of delay or interruption caused by the Force Majeure Event. Within 72 hours after a party does become or should become aware of a Force Majeure Event, such party will notify the other. Within seven days of such notice, the party claiming the Force Majeure Event will deliver a notice to the other describing the anticipated impact of the Force Majeure Event and within 10 days of the end of the Force Majeure Event will provide a notice of extension of its obligations. If the parties disagree as to the latter notice and are unable to resolve their 124 dispute, the dispute will be resolved in accordance with the dispute resolution provisions of the Development Agreement, described below. The Company will not be responsible for the Work or for the Energy Provider's failure to perform the Work in accordance with the terms of the Development Agreement. Nor will the Company be responsible for the acts or omissions of the Energy Provider or its agents, contractors or employees. The Company assumes no responsibility for injury or claims resulting from failure of the Work to comply with applicable Laws or Government Approvals or from Defects or Deficiencies. The Company and the Energy Provider agree to cooperate and to communicate with each other concerning the terms of the Development Agreement and other matters relating to the Plant. If a dispute arises between the Company and the Energy Provider, the parties jointly may request that the dispute be resolved by arbitration in accordance with the provisions of the Commercial Arbitration Rules of the American Arbitration Association. If the parties do not agree to submit the dispute to arbitration, either party may bring the dispute to any court of competent jurisdiction for resolution. The Development Agreement will be governed by and construed in accordance with the laws of the State of Nevada. Neither the Company nor the Energy Provider may assign its interest or delegate its duties under the Development Agreement without the prior written consent of the other (not to be unreasonably withheld), except that either party may assign its interest in the Development Agreement if a concurrent assignment of its interests in the ESA has been made pursuant to the ESA to the same entity. LEASE Pursuant to a lease (the "Lease"), the Company has leased the Plant Site to the Energy Provider for a fixed monthly base rent of $1.00. The Lease, which has a 20-year term and provides for 5-year renewal terms, is a "net" lease, pursuant to which the Energy Provider will pay all Impositions. The Energy Provider may not use the Plant Site to provide services other than the Services without the prior consent of the Company. In the event the Company gives such consent, the fixed monthly base rent will be adjusted and other reasonable modifications will be made to the Lease. UNICOM GUARANTY The obligations of the Energy Provider to complete the Plant in accordance with the Development Agreement and in a manner capable of delivering the energy requirements in accordance with the Energy Service Agreement are guaranteed by the Energy Provider's ultimate parent, Unicom ("the Unicom Guaranty"). Unicom agrees that the Unicom Guaranty shall be a continuing guaranty and that the Company shall not be required to prosecute enforcement or other remedies against the Energy Provider or any other guarantor of the Energy Provider's obligations before calling on Unicom for performance. Unicom agrees that if for any reason the Energy Provider shall fail or be unable to punctually and fully perform or cause to be performed any of its obligations under the Development Agreement, Unicom shall perform or cause to be performed such obligations promptly upon demand. Unicom's obligations are limited to an amount equal to $30.0 million dollars (or, under certain circumstances, an amount less than $30.0 million) and shall not be reduced until Substantial Completion of the Plant. Upon Substantial Completion, the Unicom Guaranty shall be reduced by the amount invested by the Energy Provider, except that ten percent shall be retained to provide assurance that Final Completion shall occur in accordance with the milestone schedule under the Development Agreement. 125 ENERGY SERVICE AGREEMENT The Company and the Energy Provider have agreed to the form of an energy service agreement (the "ESA"), which is currently attached as an exhibit to the Development Agreement. The ESA is expected to contain provisions as described herein. The ESA sets forth the rights and obligations of the Company and the Energy Provider relating to, among other things, the development, testing, commissioning, operation and maintenance of the Plant; the making of Capacity and Consumption Payments; risk allocation in the event of a force majeure; events of default; rights of early termination and the consequences thereof; liability and indemnity obligations; and assignment and transfer of interests thereunder. The initial term of the ESA is twenty years from the Commencement Date, with three five-year renewal terms. CONDITIONS PRECEDENT. The obligations of the Company and the Energy Provider under the ESA are subject to the satisfaction of various conditions precedent, a number of which have already been satisfied. The Company expects that all remaining conditions precedent will be timely satisfied in the ordinary course of business. OPERATION, MAINTENANCE AND REPAIR. The ESA requires that the operation, maintenance and repair of the Plant be conducted in accordance with applicable laws and regulations and the Project Scope, as defined in the ESA. The Energy Provider will be required to have its personnel on duty at the Plant twenty-four hours per day, seven days per week. The ESA sets forth a scheduling procedure for scheduled maintenance. Inspection, testing, preventive and corrective maintenance, repairs, replacements and improvements of the Plant will be carried out during such scheduled maintenance periods. PAYMENTS. The ESA provides for a two-part price structure consisting of a capital component (the "Capacity Charge") to be paid monthly whether Services are taken or not by the Complex and an energy component (the "Consumption Charge") to be paid monthly for Services actually taken by the Complex. The capital component will be paid in advance. The energy component will be paid in arrears. The Capacity Charge and the Consumption Charge are expected to be adjusted annually by reference to the Consumer Price Index or a similar index. FORCE MAJEURE. Each party will be excused from performance of its respective obligations under the ESA if performance of such obligations is materially and adversely affected by a Force Majeure Event, although each party is obligated to take reasonable steps to restore its ability to perform. Force Majeure Events are circumstances that, by the exercise of reasonable diligence, the party is unable to overcome or prevent. Force Majeure Events include, but are not limited to, acts of God, war, civil commotion, embargoes, epidemics, fires, cyclones, droughts and emergencies other than those caused by the negligence or wilful misconduct of the party claiming a Force Majeure Event. DEFAULTS. The ESA divides events of default into Energy Provider events of default and Complex events of default. A party receiving notice of certain defaults has thirty days to cure such default. If not cured within such time period, an uncured default may lead to the termination of the ESA. ENERGY PROVIDER DEFAULTS. If at any time after the Commencement Date the Energy Provider fails to provide Services in accordance with the ESA (a "Performance Failure"), the Energy Provider is required to: (i) provide immediate notice to the Complex and provide the Complex with a corrective action plan consistent with a contingency plan to be developed prior to the Commencement Date; (ii) use best efforts to correct or cure such Performance Failure; and (iii) provide immediate access to the Complex and work together with the Complex to identify the source of the Performance Failure. After a Performance Failure has existed for thirty two (32) consecutive hours, or thirty two (32) hours of any forty eight hour (48) period, the Complex will: (i) be entitled to assume control of the Plant and maintain such control until such Performance Failure has been cured or corrected and take any action reasonably intended to cure or correct such failure at the Energy Provider's expense; (ii) be entitled to an abatement of the Capacity Charge for the affected Service; (iii) have the right to hire, at the Energy Provider's expense, an 126 independent consultant to review the circumstances surrounding the Performance Failure and make written recommendations as to a corrective action to be implemented at the Energy Provider's sole expense; and (iv) in the event the Energy Provider fails to promptly implement the consultant's recommendations, be entitled to terminate the ESA and purchase the Plant from the Energy Provider. In the event the ESA is terminated pursuant to an Energy Supplier Default, the purchase price for the Plant shall be equal to the Energy Provider's depreciated basis calculated on a twenty year straight line method in the Plant, less any costs incurred for required repair and/or maintenance. OPTION TO PURCHASE. The Company shall possess a continuing option to purchase the Plant at any time prior to the termination of the ESA, exercisable by written notice given to the Energy Provider not less than one year prior to the date upon which such purchase shall close as specified in the notice. It is a condition to the Energy Provider's obligation to consummate the sale that the Company shall assume, indemnify and hold the Energy Provider harmless from all obligations of the Energy Provider accruing after the closing under all contracts and agreements with respect to the Plant under which any performance obligations will continue following such sale. At the closing, the Energy Provider will assign and the Company will be obligated to assume all such contracts and agreements. ASSIGNMENT AND TRANSFER. Neither the Company nor the Energy Provider shall be permitted under the ESA to assign or transfer its rights under the ESA without the prior written consent of the other. Notwithstanding this, the ESA provides that the Company may assign its rights to any affiliate and that both the Company and the Energy Provider may assign their respective rights under the ESA to lenders to whom either party provides a security interest in their respective properties in connection with financing each of the properties. In addition, the Energy Provider is prohibited from effecting changes in its ownership, except that it may issue ownership interests to certain specified entities which are public utilities or affiliates thereof. DISPUTE RESOLUTION. In the event of a dispute under the ESA, either party may at any time refer the dispute to be settled by binding arbitration pursuant to the Commercial Arbitration Rules of the American Arbitration Association. CONSTRUCTION, OPERATION AND RECIPROCAL EASEMENT AGREEMENT AND RELATED AGREEMENTS The Company, Bazaar, AMH and the Energy Provider (collectively, the "REA Parties") have entered into (except with respect to the Energy Provider, who is not a signatory but is bound by) the Construction, Operation and Reciprocal Easement Agreement (the "REA"). AMH is expected to assign its rights and obligations under the REA to Aladdin Music, and Aladdin Music is expected to assume such rights and obligations, upon execution of the Aladdin Music Operating Agreement. The REA sets forth agreements among the REA Parties regarding, among other things, easements, construction standards and requirements, encroachments, use and operating covenants, maintenance requirements, insurance requirements, casualty and condemnation and the sharing of certain facilities and costs relating thereto. The REA has been recorded in the Official Records of Clark County, Nevada and the agreements therein will run with the land, affecting subsequent owners and lessees thereof. The Site Work Development and Construction Agreement (the "Site Work Agreement") entered into among the Company, AHL and Bazaar provides, among other things, that the Company and AHL will, at their cost and expense, perform certain demolition work and certain site work including certain infrastructure improvements and the construction of the initial building shell for the Aladdin Improvements (as defined herein) and the Bazaar Improvements (as defined herein). The Site Work Agreement also provides that Bazaar will contribute approximately $14.2 million (including interest) (the "Bazaar Site Work Contribution") to the cost of the site work. In addition, subject to the satisfaction of certain conditions of Scotiabank, it is intended by the parties that the Company will be responsible for costs in excess of $36 million in connection with the construction of the Carpark. The Site Work Agreement further provides that the Company will construct the Aladdin Improvements and Bazaar will construct the Bazaar 127 Improvements in accordance with a certain construction schedule and pursuant to good and workmanlike standards and with first-class materials. The Site Work Agreement and the REA provide that the Company will: (i) construct a first-class hotel and casino facility (the "Aladdin Improvements") on the Gaming Site (as defined in the REA); (ii) lease the Bazaar Site (as defined in the REA) to Bazaar, which covenants to construct and operate a first-class Retail Facility (as defined in the REA) and related improvements (the "Bazaar Improvements"); (iii) lease the Aladdin Music Site (as defined in the REA) to AMH, which covenants to construct and operate a first-class hotel and casino facility (i.e., the Music Project hotel and casino); and (iv) lease the Utility Site (as defined in the REA) to the Energy Provider, which covenants to construct and operate a central utility plant (the "Central Utility Plant"). The Bazaar Improvements include the Carpark and additional surface-level parking facilities beneath and adjacent to the Retail Facility for approximately 350 motor vehicles (the "Common Parking Area"). The REA also provides that Bazaar grants, as to its ownership or leasehold interest in its tract, to the other REA Parties, as to their ownership or leasehold interests in their tracts, a non-exclusive easement for automobile parking in and on the Common Parking Area. The use and operation of the Common Parking Area is also subject to the Common Parking Area Use Agreement (the "Parking Agreement") entered into between the Company and Bazaar, pursuant to which Bazaar covenants to maintain and operate the Common Parking Area for the non-exclusive use of all the REA Parties. The Parking Agreement provides, among other things, that the Company (i) will pay a fee of $3.2 million per year, payable monthly and adjusted annually pursuant to a consumer price index-based formula, for usage of the Common Parking Area, (ii) will pay its proportionate share of the operating costs attributable to the Common Parking Area, and (iii) has the right to assign a portion of its usage rights and obligations to Aladdin Music, although such assignment may not relieve the Company of any of its obligations in connection therewith. If and when Planet Hollywood's subsidiary becomes a member of Aladdin Music, the Parking Agreement, by its terms, shall be amended and restated to add Aladdin Music as a party, and the Company's proportionate share of the operating costs attributable to the Common Parking Area shall be reduced. The REA contains agreements pursuant to which the REA Parties, as to their ownership or leasehold interests in their respective tracts, grant to the other REA Parties, as to their ownership or leasehold interests in their respective tracts, easements for, among other things, (i) vehicular and pedestrian access, (ii) installation and operation of utilities, (iii) construction, (iv) common structural support, (v) installation and maintenance of exterior lights to highlight grantees' buildings, (vi) truck loading, (vii) encroachments and the maintenance thereof, (viii) roof space for the installation and operation of certain telecommunication and ventilation equipment, (ix) setbacks, (x) maintenance and construction of grantees' buildings, (xi) construction and operation of a proposed monorail and (xii) signage. The REA sets forth covenants among the REA Parties to, among other things, (i) perform the construction of the Redeveloped Aladdin (as defined in the REA) in accordance with first-class standards, (ii) cooperate with one another and with each REA Party's architects, engineers and contractors and (iii) exchange certain plans and specifications and other information. Certain modifications of any REA Party's plans or specifications will be subject to certain approval rights of certain other affected REA Parties. The REA also provides that the Company may construct certain optional improvements, including an office tower and/or time-share facilities. Pursuant to the terms of the REA, the Company has covenanted that it shall complete (subject to force majeure) the Aladdin Improvements, and Bazaar has covenanted that it shall complete (subject to force majeure) the Bazaar Improvements, on or before the First Scheduled Opening Date (as defined in the Site Work Agreement). Similarly, AMH has covenanted that it shall complete the Music Project hotel and casino on or before the Second Scheduled Opening Date (which is currently anticipated to be six (6) months after the First Scheduled Opening Date). 128 The REA provides that, subject to certain operational requirements of the other REA Parties, each REA Party will operate the improvements on its tract in a first-class manner, as more particularly set forth in the REA. The REA contains agreements among the REA Parties to maintain their improvements in good order and in first-class condition, reasonable wear and tear excepted. The REA also allocates responsibility among the REA Parties to maintain the Common Area (as defined in the REA) of the Site (as defined in the REA). Responsibility for the payment of the costs for such Common Area maintenance is allocated proportionately; and the Company has the right to assign a portion of its payment obligation to AMH, although such assignment may not relieve the Company of any of its obligations in connection therewith. The REA contains provisions requiring that in the event of any casualty or condemnation, each REA Party shall, at its cost and expense, restore the improvements located on its respective tract or tracts, including the Common Area thereon, regardless of the availability of insurance proceeds or condemnation awards; provided, however, that (a) with respect to damage or condemnation affecting the Common Parking Area, the costs and expenses in excess of available insurance proceeds or condemnation awards shall be shared by each REA Party in accordance with its respective tract's proportionate share of parking spaces required in accordance with local law, and (b) certain restoration obligations expire 25 years (or such longer period approved by the REA Parties) after the Second Scheduled Opening Date. The REA contains provisions establishing self-help remedies for REA Parties affected by an REA Party's failure to meet its maintenance or restoration obligations set forth in the REA. Certain disputes between the REA Parties that arise under the REA are, pursuant to the REA, to be decided pursuant to binding arbitration, as more particularly set forth in the REA. The REA Parties' maximum liability to one another under the REA is limited to such REA Parties' interests in the Redeveloped Aladdin, as more particularly set forth in the REA. AGREEMENTS RELATING TO THE MALL PROJECT OR THE MUSIC PROJECT BAZAAR LLC OPERATING AGREEMENT TH Bazaar Centers Inc. ("THB"), a wholly owned subsidiary of TrizecHahn, and Bazaar Holdings (collectively, the "Bazaar Members") are parties to the Bazaar LLC Operating Agreement setting forth their agreement as to the relationship between Bazaar and the Bazaar Members and among the Bazaar Members themselves as to the conduct of the business and internal affairs of Bazaar. The Bazaar Operating Agreement may be amended or terminated by the Bazaar Members without the consent of any of the Aladdin Parties, London Clubs, the Company, or the holders of the Notes or the Warrants. MANAGEMENT. Pursuant to the Bazaar LLC Operating Agreement, the business and affairs of Bazaar shall be managed by a board of managers (the "Bazaar Board"), consisting of four members (each, a "Bazaar Board Member"). Each Bazaar Member has designated two Bazaar Board Members and may, from time to time, change its designated representatives on the Bazaar Board. The number of representatives on the Bazaar Board may be increased by the Bazaar Board so long as each Bazaar Member maintains an equal number of representatives. Notwithstanding the foregoing, if any Bazaar Member acquires or obtains a greater than their current interest in Bazaar, then such Bazaar Member shall have the right to designate a majority of the representatives on the Bazaar Board, and the number of representatives selected by the other Bazaar Member shall be reduced proportionately. MALL GUARANTY. Subject to certain conditions, THB's parent, TrizecHahn, THOP, Bazaar Holdings, AHL and the Trust have agreed to jointly and severally assume recourse liability and enter into the Mall Guaranty in favor of the Mall Lender upon completion of the Mall Financing, until certain earnings and loan to value targets have been met. 129 TRANSFER RESTRICTIONS. The Bazaar LLC Operating Agreement contains customary restrictions on the transfer of interests by Bazaar Members. In particular, no Bazaar Member may transfer its interests to a Prohibited Transferee without the prior consent of the other Bazaar Members. The term "Prohibited Transferee" includes: (a) any owner, operator or manager of any resort hotel located in Clark County, Nevada, (b) any shopping center owner, manager and/or developer if THB will continue to be a Bazaar Member following the transfer, (c) any person or entity primarily engaged in the business of owning or operating a casino or other similar type of gambling facility, (d) any person who has been found unsuitable or has withdrawn an application to be found suitable by the Nevada Gaming Authorities, or (e) FOCUS 2000, Inc., a Nevada corporation, or the then current owner or lessee of the real property located at the northeast corner of the Strip and Harmon Avenue, in Las Vegas, Nevada. MARKETING AND SALE OF THE MALL PROJECT. Commencing on the fifth anniversary of the opening of the Mall Project and continuing for five years, any Bazaar Member (the "Selling Member") holding a 50% or greater interest in Bazaar may cause Bazaar to offer the Mall Project for sale on the open market by delivering written notice to the other Bazaar Member (the "Non-Selling Member"). If any offer is received that the Selling Member desires to accept, the Selling Member must give written notice specifying all terms of the proposed sale to the Non-Selling Member, who shall have 30 days to elect to purchase the entire interest at the terms specified in the notice; provided however, that if THB is the Selling Member, then Bazaar Holdings, as Non-Selling Member, shall (subject to certain conditions) have the additional option to purchase 12.5% of the interest in Bazaar for the appropriate allocable share of the purchase price (and other fees specified on such notice). TERM. Bazaar will continue to operate as a limited liability company until December 31, 2099, unless earlier dissolved or extended by unanimous agreement of the Bazaar Members. MALL FINANCING Bazaar has entered into a building loan agreement with the Mall Lenders and Fleet as Administrative Agent (the "Mall Agent") for the Mall Financing, whereby the Mall Lenders will agree to lend up to $194.0 million to Bazaar to finance the Mall Project. The proceeds from the Mall Financing will be used for the construction of the themed Desert Passage, expected to contain approximately 522,000 square feet of retail space, and the approximately 4,800-space Carpark. The Mall Project is expected to open by April of the year 2000, as such date may be extended for force majeure events. TERM. The Mall Financing has a stated maturity of five years from closing. Bazaar shall have two one-year extension options if certain conditions are satisfied and at the end of the initial five year term, any unfunded commitment amount will be automatically cancelled. AMORTIZATION AND PREPAYMENT. The Mall Financing will be interest-only during the initial term. During the extension terms, Bazaar will be required to amortize principal based on 25-year (during the first extension term) and 24-year (during the second extension term) mortgage-style amortization and an interest rate derived based on the then prevailing 10 year Treasury rate plus 150 bps. FEES. Bazaar will be required to pay a fee of 10 bps per annum on the unfunded loan amount. Such fee shall be computed on an actual/360-day basis and shall be payable quarterly in arrears from and after the closing. SECURITY. The loan is secured by a deed of trust, assignment of leases and rents and security agreement which shall be a first lien on Bazaar's interest in the premises on which the Mall Project is built and the Mall Project itself. COVENANTS. The Mall Financing contains a project financial covenant based on loan to value and customary affirmative and negative covenants typical for this type of transaction. 130 EVENTS OF DEFAULT. The Mall Financing provides that all customary events of default for similar loan transactions, consistent with the following, shall constitute events of default under the loan documents, including: (i) (a) insolvency or bankruptcy of the Borrower, TrizecHahn or THOP (and, under certain circumstances, Bazaar Holdings), (b) breach of THOP and TrizecHahn guarantor covenants or (c) judgements against TrizecHahn in excess of $25.0 million individually or in the aggregate (which are not discharged or appealed within 60 days) and (ii) failure to pay debt service within five days after due. CONDITIONS PRECEDENT. The Mall Financing provides that the Mall Agent's obligation to make the initial advance of the Mall Financing is subject to the satisfaction of certain conditions, including, among other things (i) that Scotiabank consent to an amended Site Work Agreement, that provides that the Company will be responsible for costs in excess of $36 million in connection with the construction of the Carpark and (ii) that the contribution of a minimum of 25% of total project costs be contributed as up-front equity prior to funding of the loan, of which at least $35.0 million of such investment shall be in the form of cash expended in the Mall Project. MUSIC PROJECT MEMORANDUM OF UNDERSTANDING The Company and Planet Hollywood have entered into a Memorandum of Understanding and Letter of Intent, dated as of September 2, 1997, as amended by a letter agreement dated as of October 15, 1997 (as so amended, the "Music Project Memorandum of Understanding") in connection with the formation of a joint venture between subsidiaries of the Company and Planet Hollywood to own, develop and operate the Music Project. The Music Project Memorandum of Understanding is intended to be a binding agreement (subject to certain limited conditions) with respect to certain matters regarding the formation and operation of Aladdin Music, however the parties have agreed to use their best efforts promptly to complete and execute all agreements and other documents that may be reasonably necessary to carry out the provisions of the Music Project Memorandum of Understanding. The Company anticipates that such agreements will include the following-described agreements, although the terms described below are subject to further revision and may be modified by the Company and Planet Hollywood prior to the execution of definitive documentation. ALADDIN MUSIC OPERATING AGREEMENT. It is expected that AMH and a subsidiary of Planet Hollywood (the "Music Project Members") will enter into an operating agreement (the "Aladdin Music Operating Agreement") to govern the operations of Aladdin Music. The Company has formed AMH, which it anticipates will hold (on a fully diluted basis through shares and warrants) a 50% member interest in Aladdin Music. Prior to the exercise of its warrants (the "Music Project Warrants"), AMH will own a 49% preferred membership interest ("Music Preferred Shares") and a 49% common membership interest ("Music Common Shares") in Aladdin Music, however, exercise of the Music Project Warrants will increase AMH's percentage interest in Aladdin Music to 50%. Planet Hollywood, through a subsidiary (the "Planet Hollywood Member"), will initially hold the remaining interests in Aladdin Music. CAPITAL CONTRIBUTIONS. Through AMH, the Company is expected to contribute to Aladdin Music (i) a ground lease, at nominal rent, of the approximately 4.75 acre parcel of land for the Music Project (including a right to acquire the fee interest in such land upon the receipt by the Company of necessary permits and subdivision approvals) and (ii) $21.3 million in cash. The contribution value of the ground lease will be $20.0 million. The Planet Hollywood Member will contribute cash to Aladdin Music in the amount of $41.3 million. The contributions of the Music Project Members will be made immediately prior to, or concurrently with, the closing of construction financing with respect to the Music Project, however certain pre-development costs of Aladdin Music incurred with respect to the Music Project will be contributed to Aladdin Music prior to such date. These predevelopment costs include design, architecture and organization costs. SHARES. Aladdin Music is expected to have two classes of shares (which represent units of membership interests in Aladdin Music): Music Common Shares and Music Preferred Shares (collectively, "Music 131 Project Shares"). The above-described contributions of the Music Project Members will be deemed contributions in respect of Music Preferred Shares. Except with respect to distributions to cover tax liability of Music Project Members (or, if any Music Project Member is a pass-through entity, its equity interest holders) arising from their interest in Music, the Music Preferred Shares will have distribution, redemption and liquidation preferences over all Music Common Shares. Rights to allocations to the capital account and distributions in respect of the Music Preferred Shares will cumulate (but not compound) quarterly at the rate of 12% per annum on the capital account balance in respect thereof. Preferred distributions to the Planet Hollywood Member will have priority of payment over preferred distributions to AMH. In addition, to the extent that there is insufficient cash available for distribution to make such preferred distributions, the amounts which are not distributed will accrue (but not compound) for the benefit of the party entitled thereto. Distributions of such accrued amounts to the Planet Hollywood Member will have priority over distributions to AMH. MANAGEMENT AND DAY-TO-DAY OPERATIONS. Management of Aladdin Music will be the responsibility of a board of managers (the "Music Project Board"), comprised initially of four members designated by the Planet Hollywood Member and three members designated by AMH, until AMH exercises its warrants for the acquisition of additional Music Project Shares, at which time the Music Project Board will be comprised of four representatives each of AMH and the Planet Hollywood Member. Major decisions of the Music Project Board will require the vote of a supermajority of the board members. All decisions other than such major decisions will be delegated to an operating committee comprised of two representatives each of AMH and the Planet Hollywood Member (the "Operating Committee"). The development of the Music Project and renovation of the Theater will be coordinated by the Company under the Music Project Development Agreement. Day-to-day management and operation of the Music Project and the Theater will be delegated to the Company under the Music Project Management Agreement. TRANSFERS OF SHARES. Transfers of Music Project Shares will only be permitted: (i) to affiliates of Music Project Member, LCNI, or persons approved by a majority of the interests held by Music Project Members; and (ii) to persons other than certain prohibited transferees after giving other Music Project Members a right of first negotiation for the acquisition of such Shares. LIABILITY, EXCULPATION AND INDEMNIFICATION. The Aladdin Music Operating Agreement will contain provisions relieving the Music Project Members, officers, employees and Music ProjectBoard Members and Operating Committee members from certain liability, fiduciary duties and conflicts and will also provide for various indemnities to such persons in respect of payment of expenses and errors and omissions insurance. GAMING MATTERS. Capital contributions, admission of new Music Project Members, transfers of shares and payment of distributions by Aladdin Music will be subject to receipt of Nevada Gaming Approvals. Music Project Members and their affiliates, directors and employees will cooperate to obtain Gaming Approvals from the Nevada Gaming Authorities, as necessary. If Nevada gaming problems arise prior to a finding of unsuitability by the Nevada Gaming Authorities, the Music Project Member causing such problem (or whose director, officer or affiliate caused such problem) shall cooperate to remedy it and, if not remedied, may be forced to sell its Music Project Shares to Aladdin Music or its designee at fair market value. TERM. Aladdin Music shall continue until January 24, 2097, or such other time as agreed in writing by all Members. THE MUSIC PROJECT DEVELOPMENT AGREEMENT. Aladdin Music intends to contract with the Company for the development of the Music Project and the Theater renovation pursuant to a development agreement (the "Music Project Development Agreement") on terms, and in form and substance, satisfactory to 132 Aladdin Music and the Company. Pursuant to the Music Project Development Agreement, the Company will agree to provide services with respect to such development and renovation, including (a) the selection of contractors, subcontractors and the professional team including architects, engineers, surveyors, designers, decorators and other technical and professional consultants; (b) the negotiation on behalf of Aladdin Music of the agreements under which the contractors, subcontractors and the professional team are to be retained by Aladdin Music; (c) the supervision of the preparation of preliminary and final plans, including landscaping, interior design and graphics; and (d) the preparation of preliminary cost estimates and projections of cash flow requirements covering the development costs during the Development Period, and the preparation and updating from time to time of the development budget; subject, in each case, to certain approval rights of Aladdin Music. REIMBURSEMENT UNDER MUSIC PROJECT DEVELOPMENT AGREEMENT. The Company will be reimbursed for its costs and expenses in connection with its activities under the Music Project Development Agreement. TERMINATION. Each of the Company and Aladdin Music are anticipated to have certain limited termination rights with respect to the Music Project Development Agreement. Any termination of the Music Project Development Agreement will entitle the Company to terminate the Music Project Management Agreement. INDEMNIFICATION. Aladdin Music shall indemnify and hold the Company harmless from claims arising out of the performance by Company of services under the Music Project Development Agreement. The Company shall indemnify and hold Aladdin Music harmless from and against any and all claims arising from or in connection with the Company's gross negligence or willful misconduct. MUSIC PROJECT MANAGEMENT AGREEMENT. Aladdin Music intends to contract with the Company for the day-to-day management and operations of the Music Project and the Theater and certain promotional services, pursuant to a management agreement in form and substance satisfactory to Aladdin Music and the Company (the "Music Project Management Agreement"). The terms of the Music Project Management Agreement are expected to be on terms at least as favorable as those which would be available from an independent third party vendor. COMPENSATION UNDER MUSIC PROJECT MANAGEMENT AGREEMENT. The Music Project Management Agreement will provide for the provision of management services by the Company for the Music Project and the Theater in exchange for a base management fee (the "Base Management Fee"), payable quarterly, equal to 1.50% of the net revenue from the Music Project and the Theater and for an additional management fee (the "Incentive Management Fee"), payable quarterly, equal to 6% of the Management Excess Net Revenue (which is the amount obtained by dividing (i) the amount of quarterly Adjusted Music EBITDA in excess of the Adjusted Management EBITDA Threshold by (ii) Profit Margin). "Adjusted Music EBITDA" means for any period Aladdin Music's earnings before (i) deductions for interest, taxes, depreciation and amortization, (ii) payment of the Incentive Management Fee, the Incentive Marketing Fee, and (iii) payment of leases for furniture, fixtures or equipment. "Profit Margin" means for any quarter, quarterly Adjusted EBITDA divided by quarterly Net Revenue. "Incentive Marketing Fee" means an additional marketing fee, payable quarterly from Aladdin Music to Planet Hollywood pursuant to the Marketing and Consulting Agreement (as defined herein) between Aladdin Music and Planet Hollywood, equal to 6% of the Marketing and Consulting Excess Net Revenue. "Marketing and Consulting Excess Net Revenue" means the amount obtained by dividing (i) the amount of quarterly Adjusted EBITDA in excess of the Adjusted Marketing EBITDA Threshold by (ii) the Profit Margin. The "Adjusted Management EBITDA Threshold" means quarterly Adjusted EBITDA of $10.0 million. The "Adjusted Marketing EBITDA Threshold" means quarterly Adjusted EBITDA of $8.75 million. The Incentive Management Fee shall at all times (including, without limitation, if the Adjusted Management EBITDA Threshold is met or if there is sufficient cash available for distribution) be subordinate to debt service. To the extent that the Adjusted Management EBITDA Threshold is met but there is insufficient cash available for distribution for the payment of any or all of such Incentive Management Fee and the payment of the Incentive 133 Marketing Fee, or if Aladdin Music is otherwise restricted by a lender from paying such fees, the Incentive Management Fee shall be subordinate to the payment of the Incentive Marketing Fee. Incentive Management Fees which are due but not paid shall accrue (together with interest thereon) for the benefit of the Company. The Incentive Management Fee shall not be payable to the Company for any quarter in which the Adjusted Management EBITDA Threshold is not achieved. In addition, pursuant to the Music Project Management Agreement, the Company shall provide certain services to the Music Project and the Theater, including, without limitation, accounting and financial services, MIS, general management and investor relation services, promotional services and other agreed upon services in the ordinary course of business by the Company for the Music Project and the Theater in exchange for reimbursement of the fully allocated cost of such services. TERM. The term of the Music Project Management Agreement shall be thirty (30) years, subject to an option on the part of the Company to extend the term for three successive ten year periods. TERMINATION FEE. In the event that the Music Project Management Agreement is terminated by Aladdin Music prior to the expiration of its term (including extension options) and prior to the time that the Music Project Warrants may be exercised, then (except under certain circumstances) the Company shall be paid a termination fee of $50.0 million and AMH shall have the right to put its investments in Aladdin Music to Planet Hollywood for an amount equal to such investment's fair market value. Once AMH is able to exercise the Music Project Warrant, all provisions relating to the termination fee and fair market purchase option shall terminate. THE MARKETING AND CONSULTING AGREEMENT. Aladdin Music intends to contract with Planet Hollywood and an affiliate of Planet Hollywood for the provision of certain marketing and consulting services to be provided to the Music Project and for the license to Aladdin Music of all rights to the trademarks, tradenames and related agreements which are necessary or desirable to operate and maintain a "music-themed" hotel and restaurant on the Music Project land, pursuant to a marketing and consulting agreement in form and substance satisfactory to Planet Hollywood and Aladdin Music (the "Marketing and Consulting Agreement"). The Marketing and Consulting Agreement is expected to provide for the provision of marketing and consulting services by Planet Hollywood (and/or its affiliates) for the Music Project in exchange for a base fee (the "Base Marketing Fee"), payable quarterly, equal to 2.00% of the Music Project's quarterly Net Revenue and for an additional marketing fee (the "Incentive Marketing Fee"), payable quarterly, equal to 6% of the Marketing and Consulting Excess Net Revenue. The Incentive Marketing Fee shall not be payable for any quarter in which the Adjusted Marketing EBITDA Threshold is not achieved. In addition, to the extent that the Adjusted Marketing EBITDA Threshold is met but there is insufficient cash available for distribution for the payment of any or all of such fees, or if Aladdin Music is otherwise restricted by a lender from paying the Incentive Marketing Fee, the Incentive Marketing Fee shall accrue (together with interest thereon) for the benefit of Planet Hollywood. In addition to the Base Marketing Fee and the Incentive Marketing Fee, the Marketing and Consulting Agreement shall provide that Planet Hollywood shall be reimbursed, on a quarterly basis, for its costs and expenses under the Marketing and Consulting Agreement in an amount equal to 0.5% of quarterly Net Revenue, without supporting documentation as well as for certain other approved expenses. The Marketing and Consulting Agreement is further expected to provide that Planet Hollywood shall be restricted from allowing the use or operation of similar "music concept" themed restaurants at any location in Clark County, Nevada, other than at the Music Project. THE GROUND LEASE. AMH intends to assign its ground lease (the "Music Project Lease") of the site designated for the Music Project to Aladdin Music. The Music Project Lease is for nominal rent and includes the right of the lessee to acquire fee title to the Music Project land upon completion of the division of the Project Site into separate legal parcels. Pursuant to the Music Project Lease, Aladdin Music shall be required to cooperate with such division and to fund its pro rata share of the costs thereof, based upon the ratio that the acreage of the Music Project land bears to the total acreage of the Project Site. 134 THE THEATER LEASE. The Company is expected to enter into a lease agreement (the "Theater Lease") with respect to the Theater pursuant to which, among other matters, (i) Aladdin Music shall lease the Theater from the Company for a period of at least 69 years on a "triple-net" basis, for nominal rent, (ii) the Company shall have certain rights with respect to the lease-back of the Theater, (iii) certain provisions shall be made relating to the promotional and security services for the Theater, (iv) Aladdin Music shall agree to renovate the Theater prior to the opening of the Aladdin and to maintain the Theater in a "first class" condition during the term of the Theater Lease. MUSIC PROJECT FINANCING Prior to the commencement of the development of the Music Project, Aladdin Music is expected to enter into a commitment letter for a credit facility with a syndicate of lenders whereby the lenders will agree to finance the construction of the Music Project. Currently, Aladdin Music is considering several proposals for such financing. 135 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS GENERAL The following discussion is a summary of certain material federal income tax considerations relevant to the acquisition, ownership and disposition of the Warrants by a U.S. Holder. A "U.S. Holder" means a holder of a Warrant which is (i) an individual who is a citizen or resident of the United States for federal income tax purposes, (ii) a corporation or partnership created or organized in the United States or under the laws of the United States or any state thereof (including the District of Columbia), (iii) an estate (other than a foreign estate) or (iv) any trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust. This summary is based upon current laws, regulations, rulings and judicial decisions some of which are not clear and all of which are subject to change, possibly with retroactive effect. Any such change could affect the continuing validity of this discussion. In addition, the validity of the conclusions contained in this summary depends upon the accuracy of representations made by officers of Holdings and projections prepared by the financial advisors to Holdings in connection with the Offering. This summary does not purport to consider all the possible federal income tax consequences of the purchase, ownership or disposition of the Warrants and is not intended to reflect the particular tax position of any beneficial owner. It addresses only U.S. Holders who hold the Warrants as capital assets and does not address beneficial owners that may be subject to special tax rules, such as foreign holders, banks, insurance companies, dealers in securities or currencies, purchasers that hold the Warrants as a hedge against currency risks or as part of a straddle with other investments or as part of a "synthetic security" or other integrated investment (including a "conversion transaction") comprised of a Warrant and one or more other investments, or purchasers that have a "functional currency" other than the U.S. dollar. In addition, the discussion does not address any aspect of state, local or foreign taxation. HOLDERS OF THE WARRANTS ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING, OWNING, AND DISPOSING OF THE WARRANTS AS WELL AS THE APPLICATION OF STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX LAWS. ISSUE PRICE On the Issue Date the issue price of the Unit was allocated between the Notes and the Warrants based on their relative fair market values. Holders who purchased a Unit at original issue for its issue price have an initial tax basis for the Warrants equal to the Warrants' issue price. With respect to the $519.40 issue price per Unit, Holdings has allocated $67.72 to the Warrants, which represents their issue price. This allocation reflects Holdings' judgement as to the relative value of the Note and Warrants at the time of issuance. The allocation is binding on a U.S. Holder unless such U.S. Holder explicitly discloses a different allocation on an attachment to its tax return for the taxable year that includes the acquisition date of the Unit. The allocation is not, however, binding on the IRS and there can be no assurance that the IRS would not challenge this allocation or that such a challenge, if made, would not be upheld in court. TAXATION OF WARRANTS CHARACTERIZATION OF THE WARRANTS. Although the matter is not free from doubt, and the form of the Warrants may be respected for federal income tax purposes, it is possible that the Warrants would be treated for federal income tax purposes as the shares of Common Stock of the Issuer which such Warrants entitle the holder to purchase due to, among other things, their minimal Exercise Price and lack of any meaningful contingency. Although it is thus unclear whether the Warrants will be treated as warrants or 136 stock for federal income tax purposes, the following discussion assumes that the Warrants would be properly characterized as warrants and describes, as appropriate, any differing federal income tax treatment that would result if the Warrants are treated as stock. EXERCISE. A holder of a Warrant generally will not recognize gain or loss upon exercise of the Warrant. The holder's federal income tax basis in the stock received will be equal to the holder's federal income tax basis in the Warrant immediately prior to exercise (i.e., in the case of an initial purchaser in the Offering, the portion of the cost of the Unit allocable to the Warrant), plus the amount of cash paid upon exercise. The holding period of the stock acquired upon exercise of the Warrant will begin on the day after the date of exercise of the Warrant and will not include the period during which the Warrant was held. If the Warrants are treated as stock from the date of issuance, the holder would not recognize any gain or loss on the exercise of the Warrants, and the holding period of the stock received would include the entire period during which the Warrant was held. ADJUSTMENTS. An adjustment to the exercise price of the Warrants made pursuant to the anti-dilution provisions of the Warrants may, in certain circumstances, result in constructive distributions to the holders of the Warrants which could be taxable as dividends to the holders under Section 305 of the Code. A holder's federal income tax basis in the Warrants generally would be increased by the amount of any such dividend. The consequences of such an adjustment generally should not differ if the Warrants are recharacterized as stock on the date of issuance. DISPOSITION. Upon a sale, exchange or other taxable disposition of a Warrant or Warrant Shares, a holder generally will recognize gain or loss for federal income tax purposes in an amount equal to the difference between (i) the sum of the amount of cash and fair market value of any property received upon such sale, exchange or other disposition and (ii) the holder's adjusted tax basis in the Warrant or Warrant Shares being sold. Any gain or loss recognized upon a sale, exchange or disposition of Warrants or Warrant Shares would be long-term capital gain or loss if the Warrant or stock was held by the holder for more than one year at the time of sale or exchange. In the case of an individual holder of a Warrant or Warrant Shares, the maximum federal income tax rate applicable to net long-term capital gains is twenty-eight percent (28%) if the Warrant or Warrant Shares were held for greater than one year but less than eighteen months and twenty percent (20%) if the Warrant or Warrant Shares were held for more than eighteen months. The consequences of a sale or disposition to the holder should not differ (except potentially as to holding periods--See Taxation of Warrants--Exercise above) if the Warrants are recharacterized as stock on the day they are issued. LAPSE. Upon the lapse of a Warrant, a holder will recognize a capital loss equal to such holder's adjusted tax basis in the Warrant. If the Warrant was treated as stock on the date of issuance, and the Warrant was never exercised, the treatment of such Warrant generally should not differ. 137 PLAN OF DISTRIBUTION The Warrants and the Warrant Shares may be sold from time to time to purchasers directly by the Selling Holders. Alternatively, the Selling Holders may from time to time offer the Warrants or the Warrant Shares to or through underwriters, broker/dealers or agents, who may receive compensation in the form of underwriting discounts, concessions or commissions from the Selling Holders or the purchasers of such securities for whom they may act as agents. The Selling Holders and any underwriters, broker/dealers or agents that participate in the distribution of Warrants or the Warrant Shares may be deemed to be "underwriters" within the meaning of the Securities Act and any profit on the sale of such securities and any discounts, commissions, concessions or other compensation received by any such underwriter, broker/ dealer or agent may be deemed to be underwriting discounts and commissions under the Securities Act. The Warrants and the Warrant Shares may be sold from time to time in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. The sale of the Warrants and the Warrant Shares may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which such securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or in the over-the-counter market or (iv) through the writing of options. At the time a particular offering of the Warrants or the Warrant Shares is made, a supplement to this Prospectus (a "Prospectus Supplement"), if required, will be distributed which will set forth the aggregate amount of Warrants or Warrant Shares being offered and the terms of the offering, including the name or names of any underwriters, broker/dealers or agents, any discounts, commissions and other terms constituting compensation from the Selling Holders and any discounts, commissions or concessions allowed or reallowed or paid to broker/dealers. Each broker/dealer that receives the Warrants or Warrant Shares for its own account pursuant to this Prospectus must acknowledge that it will deliver the Prospectus and any Prospectus Supplement in connection with any sale of such Warrants or Warrant Shares. To comply with the securities laws of certain jurisdictions, if applicable, the Warrants and Warrant Shares will be offered or sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain jurisdictions the Warrants and Warrant Shares may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or any exemption from registration or qualification is available and is complied with. The Selling Holders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, which provisions may limit the timing of purchases and sales of any of the Warrants or Warrant Shares by the Selling Holders. The foregoing may affect the marketability of such securities. Pursuant to the Warrant Registration Rights Agreement, certain expenses of the registration of the Warrants and Warrant Shares hereunder will be paid by the Company, including, without limitation, Commission filing fees and expenses of compliance with state securities or "blue sky" laws; provided, however, that the Selling Holders will pay all underwriting discounts, selling commissions and transfer taxes, if any applicable to any sales pursuant to the Registration Statement. The Issuer has agreed to indemnify the Selling Holders against certain civil liabilities, including certain liabilities under the Securities Act, and the Selling Holders will be entitled to contribution in connection with any such registration and any sales pursuant thereto. The Company will be indemnified by the Selling Holders severally against certain civil liabilities, including certain liabilities under the Securities Act, or will be entitled to contribution in connection with any such registration and any sales pursuant to the Registration Statement. LEGAL MATTERS Certain legal matters in connection with the registration of Warrants pursuant to this Prospectus will be passed upon for the Issuer by Skadden Arps, Slate, Meagher & Flom L.L.P. and in connection with the 138 Warrant Shares by Schreck Morris, Las Vegas, Nevada. Certain matters with respect to tax issues will be passed upon by Skadden, Arps, Slate, Meagher & Flom LLP. EXPERTS The balance sheets of the Issuer, Holdings, Capital and the Company as of December 31, 1997 and the statements of changes in equity and cash flows of each such entity for the period from their inception to December 31, 1997, together with the notes thereto, appearing in this Prospectus, have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The financial statements of London Clubs as of March 30, 1997 and March 24, 1996 and for the 53 week period ended March 30, 1997, and the 52 week period ended March 24, 1996 included in this Prospectus have been so included in reliance on the report of Price Waterhouse, independent accountants, given on the authority of said firm as experts in accounting and auditing. With respect to the unaudited consolidated financial information of London Clubs for the 26 week periods ended September 28, 1997 and September 22, 1996 included in this Prospectus, Price Waterhouse reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated December 5, 1997 states that they did not audit and they do not express an opinion on that unaudited consolidated financial information. Price Waterhouse has not carried out any significant or additional audit tests beyond those which would have been necessary if their report had not been included. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. Price Waterhouse is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited consolidated financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by Price Waterhouse within the meaning of Sections 7 and 11 of the Act. 139 INDEX TO HISTORICAL FINANCIAL INFORMATION OF THE ALADDIN PARTIES AND THE COMPANY Set forth below is certain historical financial information concerning the Company and the Aladdin Parties. Potential investors should note that the Aladdin Parties and the Company are development stage companies and the attached financial information is not indicative of future results of operations.
Aladdin Gaming Holdings, LLC Report of Independent Public Accountants................................................................. F-4 Consolidated Balance Sheet............................................................................... F-5 Consolidated Statement of Members' Equity................................................................ F-6 Consolidated Statement of Cash Flows..................................................................... F-7 Notes to Consolidated Financial Statements............................................................... F-8 Financial Statements as of March 31, 1998................................................................ F-11 Aladdin Capital Corp. Report of Independent Public Accountants................................................................. F-20 Balance Sheet............................................................................................ F-21 Statement of Stockholders' Equity........................................................................ F-22 Statements of Cash Flows................................................................................. F-23 Notes to Financial Statements............................................................................ F-24 Financial Statements as of March 31, 1998................................................................ F-26 Aladdin Gaming, LLC Report of Independent Public Accountants................................................................. F-31 Balance Sheet............................................................................................ F-32 Statement of Members' Equity............................................................................. F-33 Statement of Cash Flows.................................................................................. F-34 Notes to Financial Statements............................................................................ F-35 Financial Statements as of March 31, 1998................................................................ F-37 Aladdin Gaming Enterprises, Inc. Report of Independent Public Accountants................................................................. F-46 Balance Sheet............................................................................................ F-47 Statement of Stockholders' Equity........................................................................ F-48 Statement of Cash Flows.................................................................................. F-49 Notes to Financial Statements............................................................................ F-50 Financial Statements as of March 31, 1998................................................................ F-52
F-1 (This page intentionally left blank.) F-2 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 F-3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Members of Aladdin Gaming Holdings, LLC and subsidiaries: We have audited the accompanying consolidated balance sheet of ALADDIN GAMING HOLDINGS, LLC (a Nevada Limited-Liability Company) and SUBSIDIARIES, as of December 31, 1997, and the related consolidated statements of members' equity and cash flows for the period from inception (December 1, 1997) through December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aladdin Gaming Holdings, LLC and subsidiaries, as of December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Las Vegas, Nevada January 15, 1998, except for Note 6, as to which the date is February 26, 1998 F-4 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 ASSETS Cash................................................................................ $ 6,895 --------- Total Assets.................................................................... $ 6,895 --------- --------- LIABILITIES AND MEMBERS' EQUITY Due to Sommer Trust................................................................. $ 1,245 Advances to purchase membership interests........................................... 2,850 Members' equity..................................................................... 2,800 --------- Total Liabilities and Members' Equity........................................... $ 6,895 --------- ---------
The accompanying notes are an integral part of this consolidated financial statement. F-5 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF MEMBERS' EQUITY FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) THROUGH DECEMBER 31, 1997 BALANCE, December 1, 1997........................................................... $ -- Members' contribution............................................................... 2,800 --------- BALANCE, December 31, 1997.......................................................... $ 2,800 --------- ---------
The accompanying notes are an integral part of this consolidated financial statement. F-6 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) THROUGH DECEMBER 31, 1997 CASH FLOWS FROM FINANCING ACTIVITIES: Due to Sommer Trust............................................................... $ 1,245 Members' contributions............................................................ 2,800 Advances to purchase membership interests......................................... 2,850 --------- INCREASE IN CASH AND CASH EQUIVALENTS............................................... 6,895 CASH AND CASH EQUIVALENTS, December 1, 1997......................................... -- --------- CASH AND CASH EQUIVALENTS, December 31, 1997........................................ $ 6,895 --------- ---------
The accompanying notes are an integral part of this consolidated financial statement. F-7 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 1. ORGANIZATION AND BUSINESS Aladdin Gaming Holdings, LLC, a Nevada limited-liability company ("Gaming Holdings"), was established on December 1, 1997. Gaming Holdings is owned by Aladdin Gaming Enterprises, Inc. (25%), a Nevada corporation, Sommer Enterprises, LLC (72%), a Nevada limited-liability company, and GAI, LLC (3%), a Nevada limited-liability company. See Note 5 regarding the agreement to purchase membership interests. Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings"), indirectly holds a majority interest in Gaming Holdings. The members of Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada limited-liability company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest in Holdings. Distributions shall be made in accordance with the respective ownership interests subject to Gaming Holdings' operating agreement. Since the planned principal operations had not commenced as of December 31, 1997, Gaming Holdings has accounted for its operations as a development stage company. There were no operations during the period from inception (December 1, 1997) through December 31, 1997 and hence no statement of income has been prepared. 2. PRINCIPLES OF CONSOLIDATION AND PRESENTATION The consolidated financial statements include the accounts of Gaming Holdings and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. Gaming Holdings' wholly owned subsidiaries are Aladdin Capital Corp., a Nevada corporation, and Aladdin Gaming, LLC, a Nevada limited-liability company. 3. INCOME TAXES Gaming Holdings will file federal information tax returns only. Each member reports taxable income or loss on their respective tax returns. 4. PURCHASE OF RESTRICTED MEMBERSHIP INTERESTS Certain members of Gaming Holdings' executive management have purchased unvested restricted membership interests in 4.75% of Gaming Holdings' stock. These membership interests will vest over approximately a four-year period. As of December 31, 1997, none of these membership interests had vested. 5. COMMITMENTS On September 24, 1997 Gaming Holdings, the Sommer Trust, Holdings, Sommer Enterprises, London Clubs International plc, a company registered in the United Kingdom ("London Clubs") and London Clubs Nevada Inc. ("LCNI") entered into a purchase agreement (subsequently amended) providing for the acquisition by LCNI of 25 percent of Gaming Holdings' common membership interests for a purchase F-8 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 5. COMMITMENTS (CONTINUED) price of $50.0 million. LCNI's obligation to purchase such membership interests is subject to the satisfaction or waiver of various conditions. 6. SUBSEQUENT EVENTS Private Offering On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and, together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises, Inc. consummated a private offering (the "Offering") under Rule 144A of the Securities Exchange Act of 1933. The private offering consisted of 221,500 units (the "Units"), each unit consisting of (i) $1,000 principal amount at maturity of 13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B non-voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc. The initial accreted value of the Notes is $519.40 per $1,000 principal amount at maturity of the Notes. The Notes will mature on March 1, 2010. The Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis) based on the initial accreted value, calculated from February 26, 1998. Cash interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash interest on the Notes will accrue at the rate of 13 1/2% per annum based on the accreted value at maturity of the Notes and will be payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2003. The Notes are secured by a first priority pledge of all amounts held in a segregated construction disbursement account (the "Note Construction Disbursement Account") and by a first priority pledge of all of the issued and outstanding Series A Preferred Interests of Gaming Holdings in Aladdin Gaming, LLC. The Note Construction Disbursement Account is comprised of approximately $35 million remaining proceeds from the Offering, after the application of the net proceeds to repay certain previously existing indebtedness and certain fees and expenses. The Indenture to the Notes contains certain covenants that (subject to certain exceptions) restrict the ability of the Issuers and certain of their subsidiaries to, among other things: (i) make restricted payments; (ii) incur additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay dividends or make other distributions; (v) enter into mergers or consolidations; (vi) enter into certain transactions with affiliates or (vii) enter into new lines of business. Equity Contributions On February 26, 1998, LCNI contributed $50.0 million ("London Clubs Contribution") for 25% of Gaming Holdings common membership interests. Sommer Enterprises, LLC contributed a portion of land in exchange for common membership interests in Gaming Holdings. Aladdin Gaming Enterprises, Inc. contributed the portion of land and $7.0 million of predevelopment costs, which were originally received from Sommer Enterprises, Inc. and the net proceeds (approximately $15 million) allocable from the sale of F-9 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 6. SUBSEQUENT EVENTS (CONTINUED) the Warrants to Gaming Holdings in exchange for 25% of the common membership interests in Gaming Holdings. Investments Gaming Holdings contributed the land appraised at $150.0 million, approximately $42 million in cash from the London Clubs Contribution and the $7.0 million of predevelopment costs in exchange for 100% of the common membership interests in Aladdin Gaming, LLC. Gaming Holdings also contributed $115 million in cash, consisting of the net proceeds of the sale of the Units and approximately $8 million from the London Clubs Contribution to Aladdin Gaming, LLC in exchange for 100% of the Series A Preferred Interests. F-10 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS AS OF MARCH 31, 1998 F-11 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET AS OF MARCH 31, 1998
MARCH 31, 1998 -------------- (UNAUDITED) ASSETS Cash.............................................................................................. $ 406,559 Property and equipment: Land............................................................................................ 33,407,500 Furniture and equipment......................................................................... 546,976 Construction in progress........................................................................ 13,492,315 Capitalized interest............................................................................ 544,283 -------------- Total property and equipment................................................................ 47,991,074 -------------- Other assets: Restricted cash................................................................................. 308,293,229 Restricted land................................................................................. 6,842,500 Other assets.................................................................................... 1,964,435 Debt issuance costs, net of accumulated amortization of $285,255 as of March 31, 1998........... 36,884,511 -------------- Total other assets.......................................................................... 353,984,675 -------------- Total assets................................................................................ $ 402,382,308 -------------- -------------- LIABILITIES AND MEMBER'S EQUITY Current liabilities: Current maturities of long-term debt............................................................ $ 187,324 Payable to related parties...................................................................... 360,629 Obligation to transfer land..................................................................... 6,842,500 Accrued expenses................................................................................ 4,352,850 -------------- Total current liabilities................................................................... 11,743,303 -------------- Long-term debt.................................................................................... 375,749,612 Advances to purchase membership interests......................................................... 2,850 Members' equity: Common membership interest...................................................................... 28,607,979 Accumulated Deficit............................................................................. (13,721,436) -------------- Total members' equity....................................................................... 14,886,543 -------------- Total liabilities and members' equity....................................................... $ 402,382,308 -------------- --------------
The accompanying notes are an integral part of these financial statements. F-12 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) THROUGH MARCH 31, 1998
FOR THE PERIOD DECEMBER 1, 1997 (INCEPTION) THROUGH MARCH31, 1998 MARCH 31, 1998 -------------- ------------------ (UNAUDITED) (UNAUDITED) Pre-opening costs.......................................................... $ 11,462,928 $ 11,462,928 Other (income) expense: Interest income.......................................................... (1,584,938) (1,584,938) Interest expense......................................................... 4,387,729 4,387,729 Less: Interest capitalized............................................... (544,283) (544,283) -------------- ------------------ Total other (income) expense......................................... 2,258,508 2,258,508 -------------- ------------------ Net loss................................................................... $ (13,721,436) $ (13,721,436) -------------- ------------------ -------------- ------------------
The accompanying notes are an integral part of these financial statements. F-13 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) STATEMENT OF MEMBERS' EQUITY FOR THE PERIOD FROM DECEMBER 31, 1997 THROUGH MARCH 31, 1998 (UNAUDITED)
ALADDIN GAMING SOMMER ENTERPRISES, LONDON CLUBS ENTERPRISES, LLC INC. NEVADA, INC. GAI, LLC TOTAL ---------------- --------------- ------------- ----------- -------------- BALANCE, DECEMBER 31, 1997........ $ 669 $ 331 $ -- $ 1,800 $ 2,800 Net loss.......................... $ (6,449,075) $ (3,430,359) $ (3,430,359) $ (411,643) $ (13,721,436) Members' contributions............ (47,317,023) 28,247,202 50,000,000 -- 30,930,179 Members' equity costs............. (1,092,750) (581,250) (581,250) (69,750) (2,325,000) ---------------- --------------- ------------- ----------- -------------- BALANCE, MARCH 31, 1998........... $ (54,858,179) $ 24,235,924 $ 45,988,391 $ (479,593) $ 14,886,543 ---------------- --------------- ------------- ----------- -------------- ---------------- --------------- ------------- ----------- --------------
The accompanying notes are an integral part of these financial statements. F-14 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) THROUGH MARCH 31, 1998
FOR THE THREE MONTHS FOR THE PERIOD ENDED DECEMBER 1, 1997 MARCH 31, 1998 (INCEPTION) -------------------- THROUGH MARCH 31, 1998 (UNAUDITED) ------------------ (UNAUDITED) Cash flows from operating activities: Net loss.............................................................. $ (13,721,436) $ (13,721,436) Increase in other assets.............................................. (1,964,435) (1,964,435) Amortization of debt costs............................................ 285,255 285,255 Amortization of original issue discount............................... 1,388,083 1,388,083 Increase in accrued expenses.......................................... 4,352,850 4,352,850 Increase in accrued fee to related party.............................. 359,384 359,384 -------------------- ------------------ Net cash used in operating activities................................... (9,300,299) (9,300,299) -------------------- ------------------ Cash flows from investing activities: Payments for construction in progress and capitalized interest........ (7,036,598) (7,036,598) Increase in restricted cash........................................... (308,293,229) (308,293,229) -------------------- ------------------ Net cash used in investing activities................................... (315,329,827) (315,329,827) -------------------- ------------------ Cash flows from financing activities: Proceeds from issuance of notes....................................... 100,047,100 100,047,100 Proceeds from long-term debt.......................................... 274,000,000 274,000,000 Repayment of long-term debt........................................... (45,223) (45,223) Debt issuance costs................................................... (37,169,766) (37,169,766) Members' contributions................................................ 65,000,000 65,002,800 Repayment of existing debt............................................ (74,477,321) (74,477,321) Members' equity costs................................................. (2,325,000) (2,325,000) Payable to related parties............................................ -- 1,245 Advances to purchase membership interests............................. -- 2,850 -------------------- ------------------ Net cash provided by financing activities............................... 325,029,790 325,036,685 -------------------- ------------------ Net increase in cash.................................................... 399,664 406,559 Cash at the beginning of the period..................................... 6,895 -- -------------------- ------------------ Cash at the end of the period........................................... $ 406,559 $ 406,559 -------------------- ------------------ -------------------- ------------------ Cash paid for interest, net of amount capitalized....................... $ 364,756 $ 364,756 Non-cash investing and financing activities: Members' contributions -- book value Land................................................................ 33,407,500 33,407,500 Construction in progress............................................ 7,000,000 7,000,000 Equipment acquired equal to assumption of debt........................ 546,976 546,976
The accompanying notes are an integral part of these financial statements. F-15 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 1. ORGANIZATION AND BUSINESS Aladdin Gaming Holdings, LLC, a Nevada limited company ("Gaming Holdings"), was established on December 1, 1997. Gaming Holdings was initially owned by Aladdin Gaming Enterprises, Inc. (25%), a Nevada corporation, Sommer Enterprises, LLC (72%), a Nevada limited-liability company, and GAI, LLC (3%), a Nevada limited- liability company. On February 26, 1998, (a) London Clubs Nevada, Inc., (LCNI) contributed $50.0 million for a 25% interest of Gaming Holdings common membership interests, (b) Sommer Enterprises, LLC contributed land for common membership interests in Gaming Holdings and (c) Aladdin Gaming Enterprises, Inc. contributed land, $7.0 million of predevelopment costs and $15.0 million in cash for common membership interests in Gaming Holdings. After such contributions, Sommer Enterprises, LLC owns 47% and LCNI owns 25% of Gaming Holdings with the remaining membership interests unchanged. Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings"), indirectly holds a majority interest in Gaming Holdings. The members of Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada limited-liability company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest in Holdings. Distributions shall be made in accordance with the respective ownership interests subject to the Company's operating agreement. Gaming Holdings, through its subsidiaries, plans to develop, construct and operate a new hotel and casino, the Aladdin Hotel and Casino (the "Aladdin"), as the centerpiece of an approximately 35 acre world-class resort, casino and entertainment complex in Las Vegas, Nevada. The resort will be located at the center of Las Vegas Boulevard ("the Strip"). 2. PRINCIPLES OF CONSOLIDATION AND PRESENTATION The consolidated financial statements include the accounts of Aladdin Gaming Holdings, LLC and its subsidiaries (collectively known as the "Company"). All significant intercompany accounts and transactions are eliminated in consolidation. Gaming Holding's wholly owned subsidiaries are Aladdin Capital Corp., a Nevada corporation, and Aladdin Gaming, LLC, a Nevada limited-liability company. 3. PREOPENING EXPENSES The Company expenses preopening costs in the period during which they were incurred. 4. INCOME TAXES The Company will file federal information tax returns only. Each member reports taxable income or loss on their respective tax returns. F-16 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (CONTINUED) 5. PURCHASE OF RESTRICTED MEMBERSHIP INTERESTS Certain members of Aladdin Gaming Holdings, LLC's executive management have purchased unvested restricted membership interests in 4.75% of Gaming Holdings, LLC. These membership interests will vest over approximately a four-year period beginning at the opening of the Aladdin Hotel and Casino. As of March 31, 1998, none of these membership interests had vested. 6. PRIVATE OFFERING On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and, together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises, Inc. consummated a private offering (the "Offering") under Rule 144A of the Securities Act of 1933. The private offering consisted of 221,500 units (the "Units"), each unit consisting of (i) $1,000 principal amount of maturity of 13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B non-voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc. The initial accreted value of the Notes was $519.40 per $1,000 principal amount at maturity of the Notes. The Notes will mature on March 1, 2010. The Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis) based on the initial accreted value, calculated from February 26, 1998. Cash interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash interest on the Notes will accrue at the rate of 13 1/2% per annum based on the accreted value at maturity of the Notes and will be payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2003. The Notes are secured by a first priority pledge of all amounts held in a segregated construction disbursement account (the "Note Construction Disbursement Account") and by a first priority pledge of all of the issued and outstanding Series A Preferred Interests of Aladdin Gaming, LLC held by Gaming Holdings. As of March 31, 1998, the Note Construction Disbursement Account comprised approximately $32.9 million remaining proceeds from the Offering, after the application of the net proceeds to repay certain previously existing indebtedness and certain fees and expenses. The Indenture to the Notes contains certain covenants that (subject to certain exceptions) restrict the ability of the Issuers and certain of their subsidiaries to, among other things: (i) make restricted payments; (ii) incur additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay dividends or make other distributions; (v) enter into mergers or consolidations; (vi) enter into certain transactions with affiliates or (vii) enter into new lines of business. 7. LONG-TERM DEBT On February 26, 1998, Aladdin Gaming, LLC entered into a $410.0 million Credit Agreement with various financial institutions and the Bank of Nova Scotia as the administrative agent for the lenders. The Credit Agreement consists of a Term A loan of $136.0 million, a Term B loan of $114.0 million and a Term C loan of $160.0 million. Both the Term B and Term C loans were funded by the lenders on February 26, 1998 and the funds are held by Aladdin Gaming, LLC for the future development of the Aladdin. Under the Credit Agreement, the funds cannot be utilized until the proceeds from the private offering are F-17 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (CONTINUED) 7. LONG-TERM DEBT (CONTINUED) completely exhausted and certain other conditions to disbursement have been satisfied. As of March 31, 1998, the Term A Loan has not been funded. The Term B loan is for a maximum term of 8.5 years from the date of funding and the Term C loan is for a maximum of 10 years. The Term B loan bears interest at rate of 7.883% until the funds are utilized for the project at which time the rate increases to 9.383%. The Term C loan bears interest at a rate of 8.485% until the funds are utilized for the project at which time the rate increases to 10.485%. In addition to quarterly interest payments, each loan has various principal payment requirements once the Aladdin is completed and operating. Except in the case of defaults, no principal repayments are required prior to the opening of the Aladdin. 8. RESTRICTED LAND Approximately 12.4 acres of land was deeded to Aladdin Gaming, LLC on February 26, 1998, with an obligation to transfer such land to Aladdin Bazaar, LLC at a future date. Aladdin Bazaar, LLC intends to construct and operate a themed entertainment shopping mall and a 4,800 space car parking facility (the "Mall Project"). The Mall Project is expected to be an integral part of the Aladdin entertainment complex. 9. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity sections of a statement of financial position, and is effective for financial statements issued for fiscal years beginning after December 15, 1997. The Company has adopted SFAS No. 130, during the three-month period ended March 31, 1998 and has determined that such adoption will not result in comprehensive income different from net income as reported in the accompanying financial statements. In June 1997, the FASB issued SFAS no. 131, "Disclosure About Segments of an Enterprise and Related Information." SFAS No. 131 establishes additional standards for segment reporting in financial statements and is effective for fiscal years beginning after December 15, 1997. The Company currently operates as one segment. F-18 ALADDIN CAPITAL CORP. (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 F-19 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Board of Directors and Stockholders of Aladdin Capital Corp.: We have audited the accompanying balance sheet of ALADDIN CAPITAL CORP. (a Nevada Corporation), as of December 31, 1997, and the related statements of stockholders' equity and cash flows for the period from inception (December 1, 1997) through December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aladdin Capital Corp., as of December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Las Vegas, Nevada January 15, 1998, except for Note 3, as to which the date is February 26, 1998 F-20 ALADDIN CAPITAL CORP. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET AS OF DECEMBER 31, 1997 ASSETS Cash................................................................................ $ 1,000 --------- Total Assets...................................................................... $ 1,000 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Common Stock, no par value, 2,500 shares authorized, issued and outstanding......... $ 1,000 --------- Total Liabilities and Stockholders' Equity........................................ $ 1,000 --------- ---------
The accompanying notes are an integral part of this financial statement. F-21 ALADDIN CAPITAL CORP. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) THROUGH DECEMBER 31, 1997
SHARES ISSUED AMOUNT TOTAL --------- --------- --------- BALANCE, December 1, 1997............................................................ -- $ -- $ -- Issuance of common stock............................................................. 2,500 1,000 1,000 --------- --------- --------- BALANCE, December 31, 1997........................................................... 2,500 $ 1,000 $ 1,000 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of this financial statement. F-22 ALADDIN CAPITAL CORP. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) THROUGH DECEMBER 31, 1997 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of stock............................................... $ 1,000 --------- INCREASE IN CASH AND CASH EQUIVALENTS............................................... 1,000 CASH AND CASH EQUIVALENTS, December 1, 1997......................................... -- --------- CASH AND CASH EQUIVALENTS, December 31, 1997........................................ $ 1,000 --------- ---------
The accompanying notes are an integral part of this financial statement. F-23 ALADDIN CAPITAL CORP. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 1. ORGANIZATION AND BUSINESS Aladdin Capital Corp., a Nevada corporation ("Capital"), was established on December 1, 1997. Capital is wholly owned by Aladdin Gaming Holdings, LLC, a Nevada limited-liability company ("Gaming Holdings"). Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings"), indirectly holds a majority interest in Gaming Holdings. The members of Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada limited-liability company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest in Holdings. Since the planned principal operations had not commenced as of December 31, 1997, Capital has accounted for its operations as a development stage company. There were no operations during the period from inception (December 1, 1997) through December 31, 1997 and hence no statement of income has been prepared. 2. INCOME TAXES Capital accounts for income taxes using the liability method as set forth in Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. Under the liability method, deferred taxes are provided based on the temporary differences between the financial reporting basis and the tax basis of Capital's assets and liabilities. There was no income tax expense or benefit recorded for the period from inception (December 1, 1997) through December 31, 1997 as Capital is a development stage company and operations have not yet commenced. 3. SUBSEQUENT EVENTS Private Offering On February 26, 1998, Gaming Holdings, Capital (together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises, Inc. consummated a private offering (the "Offering") under Rule 144A of the Securities Exchange Act of 1933. The private offering consisted of 221,500 units (the "Units"), each unit consisting of (i) $1,000 principal amount at maturity of 13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B non-voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc. The initial accreted value of the Notes is $519.40 per $1,000 principal amount at maturity of the Notes. The Notes will mature on March 1, 2010. The Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis) based on the initial accreted value, calculated from February 26, 1998. Cash interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash interest on the Notes will accrue at the rate of 13 1/2% per annum based on the accreted value at maturity of the Notes and will be payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2003. The Notes are secured by a first priority pledge of all amounts held in a segregated construction disbursement account (the "Note Construction Disbursement Account") and by a first priority pledge of all of the issued and outstanding Series A Preferred Interests of Gaming Holdings in Aladdin Gaming, F-24 3. SUBSEQUENT EVENTS (CONTINUED) LLC. The Note Construction Disbursement Account is comprised of approximately $35 million remaining proceeds from the Offering, after the application of the net proceeds to repay certain previously existing indebtedness and certain fees and expenses. The Indenture to the Notes contains certain covenants that (subject to certain exceptions) restrict the ability of the Issuers and certain of their subsidiaries to, among other thing: (i) make restricted payments; (ii) incur additional indebtedness and issue preferred stock, (iii) incur liens; (iv) pay dividends or make other distributions; (v) enter into mergers or consolidations; (vi) enter into certain transactions with affiliates or (vii) enter into new lines of business. F-25 ALADDIN CAPITAL CORP. (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS AS OF MARCH 31, 1998 F-26 ALADDIN CAPITAL CORP. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET AS OF MARCH 31, 1998 ASSETS Cash................................................................................ $ 1,000 --------- Total Assets.................................................................. $ 1,000 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Common Stock, no par value, 2,500 shares authorized, issued and outstanding......... $ 1,000 --------- Total Liabilities and Stockholders' Equity.................................... $ 1,000 --------- ---------
The accompanying notes are an integral part of these financial statements. F-27 ALADDIN CAPITAL CORP. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 1. ORGANIZATION AND BUSINESS Aladdin Capital Corp., a Nevada corporation ("Capital"), was established on December 1, 1997. Capital is wholly owned by Aladdin Gaming Holdings, LLC, a Nevada limited-liability company ("Gaming Holdings"). Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings"), indirectly holds a majority interest in Gaming Holdings. The members of Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada limited-liability company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest in Holdings. Capital was formed for the sole purpose of being a joint issuer of the 13 1/2% Senior Discount Notes due 2010 (See "Private Offering"). There were no operations or cash transactions during the period from December 31, 1997 through March 31, 1998 and hence no statement of income or cash flows has been prepared. 2. INCOME TAXES Capital accounts for income taxes using the liability method as set forth in Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. Under the liability method, deferred taxes are provided based on the temporary differences between the financial reporting basis and the tax basis of Capital's assets and liabilities. There was no income tax expense or benefit recorded for the period from inception (December 1, 1997) through March 31, 1998 as Capital is a development stage company and operations have not yet commenced. 3. PRIVATE OFFERING On February 26, 1998, Gaming Holdings, Capital (together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises, Inc. consummated a private offering (the "Offering") under Rule 144A of the Securities Act of 1933. The private offering consisted of 221,500 units (the "Units"), each unit consisting of (i) $1,000 principal amount of maturity of 13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B non-voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc. The initial accreted value of the Notes was $519.40 per $1,000 principal amount at maturity of the Notes. The Notes will mature on March 1, 2010. The Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis) based on the initial accreted value, calculated from February 26, 1998. Cash interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash interest on the Notes will accrue at the rate of 13 1/2% per annum based on the accreted value at maturity of the Notes and will be payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2003. The Notes are secured by a first priority pledge of all amounts held in a segregated construction disbursement account (the "Note Construction Disbursement Account") and by a first priority pledge of all of the issued and outstanding Series A Preferred Interests of Aladdin Gaming, LLC held by Gaming Holdings. As of March 31, 1998, the Note Construction Disbursement Account comprised approximately F-28 ALADDIN CAPITAL CORP. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 (CONTINUED) 3. PRIVATE OFFERING (CONTINUED) $32.9 million remaining proceeds from the Offering, after the application of the net proceeds to repay certain previously existing indebtedness and certain fees and expenses. The Indenture to the Notes contains certain covenants that (subject to certain exceptions) restrict the ability of the Issuers and certain of their subsidiaries to, among other things: (i) make restricted payments; (ii) incur additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay dividends or make other distributions; (v) enter into mergers or consolidations; (vi) enter into certain transactions with affiliates or (vii) enter into new lines of business. 4. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity sections of a statement of financial position, and is effective for financial statements issued for fiscal years beginning after December 15, 1997. The Company has adopted SFAS No. 130, during the three-month period ended March 31, 1998 and has determined that such adoption will not result in comprehensive income different from net income. In June 1997, the FASB issued SFAS no. 131, "Disclosure About Segments of an Enterprise and Related Information." SFAS No. 131 establishes additional standards for segment reporting in financial statements and is effective for fiscal years beginning after December 15, 1997. The Company currently operates as one segment. F-29 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 F-30 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Members of Aladdin Gaming, LLC: We have audited the accompanying balance sheet of ALADDIN GAMING, LLC (a Nevada Limited-Liability Company), as of December 31, 1997, and the related statements of members' equity and cash flows for the period from inception (January 24, 1997) through December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aladdin Gaming, LLC, as of December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Las Vegas, Nevada January 15, 1998, except for Note 4, as to which the date is February 26, 1998. F-31 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET AS OF DECEMBER 31, 1997 ASSETS Cash................................................................................ $ 5,650 --------- Total Assets...................................................................... $ 5,650 --------- --------- LIABILITIES AND MEMBERS' EQUITY Due to Aladdin Gaming Holdings, LLC................................................. $ 4,650 Members' equity..................................................................... 1,000 --------- Total Liabilities and Members' Equity............................................. $ 5,650 --------- ---------
The accompanying notes are an integral part of this financial statement. F-32 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) STATEMENT OF MEMBERS' EQUITY FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997) THROUGH DECEMBER 31, 1997 BALANCE, January 24, 1997........................................................... $ -- Members' contribution............................................................... 1,000 --------- BALANCE, December 31, 1997.......................................................... $ 1,000 --------- ---------
The accompanying notes are an integral part of this financial statement. F-33 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997) THROUGH DECEMBER 31, 1997 CASH FLOWS FROM FINANCING ACTIVITIES: Due to Aladdin Gaming Holdings, LLC............................................... $ 4,650 Members' contributions............................................................ 1,000 --------- INCREASE IN CASH AND CASH EQUIVALENTS............................................... 5,650 CASH AND CASH EQUIVALENTS, January 24, 1997......................................... --
--------- CASH AND CASH EQUIVALENTS, December 31, 1997........................................ $ 5,650 --------- ---------
The accompanying notes are an integral part of this financial statement. F-34 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 1. ORGANIZATION AND BUSINESS Aladdin Gaming, LLC, a Nevada limited-liability company (the "Company"), was established on January 24, 1997. The Company is wholly owned by Aladdin Gaming Holdings, LLC, a Nevada limited-liability company ("Gaming Holdings"). Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings"), indirectly holds a majority interest in Gaming Holdings. The members of Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada limited-liability company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest in Holdings. The Company term is 100 years. Distributions shall be made in accordance with the respective ownership interests subject to the Company's operating agreement. Since the planned principal operations had not commenced as of December 31, 1997, the Company has accounted for its operations as a development stage company. There were no operations during the period from inception (January 24, 1997) through December 31, 1997 and hence no statement of income has been prepared. 2. INCOME TAXES The Company will file federal information tax returns only. Each member reports taxable income or loss on their respective tax returns. 3. COMMITMENTS The Company has entered into a consulting agreement with GAI, LLC to render consulting services as are reasonably requested by the Board of the Company until June 30, 2002. The Company has entered into a commitment letter with an equipment finance company for provision of approximately $80.0 million of financing to obtain gaming and other specified equipment. The financing will be comprised of $60.0 million of operating leases and $20.0 million in loans. The Company has entered into a commitment letter with certain bank lenders for the provision of a bank credit facility. The facility will consist of three separate term loans (Term Loan A, B and C) of $136.0 million, $114.0 million and $160.0 million, respectively. Term A, B and C Loans will mature seven, eight and one-half and ten years after their respective borrowing dates, respectively. 4. SUBSEQUENT EVENTS Private Offering On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and, together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises, Inc. consummated a private offering (the "Offering") under Rule 144A of the Securities Exchange Act of 1933. The private offering consisted of 221,500 units (the "Units"), each unit consisting of (i) $1,000 principal amount at maturity of 13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B non-voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc. The initial accreted value of the Notes is $519.40 per $1,000 principal amount at maturity of the Notes. The Notes will mature on March 1, 2010. The Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis) based on the initial accreted value, calculated from February 26, 1998. Cash interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash interest on the Notes will F-35 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997 4. SUBSEQUENT EVENTS (CONTINUED) accrue at the rate of 13 1/2% per annum based on the accreted value at maturity of the Notes and will be payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2003. The Notes are secured by a first priority pledge of all amounts held in a segregated construction disbursement account (the "Note Construction Disbursement Account") and by a first priority pledge of all of the issued and outstanding Series A Preferred Interests of Gaming Holdings in the Company. The Note Construction Disbursement Account is comprised of approximately $35 million remaining proceeds from the Offering, after the application of the net proceeds to repay certain previously existing indebtedness and certain fees and expenses. The Indenture to the Notes contains certain covenants that (subject to certain exceptions) restrict the ability of the Issuers and certain of their subsidiaries to, among other things: (i) make restricted payments; (ii) incur additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay dividends or make other distributions; (v) enter into mergers or consolidations; (vi) enter into certain transactions with affiliates or (vii) enter into new lines of business. Equity Contributions Gaming Holdings contributed land appraised at $150.0 million, approximately $42 million in cash from a contribution from London Clubs Nevada Inc. ("LCNI") and $7.0 million of predevelopment costs in exchange for 100% of the common membership interests in the Company. Gaming Holdings also contributed $115 million in cash, consisting of the net proceeds of the sale of the Units and approximately $8 million from LCNI to the Company in exchange for 100% of the Series A Preferred Interests. Bank Indebtedness On February 26, 1998, the Company entered into the bank credit facility for $410 million as discussed above in Note 3. F-36 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS AS OF MARCH 31, 1998 F-37 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET AS OF MARCH 31, 1998
MARCH 31, 1998 -------------- (UNAUDITED) ASSETS Cash.............................................................................................. $ 405,314 Property and equipment: Land............................................................................................ 33,407,500 Furniture and equipment......................................................................... 546,976 Construction in progress........................................................................ 13,492,315 Capitalized interest............................................................................ 398,160 -------------- Total property and equipment................................................................ 47,844,951 -------------- Other assets: Due from Parent (Aladdin Gaming Holdings, LLC).................................................. 32,882,836 Restricted cash................................................................................. 275,405,744 Restricted land................................................................................. 6,842,500 Other assets.................................................................................... 1,964,434 Debt issuance costs, net of accumulated amortization of $167,849 as of March 31, 1998........... 26,004,300 -------------- Total other assets.......................................................................... 343,099,814 -------------- Total assets...................................................................................... $ 391,350,079 -------------- -------------- LIABILITIES AND MEMBER'S EQUITY Current liabilities: Current maturities of long-term debt............................................................ $ 187,324 Payable to related parties...................................................................... 359,384 Obligation to transfer land..................................................................... 6,842,500 Accrued expenses................................................................................ 3,627,849 -------------- Total current liabilities................................................................... 11,017,057 -------------- Long-term debt.................................................................................... 274,314,429 Members' equity: Preferred membership interest................................................................... 115,047,100 Common membership interest...................................................................... 3,333,563 Accumulated Deficit............................................................................. (12,362,070) -------------- Total members' equity....................................................................... 106,018,593 -------------- Total liabilities and members' equity....................................................... $ 391,350,079 -------------- --------------
The accompanying notes are an integral part of these financial statements. F-38 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997) THROUGH MARCH 31, 1998
MARCH 31, 1998 FOR THE PERIOD -------------- JANUARY 24, 1997 (INCEPTION) (UNAUDITED) THROUGH MARCH 31, 1998 ------------------ (UNAUDITED) Pre-opening costs............................................................. $ 11,462,928 $ 11,462,928 Other (income) expense: Interest income............................................................. (1,584,938) (1,584,938) Interest expense............................................................ 2,882,240 2,882,240 Less: Interest capitalized.................................................. (398,160) (398,160) -------------- ------------------ Total other (income) expense.............................................. 899,142 899,142 -------------- ------------------ Net loss...................................................................... $(12,362,070) $ (12,362,070) -------------- ------------------ -------------- ------------------
The accompanying notes are an integral part of these financial statements. F-39 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) STATEMENT OF MEMBERS' EQUITY FOR THE PERIOD FROM DECEMBER 31, 1997 THROUGH MARCH 31, 1998 (UNAUDITED) BALANCE, DECEMBER 31, 1997.................................................... $ 1,000 Net loss...................................................................... (12,362,070) Member's contribution -- preferred interest................................... 115,047,100 Member's contribution -- common interest...................................... 3,332,563 ----------- BALANCE, MARCH 31, 1998....................................................... 106,018,593 ----------- -----------
The accompanying notes are an integral part of these financial statements. F-40 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM INCEPTION (JANUARY 24, 1997) THROUGH MARCH 31, 1998
FOR THE PERIOD JANUARY FOR THE THREE MONTHS 24, ENDED 1997 (INCEPTION) THROUGH MARCH 31, 1998 MARCH 31, 1998 (UNAUDITED) (UNAUDITED) -------------------- ------------------------ Cash flows from operating activities: Net loss....................................................... $ (12,362,070) $ (12,362,070) Increase in other assets....................................... (1,964,434) (1,964,434) Amortization of debt costs..................................... 167,849 167,849 Increase in accrued expenses................................... 3,627,849 3,627,849 Increase in accrued fee to related party....................... 359,384 359,384 -------------------- ------------- Net cash used in operating activities............................ (10,171,422) (10,171,422) -------------------- ------------- Cash flows from investing activities: Payments for construction in progress and capitalized interest..................................................... (6,890,475) (6,890,475) Increase in restricted cash.................................... (275,405,744) (275,405,744) -------------------- ------------- Net cash used in investing activities............................ (282,296,219) (282,296,219) -------------------- ------------- Cash flows from financing activities: Proceeds from long-term debt................................... 274,000,000 274,000,000 Repayment of long-term debt.................................... (45,223) (45,223) Debt issuance costs............................................ (26,172,149) (26,172,149) Member's contributions......................................... 77,972,163 77,973,163 Payable/(Receivable) from/to parent (Aladdin Gaming Holdings, LLC)......................................................... (33,887,486) (33,882,836) -------------------- ------------- Net cash provided by financing activities........................ 292,867,305 292,872,955 -------------------- ------------- Net increase in cash............................................. 399,664 405,314 Cash at the beginning of the period.............................. 5,650 -- -------------------- ------------- Cash at the end of the period.................................... $ 405,314 $ 405,314 -------------------- ------------- -------------------- ------------- Cash paid for interest, net of amount capitalized................ $ 364,756 $ 364,756 Non-cash investing and financing activities: Member's contributions -- book value Land......................................................... 33,407,500 33,407,500 Construction in progress..................................... 7,000,000 7,000,000 Equipment acquired equal to assumption of debt................. 546,976 546,976
The accompanying notes are an integral part of these financial statements. F-41 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 1. ORGANIZATION AND BUSINESS Aladdin Gaming, LLC, a Nevada limited company (the "Company"), was established on January 24, 1997. The Company is wholly owned by Aladdin Gaming Holdings, LLC, a Nevada limited-liability company ("Gaming Holdings"). Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings"), indirectly holds a majority interest in Gaming Holdings. The members of Holdings are the Trust under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada limited-liability company ("GW), a wholly owned subsidiary of Trust Company of the West ("TCW), which holds a 5% interest in Holdings. The Company term is 100 years. Distributions shall be made in accordance with the respective ownership interest subject to the Company's operating agreement. The Company plans to develop, construct and operate a new hotel and casino, the Aladdin Hotel and Casino (the "Aladdin"), as the centerpiece of an approximately 35 acre world-class resort, casino and entertainment complex in Las Vegas, Nevada. The resort will be located at the center of Las Vegas Boulevard ("the strip"). 2. PRE-OPENING EXPENSES The Company expenses pre-opening costs in the period during which they were incurred. 3. INCOME TAXES The Company will file federal information tax returns only. Each member reports taxable income or loss on their respective tax returns. 4. COMMITMENTS The Company has entered into a consulting agreement with GAI, LLC to render consulting services as are reasonably requested by the Board of the Company until June 30, 2002. The Company has entered into a commitment letter with an equipment finance company for provision of approximately $80.0 million of financing to obtain gaming and other specified equipment. The financing will be comprised of $60.0 million of operating leases and $20.0 million in loans. 5. PRIVATE OFFERING On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and, together with Gaming Holdings, the "Issuers") and Aladdin Gaming Enterprises, Inc. consummated a private offering (the "Offering") under Rule 144A of the Securities Act of 1933. The private offering consisted of 221,500 units (the "Units"), each unit consisting of (i) $1,000 principal amount of maturity of 13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B non- voting Common Stock, no par value, of Aladdin Gaming Enterprises, Inc. The initial accreted value of the Notes was $519.40 per $1,000 principal amount at maturity of the Notes. The Notes will mature on March 1, 2010. The Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis) based on the initial accreted value, calculated from February 26, 1998. Cash F-42 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 5. PRIVATE OFFERING (CONTINUED) interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash interest on the Notes will accrue at the rate of 13 1/2% per annum based on the accreted value at maturity of the Notes and will be payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2003. The Notes are secured by a first priority pledge of all amounts held in a segregated construction disbursement account (the "Note Construction Disbursement Account") and by a first priority pledge of all of the issued and outstanding Series A Preferred Interests of Aladdin Gaming, LLC held by Gaming Holdings. As of March 31, 1998, the Note Construction Disbursement Account comprised approximately $32.9 million remaining proceeds from the Offering, after the application of the net proceeds to repay certain previously existing indebtedness and certain fees and expenses. This amount is reflected on the Company's balance sheet as Due from Parent (Aladdin Gaming Holdings, LLC), as the funds are held by the parent company until disbursed. The Indenture to the Notes contains certain covenants that (subject to certain exceptions) restrict the ability of the Issuers and certain of their subsidiaries to, among other things: (i) make restricted payments; (ii) incur additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay dividends or make other distributions; (v) enter into mergers or consolidations; (vi) enter into certain transactions with affiliates or (vii) enter into new lines of business. 6. LONG-TERM DEBT On February 26, 1998, Aladdin Gaming, LLC entered into a $410.0 million Credit Agreement with various financial institutions and the Bank of Nova Scotia as the administrative agent for the lenders. The Credit Agreement consists of a Term A loan of $136.0 million, a Term B loan of $114.0 million and a Term C loan of $160.0 million. Both the Term B and Term C loans were funded by the lenders on February 26, 1998 and the funds are held by Aladdin Gaming, LLC for the future development of the Aladdin. Under the Credit Agreement, the funds cannot be utilized until the proceeds from the private offering are completely exhausted and certain other conditions to disbursement have been satisfied. As of March 31, 1998, the Term A Loan has not been funded. The Term B loan is for a maximum term of 8.5 years from the date of funding and the Term C loan is for a maximum of 10 years. The Term B loan bears interest at rate of 7.883% until the funds are utilized for the project at which time the rate increases to 9.383%. The Term C loan bears interest at a rate of 8.485% until the funds are utilized for the project at which time the rate increases to 10.485%. In addition to quarterly interest payments, each loan has various principal payment requirements once the Aladdin is completed and operating. Except in the case of defaults, no principal repayments are required prior to the opening of the Aladdin. 7. RESTRICTED LAND Approximately 12.4 acres of land was deeded to the Company on February 26, 1998, with an obligation to transfer such land to Aladdin Bazaar, LLC at a future date. Aladdin Bazaar, LLC intends to construct and operate, a themed entertainment shopping mall and a 4,800-space car parking facility (the "Mall Project"). The Mall Project is expected to be an integral part of the Aladdin entertainment complex. F-43 ALADDIN GAMING, LLC (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 8. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity sections of a statement of financial position, and is effective for financial statements issued for fiscal years beginning after December 15, 1997. The Company has adopted SFAS No. 130, during the three-month period ended March 31, 1998 and has determined that such adoption will not result in comprehensive income different from net income as reported in the accompanying financial statements. In June 1997, the FASB issued SFAS no. 131, "Disclosure About Segments of an Enterprise and Related Information." SFAS No. 131 establishes additional standards for segment reporting in financial statements and is effective for fiscal years beginning after December 15, 1997. The Company currently operates as one segment. F-44 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 F-45 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Board of Directors and Stockholders of Aladdin Gaming Enterprises, Inc.: We have audited the accompanying balance sheet of ALADDIN GAMING ENTERPRISES, INC. (a Nevada Corporation), as of December 31, 1997, and the related statements of stockholders' equity and cash flows for the period from inception (December 3, 1997) through December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aladdin Gaming Enterprises, Inc., as of December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Las Vegas, Nevada January 15, 1998, except for Note 4, as to which the date is February 26, 1998. F-46 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET AS OF DECEMBER 31, 1997 ASSETS Cash................................................................................ $ 669 Investment in subsidiary............................................................ 331 --------- Total Assets.................................................................... $ 1,000 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Common Stock, no par value, 2,500 shares authorized, 1 share issued and outstanding....................................................................... $ 1,000 --------- Total Liabilities and Stockholders' Equity...................................... $ 1,000 --------- ---------
The accompanying notes are an integral part of this financial statement. F-47 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997) THROUGH DECEMBER 31, 1997
SHARES ISSUED AMOUNT TOTAL --------- --------- --------- BALANCE, December 3, 1997............................................................ -- $ -- $ -- Issuance of common stock............................................................. 1 1,000 1,000 --------- --------- --------- BALANCE, December 31, 1997........................................................... 1 $ 1,000 $ 1,000 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of this financial statement. F-48 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997) THROUGH DECEMBER 31, 1997 CASH FLOWS USED FOR INVESTING ACTIVITIES: Investment in subsidiary........................................................... $ (331) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of stock................................................ 1,000 --------- INCREASE IN CASH AND CASH EQUIVALENTS................................................ 669 CASH AND CASH EQUIVALENTS, December 3, 1997.......................................... -- --------- CASH AND CASH EQUIVALENTS, December 31, 1997......................................... $ 669 --------- ---------
The accompanying notes are an integral part of this financial statement. F-49 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 1. ORGANIZATION AND BUSINESS Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Enterprises"), was established on December 3, 1997. Enterprises holds a 25% interest in Aladdin Gaming Holdings, LLC, and is wholly owned by Sommer Enterprises, LLC, a Nevada limited-liability company ("Sommer Enterprises"). Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings"), holds a majority interest in Sommer Enterprises. The members of Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada limited-liability company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest in Holdings. Enterprises' interest in Aladdin Gaming Holdings, LLC has been accounted for under the equity method. Since the planned principal operations had not commenced as of December 31, 1997, Enterprises has accounted for its operations as a development stage company. There were no operations during the period from inception (December 3, 1997) through December 31, 1997 and hence no statement of income has been prepared. 2. INCOME TAXES Enterprises accounts for income taxes using the liability method as set forth in Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. Under the liability method, deferred taxes are provided based on the temporary differences between the financial reporting basis and the tax basis of Enterprises' assets and liabilities. There was no income tax expense or benefit recorded for the period from inception (December 3, 1997) through December 31, 1997 as Enterprises is a development stage company and operations have not yet commenced. 3. AGREEMENTS Enterprises will enter into a Shareholders' Agreement with the Sommer Trust providing that the Sommer Trust shall have the right to elect the Board of Directors of Enterprises and otherwise manage the day to day affairs of Enterprises unless and until a qualified public offering occurs or the Sommer Trust no longer owns any equity in Enterprises. 4. SUBSEQUENT EVENTS Private Offerings On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and, together with Gaming Holdings, the "Issuers") and Enterprises consummated a private offering (the "Offering") under Rule 144A of the Securities Exchange Act of 1933. The private offering consisted of 221,500 units (the "Units"), each unit consisting of (i) $1,000 principal amount at maturity of 13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B non-voting Common Stock, no par value, of Enterprises. F-50 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 (CONTINUED) 4. SUBSEQUENT EVENTS (CONTINUED) The initial accreted value of the Notes is $519.40 per $1,000 principal amount at maturity of the Notes. The Notes will mature on March 1, 2010. The Notes will accrete at 13 1/2% (computed on a semi-annual bond equivalent basis) based on the initial accreted value, calculated from February 26, 1998. Cash interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash interest on the Notes will accrue at the rate of 13 1/2% per annum based on the accreted value at maturity of the Notes and will be payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2003. The Notes are secured by a first priority pledge of all amounts held in a segregated construction disbursement account (the "Note Construction Disbursement Account") and by a first priority pledge of all of the issued and outstanding Series A Preferred Interests of Gaming Holdings in Aladdin Gaming, LLC. The Note Construction Disbursement Account is comprised of approximately $35 million remaining proceeds from the Offering, after the application of the net proceeds to repay certain previously existing indebtedness and certain fees and expenses. The Indenture to the Notes contains certain covenants that (subject to certain exceptions) restrict the ability of the Issuers and certain of their subsidiaries to, among other things: (i) make restricted payments; (ii) incur additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay dividends or make other distributions; (v) enter into mergers or consolidations; (vi) enter into certain transactions with affiliates or (vii) enter into new lines of business. Equity Contributions On February 26, 1998, Sommer Enterprises, LLC contributed a portion of land and $7.0 million of predevelopment costs in exchange for 100% of the Class A Common Stock in Enterprises. Enterprises contributed the portion of land, the $7.0 million of predevelopment costs and the net proceeds (approximately $15 million) allocable from the sale of the Warrants to Gaming Holdings in exchange for 25% of the common membership interests in Gaming Holdings. F-51 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTS AS OF MARCH 31, 1998 F-52 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET MARCH 31, 1998
MARCH 31, 1998 (UNAUDITED) -------------- ASSETS Cash.............................................................................................. $ 669 Investment in unconsolidated Affiliate............................................................ 24,235,924 -------------- $ 24,236,593 -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Common Stock, Class A, no par value, 2,000,000 shares authorized, 1,107,501 shares issued and outstanding as of March 31, 1998................................................................ $ 4,416,734 Common Stock, Class B, no par value and non- voting 8,000,000 shares authorized, 2,215,000 shares issued and outstanding as of March 31, 1998..................................................... 8,831,468 Additional Paid-in Capital........................................................................ 15,000,000 Accumulated Deficit............................................................................... (4,011,609) -------------- $ 24,236,593 -------------- --------------
The accompanying notes are an integral part of these financial statements. F-53 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997) THROUGH MARCH 31, 1998
FOR THE PERIOD DECEMBER 3, 1997 (INCEPTION) THROUGH MARCH 31, 1998 MARCH 31, 1998 -------------- ------------------ (UNAUDITED) (UNAUDITED) Equity in loss of unconsolidated affiliate.................................... $ (3,430,359) $ (3,430,359) Income tax expense (benefit).................................................. -- -- -------------- ------------------ Net loss.................................................................. $ (3,430,359) $ (3,430,359) -------------- ------------------ Basic loss per share.......................................................... $ (2.27) $ (2.27) Shares used in per share calculation.......................................... 1,513,584 1,513,584 Dilutive loss per share....................................................... $ (2.27) $ (2.27) Shares used in per share calculation.......................................... 1,513,584 1,513,584
The accompanying notes are an integral part of these financial statements. F-54 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM DECEMBER 31, 1997 THROUGH MARCH 31, 1998
ADDITIONAL COMMON STOCK COMMON STOCK PAID RETAINED CLASS A CLASS B IN CAPITAL EARNINGS TOTAL -------------- -------------- -------------- ------------- ------------- BALANCE, DECEMBER 31, 1997......... $ 1,000 $ -- $ -- $ -- $ 1,000 Net loss........................... -- -- -- (3,430,359) (3,430,359) Issuance of Class A common stock, 1,107,500 shares issued.......... 4,415,734 -- -- -- 4,415,734 Issuance of Class B common stock, 2,215,000 shares issued.......... -- 8,831,468 -- -- 8,831,468 Issuance of Warrants to purchase Class B common stock, 2,215,000 Warrants issued.................. -- -- 15,000,000 -- 15,000,000 Equity costs from unconsolidated affiliate........................ -- -- -- (581,250) (581,250) -------------- -------------- -------------- ------------- ------------- BALANCE, MARCH 31, 1998............ $ 4,416,734 $ 8,831,468 $ 15,000,000 $ (4,011,609) $ 24,236,593 -------------- -------------- -------------- ------------- ------------- -------------- -------------- -------------- ------------- -------------
The accompanying notes are an integral part of these financial statements. F-55 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997) THROUGH MARCH 31, 1998
(UNAUDITED) (UNAUDITED) FOR THE PERIOD FOR THE THREE DECEMBER 3, 1997 MONTHS ENDED (INCEPTION) THROUGH MARCH 31, 1998 MARCH 31, 1998 -------------- ------------------- Cash Flows used for Investing Activities: Investment in unconsolidated affiliate...................................... $(15,000,000) $ (331) Cash Flows From Financing Activities: Proceeds from the issuance of stock......................................... -- 1,000 Proceeds from the Issuance of Warrants...................................... 15,000,000 -- -------------- ------ Increase in Cash and Cash Equivalents......................................... -- 669 Cash on Cash Equivalents at Beginning of Period............................... 669 -- -------------- ------ Cash and Cash Equivalents at End of Period.................................... $ 669 $ 669 -------------- ------ -------------- ------ Non-cash investing and financing activities: Equity Contributions -- Non cash............................................ 13,247,202 --
The accompanying notes are an integral part of these financial statements. F-56 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 1. ORGANIZATION AND BUSINESS Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Enterprises"), was established on December 3, 1997. Enterprises holds a 25% interest in Aladdin Gaming Holdings, LLC ("Gaming Holdings") and is wholly owned by Sommer Enterprises, LLC, a Nevada limited- liability company ("Sommer Enterprises"). Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings"), holds a majority interest in Sommer Enterprises. The members of Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada limited-liability company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest in Holdings. Enterprises' interest in Aladdin Gaming Holdings, LLC has been accounted for under the equity method. Enterprises has no other business or activities other than its investment in Aladdin Gaming Holdings, LLC which is a development stage company. Aladdin Gaming Holdings, LLC through its subsidiaries plans to develop, construct and operate a new hotel and casino, the Aladdin Hotel and Casino (the "Aladdin") as the centerpiece of an approximately 35 acre world-class resort, casino and entertainment complex in Las Vegas, Nevada. 2. INCOME TAXES Enterprises accounts for income taxes using the liability method as set forth in the Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. Under the liability method, deferred taxes are provided based on the temporary differences between the financial reporting basis and the tax basis of Enterprises' assets and liabilities. There was no income tax expense or benefit recorded for the period from inception (December 3, 1997) through March 31, 1998 as Enterprises is a development stage company and the realization of any deferred tax asset is uncertain. 3. AGREEMENTS Enterprises will enter into a Shareholders' Agreement with the Sommer Trust providing that the Sommer Trust shall have the right to elect the Board of Directors of Enterprises and otherwise manage the day to day affairs of Enterprises unless and until a qualified public offering occurs or the Sommer Trust no longer owns any equity in Enterprises. 4. PRIVATE OFFERINGS On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" and, together with Gaming Holdings, the "Issuers") and Enterprises consummated a private offering (the "Offering") under Rule 144A of the Securities Act of 1933. The private offering consisted of 221,500 units (the "Units"), each unit consisting of (i) $1,000 principal amount at maturity of 13 1/2% Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 10 Warrants (the "Warrants") to purchase 10 shares of Class B non-voting Common Stock, no par value, of Enterprises. F-57 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1998 4. PRIVATE OFFERINGS (CONTINUED) The initial accreted value of the Notes was $519.40 per $1,000 principal amount at maturity of the Notes. The Notes will mature on March 1, 2010. The Notes will, accrete at 13 1/2% (computed on a semi-annual bond equivalent basis) based on the initial accreted value, calculated from February 26, 1998. Cash interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash interest on the Notes will accrue at the rate of 13 1/2% per annum based on the accreted value at maturity of the Notes and will be payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2003. $15.0 million of the offering proceeds were allocated to the Warrants based on the estimated fair market value of the Warrants. The Notes are secured by a first priority pledge of all amounts held in a segregated construction disbursement account (the "Note Construction Disbursement Account") and by a first priority pledge of all of the issued and outstanding Series A Preferred Interests in Aladdin Gaming, LLC held by Gaming Holdings. The Indenture to the Notes contains certain covenants that (subject to certain exceptions) restrict the ability of the Issuers and certain of their subsidiaries to, among other things: (i) make restricted payments, (ii) incur additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay dividends or make other distributions; (v) enter into mergers or consolidations; (vi) enter into certain transactions with affiliates or (vii) enter into new lines of business. 5. EQUITY CONTRIBUTIONS On February 26, 1998, Sommer Enterprises, LLC contributed a portion of land and $7.0 million of predevelopment costs in exchange for 100% of the Class A Common Stock in Enterprises. Enterprises contributed the portion of land, the $7.0 million of predevelopment costs and the net proceeds $15.0 million allocable from the sale of the Warrants to Gaming Holdings in exchange for 25% of the common membership interests in Gaming Holdings. 6. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity sections of a statement of financial position, and is effective for financial statements issued for fiscal years beginning after December 15, 1997. Enterprises has adopted SFAS No. 130, during the three-month period ended March 31, 1998 and has determined that such adoption will not result in comprehensive income different from net income as reported in the accompanying financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." SFAS No. 131 establishes additional standards for segment reporting in financial statements and is effective for fiscal years beginning after December 15, 1997. Enterprises currently operates as one segment. F-58 ANNEX A CERTAIN HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF LONDON CLUBS London Clubs owns 25% of Holdings and, as described on pages 24 and 25, has entered into the Bank Completion Guaranty, the Noteholder Completion Guaranty and the Keep-Well Agreement in connection with the construction of the Aladdin. Following is certain historical consolidated financial information of London Clubs. The Registrant does not intend to provide this information in its periodic filings following this registration statement. The 1996 and 1997 full year financial information for London Clubs set forth herein has been extracted from the 1997 London Clubs' financial statements included on pages A-4 to A-33. The 1995 financial information for London Clubs set forth herein has been extracted from the published audited accounts of London Clubs. The unaudited interim financial information for the 6 months ended September 28, 1997 set forth herein has been extracted from the unaudited interim financial statements of London Clubs included on pages A-34 to A-42. The interim financial statements are unaudited; however in the opinion of management, such financial statements include all adjustments necessary to present the financial statements on a basis consistent with the audited annual accounts. Potential investors should note that such information has been calculated and presented in accordance with United Kingdom generally accepted accounting principles, which are not consistent with, and materially differ from, United States generally accepted accounting principles. Such information is expressed in thousands of United Kingdom pounds sterling (L'000). INDEX TO HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF LONDON CLUBS INTERNATIONAL, PLC Consolidated Profit and Loss Data for the 52 weeks ended March 26, 1995 and March 24, 1996, the 53 weeks ended March 30, 1997 and the 26 weeks ended September 28, 1997 (unaudited)........................................................................ A-2 Consolidated Balance Sheet Data at March 26, 1995, March 24, 1996, March 30, 1997 and September 28, 1997 (unaudited)..................................................... A-3 Directors' Report and Accounts for the 53 weeks ended March 30, 1997................. A-4 Interim Report 1997.................................................................. A-34
A-1 LONDON CLUBS INTERNATIONAL, PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT (IN THOUSANDS OF POUNDS STERLING)
(UNAUDITED) 26 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED SEPTEMBER 28, MARCH 26, 1995 MARCH 24, 1996 MARCH 30, 1997 1997 -------------- -------------- -------------- -------------- Turnover........................................ L155,675 L167,357 L179,489 L85,697 Operating Costs................................. (123,627) (133,078) (143,092) (71,385) -------------- -------------- -------------- ------- Operating profit................................ 32,048 34,279 36,397 14,312 Net interest payable............................ (2,643) (1,007) (1,154) (843) -------------- -------------- -------------- ------- Profit on ordinary activities before taxation... 29,405 33,272 35,243 13,469 Tax on ordinary activities...................... (11,119) (11,985) (12,588) (3,608) -------------- -------------- -------------- ------- Profit on ordinary activities after taxation.... 18,286 21,287 22,655 9,861 Dividends paid and proposed..................... (9,465) (10,970) (11,679) (3,856) -------------- -------------- -------------- ------- Transfer to reserves............................ L8,821 L10,317 L10,976 L6,005 -------------- -------------- -------------- ------- -------------- -------------- -------------- -------
A-2 LONDON CLUBS INTERNATIONAL, PLC CONSOLIDATED BALANCE SHEET (IN THOUSANDS OF POUNDS STERLING)
(UNAUDITED) AT MARCH 26, AT MARCH 24, AT MARCH 30, AT SEPTEMBER 28, 1995 1996 1997 1997 ------------ ------------ ------------ ---------------- Fixed assets......................................... L137,284 L160,191 L224,312 L237,617 Current assets: Stocks............................................. 934 1,158 1,353 1,333 Debtors............................................ 5,095 8,523 11,818 17,923 Cash at bank and in hand........................... 31,743 29,886 34,872 38,718 ------------ ------------ ------------ -------- Total Current Assets............................. 37,772 39,567 48,043 57,974 Creditors (amounts falling due within one year)...... (53,975) (51,369) (62,287) (50,489) ------------ ------------ ------------ -------- Net current assets/(liabilities)................... (16,203) (11,802) (14,244) 7,485 Total assets less current liabilities.............. 121,081 148,389 210,068 245,102 ------------ ------------ ------------ -------- Creditors (amounts falling due after one year)....... (16,292) (32,722) (24,816) (48,059) Provisions for liabilities and charges............... (113) (517) (317) (647) ------------ ------------ ------------ -------- L104,676 L115,150 L184,935 L196,396 ------------ ------------ ------------ -------- ------------ ------------ ------------ -------- Capital and reserves: Called up share capital............................ 3,538 3,539 7,078 7,345 Share premium...................................... 78,014 78,067 74,528 80,103 Other reserves..................................... 30,337 30,337 91,088 91,088 Profit and loss account............................ (7,213) 3,207 12,241 17,860 ------------ ------------ ------------ -------- L104,676 L115,150 L184,935 L196,396 ------------ ------------ ------------ -------- ------------ ------------ ------------ --------
A-3 LONDON CLUBS INTERNATIONAL PLC DIRECTORS' REPORT AND ACCOUNTS for the 53 weeks ended 30 March 1997 Registered number: 2862479 A-4 DIRECTOR'S REPORT The directors have pleasure in presenting their report and the audited financial statements of London Clubs International plc and its subsidiary undertakings for the 53 weeks ended 30 March 1997. PRINCIPAL ACTIVITIES The Group's principal activities are the operation of casinos. The Group operates seven casinos in London, one casino in Cannes, France and three casinos in Egypt. In addition, the Group has management concessions in respect of casinos on three cruise liners. On 4 December 1996, the Casino du Liban in Beirut opened for which the Group has a management contract. A non binding letter of intent between the Company and the Aladdin Gaming Corporation was signed in January 1997 in relation to a proposed investment by the Group in the Aladdin hotel and casino complex in Las Vegas. On 1 May 1997, the Company completed the purchase of the freehold of 50 St James's Street, London W1, for a total consideration of L13.5 million. RESULTS AND DIVIDENDS The Group's profit on ordinary activities after taxation was L22,655,000 (1996 L21,287,000). The directors propose a final dividend of 5.625 pence net per ordinary share amounting to L7,260,000. This, together with the interim dividend of 2.625 pence net per ordinary share paid on 31 January 1997, makes a total of 8.25 pence net per ordinary share for the year. The final dividend, if approved, will be paid on 31 July 1997 to shareholders on the register at the close of business on 6 June 1997. The retained profit transferred to reserves amounted to L10,976,000 (1996 L10,317,000). DIRECTORS The directors who have served since 25 March 1996 are as follows: Sir Timothy Kitson A L Goodenough Sir Gordon Booth (retired 5 December 1996) P Byrne G B C Hardy R R C Hobbs T Hodgson R A Wood At the forthcoming annual general meeting Mr. A L Goodenough and Mr. G B C Hardy retire by rotation pursuant to the Articles of Association and, being eligible, offer themselves for re-election. Both Mr. Goodenough and Mr. Hardy have service agreements with the Company which are terminable in two years' notice. The interests of the directors in the share capital of the Company are set out in note 6 to the financial statements. During their period in office, no director has had a material interest, directly or indirectly, at any time during the year in any contract significant to the business of the Group. A-5 DIRECTOR'S REPORT (CONTINUED) SUBSTANTIAL INTERESTS As at 18 May 1997 the Company had received notification of the following interests exceeding 5 percent of the Company's share capital: Mercury Asset Management plc.......... 19.03% Schroder Investment Management Limited............................... 12.52% Jupiter Asset Management Limited...... 7.68%
SHARE CAPITAL Changes to the share capital of the Company are set out in note 17 to the financial statements. Approval will be sought at the forthcoming annual general meeting to renew the authority granted to the directors to allot unissued ordinary shares in the capital of the Company and to obtain authority to allot shares for cash otherwise than to existing shareholders pro-rata to their holdings. Resolution 6 will renew the directors' authority to allot relevant securities up to an aggregate nominal amount of L2,335,698 representing 33 per cent of the current issued share capital (being 46,713,960 ordinary shares). Resolution 7 is a Special Resolution to renew the directors' authority under Section 95 of the Companies Act 1985 to allot a limited number of shares for cash up to an aggregate nominal amount of L355,893 representing 5 percent of the current issued ordinary share capital of the Company (being 7,077,875 ordinary shares). The proposed authorities conform with the guidelines issued by the institutional investment protection bodies to ensure that existing shareholders' interests are safeguarded and, if granted, will expire at the earlier of the conclusion of the annual general meeting in 1998 and the date fifteen months from the date the requisite authorities are granted. SHARE BASED INCENTIVE SCHEMES It is proposed to introduce a share based long term performance plan for executive directors and senior management of the Group and a savings related share scheme for all UK employees. Details of the two schemes, together with the notice convening the necessary extraordinary general meeting to seek shareholders' approval thereof will be sent to shareholders in due course. SUPPLIER PAYMENT TERMS It is the Group's policy and practice to agree appropriate payment terms and conditions individually with its suppliers, having regard to the spirit of the CBI's Prompt Payers Code. The average number of days outstanding for trade creditors at 30 March 1997 was 32. This figure takes into account the overseas operations, but excludes the effect of certain demand payments. EMPLOYMENT OF DISABLED PERSONS The Group recognises its obligations towards disabled persons and endeavours to provide as much employment as the demands of the Group's operations and the abilities of disabled persons allow. Applications for employment from disabled persons are studied with care and every effort is made to find them, and any existing employees who become disabled, appropriate work and training where it is needed. A-6 DIRECTOR'S REPORT (CONTINUED) EMPLOYEE INVOLVEMENT The Group is committed wherever possible to employee consultation and thereby to their involvement in the development of the Group's operations. CHARITABLE DONATIONS Charitable donations amounting to L48,000 (1996 L30,000) were paid during the year. TAXATION STATUS The Company is not a close company for taxation purposes. AUDITORS Price Waterhouse have expressed their willingness to continue as auditors and a resolution concerning their re-appointment will be proposed at the forthcoming annual general meeting. BY ORDER OF THE BOARD R I Talbot SECRETARY 20 May 1997 A-7 REPORT OF THE REMUNERATION COMMITTEE TERMS OF REFERENCE The remuneration committee comprises all the non-executive directors of the Company and is chaired by Mr. R. R. C. Hobbs. It is responsible for deciding on all elements of the remuneration of the executive directors, including base salaries, performance related bonuses, share based incentive schemes and other benefits. COMPENSATION POLICY The compensation of the executive directors is set by the remuneration committee of the Board. It is the policy of the committee to provide an overall remuneration and benefits package to enable it to attract and retain a high calibre group of senior management who hold the necessary 'White Certificates' required under the Gaming Act and who are capable of delivering the strategic objectives of the Group on behalf of the shareholders. The company has complied throughout the year with Section A of the Best Practice Provisions annexed to the London Stock Exchange Listing Rules. In framing its compensation policy, the committee has given full consideration to Section B of the best practice provisions annexed to the Listing Rules of the London Stock Exchange. The remuneration of the directors is shown in note 5 to the financial statements. SALARIES These reflect the executives' experience, responsibility and commitment. Basic salary levels are measured against those paid in comparable gaming companies. Subject to there being no material increase in anticipated levels of inflation or changes in responsibilities, it is intended that the executive directors' current basic salaries will not be reviewed until September 1998. BONUS AND SHARE BASED INCENTIVE SCHEMES The executive directors hold options in the Company's approved executive share option scheme introduced at the time of its flotation in June 1994. The exercise of the options granted under the scheme is conditional upon the achievement of specified demanding performance criteria. Details of the options granted to executive directors under the executive share option scheme are shown in note 6 to the financial statements. The Group remains committed to the principal of relating a substantial proportion of the total remuneration of senior management to the Group's long term financial performance and has established various incentive bonus schemes covering both executive directors and senior management. The remuneration committee has reviewed the basis of the long term incentivisation of executive directors and concluded that the current long term bonus arrangements should be discontinued as from 30 March 1997 and that no further options should be granted under the current Company share option scheme. It is intended that these arrangements be replaced by a combination of an annual bonus scheme based on single year performance providing comparable rewards for the achievement of annual targeted profits and a proposed share based long term performance plan which has been developed in consultation A-8 REPORT OF THE REMUNERATION COMMITTEE (CONTINUED) with the Company's advisors. The Company also intends to introduce a savings related share scheme for all UK employees in which the executive directors will be able to participate. Details of the two schemes together with the notice convening the necessary extraordinary general meeting to seek shareholders' approval thereof will be sent to shareholders in due course. PENSIONS Three directors have personal pension arrangements which were in place prior to their joining the Group and to which the Group makes an annual contribution payment. Mr. P. Byrne is an executive member of the main London Clubs contributory pension scheme. None of the non-executive directors participate in the Company pension arrangements nor do they receive any contribution towards pension provision. SERVICE CONTRACTS All the executive directors, with the exception of Mr. T. Hodgson, have service contracts which may be terminated on two years notice. Mr. Hodgson has a service contract for a fixed term of three years expiring on 6 June 1997. The present service contracts came into effect upon the flotation of the Company in June 1994. In establishing the notice periods prescribed within the contracts, the committee were mindful of the need to protect shareholders' interests by ensuring continuity of appropriately experienced and licensed management post-flotation. Mr. A. L. Goodenough and Mr. G. B. C. Hardy retire by rotation at the forthcoming annual general meeting. At the date of the meeting, Mr. Goodenough and Mr. Hardy will be entitled to a notice period of two years. OTHER BENEFITS Each executive director is provided with a fully expensed car, permanent health insurance, life assurance and family medical insurance. R. R. C. Hobbs CHAIRMAN OF THE REMUNERATION COMMITTEE 20 May 1997 A-9 CORPORATE GOVERNANCE The Board complies with the recommendations of the Code of Best Practice ("the Code") issued in 1992 by the Committee on the Financial Aspects of Corporate Governance (the Cadbury Committee). The Group complies and has fully complied throughout the accounting period, with all the current requirements of the Code and the Annual Report includes all the disclosures currently required by the Code. GOING CONCERN The directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. INTERNAL FINANCIAL CONTROLS The directors are required to ensure that the Group's systems of internal control are appropriate given the scale and type of risk being managed, the likelihood of the risk materialising and the cost of implementing the controls necessary to manage the risk. The existence of appropriate internal controls provides reasonable assurance that the Group's operations are efficiently and effectively managed, that internal financial controls are in place and that the Group complies with its legal and regulatory obligations. However, any such system can only provide reasonable, and not absolute, assurance against misstatement or loss. The Group has a well defined operational/management hierarchy and organisational structure. Terms of reference exist for all principal committees within the Group and the roles and responsibilities of senior executives and key members of staff are clearly defined. The Board meets regularly throughout the year and is responsible for the overall Group strategy, approval of major capital expenditure, financing arrangements, the establishing and monitoring of internal controls and compliance with gaming regulations. The Board has also established separate audit, nomination, remuneration and compliance committees, the members of which are set out on page 9. The Company's internal financial control and monitoring procedures include: - clear responsibilities on the part of management for the maintenance of appropriate financial controls and the production of accurate and timely financial management information; - the control of key financial risks through authorisation levels, segregation of duties and written procedures manuals where relevant; - the preparation of detailed monthly budgets and the comparison by management of trading results and cash flows against budget on a regular basis; - the review of internal financial controls by the audit committee in consultation with the external auditors. The Group operates in a highly regulated environment and an independent compliance function reporting to the compliance committee has been developed to ensure adherence with all local and national requirements and the Group's own gaming procedures. Audits of all gaming operations take place at regular intervals and their recommendations are presented to the compliance committee. The Board has reviewed the effectiveness of the Group's system of internal financial controls for the period covered by the financial statements. In addition, the gaming activities of the Group are also subject to review by the Gaming Board in the U.K. and by the relevant government authorities for the overseas operations. A-10 STATEMENT OF DIRECTORS' RESPONSIBILITIES The directors are required by the Companies Act 1985 to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss for the financial year. The directors have prepared the financial statements on pages A-13 to A-33 on a going concern basis and consider that the Group has used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates and that all accounting standards which they consider to be applicable have been followed. The directors have responsibility for ensuring that the Group keeps accounting records which disclose with reasonable accuracy the financial position of the Group and which enable them to ensure that the financial statements comply with the Companies Act 1985. The directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. REPORT BY THE AUDITORS TO THE DIRECTORS OF LONDON CLUBS INTERNATIONAL PLC ON CORPORATE GOVERNANCE MATTERS In addition to our audit of the financial statements we have reviewed your statement on page A-10 concerning the Group's compliance with the paragraphs of the Cadbury Code of Best Practice specified for our review by the London Stock Exchange and the adoption of the going concern basis in preparing the financial statements. The objective of our review is to draw attention to non-compliance with Listing Rules 12.43(j) and 12.43(v), if not otherwise disclosed. BASIS OF OPINION We carried out our review having regard to guidance issued by the Auditing Practices Board. That guidance does not require us to perform the additional work necessary to, and we do not, express any opinion on the effectiveness of either the Group's system of internal financial control or corporate governance procedures nor on the ability of the Group to continue in operational existence. OPINION In our opinion, your statements on internal financial control and on going concern on page A-10, have provided the disclosures required by the Listing Rules referred to above and are consistent with the information which came to our attention as a result of our audit work on the financial statements. In our opinion, based on enquiry of certain directors and officers of the Company and examination of relevant documents, your statement on page A-10 appropriately reflects the Group's compliance with the other aspects of the Code specified for our review by Listing Rule 12.43(j). PRICE WATERHOUSE CHARTERED ACCOUNTANTS London 20 May 1997 A-11 The following represents the statutory audit report of Price Waterhouse, London, whose audit was performed in accordance with generally accepted auditing standards of the United Kingdom (UK). The accompanying financial statements have been prepared in accordance with UK generally accepted accounting principles. REPORT OF THE AUDITORS TO THE MEMBERS OF LONDON CLUBS INTERNATIONAL PLC We have audited the financial statements on pages A-13 to A-33 which have been prepared under the historical cost convention, as modified by the revaluation of certain fixed assets, and the accounting policies set out on pages A-18 and A-19. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS As described on page A-11, the Company's directors are responsible for the preparation of the financial statements. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you. BASIS OF OPINION We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination on a test basis of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. OPINION In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 30 March 1997 and of the profit and cash flows of the Group for the period then ended and have been properly prepared in accordance with the Companies Act 1985. PRICE WATERHOUSE CHARTERED ACCOUNTANTS AND REGISTERED AUDITORS London 20 May 1997 A-12 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE 53 WEEKS ENDED 30 MARCH 1997
53 WEEKS ENDED 52 WEEKS ENDED 30 MARCH 1997 24 MARCH 1996 --------------------- --------------------- NOTES L'000 L'000 L'000 L'000 ----- Turnover..................................................... 2 179,489 167,357 Operating costs Gaming taxation............................................ (51,708) (47,772) Other...................................................... (74,134) (71,381) --------- --------- (125,842) (119,153) ---------- ---------- Gross profit................................................. 53,647 48,204 Administrative expenses Exceptional bid costs...................................... (1,080) -- Other...................................................... (16,170) (13,925) --------- --------- (17,250) (13,925) ---------- ---------- Operating profit............................................. 3 36,397 34,279 Net interest payable......................................... 7 (1,154) (1,007) ---------- ---------- Profit on ordinary activities before taxation................ 2 35,243 33,272 Tax on ordinary activities................................... 8 (12,588) (11,985) ---------- ---------- Profit on ordinary activities after taxation................. 22,655 21,287 Dividends paid and proposed.................................. 9 (11,679) (10,970) ---------- ---------- Transfer to reserves......................................... 18 10,976 10,317 ---------- ---------- Earnings per share........................................... 10 16.0p 15.0p ---------- ---------- Earnings per share before exceptional bid costs.............. 10 16.8p 15.0p ---------- ----------
The notes on pages A-18 to A-33 form part of these financial statements. A-13 CONSOLIDATED BALANCE SHEET AS AT 30 MARCH 1997
NOTES 30 MARCH 1997 24 MARCH 1996 ----- -------------------- -------------------- L'000 L'000 L'000 L'000 Fixed assets Tangible assets............................................. 11 219,646 159,496 Investments................................................. 12 4,666 695 --------- --------- --------- --------- 224,312 160,191 Current assets Stocks...................................................... 1,353 1,158 Debtors..................................................... 13 11,818 8,523 Cash at bank and in hand.................................... 34,872 29,886 --------- --------- 48,043 39,567 Creditors (amounts falling due within one year)............... 14 (62,287) (51,369) --------- --------- --------- --------- Net current liabilities....................................... (14,244) (11,802) --------- --------- Total assets less current liabilities......................... 210,068 148,389 Creditors (amounts falling due after one year)................ 15 (24,816) (32,722) Provision for liabilities and charges......................... 16 (317) (517) --------- --------- 184,935 115,150 --------- --------- --------- --------- Capital and reserves Called up share capital..................................... 17 7,078 3,539 Share premium............................................... 18 74,528 78,067 Merger reserve.............................................. 5,352 5,352 Revaluation reserve......................................... 18 85,736 24,985 Profit and loss account..................................... 13 12,241 3,207 --------- --------- 184,935 115,150 --------- --------- --------- ---------
Approved on behalf of the Board on 20 May 1997. Sir Timothy Kitson G B C Hardy DIRECTORS The notes on pages A-18 to A-33 form part of these financial statements. A-14 COMPANY BALANCE SHEET AS AT 30 MARCH 1997
30 MARCH 1997 24 MARCH 1996 -------------------- -------------------- NOTES L000 L000 L000 L000 ----- Fixed assets Tangible assets................................................. 11 2,807 -- Investments..................................................... 12 27,457 27,457 --------- --------- --------- --------- 30,264 27,457 Current assets Debtors......................................................... 13 73,069 58,304 Cash at bank and in hand........................................ 15,368 11,865 --------- --------- 88,437 70,169 Creditors (amounts falling due within one year)................... 14 (24,447) (9,602) --------- --------- --------- --------- Net current assets................................................ 63,990 60,567 --------- --------- Total assets less current liabilities............................. 94,254 88,024 Provision for liabilities and charges............................. 16 -- (765) --------- --------- 94,254 87,259 --------- --------- --------- --------- Capital and reserves Called up share capital......................................... 17 7,078 3,539 Share premium................................................... 18 74,528 78,067 Profit and loss account......................................... 18 12,648 5,653 --------- --------- 94,254 87,259 --------- --------- --------- ---------
Approved on behalf of the Board on 20 May 1997 Sir Timothy Kitson G B C Hardy DIRECTORS The notes on pages A-18 to A-33 form part of these financial statements. A-15 CONSOLIDATED CASH FLOW STATEMENT FOR THE 53 WEEKS ENDED 30 MARCH 1997
53 WEEKS ENDED 52 WEEKS ENDED 30 MARCH 1997 24 MARCH 1996 -------------------- -------------------- NOTES L'000 L'000 L'000 L'000 ----------- CASH FLOW FROM OPERATING ACTIVITIES............................. 21 44,806 26,849 Return on investments and servicing of finance.................. 22 (1,165) (2,200) Taxation........................................................ (11,791) (8,861) Capital expenditure and financial investment.................... 22 (8,645) (3,685) Acquisitions and disposals...................................... 22 -- (15,644) Equity dividends paid........................................... (11,148) (9,906) --------- --------- CASH INFLOW/(OUTFLOW) BEFORE USE OF LIQUID RESOURCES AND FINANCING...................................................... 12,057 (13,447) Management of liquid resources.................................. 22 18 Financing--Issue of shares...................................... -- 54 --(Decrease)/Increase in debt........................... (6,200) 11,000 --------- --------- (6,200) 11,054 --------- --------- INCREASE/(DECREASE) IN CASH IN THE PERIOD....................... 5,875 (2,393) --------- ---------
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT FOR THE 53 WEEKS ENDED 30 MARCH 1997
53 WEEKS 52 WEEKS ENDED 30 ENDED 24 MARCH MARCH 1997 1996 --------- --------- L'000 L'000 INCREASE/(DECREASE) IN CASH IN THE PERIOD.................................................... 5,875 (2,393) Cash outflow/(inflow) from movement in debt.................................................. 6,200 (11,000) Cash inflow from decrease in liquid resources................................................ (18) -- Other non cash changes....................................................................... (379) (5,652) Translation differences...................................................................... (871) 536 --------- --------- MOVEMENT IN NET DEBT IN THE PERIOD........................................................... 10,807 (18,509) NET (DEBT)/FUNDS AT BEGINNING OF PERIOD...................................................... (8,667) 9,842 --------- --------- NET FUNDS/(DEBT) AT END OF PERIOD............................................................ 2,140 (8,667) --------- ---------
The notes on pages A-18 to A-33 form part of these financial statements. A-16 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE 53 WEEKS ENDED 30 MARCH 1997
53 WEEKS ENDED 52 WEEKS ENDED 30 MARCH 1997 30 MARCH 1996 --------------- --------------- L'000 L'000 Profit on ordinary activities after taxation..................................... 22,655 21,287 Unrealised surplus on revaluation of properties.................................. 60,751 -- Exchange adjustments on foreign currency net investment.......................... (1,942) 103 ------ ------ Total recognised gains and losses for the period............................. 81,464 21,390 ------ ------ ------ ------
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE 53 WEEKS ENDED 30 MARCH 1997
53 WEEKS ENDED 52 WEEKS ENDED 30 MARCH 1997 30 MARCH 1996 -------------- -------------- L'000 L'000 Profit on ordinary activities after taxation..................................... 22,655 21,287 Dividends........................................................................ (11,679) (10,970) ------- ------- 10,976 10,317 Unrealised surplus on revaluation of properties.................................. 60,751 -- Exchange adjustments on foreign currency net investment.......................... (1,942) 103 Issue of share capital........................................................... -- 54 ------- ------- Net addition to shareholders' funds.............................................. 69,785 10,474 Opening shareholders' funds...................................................... 115,150 104,676 ------- ------- Closing shareholders' funds.................................................. 184,935 115,150 ------- ------- ------- -------
The notes on pages A-18 to A-33 form part of these financial statements. A-17 NOTES TO THE FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES (A) ACCOUNTING CONVENTION The financial statements have been prepared under the historical cost convention as modified by the revaluation of short leasehold properties and in accordance with applicable accounting standards. (B) CONSOLIDATION The consolidated accounts include the results and net assets of the Company and its subsidiary undertakings. Subsidiary undertakings acquired are consolidated from the effective date of acquisition. (C) TURNOVER Turnover represents gaming income and also includes management contract income, membership subscriptions and catering revenues. (D) FIXED ASSETS AND DEPRECIATION Fixed assets are stated at cost or valuation. The short leasehold properties from which the Group conducts its casino operations are carried at open market value on an existing use and fully operational basis, including the benefit of casino licences. Formal professional revaluations of the U.K. casinos are undertaken on at least a triennial basis and the resultant valuations is included in the balance sheet unless the surplus or deficit is immaterial. The directors review the valuations each year and it, in their opinion, there is any diminution in value, it is charged either to the revaluation reserve or the profit and loss account as appropriate. In the directors' opinion, on the basis of this review, the residual disposal value of the properties and the benefit of casino licences attaching to those properties is at least equal to their book value. All leases have an unexpired term of less than twenty years and the values of the leaseholds excluding the benefit of the casino licences are depreciated over the remaining term of the lease. Other assets are depreciated over their estimated useful lives on the following bases; Fixtures and fitting--10% to 20% straight line. Motor Vehicles--25% reducing balance. (E) INVESTMENTS Investments, including investments in subsidiary undertakings are valued individually at the lower of cost and directors' valuation. (F) TAXATION The charge for taxation is based on the profit for the period and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes unless there is reasonable probability that the deferred tax will not crystallise in the foreseeable future. (G) STOCKS Stocks, which comprise consumables, are valued at the lower of cost and estimated net realisable value. A-18 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 1. ACCOUNTING POLICIES (CONTINUED) (H) TRADE DEBTORS Trade debtors include debtors of the overseas casino operations (where deferred payment is permitted) net of provisions raised for any amounts considered unlikely to be recoverable. In the U.K., full provision is charged to the profit and loss account for all unpaid gaming cheques net of any amounts recovered up to the date of approval of the accounts. (I) EXCHANGE RATES Transactions in foreign currencies are translated into sterling at the rates ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date and results of overseas operations are translated at the year end exchange rate. Exchange differences arising from the translation of the opening net assets of overseas subsidiaries and any foreign currency borrowings used to acquire overseas assets are dealt with as a movement in reserves. All other exchange differences are taken to the profit and loss account. (J) LEASES The rental charges in respect of operation leases are taken to the profit and loss account on a straight line basis over the life of the lease. (K) PENSION COSTS The Group operates a pension scheme covering the majority of employees. Pension costs are assessed in accordance with the advice of independent actuaries. Variations from the regular pensions cost are spread on a systematic basis over the estimated average remaining service lives of employees. The scheme is funded by payments to trustee administered fund completely independent of the Group's finances. 2. SEGMENTAL ANALYSIS Operations by geographical segment:
53 WEEKS ENDED 52 WEEKS ENDED 30 MARCH 1997 24 MARCH 1996 -------------- -------------- L'000 L'000 TURNOVER Europe....................................................................... 157,471 147,863 Middle East.................................................................. 22,018 19,494 ------- ------- 179,489 167,357 ------- ------- ------- -------
A-19 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 2. SEGMENTAL ANALYSIS (CONTINUED)
53 WEEKS ENDED 52 WEEKS ENDED 30 MARCH 1997 24 MARCH 1996 -------------- -------------- L'000 L'000 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION Europe....................................................................... 34,712 32,719 Middle East.................................................................. 1,685 1,560 ------- ------- Operating profit............................................................. 36,397 34,279 Interest receivable.......................................................... 1,663 2,044 Interest payable............................................................. (2,817) (3,051) ------- ------- Profit on ordinary activities before taxation................................ 35,243 33,272 ------- ------- ------- -------
For the purposes of the segmental analysis all head office costs have been allocated to Europe. Substantially all of the net assets of the Group are located in Europe. Substantially all of the Group's turnover, operating profit and net assets relate to the operation of casinos. 3. OPERATING PROFIT Operating profit is stated after charging:
53 WEEKS ENDED 52 WEEKS ENDED 30 MARCH 1997 24 MARCH 1996 -------------- -------------- L'000 L'000 Employee costs (see note 4)................................................... 44,594 40,564 Operating lease rentals on properties........................................ 8,395 7,839 Operating lease rentals on equipment......................................... 620 683 Depreciation................................................................. 3,418 3,470 Auditors' remuneration Audit services........................................................... 198 203 Exceptional bid costs........................................................ 1,080 -- Other........................................................................ 33,079 32,547 ------- ------- 91,384 85,306 ------- ------- Shown as: Operating costs.............................................................. 74,134 71,381 Administrative expenses...................................................... 17,250 13,925 ------- ------- 91,384 85,306 ------- ------- ------- -------
Audit fees for the company were L15,000 (1996: L15,000). Non-audit fees for the group and company were L489,000 (1996: L244,000) and L300,000 (1996: L20,000) respectively. A proportion of the non-audit fees for the current year relates to work in respect of the bid for Capital Corporation plc. The exceptional bid costs represent professional and other costs incurred in respect of the bid for Capital Corporation plc which lapsed on 7 April 1997, following referral to the Monopolies and Mergers Commission. Other costs include catering costs, the net movement in provisions for gaming cheques, marketing expenditure, irrecoverable VAT, other establishment costs and professional fees. A-20 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 4. EMPLOYEE INFORMATION
53 WEEKS ENDED 52 WEEKS ENDED 30 MARCH 1997 24 MARCH 1996 -------------- -------------- L'000 L'000 Employee costs (including directors): Wages and salaries........................................................... 38,963 35,117 Social security costs........................................................ 4,403 4,465 Other pension costs.......................................................... 1,228 982 ------- ------- 44,594 40,564 ------- ------- ------- ------- Average number of employees by geographic location Europe....................................................................... 1,865 1,833 Middle East.................................................................. 380 385 ------- ------- 2,245 2,218 ------- ------- ------- -------
5. DIRECTORS' REMUNERATION
53 WEEKS ENDED 52 WEEKS ENDED 30 MARCH 1997 24 MARCH 1996 --------------- --------------- L'000 L'000 Payments to non-executive directors.............................................. 128 169 Salaries, allowances and taxable benefits........................................ 824 718 Bonuses--payments on account under long term bonus scheme........................................................ 405 405 --payments on discontinuance of long term bonus scheme.................... 1076 -- Pension contributions............................................................ 100 87 ----- ----- 2,533 1,379 ----- ----- ----- -----
Note: Bonuses in respect of prior years that are payable on discontinuance of the long term bonus scheme were fully provided in the results of those years and do not impact on the reported results for the current year. The remuneration of the Chairmen and of the highest paid director is given below:
HIGHEST PAID CHAIRMEN DIRECTOR ------------------------ ----------- 1997 1996 1997 ----- ----- ----- L'000 L'000 L'000 Salaries, allowances and taxable benefits........................................... 61 60 263 Bonuses--payment on account under long term bonus scheme................................................................. -- -- 150 --payment on discontinuance of long term bonus scheme................................................................. -- -- 394 Pension contributions............................................................... -- -- 44 -- -- --- 61 60 851 -- -- -- -- --- --- 1996 ----- L'000 Salaries, allowances and taxable benefits........................................... 219 Bonuses--payment on account under long term bonus scheme................................................................. 150 --payment on discontinuance of long term bonus scheme................................................................. -- Pension contributions............................................................... 36 --- 405 --- ---
The remuneration of the Chairmen for 1996 relates to Sir Gordon Booth up to 31 March 1995, when he stood down as Chairman, and to Sir Timothy Kitson from that date. A-21 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 5. DIRECTORS' REMUNERATION (CONTINUED) The remuneration of the directors, excluding pension contributions, is given below:
30 MARCH 1997 24 MARCH 1996 ------------------- ------------------- NUMBER NUMBER L5,000 - L10,000.............................................. -- 1 L15,001 - L20,000............................................. 1 -- L20,001 - L25,000............................................. -- 3 L25,001 - L50,000............................................. 2 -- L50,001 - L55,000............................................. -- 1 L55,001 - L60,000............................................. -- 1 L60,001 - L65,000............................................. 1 -- L250,001 - L255,000........................................... -- 3 L365,001 - L370,000........................................... -- 1 L490,001 - L495,000........................................... 1 -- L495,001 - L500,000........................................... 1 -- L500,001 - L505,000........................................... 1 -- L805,001 - L810,000........................................... 1 --
The value of all the elements of remuneration received by each director in respect of the 53 weeks to 30 March 1997 was as follows:
FEES AND BENEFITS TOTAL SALARY (I) (II) IN KIND PENSION 1997 ----------- --------- --------- ----------- ----------- --------- L'000 L'000 L'000 L'000 L'000 L'000 EXECUTIVE A.L. Goodenough................................... 244 150 394 19 44 851 (CHIEF EXECUTIVE) P. Byrne.......................................... 173 85 230 11 8 507 (GROUP OPERATIONS DIRECTOR) G B C Hardy....................................... 173 85 232 15 31 536 (FINANCE DIRECTOR) T. Hodgson........................................ 173 85 220 16 17 511 (COMPLIANCE AND SECURITY DIRECTOR) NON-EXECUTIVE Sir Timothy Kitson................................ 61 -- -- -- -- 61 (CHAIRMAN) Sir Gordon Booth.................................. 17 -- -- -- -- 17 R R R C Hobbs..................................... 25 -- -- -- -- 25 R A Wood.......................................... 25 -- -- -- -- 25 P J Harper........................................ -- -- -- -- -- -- M Seal............................................ -- -- -- -- -- -- TOTAL 1996 --------- L'000 EXECUTIVE A.L. Goodenough................................... 405 (CHIEF EXECUTIVE) P. Byrne.......................................... 258 (GROUP OPERATIONS DIRECTOR) G B C Hardy....................................... 280 (FINANCE DIRECTOR) T. Hodgson........................................ 267 (COMPLIANCE AND SECURITY DIRECTOR) NON-EXECUTIVE Sir Timothy Kitson................................ 60 (CHAIRMAN) Sir Gordon Booth.................................. 32 R R R C Hobbs..................................... 25 R A Wood.......................................... 25 P J Harper........................................ 6 M Seal............................................ 21
- ------------------------ (i) payments on account under long term bonus scheme (ii) payments on discontinuance of long term bonus scheme The Company introduced a long term bonus scheme at the time of the flotation in June 1994. Bonuses were payable to each of the executive directors based upon the cumulative operating profits of the Group for an initial measurement period represented by the four financial years ended March 1998. However, following a review by the remuneration committee of the long term incentivisation of the executive A-22 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 5. DIRECTORS' REMUNERATION (CONTINUED) directors, and the subsequent proposal to introduce a new long term incentive plan for executive directors and senior managers, the directors' long term bonus scheme was discontinued as at 30 March 1997. Three of the executive directors were entitled to a bonus equal to 100 per cent. of their salaries for each financial year provided that the targeted cumulative operating profit was achieved. One executive director was entitled to a bonus equal to 125 per cent. of salary providing the same condition was met. The targeted operating profits, as determined by the remuneration committee for each of the years, subsequently exceeded. Payments on account, equal to 50% of the full bonus entitlements, were made in respect of each financial year provided that at least 75% of the targeted operating profit was achieved for that year. Whilst it was not possible to determine whether the targeted cumulative profit for the measurement period would be achieved, provision was nonetheless made in the financial statements for the full potential liability. The figures disclosed as bonuses for the 52 weeks ended 24 March 1996, which amounted to a total of L405,000, represent the payments on account under the long term bonus scheme in respect of the results for that year. Similar payments on account are due as at 30 March 1997 in respect of the results for the year then ended. Bonuses accrued, but not previously paid, in respect of the three financial years ended 30 March 1997, which become payable upon the discontinuance of the long term bonus scheme, are shown separately in the tables on the previous page. 6. DIRECTORS' INTEREST (a) The interests of the directors and their immediate families in the share capital of the Company at the end of the year and at the beginning of the year were as follows:
30 MARCH 1997 24 MARCH 1996 -------------------- -------------------- ORDINARY SHARE ORDINARY SHARE SHARES OPTIONS SHARES OPTIONS --------- --------- --------- --------- P Byrne........................................... 280,000 512,400 140,000 256,200 A L Goodenough.................................... 202,228 622,400 101,114 311,200 G B C Hardy....................................... 901,048 512,400 480,524 256,200 R R C Hobbs....................................... 98,800 -- 49,400 -- T Hodgson......................................... 207,048 512,400 103,524 256,200 Sir Timothy Kitson................................ 40,800 -- 20,400 -- R A Wood.......................................... 10,000 -- 5,000 --
The interests represent ordinary shares of 5p each and options over ordinary shares. All the options were granted on 6 June 1994 under the London Clubs International plc executive share option scheme. As a result of the one for one bonus issue on 26 July 1996, the number of shares under option doubled and the option price was adjusted from 218.5p to 109.25p. The options are exercisable between June 1997 and June 2004. They may only be exercised if the total shareholder return on an investment in the Company's shares between the date of grant and the intended exercise date is at least 75 per cent. of the returns of the FTSE 100 Index for the same period. Where the return is between 75 per cent. and 100 per cent. of the FTSE 100 Index, then options may be exercised over an equivalent proportion of ordinary shares. The mid market price of the Company's shares as at 30 March 1997 was 417p. The range of share prices during the 53 weeks to 30 March 1997 was between 254p and 418p. A-23 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 6. DIRECTORS' INTEREST (CONTINUED) The share prices, where appropriate, have been adjusted to reflect the one for one bonus issue in July 1996. (b) Other than as stated above, none of the directors nor any member of their immediate families at 30 March 1997 had any interest in the share capital of the Company. No changes in details have occurred between 30 March 1997 and 20 May 1997. (c) The Company's Register of Directors' Interests contains full details of directors' shareholdings and options to subscribe for ordinary shares. 7. NET INTEREST PAYABLE
53 WEEKS ENDED 52 WEEKS ENDED 30 MARCH 1997 24 MARCH 1996 --------------- --------------- L'000 L'000 Interest payable on bank loans................................................... 2,817 3,051 Interest receivable - --on fixed asset investment...................................................... (303) -- - --other.......................................................................... (1,360) (2,044) ------ ------ Net interest payable............................................................. 1,154 1,007 ------ ------ ------ ------
8. TAXATION
53 WEEKS ENDED 52 WEEKS ENDED 30 MARCH 1997 24 MARCH 1996 --------------- --------------- L'000 L'000 UK corporation tax at 33% (1996;33%) on the taxable profit for the period........ 12,341 11,603 Deferred taxation................................................................ (200) 337 Overseas taxation................................................................ 618 622 Prior year adjustments........................................................... (171) (577) ------ ------ 12,588 11,985 ------ ------ ------ ------
Movements in deferred taxation are explained in note 16. 9. DIVIDENDS
53 WEEKS ENDED 52 WEEKS ENDED 30 MARCH 1997 24 MARCH 1996 -------------- -------------- L'000 L'000 Dividends on equity shares Interim 2.625p per share (1996; 2.5p) paid on 31 January 1997.................. 3,716 3,538 Final 5.825p per share (1996;5.25p) proposed to be paid on 31 July 1997........ 7,963 7,432 ------- ------- 11,679 10,970 ------- ------- ------- -------
The prior year comparative for dividends per share have been restated to reflect the one for one bonus issue on 26 July 1996. A-24 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 10. EARNINGS PER SHARE Earnings per ordinary share for each year have been calculated on profit on ordinary activities after taxation and dividend by the weighted average number of ordinary shares in issue during the period. The weighted average number of shares has been adjusted to reflect the one for one bonus issue on 26 July 1996. Fully diluted earnings per share, taking into account all options over the Company's shares, is not materially different to basic earnings per share. The earnings and weighted average number of shares used in the calculation of earnings per share were as follows:
53 WEEKS ENDED 52 WEEKS ENDED 30 MARCH 1997 24 MARCH 1996 -------------- -------------- Earnings per ordinary share(p)................................................... 16.0 15.0 Earnings (L'000)................................................................. 22,655 21,287 Weighted average number of shares ('000)......................................... 141,557 141,557 ------- ------- ------- -------
Earnings per share before exceptional bid costs have been calculated as 16.8 pence per share. This figure is based upon the profit after taxation but before exceptional bid costs of 23,735,000 and on 141,557,000 ordinary shares. The exceptional bid costs, for Capital Corporation pic to 7 April 1997, being the date on which the offer lapsed. No tax credit is assumed to arise on the bid costs. 11. TANGIBLE FIXED ASSETS
FIXTURES, FITTINGS SHORT AND ASSETS IN LEASEHOLD MOTOR COURSE OF GROUP PROPERTIES VEHICLES CONSTRUCTION TOTAL ----------- ----------- ------------- --------- L'000 L'000 L'000 L'000 COST OR VALUATION At 24 March 1996.................................... 159,257 18,151 -- 177,408 Revaluation......................................... 60,751 -- -- 60,751 Additions........................................... 134 1,268 2,977 4,379 Disposals........................................... -- (232) -- (232) Transfers........................................... (1,242) 1,242 -- -- Exchange movement................................... (1,251) (725) -- (1,976) ----------- ----------- ----- --------- At 30 March 1997.................................... 217,649 19,704 2,977 240,330 ----------- ----------- ----- --------- DEPRECIATION At 24 March 1996.................................... 8,798 9,114 -- 17,912 Charge for year..................................... 1,463 1,955 -- 3,418 Disposals........................................... -- (74) -- (74) Transfers........................................... (152) 152 -- -- Exchange movement................................... (80) (492) -- (572) ----------- ----------- ----- --------- At 30 March 1997.................................... 10,029 10,655 -- 20,684 ----------- ----------- ----- --------- NET BOOK VALUE At 30 March 1997.................................... 207,620 9,049 2,977 219,646 ----------- ----------- ----- --------- At 24 March 1996.................................... 150,459 9,037 -- 159,496 ----------- ----------- ----- ---------
A-25 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 11. TANGIBLE FIXED ASSETS (CONTINUED) The short leasehold properties from which the Group conducts its casino operations are carried at open market value on an existing one and fully operational basis, including the benefit of casino licences. In line with the Group's policy to revalue at least triennially, the directors have included the Group's U.K. short leasehold properties at the amount determined by G L Hearn & Partners (Chartered Surveyors) as at 30 March 1997. The resultant change in value is reflected within the revaluation reserve. The next such valuation is due to take place in March 2000. The value of short leasehold properties on an historical cost basis comprises assets with a cost of L131.9 million (1996 L134.3 million) and accumulated depreciation of L10.0 million (1996 L8.8 million). The net book value of the short leasehold properties, on an historical cost basis, is L125.5 million (1996 L125.5 million). No provision has been made for the potential liability to taxation on capital gains which could arise if the short leasehold properties held as fixed assets were sold at the amounts at which they have been revalued and included in these accounts as the directors have no current intentions of selling these assets with gaming licences attached. COMPANY The Company acquired fixed assets with a cost of L2,807,000 during the period, of which L2,776,000 are classified as assets in course of construction. No depreciation has been charged on the amount. 12. INVESTMENTS GROUP
FLOATING RATE NOTES INVESTMENT TOTAL --------------- ----------- --------- L'000 L'000 L'000 At 24 March 1996.............................................................. -- 695 695 Additions..................................................................... 3,981 295 4,276 Exchange movement............................................................. (305) -- (305) ----- ----- --------- At 30 March 1997.............................................................. 3,676 990 4,666 ----- ----- ---------
A subsidiary undertaking, London Clubs (Overseas) Limited, holds 12.5 cent, of the issued share capital of Abela Tourism and Development Company SAL ("ATDC"). ATDC is incorporated in Lebanon and has a management concession for the Casino du Liban complex in Beirut. During the period, the Company subscribed for floating rate notes issued by Casino du Liban, which have a nominal value of US $6 million. COMPANY
30 MARCH 1997 24 MARCH 1996 --------------- --------------- L'000 L'000 Shares in Group undertakings...................................................... 27,457 27,457 ------ ------
A-26 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 12. INVESTMENTS (CONTINUED) Principal subsidiary undertakings of the Company are noted below:
COUNTRY OF INCORPORATION PERCENTAGE OF COUNTRY OF PRINCIPAL OF VOTING PRINCIPAL SUBSIDIARY UNDERTAKING REGISTRATION OPERATION ACTIVITY SHARES HELD - -------------------------------------------- ------------- ---------- -------------------------- ----------- London Clubs Holdings Limited*.............. England England Holding company 100% London Clubs Management Limited............. England England Management company 100% Ritz Club (London) Limited.................. England England Gaming casino 100% Les Ambassadeurs Club Limited............... England England Gaming casino 100% Rendezvous Club (London) Limited............ England England Gaming casino 100% Zealcastle Limited.......................... England England Gaming casino 100% Palm Beach Club Limited..................... England England Gaming casino 100% The Sportsman Club Limited.................. England England Gaming casino 100% Golden Nugget Club Limited.................. England England Gaming casino 100% London Clubs (Overseas) Limited............. England England Holding company 100% LCL (France) SA et cie...................... France France Gaming casino 100% Inter Casino Management (Egypt) Limited..... Isle of Man Egypt Gaming casino 100% Mayfair Maritime Casinos Limited............ Gibraltar Gibraltar Ships casino operations 100% Six Hamilton Place Limited.................. England England Banqueting operation 100%
- ------------------------ (All companies owned indirectly except *) 13. DEBTORS
GROUP COMPANY GROUP COMPANY --------- ----------- --------- ----------- 30 MARCH 1997 24 MARCH 1996 ---------------------- ---------------------- L'000 L'000 L'000 L'000 Trade debtors............................................................. 2,137 3 4,639 -- Amounts due from group companies.......................................... -- 68,663 -- 56,903 Other debtors............................................................. 5,211 2,333 1,219 517 Prepayments and accrued income............................................ 2,479 79 1,781 -- ACT recoverable........................................................... 1,991 1,991 884 884 --------- ----------- --------- ----------- 11,818 73,069 8,523 58,304 --------- ----------- --------- ----------- --------- ----------- --------- -----------
The ACT recoverable is receivable after more than one year. A-27 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 14. CREDITORS (AMOUNTS FALLING DUE WITHIN ONE YEAR)
GROUP COMPANY GROUP COMPANY --------- ----------- --------- ----------- 30 MARCH 1997 24 MARCH 1996 ---------------------- ---------------------- L'000 L'000 L'000 L'000 Short term element of bank loan (see note 15)........................... 5,916 -- 5,831 -- Loan notes (see note 15)................................................ 2,000 -- -- -- Trade creditors......................................................... 1,715 255 1,479 174 Amounts due to group companies.......................................... -- 12,320 -- 925 Corporation tax......................................................... 15,622 -- 14,268 -- ACT payable............................................................. 2,920 2,920 884 884 Gaming taxation payable................................................. 10,528 -- 5,520 -- Other tax including social security..................................... 194 -- 1,330 Interest payable........................................................ 16 -- 156 -- Other creditors and accruals............................................ 15,413 989 14,469 187 Proposed dividend....................................................... 7,963 7,963 7,432 7,432 --------- ----------- --------- ----- 62,287 24,447 51,369 9,602 --------- ----------- --------- ----- --------- ----------- --------- -----
15. CREDITORS (AMOUNTS FALLING DUE AFTER ONE YEAR)
GROUP COMPANY GROUP COMPANY --------- ----------- --------- ----------- 30 MARCH 1997 24 MARCH 1996 ---------------------- ---------------------- L'000 L'000 L'000 L'000 Bank loan Repayable between one and two years................................... 6,031 -- 5,916 -- Repayable between two and five years.................................. 14,785 -- 20,806 -- Deferred consideration.................................................. 4,000 -- 6,000 -- --------- ----- --------- ----- 24,816 -- 32,722 -- --------- ----- --------- ----- --------- ----- --------- -----
The bank loan is secured by means of fixed and floating charges over all U.K. leasehold properties, together with a floating charge over all assets of the Company and all its present and future U.K. subsidiaries. Interest was payable at LIBOR plus 1 per cent with a small variable adjustment. On 11 April 1997, the Company completed a supplemental agreement, whereby all outstanding facilities were replaced by a Revolving Credit Facility. The Revolving Credit Facility is available until 11 April 2002. Interest is payable at LIBOR plus 0.65 per cent, with a small variable adjustment. Advances are available in foreign currencies which may be used to finance overseas investments. Until 29 September 1998, a certain proportion of the loan is subject to interest rate cap based on LIBOR of 9 per cent. The deferred consideration is payable based upon the cumulative results of Zealcastle Limited for the three years ending 1 October 1998. Provision has been made for the maximum amount payable. During the year, loan notes with a value of L2 million were issued in settlement of part of the liability. These loan notes are disclosed within creditors falling due within one year. A-28 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 16. PROVISIONS FOR LIABILITIES AND CHARGES The amount of deferred taxation which has been provided in the financial statements is as follows:
GROUP COMPANY ----------- ----------- L'000 L'000 Deferred tax liability at 24 March 1996........................................................ 517 765 Credit for the period.......................................................................... (200) (765) --- --- Deferred tax liability at 30 March 1997........................................................ 317 -- --- --- --- ---
Comprising: GROUP
30 MARCH 1997 24 MARCH 1996 ------------------------------ ------------------------------ PROVIDED UNPROVIDED PROVIDED UNPROVIDED ----------- ----------------- ----------- ----------------- L'000 L'000 L'000 L'000 Accelerated capital allowances........... 607 (23) 568 (28) Short term timing differences............ (290) -- (51) (25) -- -- --- --- 317 (23) 517 (53) -- -- -- -- --- --- --- ---
COMPANY The only deferred tax liabilities for the Company relate to short term timing differences. There are no unprovided deferred tax liabilities. 17. SHARE CAPITAL The following information relates to the share capital of the Company during the period.
30 MARCH 1997 24 MARCH 1996 ------------------------ ------------------------ NUMBER L'000 NUMBER L'000 ------------- --------- ------------- --------- Authorised Ordinary shares of 5p each...................................... 233,565,100 11,678 233,565,100 11,678 Issued, allotted and fully paid Ordinary shares of 5p each...................................... 141,557,502 7,078 70,778,751 3,539
On 26 July 1996, 70,778,751 ordinary shares were allotted by way of a one for one bonus issue. The issued share capital of the company was increased to L7,077,875 by the capitalisation of the sum of L3,538,938 standing to the credit of the share premium account. At 30 March 1997 there were outstanding options to subscribe for 6,989,600 ordinary shares (1996 3,504,800) under the London Clubs International plc executive share option scheme, which are exercisable between June 1997 and June 2004. The number of options increased by a factor of two following the one for one bonus on 26 July 1996. A-29 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 18. RESERVES
GROUP AND COMPANY ----------- L'000 SHARE PREMIUM ACCOUNT At 24 March 1996........................................................ 78,067 Bonus issue (see note 17)............................................... (3,539) ----------- Balance at 30 March 1997................................................ 74,528 ----------- ----------- GROUP ----------- L'000 REVALUATION RESERVE At 24 March 1996........................................................ 24,985 Revaluation during the period........................................... 60,751 ----------- Balance at 30 March 1997................................................ 85,736 ----------- ----------- GROUP COMPANY --------- ----------- L'000 L'000 PROFIT AND LOSS ACCOUNT At 24 March 1996........................................................ 3,207 5,653 Retained profit for the period.......................................... 10,976 6,995 Exchange movement....................................................... (1,942) -- --------- ----------- Balance at 30 March 1997................................................ 12,241 12,648 --------- ----------- --------- -----------
As permitted by Section 230 of the Companies Act 1985, the Company's profit and loss account is not separately presented. The amount of the Company's retained profit for the peroid is L6,995,000 (1996 L4,130,000). 19. CAPITAL COMMITMENTS At 30 March 1997 the Group had capital commitments contracted for but not provided of L396,260 (1996 L4.0 million). 20. OPERATING LEASE COMMITMENTS
GROUP COMPANY GROUP COMPANY --------- ------------- --------- ------------- 30 MARCH 1997 24 MARCH 1996 ------------------------ ------------------------ L'000 L'000 L'000 L'000 Operating lease commitments on land and buildings payable within one year for leases expiring: within one year.......................................................... 1,381 -- -- -- between one and five years............................................... 4,337 -- 5,785 -- after five years......................................................... 3,453 723 2,697 -- --------- --- --------- --- 9,171 723 8,482 -- --------- --- --------- --- --------- --- --------- ---
A-30 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 20. OPERATING LEASE COMMITMENTS (CONTINUED)
GROUP COMPANY GROUP COMPANY --------- ------------- --------- ------------- 30 MARCH 1997 24 MARCH 1996 ------------------------ ------------------------ L'000 L'000 L'000 L'000 Operating lease commitments on plant and equipment payable within one year for leases expiring: within one year.......................................................... 131 -- 97 -- between one and five years............................................... 302 -- 561 -- --------- --- --------- --- 433 -- 658 -- --------- --- --------- --- --------- --- --------- ---
21. RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOW
53 WEEKS ENDED 52 WEELS ENDED 30 MARCH 1997 24 MARCH 1996 --------------- --------------- L'000 L'000 Operating profit................................................................. 36,397 34,279 Depreciation charges............................................................. 3,418 3,470 Loss on sale of fixed assets..................................................... 75 128 Exchange movement................................................................ 305 -- Increase in stock................................................................ (195) (178) Increase in debtors.............................................................. (784) (2,339) Increase/(Decrease) in creditors................................................. 5,590 (8,511) ------ ------ Net cash inflow from operating activities........................................ 44,806 26,849 ------ ------ ------ ------
A-31 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 22. ANALYSIS OF CASH FLOWS FOR HEADINGS SUMMARISED IN THE CASH FLOW STATEMENT
30 MARCH 1997 24 MARCH 1996 -------------------- -------------------- L'000 L'000 L'000 L'000 Returns on investments and servicing of finance Interest received....................................................... 1,360 2,044 Interest paid........................................................... (2,525) (4,244) --------- --------- --------- --------- Net cash outflow for returns on investments and servicing of finance...... (1,165) (2,200) --------- --------- --------- --------- Capital expenditure and financial investments Purchase of tangible fixed assets....................................... (4,379) (3,064) Purchase of fixed asset investment...................................... (4,276) (695) Proceeds of tangible fixed asset sales.................................. 10 74 --------- --------- --------- --------- Net cash outflow for capital expenditure and financial investment..................................................... (8,645) (3,685) --------- --------- --------- --------- Acquisitions and disposals Purchase of subsidiary undertaking...................................... -- (8,089) Net overdrafts acquired with subsidiary................................. -- (7,555) --------- --------- --------- --------- Net cash outflow for acquisitions and disposals........................... -- (15,644) --------- --------- --------- --------- Management of liquid resources Purchase and sale of securities......................................... 18 -- --------- --------- --------- --------- Net cash inflow from management of liquid resources....................... 18 -- --------- --------- --------- --------- Financing Issue of ordinary share capital......................................... -- 54 Debt due within a year --repayment of unsecured loan......................................... (6,200) (5,850) --loan finance raised................................................. -- 16,850 --------- --------- --------- --------- Net cash (outflow)/inflow from financing.................................. (6,200) 11,054 --------- --------- --------- --------- --------- --------- --------- ---------
23. ANALYSIS OF NET FUNDS
EXCHANGE AT OTHER NON MOVEMENT AT 24 MARCH CASH AND CHANGES IN 30 MARCH 1990 CASHFLOW CHANGES MARKET VALUES 1997 ----------- --------- ----------- -------------- ----------- L'000 L'000 L'000 L'000 L'000 Cash in hand and at bank............................ 29,886 5,875 -- (889) 34,872 Debt due after one year............................. (32,722) -- 7,906 -- (24,816) Debt due within one year............................ (5,831) 6,200 (8,285) -- (7,916) Current asset investment............................ -- (18) -- 18 -- ----------- --------- ----------- ------- ----------- (8,667) 12,057 (379) (871) 2,140 ----------- --------- ----------- ------- ----------- ----------- --------- ----------- ------- -----------
A-32 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 24. PENSIONS The principal pension scheme operated by the Group is a defined benefits scheme providing benefits based on final pensionable salary. The assets of this scheme are held in a separate trustee administered fund. The latest formal actuarial valuation of the fund was at 31 March 1995 using the projected unit method. The assumptions which have the most significant effect on the results of the valuation are the relative rates of return on the investments of the fund compared with increases in pay and pensions. It was assumed for this purpose that, on average, the annual return on investments would exceed increases in pay by 4 per cent. until 31 March 1997 and by 2 per cent. thereafter and would exceed increases in pensions by 4 per cent. At the date of the latest formal actuarial valuation, the market value of the assets of the fund was L31.3 million. The valuation showed that the assets represented 111 per cent. of the benefits that have accrued to members. Taking this surplus into account, the actuary has recommended a future contribution rate for the Group as follows: from 1 April 1998 to 31 March 1999 10.0 per cent. of pensionable pay; from 1 April 1999 to 31 March 2005 11.9 per cent. of pensionable pay and from 1 April 2005 15.0 per cent of pensionable pay. Death in service benefits, professional fees and other expenses are paid by the pension scheme. The pension charge for the year was L1,122,000 (1996 L885,000) which was paid to the fund. In addition the company makes contributions in respect of individual personal pension schemes. The annual contribution for the year was L106,000 (1990 L69,000). 25. SUBSEQUENT EVENT On 1 May 1997, the Company completed the purchase of the freehold of 50 St. James's Street, London W1, for a total consideration of L13.5 million. The business of Ritz Club (London) Limited will be transferred to these premises in June 1998. A-33 LONDON CLUBS INTERNATIONAL INTERIM REPORT 1997 A-34 INTERIM STATEMENT FINANCIAL RESULTS We are pleased to report that business volumes in the first half of the year were once again at record levels. The house win in London was, however, negatively affected by the volatility which can occasionally occur at the upper level of the market and this resulted in a lower than normal win to drop percentage. This in turn contributed substantially to a decrease in turnover from L94,342,000 to L85,697,000 and caused profit before interest and tax to fall from the record level of L19,897,000 in the prior year to L14,312,000. Group earnings per share were 6.9p before exceptional costs compared with 8.9p in the prior year. It is the group's experience that short term volatility in win percentage is corrected over a longer period of time and will return to its normal level. We are pleased to report that since the half year business levels have been strong with an improved win percentage, and as a result, the cumulative win in our London casinos to the end of November has exceeded that for the same eight month period in the prior year. DIVIDEND The interior dividend will be maintained at 2.625p (1996:2.625p) and will be paid on 30 January 1998 to shareholders on the register at 30 December 1997. TRADING COMMENTARY The total volume of business in our London casinos was again strong with an increase in drop of 4%. Les Ambassadeurs produced yet another excellent performance with win, drop and attendance ahead of the record prior year. At the opposite end of the market spectrum, the Golden Nugget also enjoyed a better half year with drop and win much improved. The Sportsman traded close to expectations and at similar levels to the previous year whilst the Palm Beach fell a little behind on win and drop although with improved attendances. The Park Tower continued to trade satisfactorily although not at last year's exceptional levels. Good fortunes were enjoyed by a number of major customers at both the Ritz and more unusually at the Rendezvous which resulted in poor win percentages at both of these clubs and served to depress the group win percentage. The half year profit contribution from our up market casinos was 53% with 47% coming from the middle and lower market casinos. This compares with the 52% and 48% of last year. Overseas, the Casino du Liban made a first full half year contribution having opened in December 1996. The business has performed well and in accordance with our expectations, with slot and table game areas benefiting from a high level of attendance. In Egypt, our casinos also trade well with Taba once again performing strongly, while Cairo produced another consistent performance. In France, the Cannes casino enjoyed a higher level of income and this, combined with operational improvements, led to an increased half year contribution. OUTLOOK IN THE UNITED KINGDOM AND OVERSEAS We were surprised and disappointed that our all share offer for Capital Corporation Plc was blocked on the recommendation of the MMC in August of this year. However, excellent progress has been made on other strategic initiatives and the group's overall progress will not therefore be inhibited as a result of the authorities' decision. In London, work on our two development projects at 50 St. James Street and at Old Park Lane, which will accommodate the relocation of the Ritz and Rendezvous casino businesses respectively, is proceeding A-35 INTERIM STATEMENT (CONTINUED) well. Gaming licences have been granted for both the new locations and the expanded facilities will offer considerable improvements for our customers and greater operational efficiency. We remain concerned at the delay in the implementation of material changes to the UK gaming legislation but, together with other members of the British Casino Association, continue to discuss with the Government at every opportunity ways in which changes can be expedited to allow our industry to remain internationally competitive. Overseas, our intention to expand the group's interests and continue to reduce our dependence upon the upper London market has advanced significantly with the completion of the Aladdin negotiations. Work is due to commence upon the Aladdin site in Las Vegas immediately and the recently announced involvement of the Planet Hollywood group at this prestigious development is particularly positive. Shareholders will be receiving a circular setting out the details of and seeking their approval for this exciting opportunity. In South Africa, joint venture proposals have been submitted to the Gautcog gaming authorities for casino operations in Central Johannesburg and at the Vaal River, a tourist centre close to Johannesburg. We intend to take minority equity positions and participate in the management of the casinos if the tenders are successful. The results of these applications should be known in the early part of 1998. In recent years we have committed substantial resources to developing our overseas strategy. These efforts have significantly raised the group's international profile and as a result we are increasingly being approached to take part in high calibre opportunities. Since the first half, overall levels of activity have continued to be good throughout the group. In our London casinos, despite press reports to the contrary, there has been a good level of premium player activity and an improved win percentage has resulted in a higher level of win than in the same period in 1996. For the eight months of the financial year to date, the group's London table win is now at a level which exceeds that experienced in the prior year. In the Lebanon, trading is continuing strongly and the international showroom at the Casino du Liban is nearing completion. The recent political unrest and terrorist activity in Egypt is clearly unsettling and we continue to watch events closely but so far no negative effect upon our business has been detected. Cannes is now trading in its traditionally quiet period which will continue for the remainder of the financial year. The number of ships on which we operate casinos has reduced in recent years and, in view of the marginal nature of this activity, we have now agreed with Cunard to cease remaining operations early in the new year. The trading volatility which we experienced in London in the first half of the year and the disappointing lack of progress in respect of United Kingdom gaming deregulation underlines the rationale for our international growth strategy. We have a number of excellent overseas projects in progress and these will be pursued aggressively. DIRECTORS AND EMPLOYEES The Company wishes to promote share participation by employees to encourage loyalty and identification with the success of the Group. It is therefore proposed that an Inland Revenue approved Sharesave Scheme be introduced in which all eligible UK employees will be invited to participate. A circular has been sent to shareholders setting out the details of the Scheme and requesting their approval thereto. Once again we would like to record our thanks to all of the group's employees for their individual contributions during the half year. Sir Timothy Kitson Alan Goodenough CHAIRMAN CHIEF EXECUTIVE 5 December 1997
A-36 CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED)
26 WEEKS 26 WEEKS 53 WEEKS ENDED ENDED ENDED 28 SEPTEMBER 22 SEPTEMBER 30 MARCH 1997 1996 1997 ------------- ------------- ----------- L'000 L'000 L'000 Turnover................................................................. 85,697 94,342 179,489 Operating costs: - -- Gaming taxation....................................................... (24,823) (28,412) (51,708) - -- Other................................................................. (37,493) (38,003) (74,134) ------------- ------------- ----------- Gross profit............................................................. 23,381 27,927 53,647 Administrative expense: - -- Exceptional costs in respect of abortive bid for Capital Corporation Plc..................................................................... (109) -- (1,080) - -- Other................................................................. (8,960) (8,030) (16,170) ------------- ------------- ----------- Profit before interest and taxation...................................... 14,312 19,897 36,397 Net interest payable..................................................... (843) (770) (1,154) ------------- ------------- ----------- Profit on ordinary activities before taxation............................ 13,469 19,127 35,243 Tax on ordinary activities............................................... (3,608) (6,493) (12,588) ------------- ------------- ----------- Profit on ordinary activities after taxation............................. 9,861 12,634 22,655 ------------- ------------- ----------- Dividends Dividend proposed/paid on ordinary shares of 2.625p per share (1996:2.625p interim 8.25p full year)................................... (3,856) (3,716) (11,679) ------------- ------------- ----------- Transfer to reserves..................................................... 6,005 8,918 10,976 ------------- ------------- ----------- Earnings per share....................................................... 6.8p 8.9p 16.0p ------------- ------------- ----------- Earnings per share before exceptional costs in respect of the abortive bid..................................................................... 6.9p 8.9p 16.8p ------------- ------------- -----------
See notes 3 and 4 for details of earnings per share and dividends respectively. A-37 CONSOLIDATED BALANCE SHEET (UNAUDITED)
28 SEPTEMBER 22 SEPTEMBER 30 MARCH 1997 1996 1997 ------------ ------------ ----------- L'000 L'000 L'000 Fixed Assets Tangible assets........................................................ 232,912 157,991 219,646 Investments............................................................ 4,705 4,676 4,666 ------------ ------------ ----------- 237,617 162,667 224,312 Current Assets Stocks................................................................. 1,333 1,077 1,353 Debtors................................................................ 17,923 11,248 11,818 Cash at bank and in hand............................................... 38,718 36,103 34,872 ------------ ------------ ----------- 57,974 48,428 48,043 Creditors (amounts falling due within one year).......................... (50,489) (59,034) (62,287) ------------ ------------ ----------- Net current assets/(liabilities)....................................... 7,485 (10,606) (14,244) ------------ ------------ ----------- Total assets less current liabilities.................................. 245,102 152,061 210,068 ------------ ------------ ----------- Creditors (amounts falling due after one year)........................... (48,059) (27,775) (24,816) Provision for liabilities and charges.................................... (647) (550) (317) ------------ ------------ ----------- 196,396 123,736 184,935 ------------ ------------ ----------- ------------ ------------ ----------- Capital and reserves Called up share capital................................................ 7,345 7,078 7,078 Share premium.......................................................... 80,103 74,528 74,528 Other reserves......................................................... 91,088 30,337 91,088 Profit and loss account................................................ 17,860 11,793 12,241 ------------ ------------ ----------- 196,396 123,736 184,935 ------------ ------------ ----------- ------------ ------------ -----------
A-38 CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
26 WEEKS 26 WEEKS 52 WEEKS ENDED 28 ENDED 22 ENDED 30 SEPTEMBER SEPTEMBER MARCH 1997 1997 1996 ------------- ------------- ------------- L'000 L'000 L'000 CASH FLOW FROM OPERATING ACTIVITIES (NOTE 5)............................................................ 6,755 23,452 44,806 Return on investments and servicing of Finance............................................................. (875) (624) (1,165) Taxation............................................................ (1,667) (810) (11,791) Capital expenditure and financial investment........................ (15,435) (4,632) (8,645) Equity dividends paid............................................... (7,963) (7,432) (11,148) ------------- ------------- ------------- CASH (OUTFLOW)/INFLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING............................................. (19,185) 9,954 12,057 Management of liquid resources........................................ 385 -- 18 Financing--issue of shares............................................ 5842 -- -- --increase/(decrease) in debt................................. 16,894 (3,100) (6,200) ------------- ------------- ------------- 22,736 (3,100) (6,200) ------------- ------------- ------------- INCREASE IN CASH FOR THE PERIOD....................................... 3,936 6,854 5,875 ------------- ------------- ------------- ------------- ------------- -------------
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT (UNAUDITED)
26 WEEKS 26 WEEKS 53 WEEKS ENDED 28 ENDED 22 ENDED 30 SEPTEMBER SEPTEMBER MARCH 1997 1997 1996 ----------- ------------- ------------- L'000 L'000 L'000 INCREASE IN CASH IN THE PERIOD........................................... 3,936 6,854 5,875 Cash (inflow)/outflow from movement in debt.............................. (16,894) 3,100 6,200 Cash inflow from decrease in liquid resources............................ (385) -- (18) Other non cash changes................................................... 567 1,801 (379) Translation differences.................................................. 295 (637) (871) ------------- ------ ----------- MOVEMENT IN NET DEBT IN THE PERIOD....................................... (12,481) 11,118 10,807 NET FUNDS/(DEBT) AT BEGINNING OF PERIOD.................................. 2,140 (8,667) (8,667) ------------- ------ ----------- NET (DEBT)/FUNDS AT END OF PERIOD........................................ (10,341) 2,451 2,140 ------------- ------ ----------- ------------- ------ -----------
A-39 NOTES TO THE INTERIM FINANCIAL INFORMATION (UNAUDITED) 1. BASIS OF PREPARATION The interim financial information has been prepared in accordance with the accounting policies set out in the statutory accounts of London Clubs International plc and its subsidiaries for the 53 weeks ended 30 March 1997. The unaudited interim financial information has been approved by the directors and reviewed by the auditors. The statutory accounts of London Clubs International plc and its subsidiaries for the 53 weeks ended 30 March 1997 have been filed with the Registrar of Companies and contained no qualifications nor statements under Section 237 of the Companies Act 1985. 2. TAXATION The charge for taxation has been calculated on the basis of the taxable results for the period, after taking appropriate account of permanent and timing differences, assuming a UK corporation tax rate of 31% (1996: 33%). The current period tax charge includes a credit of L805,000 relating to adjustments in respect of prior years. 3. EARNINGS PER ORDINARY SHARE Earnings per ordinary share for each period have been calculated on profit on ordinary activities after taxation divided by the weighted average number of ordinary shares deemed to be in issue during the period. During the 26 weeks to 28 September 1997 the company's issued share capital was increased by 5,347,200 ordinary shares arising from the exercise of options under the company's executive share option scheme. The earnings and weighted average number of shares used in the calculation of basic earnings per share were as follows:
26 WEEKS 26 WEEKS 53 WEEKS ENDED ENDED ENDED 28 SEPTEMBER 22 SEPTEMBER 30 MARCH 1997 1996 1997 ------------ ------------ ----------- Earnings per ordinary share (p).......................................... 6.8 8.9 16.0 Earnings (L'000)......................................................... 9,861 12,634 22,655 Weighted average number of shares ('000)................................. 141,785 141,557 141,557
Earnings per ordinary share before exceptional bid costs in respect of the abortive bid for Capital Corporation Plc have been calculated as 6.9 pence per share for the 26 weeks ended 28 September 1997 and as 16.8 pence per share for the 53 weeks ended 30 March 1997. These figures are based upon the profit after taxation but before exceptional bid costs of L9,970,000 and of L23,735,000 for the respective periods noted above. The weighted average number of shares used in the calculations for each period are the same as set out in the above table. No tax credit is assumed to arise on the bid costs. 4. DIVIDENDS The interim dividend of 2.625p net per share will be paid on 30 January 1998. The net cost of L3.856 million appears in the consolidated profit and loss account for the 26 weeks ended 28 September 1997. A-40 NOTES TO THE INTERIM FINANCIAL INFORMATION (UNAUDITED) (CONTINUED) 5. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES
26 WEEKS 26 WEEKS 53 WEEKS ENDED ENDED ENDED 28 SEPTEMBER 22 SEPTEMBER 30 MARCH 1997 1996 1997 ------------- ------------- ----------- L'000 L'000 L'000 Operating profit before interest and taxation............................ 14,312 19,897 36,397 Depreciation............................................................. 1,918 2,092 3,418 Loss/(gain) on sale of fixed assets...................................... 3 (5) 75 Exchange movements....................................................... (39) 74 305 Movement in stocks....................................................... 20 81 (195) Movement in debtors...................................................... (6,545) (3,542) (784) Movement in creditors.................................................... (2,914) 4,855 5,590 ------ ------ ----------- Net cash inflow from operating activities................................ 6,755 23,452 44,806 ------ ------ ----------- ------ ------ -----------
A-41 The following represents the review report issued by Price Waterhouse, London to the Board of Directors of London Clubs International plc. The review was undertaken in accordance with guidance issued by the Auditing Practices Board in the United Kingdom (UK). The accompanying interim financial information has been prepared in conformity with UK generally accepted accounting principles. REVIEW REPORT BY THE AUDITORS TO THE BOARD OF DIRECTORS OF LONDON CLUBS INTERNATIONAL PLC We have reviewed the interim financial information for the 26 weeks ended 28 September 1997, set out on pages A-37 to A-41 which is the responsibility of, and has been approved by, the Directors. Our responsibility is to report on the results of our review. Our review was carried out having regard to the Bulletin "Review of Interim Financial Information", issued by the Auditing Practices Board. This review consisted principally of applying analytical procedures to the underlying financial data, assessing whether accounting policies have been consistently applied, and making enquiries of group management responsible for financial and accounting matters. The review excluded audit procedures such as tests of controls and verification of assets and liabilities and was therefore substantially less in scope than an audit performed in accordance with Auditing Standards. Accordingly we do not express an audit opinion on the interim financial information. On the basis of our review: - in our opinion the interim financial information has been prepared using accounting policies consistent with those adopted by London Clubs International plc and its subsidiaries in the financial statements for the 53 weeks ended 30 March 1997, and - we are not aware of any material modifications that should be made to the interim financial information as presented. PRICE WATERHOUSE CHARTERED ACCOUNTANTS London 5 December 1997 A-42 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THE WARRANTS OR THE WARRANT SHARES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN AFFAIRS OF THE ALADDIN PARTIES SINCE THE DATE HEREOF. -------------- TABLE OF CONTENTS
PAGE --------- Prospectus Summary.............................. 1 Risk Factors.................................... 15 Use of Proceeds................................. 32 Capitalization.................................. 34 Dividends and Distributions..................... 36 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 37 Business........................................ 40 Regulation and Licensing........................ 68 Management...................................... 73 Controlling Stockholders........................ 80 Certain Transactions............................ 84 Security Ownership of Certain Beneficial Owners........................................ 86 Description of Capital Stock.................... 90 Description of the Warrants..................... 92 Description of Noteholder Completion Guaranty and Disbursement Agreement.................... 95 Description of Certain Indebtedness and Other Obligations................................... 101 Certain Material Agreements..................... 111 Certain United States Federal Income Tax Considerations................................ 136 Plan of Distribution............................ 138 Legal Matters................................... 138 Experts......................................... 139 Index to Historical Financial Information of the Aladdin Parties and the Company............... F-1 Annex A Certain Historical Consolidated Financial Information of London Clubs................. A-1
[LOGO] 2,215,000 WARRANTS TO PURCHASE SHARES OF COMMON STOCK OF ALADDIN GAMING ENTERPRISES, INC. --------------------- PROSPECTUS ---------------------------- , 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION. The following expenses (other than the SEC filing fee) are estimated. SEC Registration Fee.............................................. $ 4,425 Accounting Fees and Expenses...................................... $ 12,000 Printing and Engraving Expenses................................... $ 48,000 Legal Fees and Expenses (other than blue sky)..................... $ 175,000 Blue Sky Fees and Expenses........................................ $ 10,000 Transfer Agent and Registrar Fees................................. $ 1,500 Miscellaneous Expenses............................................ $ 5,000 --------- Total............................................................. $ 255,925 --------- ---------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The following summary of material provisions of the Articles of Incorporation and Bylaws of Aladdin Gaming Enterprises, Inc. (the "Issuer") and Nevada law does not purport to be complete and is subject to and qualified in its entirety by reference to Nevada law and the text of the Issuer's Articles of Incorporation and Bylaws, which have been filed as exhibits to this Registration Statement. The Issuer's Articles of Incorporation provide that no officer or director will be personally liable to the Issuer or any stockholder for damages for breach of fiduciary duty as a director or officer, except for (i) acts or omissions which involve intentional misconduct, fraud or knowing violation of the law, or (ii) the payment of distributions in violation of Nevada Revised Statutes ("NRS") Section78.300. Additionally, the Issuer's Bylaws limit the liability of its directors and officers (and, by action of the board of directors, its employees, and other persons) to the fullest extent permitted by Nevada law. If the Nevada law is subsequently amended to permit further limitation of personal liability of directors and officers, the liability of the Issuer's directors and officers will be eliminated or limited to the fullest extent permitted by Nevada law, as amended. Nevada law permits corporations to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (except in an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. This same permissible indemnification is not allowed as to any action or suit by or in the right of the corporation if the person has been adjudged by a court (after exhaustion of all appeals) to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that a court determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses, as the court deems proper. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in the defense of any claim, issue or matter therein, Nevada law requires that he must be indemnified by the corporation against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with that defense. II-1 The Issuer's Bylaws further provide that the Issuer may purchase and maintain insurance or make other financial arrangements for such indemnification and that such indemnification shall continue as to any indemnitee who has ceased to be a director or officer and shall inure to the benefit of his heirs, executors and administrators. The inclusion of the permissive indemnification provision in the Issuer's Bylaws may have the effect of reducing the likelihood of derivative litigation against directors and may discourage or deter stockholders or management from bringing a lawsuit against directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefitted the Issuer and its stockholders. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act") may be permitted to directors, officers or persons controlling the registrants pursuant to the foregoing provisions, the Issuer has been informed that in the opinion of the Securities and Exchange Commission (the "Commission") such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Pursuant to the registration rights agreement (the "Registration Rights Agreement") relating to the Warrants (the "Warrants") to acquire Class B Common Stock of the Issuer and the Class B Common Stock of the Issuer into which the Warrants are exercisable, the holders of such securities and certain underwriters, broker dealers and the Initial Purchasers (as defined herein) have agreed to indemnify the directors, officers and controlling persons of the registrant against certain liabilities, costs and expenses that may be incurred in connection with the registration of such securities, to the extent that such liabilities, costs and expenses that may be incurred in connection with the registration of such securities arise from an omission or untrue statement contained in information provided to the registrant by a holder of such securities, underwriter, broker dealer or Initial Purchaser. The Purchase Agreement, dated as of February 18, 1998 among Aladdin Gaming Holdings LLC, Aladdin Capital Corp. and the Issuer (collectively, the "Unit Issuers") and Merrill Lynch, Pierce, Fenner and Smith Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheiner Corp. and Scotia Capital Markets (USA) Inc. (the "Initial Purchasers"), contains provisions by which the Initial Purchasers agree to indemnify the Unit Issuers (including their respective officers, directors, employees, agents and controlling persons) against certain liabilities. ITEM 16. EXHIBITS.
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ---------- -------------------------------------------------------------------------------------------------------- TRIANGLE.31 Articles of Incorporation of Aladdin Gaming Enterprises, Inc. ("Enterprises"). TRIANGLE.32 Amendment No. 1 to Articles of Incorporation of Enterprises. TRIANGLE.33 Articles of Organization of Aladdin Gaming Holdings, LLC ("Holdings"). TRIANGLE.34 Articles of Incorporation of Aladdin Capital Corp. ("Capital"). TRIANGLE.35 Articles of Organization of Aladdin Gaming, LLC (the "Company"). TRIANGLE.36 Bylaws of Enterprises. +3.7 Operating Agreement of Holdings. TRIANGLE.38 Bylaws of Capital. TRIANGLE.39 Operating Agreement of the Company. TRIANGLE.41 Warrant Agreement, dated February 26, 1998, among Enterprises and State Street Bank and Trust Company, as Warrant Agent (the "Warrant Agent").
II-2
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ---------- -------------------------------------------------------------------------------------------------------- TRIANGLE.42 Warrant Registration Rights Agreement dated February 26, 1998, among Enterprises and the Initial Purchasers (as defined). TRIANGLE.43 Equity Participation Agreement, dated February 26, 1998, among Sommer Enterprises, LLC, Enterprises, London Clubs Nevada, Inc. ("LCNI") and the Trustee (as defined). +5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding legality of securities being registered. +5.2 Opinion of Schreck Morris regarding legality of the securities being registered. +8.1 Opinion of Skadden, Arps, Slate, Meagher and Flom LLP regarding certain tax matters. TRIANGLE.101 Indenture, dated February 26, 1998, among Holdings, Capital and State Street Bank and Trust Company, as trustee (the "Trustee"). TRIANGLE.102 Note Registration Rights Agreement, dated February 26, 1998, among Holdings, Capital and the Initial Purchasers. +10.3 Noteholder Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth u/w/o Sigmund Sommer, London Clubs International plc ("London Clubs"), Aladdin Bazaar Holdings, LLC and the Trustee. +10.4 Disbursement Agreement, dated February 26, 1998, among Holdings, the Company, the Bank of Nova Scotia, as Administrative Agent under the Bank Credit Facility, Disbursement Agent, and Securities Intermediary, U.S. Bank National Association as Servicing Agent and the Trustee. +10.5 The LLC Interest Pledge and Security Agreement, dated February 26, 1998, between Holdings and the Trustee. +10.6 The Holdings Collateral Account Agreement, dated February 26, 1998, between Holdings and the Trustee. TRIANGLE.107 Subsidiary Guaranty, dated February 26, 1998, among subsidiaries of London Clubs and the Trustee. TRIANGLE.108 Amended and Restated London Clubs Purchase Agreement, dated February 26, 1998, among LCNI, London Clubs, Holdings, Aladdin Holdings, LLC, the Company, Sommer Enterprises, LLC and the Trust Under Article Sixth u/w/o Sigmund Sommer. TRIANGLE.109 Closing Schedules to Amended and Restated London Clubs Purchase Agreement. TRIANGLE.1010 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. TRIANGLE.1011 Salle Privee Agreement, dated February 26, 1998, among the Company, LCNI and London Clubs. 10.12 [RESERVED] +10.13 Credit Agreement, dated February 26, 1998, among the Company, a syndicate of lenders (the "Bank Lenders"), The Bank of Nova Scotia as Administrative Agent, Merrill Lynch Capital Corporation as Syndication Agent and CIBC Oppenheimer Corp. as Documentation Agent. +10.14 Bank Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth u/ w/o Sigmund Sommer, London Clubs, Aladdin Bazaar Holdings, LLC and the Bank Lenders. +10.15 Keep-Well Agreement, dated February 26, 1998, among Aladdin Holdings, LLC, London Clubs and Aladdin Bazaar Holdings, LLC.
II-3
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ---------- -------------------------------------------------------------------------------------------------------- TRIANGLE.1016 Design/Build Contract, dated December 4, 1997, between the Company and Fluor Daniel, Inc. +10.17 Amendment No. 1 to Design/Build Contract, dated January 21, 1998, between the Company and Fluor Daniel, Inc. +10.18 Amendment No. 2 to Design/Build Contract, dated January 28, 1998, between the Company and Fluor Daniel, Inc. +10.19 Fluor Guaranty, dated December 4, 1997, between the Company and Fluor Corporation. +10.20 Site Work, Development and Construction Agreement, dated February 26, 1998, among the Company, Aladdin Bazaar, LLC and Aladdin Holdings, LLC. +10.21 Construction, Operation and Reciprocal Easement Agreement, dated February 26, 1998, among the Company, Aladdin Bazaar, LLC and Aladdin Music Holdings, LLC. +10.22 Common Parking Area Use Agreement, dated February 26, 1998 between the Company and Aladdin Bazaar, LLC. *10.23 Music Project Lease, dated February 26, 1998, between the Company and Aladdin Music Holdings, LLC. +10.24 Mall Project Lease, dated February 26, 1998, between the Company and Aladdin Bazaar, LLC. +10.25 Deed of Trust, Assignment of Rents and Leases, Fixture Filing and Security Agreement, dated February 26, 1998, made by the Company to Stewart Title of Nevada, as trustee for the benefit of the Bank of Nova Scotia. TRIANGLE.1026 Development Agreement, dated December 3, 1997, between the Company and Northwind Aladdin, LLC. *10.27 Energy Service Agreement, dated , 1998, between the Company and Northwind Aladdin, LLC. TRIANGLE.1028 Energy Lease, dated December 3, 1997, between the Company and Northwind Aladdin, LLC. TRIANGLE.1029 Unicom Guaranty, dated December 3, 1997, between Unicom Corporation and the Company. TRIANGLE.1030 Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated September 3, 1997, between TH Bazaar Centers Inc. and Aladdin Bazaar Holdings, LLC. TRIANGLE.1031 First Amendment to the Limited Liability Company Operating Agreement of Aladdin Bazaar, LLC, dated October 16, 1997. +10.32 Music Project Memorandum of Understanding and Letter of Intent, dated September 2, 1997, between the Company and Planet Hollywood International, Inc. +10.33 Amendment to Music Project Memorandum of Understanding and Letter of Intent, dated October 15, 1997, between the Company and Planet Hollywood International, Inc. TRIANGLE.1034 GAI Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and GAI, LLC. TRIANGLE.1035 Goeglein Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and Richard J. Goeglein. TRIANGLE.1036 McKennon Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and James H. McKennon. TRIANGLE.1037 Klerk Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and Cornelius T. Klerk.
II-4
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ---------- -------------------------------------------------------------------------------------------------------- TRIANGLE.1038 Galati Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings, and Lee A. Galati. TRIANGLE.1039 Rueda Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and Jose A. Rueda. +10.40 GAI Consulting Agreement, dated July 1, 1997, between GAI, LLC and the Company as amended as of January 1998. +10.41 Employment and Consulting Agreement, dated July 1, 1997, between the Company and Richard J. Goeglein as amended as of January 1998. +10.42 Employment Agreement, dated July 28, 1997, between the Company and James H. McKennon. +10.43 Employment Agrement, dated July 28, 1997, between the Company and Cornelius T. Klerk. +10.44 Employment Agreement, dated August 19, 1997, between the Company and Lee A. Galati. +10.45 Employment Agreement, dated July 1, 1997, between the Company and Jose A. Rueda. TRIANGLE.1046 FF&E Commitment Letter, dated January 23, 1998, between the Company and General Electric Capital Corporation. +10.47 Mall Commitment Letter, dated December 29, 1997, between Aladdin Bazaar, LLC and Fleet National Bank, as Administrative Agent. TRIANGLE.1048 Purchase Agreement, dated February 18, 1998, among Enterprises, Holdings, Capital, Aladdin Holdings, LLC, the Trust Under Article Sixth u/w/o Sigmund Sommer, London Clubs and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer Corp. and Scotia Capital Markets (USA) Inc. (the "Initial Purchasers"). +10.49 Contributed Land Appraisal prepared by HVS International. +10.50 Second Amendment to Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated May 1998. +23.1 Consent of Arthur Andersen LLP. TRIANGLE.232 Consent of Price Waterhouse. +23.3 Consent of Schreck Morris (included in exhibit 5.1). +23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in exhibits 5.1 and 8.1). TRIANGLE.235 Awareness Letter from Price Waterhouse.
- ------------------------ + Filed herewith. * To be filed by amendment. TRIANGLE Previously filed. II-5 ITEM 17. UNDERTAKINGS. (a) The undersigned Registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, (ii) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 per cent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement, and (iii) to include any material information with respect to the plan for distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) To file a post-effective amendment to the registration statement to include any financial statements required by Rule 3-19 of Regulation S-X at the start of any delayed offering or throughout a continuous offering. (b) The undersigned registrant hereby undertakes to supplement the prospectus, after the expiration of the subscription period, to set forth the results of the subscription offer, the transactions by the underwriters during the subscription period, the amount of unsubscribed securities to be purchased by the underwriters, and the terms of any subsequent reoffering thereof. If any public offering by the underwriters is to be made on terms differing from those set forth on the cover page of the prospectus, a post-effective amendment will be filed to set forth the terms of such offering. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrants pursuant to the foregoing provisions, or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrants of expenses incurred or paid by a director, officer or controlling person of the Registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. II-6 (d) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Las Vegas, State of Nevada on June 5, 1998. ALADDIN GAMING ENTERPRISES, INC. By: /s/ Jack Sommer ----------------------------------------- Jack Sommer PRESIDENT/DIRECTOR
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Cornelius T. Klerk and Ronald Dictrow, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his name, place and stead, in any and all capacities to sign any or all amendments (including post-effective amendments) to this Registration Statement and any or all other documents in connection therewith, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission granting unto said attorneys-in-fact and agents authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all said attorneys-in-fact and agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- /s/ JACK SOMMER - ------------------------------ President/Director June 5, 1998 Jack Sommer /s/ RONALD DICTROW - ------------------------------ Secretary/Director June 5, 1998 Ronald Dictrow /s/ CORNELIUS T. KLERK - ------------------------------ Treasurer June 5, 1998 Cornelius T. Klerk II-8 EXHIBIT INDEX
EXHIBIT PAGE - --------- ----- TRIANGLE.31 Articles of Incorporation of Aladdin Gaming Enterprises, Inc. ("Enterprises"). TRIANGLE.32 Amendment No. 1 to Articles of Incorporation of Enterprises. TRIANGLE.33 Articles of Organization of Aladdin Gaming Holdings, LLC ("Holdings"). TRIANGLE.34 Articles of Incorporation of Aladdin Capital Corp. ("Capital"). TRIANGLE.35 Articles of Organization of Aladdin Gaming, LLC (the "Company"). TRIANGLE.36 Bylaws of Enterprises. +3.7 Operating Agreement of Holdings. TRIANGLE.38 Bylaws of Capital. TRIANGLE.39 Operating Agreement of the Company. TRIANGLE.41 Warrant Agreement, dated February 26, 1998, among Enterprises and State Street Bank and Trust Company, as Warrant Agent (the "Warrant Agent"). TRIANGLE.42 Warrant Registration Rights Agreement dated February 26, 1998, among Enterprises and the Initial Purchasers (as defined). TRIANGLE.43 Equity Participation Agreement, dated February 26, 1998, among Sommer Enterprises, LLC, Enterprises, London Clubs Nevada, Inc. ("LCNI") and the Trustee (as defined). +5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding legality of securities being registered. +5.2 Opinion of Schreck Morris regarding legality of the securities being registered. +8.1 Opinion of Skadden, Arps, Slate, Meagher and Flom LLP regarding certain tax matters. TRIANGLE.101 Indenture, dated February 26, 1998, among Holdings, Capital and State Street Bank and Trust Company, as trustee (the "Trustee"). TRIANGLE.102 Note Registration Rights Agreement, dated February 26, 1998, among Holdings, Capital and the Initial Purchasers. +10.3 Noteholder Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth u/w/o Sigmund Sommer, London Clubs International plc ("London Clubs"), Aladdin Bazaar Holdings, LLC and the Trustee. +10.4 Disbursement Agreement, dated February 26, 1998, among Holdings, the Company, the Bank of Nova Scotia, as Administrative Agent under the Bank Credit Facility, Disbursement Agent, and Securities Intermediary, U.S. Bank National Association as Servicing Agent and the Trustee. +10.5 The LLC Interest Pledge and Security Agreement, dated February 26, 1998, between Holdings and the Trustee. +10.6 The Holdings Collateral Account Agreement, dated February 26, 1998, between Holdings and the Trustee. TRIANGLE.107 Subsidiary Guaranty, dated February 26, 1998, among subsidiaries of London Clubs and the Trustee. TRIANGLE.108 Amended and Restated London Clubs Purchase Agreement, dated February 26, 1998, among LCNI, London Clubs, Holdings, Aladdin Holdings, LLC, the Company, Sommer Enterprises, LLC and the Trust Under Article Sixth u/w/o Sigmund Sommer. TRIANGLE.109 Closing Schedules to Amended and Restated London Clubs Purchase Agreement. TRIANGLE.1010 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. TRIANGLE.1011 Salle Privee Agreement, dated February 26, 1998, among the Company, LCNI and London Clubs.
EXHIBIT PAGE - --------- ----- 10.12 [RESERVED] +10.13 Credit Agreement, dated February 26, 1998, among the Company, a syndicate of lenders (the "Bank Lenders"), The Bank of Nova Scotia as Administrative Agent, Merrill Lynch Capital Corporation as Syndication Agent and CIBC Oppenheimer Corp. as Documentation Agent. +10.14 Bank Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth u/w/o Sigmund Sommer, London Clubs, Aladdin Bazaar Holdings, LLC and the Bank Lenders. +10.15 Keep-Well Agreement, dated February 26, 1998, among Aladdin Holdings, LLC, London Clubs and Aladdin Bazaar Holdings, LLC. TRIANGLE.1016 Design/Build Contract, dated December 4, 1997, between the Company and Fluor Daniel, Inc. +10.17 Amendment No. 1 to Design/Build Contract, dated January 21, 1998, between the Company and Fluor Daniel, Inc. +10.18 Amendment No. 2 to Design/Build Contract, dated January 28, 1998, between the Company and Fluor Daniel, Inc. +10.19 Fluor Guaranty, dated December 4, 1997, between the Company and Fluor Corporation. +10.20 Site Work, Development and Construction Agreement, dated February 26, 1998, among the Company, Aladdin Bazaar, LLC and Aladdin Holdings, LLC. +10.21 Construction, Operation and Reciprocal Easement Agreement, dated February 26, 1998, among the Company, Aladdin Bazaar, LLC and Aladdin Music Holdings, LLC. +10.22 Common Parking Area Use Agreement, dated February 26, 1998 between the Company and Aladdin Bazaar, LLC. *10.23 Music Project Lease, dated February 26, 1998, between the Company and Aladdin Music Holdings, LLC. +10.24 Mall Project Lease, dated February 26, 1998, between the Company and Aladdin Bazaar, LLC. +10.25 Deed of Trust, Assignment of Rents and Leases, Fixture Filing and Security Agreement, dated February 26, 1998, made by the Company to Stewart Title of Nevada, as trustee for the benefit of the Bank of Nova Scotia. TRIANGLE.1026 Development Agreement, dated December 3, 1997, between the Company and Northwind Aladdin, LLC. *10.27 Energy Service Agreement, dated , 1998, between the Company and Northwind Aladdin, LLC. TRIANGLE.1028 Energy Lease, dated December 3, 1997, between the Company and Northwind Aladdin, LLC. TRIANGLE.1029 Unicom Guaranty, dated December 3, 1997, between Unicom Corporation and the Company. TRIANGLE.1030 Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated September 3, 1997, between TH Bazaar Centers Inc. and Aladdin Bazaar Holdings, LLC. TRIANGLE.1031 First Amendment to the Limited Liability Company Operating Agreement of Aladdin Bazaar, LLC, dated October 16, 1997. +10.32 Music Project Memorandum of Understanding and Letter of Intent, dated September 2, 1997, between the Company and Planet Hollywood International, Inc. +10.33 Amendment to Music Project Memorandum of Understanding and Letter of Intent, dated October 15, 1997, between the Company and Planet Hollywood International, Inc.
EXHIBIT PAGE - --------- ----- TRIANGLE.1034 GAI Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and GAI, LLC. TRIANGLE.1035 Goeglein Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and Richard J. Goeglein. TRIANGLE.1036 McKennon Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and James H. McKennon. TRIANGLE.1037 Klerk Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and Cornelius T. Klerk. TRIANGLE.1038 Galati Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings, and Lee A. Galati. TRIANGLE.1039 Rueda Contribution and Amendment Agreement, dated February 26, 1998, among the Company, Holdings and Jose A. Rueda. +10.40 GAI Consulting Agreement, dated July 1, 1997, between GAI, LLC and the Company as amended as of January 1998. +10.41 Employment and Consulting Agreement, dated July 1, 1997, between the Company and Richard J. Goeglein as amended as of January 1998. +10.42 Employment Agreement, dated July 28, 1997, between the Company and James H. McKennon. +10.43 Employment Agrement, dated July 28, 1997, between the Company and Cornelius T. Klerk. +10.44 Employment Agreement, dated August 19, 1997, between the Company and Lee A. Galati. +10.45 Employment Agreement, dated July 1, 1997, between the Company and Jose A. Rueda. TRIANGLE.1046 FF&E Commitment Letter, dated January 23, 1998, between the Company and General Electric Capital Corporation. +10.47 Mall Commitment Letter, dated December 29, 1997, between Aladdin Bazaar, LLC and Fleet National Bank, as Administrative Agent. TRIANGLE.1048 Purchase Agreement, dated February 18, 1998, among Enterprises, Holdings, Capital, Aladdin Holdings, LLC, the Trust Under Article Sixth u/w/o Sigmund Sommer, London Clubs and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer Corp. and Scotia Capital Markets (USA) Inc. (the "Initial Purchasers"). +10.49 Contributed Land Appraisal prepared by HVS International. +10.50 Second Amendment to Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated May 1998. +23.1 Consent of Arthur Andersen LLP. TRIANGLE.232 Consent of Price Waterhouse. +23.3 Consent of Schreck Morris (included in exhibit 5.1). +23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in exhibits 5.1 and 8.1). TRIANGLE.235 Awareness Letter from Price Waterhouse.
- ------------------------ + Filed herewith. * To be filed by amendment. TRIANGLE Previously filed. EX-3.7 2 EXHIBIT 3.7 OPERATING AGMT OF HOLDINGS OPERATING AGREEMENT OF ALADDIN GAMING HOLDINGS, LLC, A NEVADA LIMITED LIABILITY COMPANY TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS 1.1 Above Limits Gaming . . . . . . . . . . . . . . . . . . . . . . . . . .2 1.2 Above Limits Gaming Losses. . . . . . . . . . . . . . . . . . . . . . .2 1.3 Above Limits Gaming Period. . . . . . . . . . . . . . . . . . . . . . .2 1.4 Above Limits Gaming Wins. . . . . . . . . . . . . . . . . . . . . . . .2 1.5 Accepting Members . . . . . . . . . . . . . . . . . . . . . . . . . . .2 1.6 Adjusted Capital Account Deficit. . . . . . . . . . . . . . . . . . . .2 1.7 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 1.8 Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 1.9 Aladdin Development . . . . . . . . . . . . . . . . . . . . . . . . . .3 1.10 Aladdin Gaming. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 1.11 Aladdin Holdings. . . . . . . . . . . . . . . . . . . . . . . . . . . .3 1.12 Applicable Percentage . . . . . . . . . . . . . . . . . . . . . . . . .3 1.13 Articles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 1.14 Assumed Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 1.15 Available Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 1.16 Bank Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 1.17 Bank Lenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 1.18 Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 1.19 Bazaar. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 1.20 Bazaar Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 1.21 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 1.22 Board Member. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 1.23 Board Supermajority . . . . . . . . . . . . . . . . . . . . . . . . . .4 1.24 Call. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 1.25 Capital Account . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 1.26 Capital Contribution. . . . . . . . . . . . . . . . . . . . . . . . . .5 1.27 Caused. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.28 Certificate of Shares . . . . . . . . . . . . . . . . . . . . . . . . .5 1.29 Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.30 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.31 Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.32 Completion Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.33 Completion Guaranty Loan. . . . . . . . . . . . . . . . . . . . . . . .5 1.34 Completion Guaranty Payment . . . . . . . . . . . . . . . . . . . . . .5 1.35 Completion Guaranty Payment Due Date. . . . . . . . . . . . . . . . . .6 i 1.36 Contributing Obligor. . . . . . . . . . . . . . . . . . . . . . . . . .6 1.37 Contribution Agreement. . . . . . . . . . . . . . . . . . . . . . . . .6 1.38 Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.39 Covered Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.40 Credit Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.41 Cumulative Tax Liability Account. . . . . . . . . . . . . . . . . . . .6 1.42 Delinquent Amount . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.43 Dilution Fraction . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.44 Disassociated Member. . . . . . . . . . . . . . . . . . . . . . . . . .7 1.45 Discount Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 1.46 Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 1.47 EBITDA Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 1.48 EBITDA Shortfall Due Date.. . . . . . . . . . . . . . . . . . . . . . .7 1.49 EBITDA Shortfall Loan.. . . . . . . . . . . . . . . . . . . . . . . . .7 1.50 EBITDA Shortfall Payments.. . . . . . . . . . . . . . . . . . . . . . .7 1.51 Employment and Consulting Agreements. . . . . . . . . . . . . . . . . .7 1.52 Equity Participation Agreement. . . . . . . . . . . . . . . . . . . . .8 1.53 Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.54 Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.55 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.56 Gaming Problem. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.57 Gross Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.58 Hotel and Casino EBITDA Difference. . . . . . . . . . . . . . . . . . .9 1.59 Hotel and Casino Percentage . . . . . . . . . . . . . . . . . . . . . .9 1.60 Hotel and Casino Projected EBITDA . . . . . . . . . . . . . . . . . . .9 1.61 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 1.62 IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.63 IPO Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.64 Keep Well Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.65 Keep Well Due Date. . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.66 Keep Well Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.67 Keep Well Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.68 LCI Parent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.69 LCI Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . . . 10 1.70 Majority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.71 Majority Member . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.72 Member. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.73 Member Nonrecourse Debt . . . . . . . . . . . . . . . . . . . . . . . 11 1.74 Member Nonrecourse Debt Minimum Gain. . . . . . . . . . . . . . . . . 11 1.75 Member Nonrecourse Deductions . . . . . . . . . . . . . . . . . . . . 11 1.76 Minimum Gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ii 1.77 Mountain Spa Resort . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.78 Net Above Limits Gaming Losses. . . . . . . . . . . . . . . . . . . . 11 1.79 Nevada Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.80 Nevada Commission . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.81 Nevada Gaming Authorities . . . . . . . . . . . . . . . . . . . . . . 11 1.82 Non-Contributing Obligor. . . . . . . . . . . . . . . . . . . . . . . 12 1.83 Non-Default Keep Well Trigger . . . . . . . . . . . . . . . . . . . . 12 1.84 Non-Exercise Notice . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.85 Nonrecourse Deductions. . . . . . . . . . . . . . . . . . . . . . . . 12 1.86 Normal Gaming Limits. . . . . . . . . . . . . . . . . . . . . . . . . 12 1.87 Notice of Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.88 NRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.89 Offer Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.90 Offered Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.91 Offeror . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.92 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.93 Opening Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.94 Oversubscribed Tag Along Member . . . . . . . . . . . . . . . . . . . 12 1.95 Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.96 Percentage Interest . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.97 Permitted Transferee. . . . . . . . . . . . . . . . . . . . . . . . . 13 1.98 Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.99 Preferred Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.100 Profits and Losses. . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.101 Prohibited Transferee . . . . . . . . . . . . . . . . . . . . . . . . 14 1.102 Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.103 Proportionate Percentage. . . . . . . . . . . . . . . . . . . . . . . 15 1.104 Purchase Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.105 Purchasing Member . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.106 Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.107 Reciprocal Easement Agreement . . . . . . . . . . . . . . . . . . . . 15 1.108 Records Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.109 Redevelopment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.111 Refusal Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.112 Related Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.113 Restricted Membership Interests . . . . . . . . . . . . . . . . . . . 16 1.114 Remaining Tag Along Shares. . . . . . . . . . . . . . . . . . . . . . 16 1.115 Salle Privee Agreement. . . . . . . . . . . . . . . . . . . . . . . . 16 1.116 Salle Privee Amount . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.117 Salle Privee EBITDA Difference. . . . . . . . . . . . . . . . . . . . 16 1.118 Salle Privee Facilities . . . . . . . . . . . . . . . . . . . . . . . 16 iii 1.119 Salle Privee Percentage . . . . . . . . . . . . . . . . . . . . . . . 16 1.120 Salle Privee Projected EBITDA . . . . . . . . . . . . . . . . . . . . 17 1.121 Second Hotel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.122 Secretary of State. . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.123 Securities Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.124 Selling Member. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.125 Series A Invested Capital.. . . . . . . . . . . . . . . . . . . . . . 17 1.126 Series A Preferred Return . . . . . . . . . . . . . . . . . . . . . . 17 1.127 Series B Preferred Shares . . . . . . . . . . . . . . . . . . . . . . 17 1.128 Series B Invested Capital . . . . . . . . . . . . . . . . . . . . . . 17 1.129 Series B Preferred Rate.. . . . . . . . . . . . . . . . . . . . . . . 17 1.130 Series B Preferred Return . . . . . . . . . . . . . . . . . . . . . . 18 1.131 Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.132 Shopping Center . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.133 Stockholders and Registration Rights Agreement. . . . . . . . . . . . 18 1.134 Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.135 Substituted Member. . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.136 Supermajority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.137 Tag Along Members . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.138 Tag Along Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.139 Tag Along Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.140 Tag Along Period. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.141 Tag Along Price Per Share . . . . . . . . . . . . . . . . . . . . . . 19 1.142 Tag Along Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.143 Tag Along Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.144 Tag Along Transferee. . . . . . . . . . . . . . . . . . . . . . . . . 19 1.145 Tax Matters Partner . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.146 Timeshare Parcel. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.147 Total Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.148 Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.149 Transferor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.150 Treasury Regulations. . . . . . . . . . . . . . . . . . . . . . . . . 19 1.151 Trigger Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.152 Triggering Member . . . . . . . . . . . . . . . . . . . . . . . . . . 20 1.153 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 1.154 Ultimate Percentage Interest. . . . . . . . . . . . . . . . . . . . . 20 1.158 Upstream Notice of Offer. . . . . . . . . . . . . . . . . . . . . . . 20 1.159 Upstream Offeror. . . . . . . . . . . . . . . . . . . . . . . . . . . 20 1.160 Upstream Ownership Interest . . . . . . . . . . . . . . . . . . . . . 20 1.161 Upstream Transferor . . . . . . . . . . . . . . . . . . . . . . . . . 20 1.162 Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 iv 1.163 Warrant Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1.164 Warrant Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE II INTRODUCTORY MATTERS . . . . . . . . . . . . . . . . . . . . . 2.1 Records Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.2 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.3 Resident Agent and Registered Office. . . . . . . . . . . . . . . . . 21 2.4 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.5 No State Law Partnership; No Liability to Third Parties . . . . . . . 21 ARTICLE III INTERESTS AND ADJUSTMENTS IN INTERESTS 3.1 Member's Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.2 Classes of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.3 Completion Guaranty Payments. . . . . . . . . . . . . . . . . . . . . 23 3.4 Keep Well Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.5 EBITDA Shortfall Payments . . . . . . . . . . . . . . . . . . . . . . 27 3.6 Other Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.7 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 3.8 UCC Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE IV CAPITAL ACCOUNTS 4.1 Initial Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 4.2 Capital Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 31 4.3 General Rules for Adjustment of Capital Accounts. . . . . . . . . . . 31 4.4 Special Rules With Respect to Capital Accounts. . . . . . . . . . . . 33 4.5 Rights With Respect to Capital; Interest. . . . . . . . . . . . . . . 33 4.6 Additional Capital Contributions. . . . . . . . . . . . . . . . . . . 33 4.7 Adjustment of Capital Accounts On Redemption of Discount Not. . . . . 33 v ARTICLE V PROFITS AND LOSSES 5.1 Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 5.2 Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 5.3 Special Allocations . . . . . . . . . . . . . . . . . . . . . . . . . 35 5.4 Section 704(c) Allocation . . . . . . . . . . . . . . . . . . . . . . 36 5.5 Federal Income Tax. . . . . . . . . . . . . . . . . . . . . . . . . . 37 ARTICLE VI DISTRIBUTIONS 6.1 Tax Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 37 6.2 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 6.3 Limitations on Distribution . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE VII MEMBERS 7.1 Powers of Members . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.2 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . 39 7.3 Compensation of Members . . . . . . . . . . . . . . . . . . . . . . . 39 7.4 Action by the Members . . . . . . . . . . . . . . . . . . . . . . . . 39 7.5 Member Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.6 LCI Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 7.7 Meetings of Members . . . . . . . . . . . . . . . . . . . . . . . . . 42 7.8 Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . 43 7.9 Adjourned Meetings and Notice Thereof . . . . . . . . . . . . . . . . 43 7.10 Action by Written Consent . . . . . . . . . . . . . . . . . . . . . . 43 7.11 Telephonic Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 43 7.12 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 vi ARTICLE VIII RESIGNATION, TRANSFER OF SHARES, CHANGE IN CONTROL, TRUST MEMBERS 8.1 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 8.2 Transfers of Interests. . . . . . . . . . . . . . . . . . . . . . . . 44 8.3 Right of First Offer and Last Refusal . . . . . . . . . . . . . . . . 44 8.4 Tag Along Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 46 8.5 Transfers To Permitted Transferees. . . . . . . . . . . . . . . . . . 47 8.6 Transfer of Ownership Interests in Members. . . . . . . . . . . . . . 47 8.7 Call. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 8.8 Conveyance to Living Trust. . . . . . . . . . . . . . . . . . . . . . 49 8.9 Gaming Control Act. . . . . . . . . . . . . . . . . . . . . . . . . . 49 8.10 Further Restriction on Transfer of Shares . . . . . . . . . . . . . . 49 ARTICLE IX BOARD OF MANAGERS 9.1 Board of Managers . . . . . . . . . . . . . . . . . . . . . . . . . . 50 9.2 Powers and Duties of the Board. . . . . . . . . . . . . . . . . . . . 52 9.3 Election of Officers. . . . . . . . . . . . . . . . . . . . . . . . . 52 9.4 Removal, Resignation and Vacancies. . . . . . . . . . . . . . . . . . 52 9.5 Meetings of the Board . . . . . . . . . . . . . . . . . . . . . . . . 53 9.6 Compensation of Board Members; Compensation of Officers . . . . . . . 54 9.7 Expense Reimbursements. . . . . . . . . . . . . . . . . . . . . . . . 54 ARTICLE X ACCOUNTING, RECORDS AND BANK ACCOUNTS 10.1 Records and Accounting. . . . . . . . . . . . . . . . . . . . . . . . 54 10.2 Access to Accounting Records. . . . . . . . . . . . . . . . . . . . . 54 10.3 Annual Tax Information. . . . . . . . . . . . . . . . . . . . . . . . 55 10.4 Obligations of Members to Report Allocations. . . . . . . . . . . . . 55 10.5 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 10.6 Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 10.7 Taxation as a Partnership . . . . . . . . . . . . . . . . . . . . . . 55 10.8 Tax Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 vii ARTICLE XI IPO 11.1 IPO Timing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 11.2 Pre-IPO Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . 56 11.3 Incorporation of Partnership. . . . . . . . . . . . . . . . . . . . . 57 ARTICLE XII DISSOLUTION OF THE COMPANY AND TERMINATION OF A MEMBER'S INTEREST 12.1 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 12.2 Death of a Member; Continuation . . . . . . . . . . . . . . . . . . . 57 12.3 Company's Option To Purchase Bankrupt Member's Interest . . . . . . . 57 12.4 Members' Option to Purchase Bankrupt Member's Interest. . . . . . . . 58 12.5 Distribution on Dissolution and Liquidation . . . . . . . . . . . . . 59 ARTICLE XIII LIABILITY, EXCULPATION AND INDEMNIFICATION 13.1 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 13.2 Fiduciary Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 13.3 Outside Businesses. . . . . . . . . . . . . . . . . . . . . . . . . . 61 13.4 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 13.5 Indemnity for Actions By or In the Right of the Company. . . . . . . 61 13.6 Indemnity If Successful . . . . . . . . . . . . . . . . . . . . . . . 62 13.7 Determination of Right to Indemnification . . . . . . . . . . . . . . 62 13.8 Advance Payment of Expenses . . . . . . . . . . . . . . . . . . . . . 62 13.9 Other Arrangements Not Excluded . . . . . . . . . . . . . . . . . . . 63 13.10 Errors and Omissions Insurance. . . . . . . . . . . . . . . . . . . . 63 13.11 Property of the Company . . . . . . . . . . . . . . . . . . . . . . . 64 13.12 Violation of this Agreement . . . . . . . . . . . . . . . . . . . . . 64 viii ARTICLE XIV GAMING MATTERS 14.1 LICENSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 14.2 NOMINEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 14.3 GAMING PROBLEM. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 ARTICLE XV NON-COMPETE 15.1 LCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 15.2 SOMMER ENTERPRISES. . . . . . . . . . . . . . . . . . . . . . . . . . 66 15.3 REASONABLE TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . 66 ARTICLE XVI MISCELLANEOUS PROVISIONS 16.1 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 16.2 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 16.3 MEMBERSHIP CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . 67 16.4 COMPLETE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 67 16.5 AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 16.6 APPLICABLE LAW; JURISDICTION. . . . . . . . . . . . . . . . . . . . . 68 16.7 INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 16.8 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 16.9 FACSIMILE COPIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 68 16.10 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 16.11 WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 16.12 NO THIRD PARTY BENEFICIARIES. . . . . . . . . . . . . . . . . . . . . 69 ix OPERATING AGREEMENT OF ALADDIN GAMING HOLDINGS, LLC, A NEVADA LIMITED LIABILITY COMPANY This Operating Agreement of Aladdin Gaming Holdings, LLC, a Nevada limited liability company (the "Company"), is made and entered into as of this 26 day of February, 1998, by and between Sommer Enterprises, LLC, a Nevada limited liability company ("Sommer Enterprises"), London Clubs Nevada Inc., a Nevada corporation ("LCI"), Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Aladdin Enterprises"), GAI, LLC, a Nevada limited liability company ("GAI"), and, from and after the vesting of their Interests as provided in their respective Employment and Consulting Agreements (as herein defined), Richard J. Goeglein ("Goeglein"), James H. McKennon ("McKennon"), Cornelius T. Klerk ("Klerk"), Jose A. Rueda ("Rueda") and Lee Galati ("Galati") (collectively, the "Parties"). R E C I T A L S A. Sommer Enterprises formed the Company on December 1, 1997 pursuant to the provisions of Chapter 86 of the Nevada Revised Statutes; B. On or prior to the date hereof the Parties have made the Capital Contributions set forth opposite their respective names on Schedule 1 in exchange for the number of Common Shares set forth opposite their respective names on Schedule 1, and, to the extent that they hold Shares that have vested, such Parties have been admitted as Members of the Company; and C. The Parties desire by this Agreement to set forth their agreement as to the relationships between the Company and the Members, and among the Parties themselves and as to the conduct of the business and the internal affairs of the Company. THEREFORE, in consideration of the mutual covenants, agreements and promises made herein, the Parties agree as follows: ARTICLE I DEFINITIONS 1.1 ABOVE LIMITS GAMING. "Above Limits Gaming" means all wagers made in the Salle Privee Facilities during the Above Limits Gaming period by any Person who has been granted the right by LCI Parent to exceed the Normal Gaming Limits. 1.2 ABOVE LIMITS GAMING LOSSES. "Above Limits Gaming Losses" means, with respect to a specified Quarter, the aggregate of the amounts won by customers from Aladdin Gaming in respect of Above Limits Gaming in such Quarter. 1.3 ABOVE LIMITS GAMING PERIOD. "Above Limits Gaming Period" means, with respect to a particular Person, the period during which LCI Parent has granted such Person the right to exceed the Normal Gaming Limits. 1.4 ABOVE LIMITS GAMING WINS. "Above Limits Gaming Wins" means, with respect to a specified Quarter, the aggregate of the amounts lost by customers to Aladdin Gaming in respect of Above Limits Gaming in such Quarter. 1.5 ACCEPTING MEMBERS. "Accepting Members" has the meaning ascribed thereto in Section 8.3. 1.6 ADJUSTED CAPITAL ACCOUNT DEFICIT. "Adjusted Capital Account Deficit" means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (a) increase such Capital Account by any amounts which such Member is obligated to contribute to the Company pursuant to the terms of this Agreement or otherwise, or is deemed to be obligated to contribute pursuant to Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (b) reduce such Capital Account by the amount of the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. 1.7 AFFILIATE. "Affiliate" means, with respect to a specified Person, any other Person who or which is (a) the principal of the specified Person, (b) directly or indirectly 2 Controlling, Controlled by or under common Control with the specified Person, or (c) any member, director, officer, manager, relative or spouse of the specified Person; PROVIDED that, in no event shall (i) the holders of Warrants or Warrant Shares be Affiliates of Sommer Enterprises by reason of ownership of such Warrants or Warrant Shares or (ii) Goeglein or GAI, LLC be Affiliates of Sommer Enterprises; and PROVIDED further that immediate family members of Viola Sommer shall be deemed to be Affiliates of Sommer Enterprises, Aladdin Holdings and the Trust. 1.8 AGREEMENT. "Agreement" means this Operating Agreement, as amended from time to time. 1.9 ALADDIN DEVELOPMENT. "Aladdin Development" means the land and existing improvements on an approximately 35 acre site located at 3667 Las Vegas Boulevard South, Las Vegas, Nevada. 1.10 ALADDIN GAMING. "Aladdin Gaming" means Aladdin Gaming, LLC, a Nevada limited liability company. 1.11 ALADDIN HOLDINGS. "Aladdin Holdings" means Aladdin Holdings, LLC, a Delaware limited liability company. 1.12 APPLICABLE PERCENTAGE. "Applicable Percentage" has the meaning ascribed thereto in Section 8.3. 1.13 ARTICLES. "Articles" means the Articles of Organization of the Company, as amended from time to time. 1.14 ASSUMED RATE. "Assumed Rate" shall initially mean 40%. The Board may adjust this rate upward or downward from time to time to avoid any material discrepancy between the prevailing Assumed Rate and the effective average rate of tax applicable to taxable income allocated from the Company to Sommer Enterprises or LCI (whichever is higher). For this purpose, the effective average rate of tax of Sommer Enterprises or any other pass-through entity for tax purposes shall be determined by reference to the Members thereof. 1.15 AVAILABLE CASH. "Available Cash" means cash available in the accounts of the Company, less reasonable reserves established by the Board based on an assessment of the Company's needs for the payment of Company expenses, operations and contingencies. 1.16 BANK FINANCING. "Bank Financing" means the financing under a senior credit facility in the amount of $410 million effective as of the date hereof between Aladdin Gaming as borrower and the Bank Lenders. 3 1.17 BANK LENDERS. "Bank Lenders" means a syndicate of lenders, including The Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Merrill Lynch Capital Corporation. 1.18 BANKRUPTCY. "Bankruptcy" means, and a Member shall be referred to as a "Bankrupt Member" upon, (a) the entry of a decree or order for relief against the Member by a court of competent jurisdiction in any voluntary or involuntary case brought by or against the Member under any bankruptcy, insolvency or similar law (collectively, "Debtor Relief Laws") generally affecting the right of creditors and relief of debtors now or hereafter in effect; (b) the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or other similar agent under applicable Debtor Relief Laws for the Member or for any substantial part of the Member's assets or property; (c) the ordering of the winding up or liquidation of the Member's affairs; (d) the filing of a petition by or against the Member in any such voluntary or involuntary bankruptcy case, which petition remains not dismissed for a period of 180 days or which is not dismissed or suspended pursuant to Section 305 of the Federal Bankruptcy Code (or any corresponding provision of any future United States Bankruptcy Law); (e) the consent by the Member to the entry of an order for relief in a voluntary or involuntary case under any Debtor Relief Laws or to the appointment of, or the taking of any possession by, a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar agent under any applicable Debtor Relief Laws for the Member or for any substantial part of the Member's assets or property; or (f) the making by the Member of any general assignment for the benefit of the Member's creditors. 1.19 BAZAAR. "Bazaar" means Aladdin Bazaar, LLC, a Nevada limited liability company. 1.20 BAZAAR LEASE. "Bazaar Lease" means the Lease dated on or about the date hereof between Aladdin Gaming and Bazaar. 1.21 BOARD. "Board" means the Board of Managers of the Company, as provided for in Section 9.1. 1.22 BOARD MEMBER. "Board Member" means a member of the Board. 1.23 BOARD SUPERMAJORITY. "Board Supermajority" means an affirmative vote at a duly constituted meeting of the Board of at least eighty percent of the Board Members. 1.24 CALL. "Call" has the meaning ascribed thereto in Section 8.7. 1.25 CAPITAL ACCOUNT. "Capital Account" means, with respect to any Member or Disassociated Member, the capital account maintained for such Member or Disassociated Member as set forth in Section 4.2 after giving effect to the adjustments set forth in Sections 4.3 and 4.4. 4 1.26 CAPITAL CONTRIBUTION. "Capital Contribution" means the total amount of cash and the agreed fair market value (net of liabilities) of any property contributed at any time to the capital of the Company by a Member. 1.27 CAUSED. "Caused" means, with respect to a Person, that such Person has caused an Event of Default by breach or non-performance of a term, provision or covenant of any of the Keep Well Agreement, a Completion Guaranty or the Credit Agreement; PROVIDED that a Person shall not be found to have Caused an Event of Default as a result of such Person's or its Affiliates' Control of the Company or Aladdin Gaming. 1.28 CERTIFICATE OF SHARES. "Certificate of Shares" means a certificate of the Company representing Shares in the Company. 1.29 CHANGE IN CONTROL. "Change in Control" means, in respect of a Member, the occurrence of circumstances such that a Prohibited Transferee, directly or indirectly, Controls such Member. 1.30 CODE. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any corresponding United States federal tax statute enacted after the date of this Agreement. A reference to a specific section of the Code refers not only to such specific section but also to any corresponding provision of any United States federal tax statute enacted after the date of this Agreement, as such specific section or corresponding provision is in effect on the date of application of the provisions of this Agreement containing such reference. 1.31 COMMON SHARES. "Common Shares" means Shares with rights and obligations as provided in Section 3.2(b). 1.32 COMPLETION GUARANTY. "Completion Guaranty" means (a) the Guaranty of Completion and Performance dated as of the date hereof, made by the Trust, Aladdin Bazaar Holdings, LLC and LCI Parent in favor of the Bank Lenders, (b) the Guaranty of Completion and Performance dated as of the date hereof, made by the Trust, Aladdin Bazaar Holdings, LLC and LCI Parent in favor of the holders of the Discount Notes and (c) a Guaranty of Completion and Performance to be entered into after the date hereof by the Trust, Aladdin Bazaar Holdings, LLC and LCI Parent in favor of a Contingent Guarantor (as shall be defined in such Guaranty of Completion and Performance). 1.33 COMPLETION GUARANTY LOAN. "Completion Guaranty Loan" has the meaning ascribed thereto in Section 3.3. 1.34 COMPLETION GUARANTY PAYMENT. "Completion Guaranty Payment" has the meaning ascribed thereto in Section 3.3. 5 1.35 COMPLETION GUARANTY PAYMENT DUE DATE. "Completion Guaranty Payment Due Date" has the meaning ascribed thereto in Section 3.3. 1.36 CONTRIBUTING OBLIGOR. "Contributing Obligor" has the meaning ascribed thereto in Sections 3.3, 3.4 and 3.5. 1.37 CONTRIBUTION AGREEMENT. "Contribution Agreement" means the Contribution Agreement dated as of the date hereof between the Trust, Aladdin Holdings, Sommer Enterprises, LCI and LCI Parent. 1.38 CONTROL. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through ownership of voting securities, by contract or otherwise, and "Controlling" and "Controlled" shall have corresponding meanings. 1.39 COVERED PERSON. "Covered Person" means (a) a Member or any Affiliate of a Member, (b) any officers, directors, shareholders, members, controlling Persons, partners, employees, representatives or agents of a Member or a Board Member, (c) any Board Member, officer, employee, representative or agent of the Company or its Affiliates, or (d) any Person who was, at the time of the act or omission in question, a Person described in any of the preceding clauses (a) through (c). 1.40 CREDIT AGREEMENT. "Credit Agreement" means the Credit Agreement in respect of the Bank Financing dated as of the date hereof between Aladdin Gaming and the Bank Lenders. 1.41 CUMULATIVE TAX LIABILITY ACCOUNT. "Cumulative Tax Liability Account" means, with respect to each Member for any Quarter, the product of (a) the Assumed Rate and (b) the excess of the cumulative amount of federal taxable income or gain expected to be allocated to such Member in respect of its Common Shares for such Quarter and actually allocated or expected to be allocated for all prior Quarters pursuant to Article V, over the cumulative amount of federal taxable loss or deduction allocated to such Member in respect of its Common Shares for such Quarter and actually allocated or expected to be allocated for all prior Quarters pursuant to Article V. 1.42 DELINQUENT AMOUNT. "Delinquent Amount" has the meanings ascribed thereto in Sections 3.3, 3.4 and 3.5. 1.43 DILUTION FRACTION. "Dilution Fraction" has the meaning ascribed thereto in Sections 3.4 and 3.5. 6 1.44 DISASSOCIATED MEMBER. "Disassociated Member" means the transferee of a Member's Shares, or a personal representative or heir or legatee of such Member, who is not admitted to the Company as a Member. 1.45 DISCOUNT NOTES. "Discount Notes" means 13.5% senior discount notes, accreting to an aggregate principal amount of $221.5 million at maturity, due 2010 issued by the Company and Aladdin Capital Corp. on or about the date hereof. 1.46 DISTRIBUTION. "Distribution" means a distribution of cash or other property made by the Company with respect to Shares, including upon dissolution or liquidation of the Company or in respect of a redemption of Shares, but shall not mean payments or transfers of cash or other property to Members for reasons other than their ownership of Shares. 1.47 EBITDA FACTOR. "EBITDA Factor" means, with respect to a specified Quarter, a factor equal to 1.00 minus the fraction the numerator of which is the Hotel and Casino Percentage for such Quarter and the denominator of which is the Salle Privee Percentage for such Quarter; PROVIDED that if the Salle Privee Percentage exceeds the Hotel and Casino Percentage for that Quarter, the EBITDA Factor shall be zero. 1.48 EBITDA SHORTFALL DUE DATE. "EBITDA Shortfall Due Date" has the meaning ascribed thereto in Section 3.5. 1.49 EBITDA SHORTFALL LOAN. "EBITDA Shortfall Loan" has the meaning ascribed thereto in Section 3.5. 1.50 EBITDA SHORTFALL PAYMENTS. "EBITDA Shortfall Payments" has the meaning ascribed thereto in Section 3.5. 1.51 EMPLOYMENT AND CONSULTING AGREEMENTS. "Employment and Consulting Agreements" means (a) the Employment and Consulting Agreement effective January 1, 1997 entered into by and among Goeglein, the Company, Aladdin Gaming and Aladdin Holdings as amended on January 30, 1998 and February 26, 1998, (b) the Consulting Agreement effective January 1, 1997 entered into by and among GAI, the Company, Aladdin Gaming and Aladdin Holdings as amended on January 30, 1998 and February 26, 1998, (c) the Employment Agreement effective April 15, 1997 entered into by and among McKennon, the Company, Aladdin Gaming and Aladdin Holdings as amended on February 26, 1998, (d) the Employment Agreement effective July 1, 1997 entered into by and among Klerk, the Company, Aladdin Gaming and Aladdin Holdings as amended on February 26, 1998, (e) the Employment Agreement effective July 1, 1997 entered into by and among Rueda, the Company, Aladdin Gaming and Aladdin Holdings as amended on February 26, 1998, (f) the Employment Agreement effective July 1, 1997 entered into by and among Galati, the Company, Aladdin Gaming and Aladdin Holdings as amended on February 26, 1998. 7 1.52 EQUITY PARTICIPATION AGREEMENT. "Equity Participation Agreement" means the Equity Participation Agreement dated as of the date hereof among Sommer Enterprises, Aladdin Enterprises, LCI and State Street Bank and Trust Company as warrant agent. 1.53 EVENT OF DEFAULT. "Event of Default" means any of (a) an Event of Default under the Credit Agreement, (b) a Specified Event under any Completion Guaranty or the Keep Well Agreement or (c) any breach or default under the Keep Well Agreement or any Completion Guaranty, in each case pursuant to which the Bank Lenders, the holders of the Discount Notes or the Contingent Guarantor (as defined in the relevant Completion Guaranty) have exercised any rights or remedies under any of the Credit Agreement, a Completion Guaranty or the Keep Well Agreement, but shall exclude any of the foregoing events which only gives rise to a payment by LCI Parent pursuant to Section 13 of the Keep Well Agreement. 1.54 EXCHANGE ACT. "Exchange Act" means the Securities Exchange Act of 1934, as amended. 1.55 FISCAL YEAR. "Fiscal Year" means the period commencing on January 1 of each calendar year and terminating on December 31 of the same calendar year, or such other period as determined by the Board and permitted by the Code, the Treasury Regulations or any other applicable laws. 1.56 GAMING PROBLEM. "Gaming Problem" means circumstances such that any Member, any Affiliate of any Member or any Related Party of any Member or of any Affiliate of any Related Party may preclude or materially delay, impede or impair the ability of the Company or Aladdin Gaming to obtain or retain any licenses required by the Nevada Gaming Authorities for the conduct of business of the Company, Aladdin Gaming and their Subsidiaries, or such as may result in the imposition of materially burdensome terms and conditions on any such license. 1.57 GROSS ASSET VALUE. "Gross Asset Value" means, with respect to any Company asset, the asset's adjusted basis for federal income tax purposes, except as follows: (a) the initial Gross Asset Value of any asset contributed by a Member to the Company shall be the fair market value of such asset on the date of contribution; PROVIDED, that the Gross Asset Value of any asset (other than cash) contributed by a Member shall be as set forth on Schedule 1; (b) the Gross Asset Value of all Company assets shall be adjusted to equal their respective fair market values as of the following times: (i) the acquisition of an additional Interest by any new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an Interest; and (iii) the liquidation of the Company 8 within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); PROVIDED, however, that the adjustment pursuant to clauses (i) and (ii) shall be made only if the Board reasonably determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members in the Company; (c) the Gross Asset Value of any Company asset distributed to any Member shall be adjusted to equal the fair market value of such asset on the date of the Distribution; and (d) the Gross Asset Values of the Company assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m); PROVIDED, however, that Gross Asset Values shall not be adjusted pursuant to this paragraph (d) to the extent the Board determines that an adjustment pursuant to paragraph (b) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph (d). If the Gross Asset Value of an asset has been determined or adjusted pursuant to paragraphs (a), (b) or (d) above, such Gross Asset Value shall thereafter be adjusted by the depreciation taken into account with respect to such asset for purposes of computing Profits and Losses. 1.58 HOTEL AND CASINO EBITDA DIFFERENCE. "Hotel and Casino EBITDA Difference" means, with respect to a specified Quarter, (a) the Hotel and Casino Projected EBITDA for such Quarter, less (b) the EBITDA (as determined in accordance with the Keep Well Agreement) attributable to the Aladdin Hotel and Casino (exclusive of the Salle Privee Facilities) for such Quarter; PROVIDED that if such amount is negative, the Hotel and Casino EBITDA Difference shall be zero. 1.59 HOTEL AND CASINO PERCENTAGE. "Hotel and Casino Percentage" means, with respect to a specified Quarter, the fraction, expressed as a percentage, the numerator of which is the Hotel and Casino EBITDA Difference for such Quarter and the denominator of which is the Hotel and Casino Projected EBITDA for such Quarter. 1.60 HOTEL AND CASINO PROJECTED EBITDA. "Hotel and Casino Projected EBITDA" means, with respect to a specified Quarter, the projected EBITDA for the Aladdin Hotel and Casino (exclusive of the Salle Privee Facilities) for such Quarter, as set forth on Schedule 2. 1.61 INTEREST. "Interest" means the entire ownership interest of a Member in the Company at any time, including the right of such Member to any and all benefits to which a 9 Member may be entitled as provided under the NRS and in this Agreement and includes ownership interests in respect of both Common Shares and Preferred Shares. 1.62 IPO. "IPO" means the initial underwritten offering pursuant to which common shares of IPO Corporation become registered under Section 12(g) of the Exchange Act. 1.63 IPO CORPORATION. "IPO Corporation" means the entity which itself or through its Subsidiaries carries on the business of the Aladdin Hotel and Casino and whose common shares become registered under Section 12(g) of the Exchange Act in connection with the IPO. 1.64 KEEP WELL AGREEMENT. "Keep Well Agreement" means the Keep-Well Agreement dated as of the date hereof made by Aladdin Holdings, Aladdin Bazaar Holdings, LLC and LCI Parent in respect of the Bank Financing in favor of the Bank Lenders. 1.65 KEEP WELL DUE DATE. "Keep Well Due Date" has the meaning ascribed thereto in Section 3.4. 1.66 KEEP WELL LOAN. "Keep Well Loan" has the meaning ascribed thereto in Section 3.4. 1.67 KEEP WELL PAYMENT. "Keep Well Payment" has the meaning ascribed thereto in Section 3.4. 1.68 LCI PARENT. "LCI Parent" means London Clubs International, p.l.c., a company registered in England and Wales. 1.69 LCI PURCHASE AGREEMENT. "LCI Purchase Agreement" means the Purchase Agreement dated as of September 24, 1997, as amended on October 16, 1997, November 18, 1997, December 1, 1997 and February 16, 1998 and amended and restated on February 26, 1998 among the Company, Aladdin Gaming, LCI, LCI Parent, Sommer Enterprises, the Trust and Aladdin Holdings. 1.70 MAJORITY. "Majority" means an affirmative vote or consent of the Member or Members owning an aggregate of more than fifty percent of the Percentage Interests. 1.71 MAJORITY MEMBER. "Majority Member" means either (if any) (a) Sommer Enterprises, if designees of Sommer Enterprises (whether through Aladdin Enterprises appointing its designees pursuant to Section 9.1 or otherwise) constitute a majority of the Board or (b) LCI, if designees of LCI (whether through Aladdin Enterprises appointing its designees pursuant to Section 9.1 or otherwise) constitute a majority of the Board. 10 1.72 MEMBER. "Member" means a Person who has been admitted to the Company as a member in accordance with the NRS and this Agreement. 1.73 MEMBER NONRECOURSE DEBT. "Member Nonrecourse Debt" has the meaning set forth in Treasury Regulations Section 1.704-2(b)(4) for "partner non-recourse debt". 1.74 MEMBER NONRECOURSE DEBT MINIMUM GAIN. "Member Nonrecourse Debt Minimum Gain" means an amount, with respect to each Member Nonrecourse Debt, equal to the Minimum Gain that would result if such Member Nonrecourse Debt were treated as a nonrecourse liability of the Company, determined in accordance with Treasury Regulations Sections 1.704-2(i)(3). 1.75 MEMBER NONRECOURSE DEDUCTIONS. "Member Nonrecourse Deductions" has the meaning set forth in Treasury Regulations Sections 1.704-2(i)(l) and 1.704-2(i)(2) for "partner non-recourse deductions". 1.76 MINIMUM GAIN. "Minimum Gain" means the amount determined by computing, with respect to each nonrecourse liability of the Company, the amount of gain (of whatever character), if any, that would be realized by the Company if it disposed (in a taxable transaction) of the Property subject to such liability in full satisfaction thereof, and by then aggregating the amounts so computed as set forth in Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d). 1.77 MOUNTAIN SPA RESORT. "Mountain Spa Resort" means the hotel, spa and casino resort being developed by Mountain Spa Development, Inc. and its Affiliates known as the "Mountain Spa Resort" located in Las Vegas, Nevada. 1.78 NET ABOVE LIMITS GAMING LOSSES. "Net Above Limits Gaming Losses" means, with respect to a specified Quarter, the amount, if any, by which Above Limits Gaming Losses exceeds Above Limits Gaming Wins for such Quarter. 1.79 NEVADA ACT. "Nevada Act" means the Nevada Gaming Control Act (or any successor statute), and any rules or regulations promulgated thereunder. 1.80 NEVADA COMMISSION. "Nevada Commission" means the Nevada Gaming Commission. 1.81 NEVADA GAMING AUTHORITIES. "Nevada Gaming Authorities" means the Nevada Commission, the Nevada State Gaming Control Board and any other applicable governmental or administrative state or local agency involved in the regulation of gaming or gaming activities in the State of Nevada. 11 1.82 NON-CONTRIBUTING OBLIGOR. "Non-Contributing Obligor" has the meanings ascribed thereto in Sections 3.3, 3.4 and 3.5. 1.83 NON-DEFAULT KEEP WELL TRIGGER. "Non-Default Keep Well Trigger" means the occurrence of payments pursuant to the Keep Well Agreement, exclusive of any and all Salle Privee Amounts, (a) exceeding $8.125 million in each of two successive Quarters, (b) exceeding in the aggregate $18.28 million over three or fewer successive Quarters, or (iii) exceeding in the aggregate $30.0 million over four or fewer successive Quarters. 1.84 NON-EXERCISE NOTICE. "Non-Exercise Notice" has the meaning ascribed thereto in Section 12.3. 1.85 NONRECOURSE DEDUCTIONS. "Nonrecourse Deductions" has the meaning set forth in Treasury Regulations Section 1.704-2(b)(1) and 1.704-2(c). 1.86 NORMAL GAMING LIMITS. "Normal Gaming Limits" means the gaming limits as established from time to time by Aladdin Gaming and LCI Parent in respect of the Salle Privee Facilities. 1.87 NOTICE OF OFFER. "Notice of Offer" has the meaning ascribed thereto in Section 8.3. 1.88 NRS. "NRS" means the Nevada Revised Statutes, as amended from time to time. 1.89 OFFER PRICE. "Offer Price" has the meaning ascribed thereto in Section 8.3. 1.90 OFFERED SHARES. "Offered Shares" has the meaning ascribed thereto in Section 8.3 1.91 OFFEROR. "Offeror" has the meaning ascribed thereto in Section 8.3. 1.92 OFFICERS. "Officers" means the officers of the Company, as elected by the Board from time to time. 1.93 OPENING DATE. "Opening Date" means the date of the opening of the Aladdin Hotel and Casino after completion of the Redevelopment. 1.94 OVERSUBSCRIBED TAG ALONG MEMBER. "Oversubscribed Tag Along Member" has the meaning ascribed thereto in Section 8.4. 12 1.95 PARKING. "Parking" means the multi-level parking structure and other parking areas for approximately 4,800 motor vehicles to be developed by Bazaar and the Company as part of the Redevelopment. 1.96 PERCENTAGE INTEREST. "Percentage Interest" means, with respect to a specified Member, the proportionate share of such Member's Common Shares in the Company, computed by dividing the number of Common Shares held by such Member by the Total Common Shares. 1.97 PERMITTED TRANSFEREE. "Permitted Transferee" means, with respect to a particular Member, a Person other than a Prohibited Transferee who is (a) an Affiliate of the Member which, other than in respect of immediate family members of Viola Sommer and Jack Sommer, is approved by the other Members in writing, such approval not to be unreasonably withheld or delayed, (b) a wholly owned subsidiary of the Member, (c) another Member (other than Goeglein, McKennon, Klerk, Rueda and Galati) or (d) any other Person approved in writing by all the other holders of Common Shares. 1.98 PERSON. "Person" means a natural person, any form of business or social organization and any other nongovernmental legal entity, whether domestic or foreign, including, but not limited to, a corporation, partnership, association, trust, unincorporated organization, estate or limited liability company. 1.99 PREFERRED SHARES. "Preferred Shares" means Series A Preferred Shares or Series B Preferred Shares, as the context requires. 1.100 PROFITS AND LOSSES. "Profits" and "Losses" mean, for any applicable period, an amount equal to the Company's taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (a) any income of the Company that is exempt from gross income for federal income tax purposes and not otherwise taken into account in computing Profits or Losses shall be included in computing Profits or Losses; (b) any expenditures of the Company that are described in Code Section 705(a)(2)(B) or that are treated as expenditures described in that Code Section pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing Profits or Losses shall reduce Profits or Losses; (c) in the event that the Gross Asset Value of any Company asset is adjusted pursuant to clause (b), (c) or (d) of the definition thereof, such adjustment shall be taken 13 into account as gain or loss from disposition of such asset for purposes of computing Profits and Losses; (d) gain or loss resulting from a disposition of property with respect to which gain or loss has been recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from such value; (e) an amount equal to the depreciation, depletion, amortization, and gain or loss or other cost recovery reduction allowable with respect to an asset for such Fiscal Year or other period, determined in a manner consistent with Treasury Regulations Section 1.704-1(b)(2)(iv)(g) shall be taken into account in computing Profits or Losses; and (f) notwithstanding any other provisions of this definition, any items of income, gain, loss or deduction which are specifically allocated shall not be taken into account in computing Profits or Losses. 1.101 PROHIBITED TRANSFEREE. "Prohibited Transferee" means (a) any owner, operator or manager of a hotel or casino competitive with Aladdin Gaming in locations where Aladdin Gaming or any of its Affiliates has hotel or casino operations (other than Viola Sommer and Jack Sommer and their immediate family members, Sommer Enterprises and its Affiliates or LCI and its Affiliates), (b) any "non-profit" or "not-for-profit" corporation, association, trust, fund, foundation or other similar entity organized and operated exclusively for charitable purposes that qualifies as a tax-exempt entity under applicable federal and state tax law or corresponding foreign law, (c) any federal, state, local or foreign governmental agency, instrumentality or other similar entity, (d) any Person primarily engaged in the business of owning or operating a casino or other similar type of gambling facility (other than Viola Sommer and Jack Sommer and their immediate family members, Sommer Enterprises and its Affiliates or LCI and its Affiliates), (e) any Person that has been convicted of a felony, (f) any Person regularly engaged in or affiliated with the production or distribution of alcoholic beverages, (g) any Person who has been found unsuitable or has withdrawn an application to be found suitable by the Nevada Gaming Authorities, (h) FOCUS 2000, Inc. or the then current owner or lessee (unless such owner or lessee is an Affiliate of a Member) of the real property located at the northeast corner of Las Vegas Boulevard and Harmon Avenue, in Las Vegas, Nevada, or (i) any Person if the consummation of a Transfer to such Person would result in a breach of or violation in any transfer restrictions contained in any loan documentation (including the Completion Guaranty and the Keep Well Agreement) relative to any indebtedness encumbering all or any portion of the Aladdin Development, and such transfer restrictions are not waived by the applicable lender(s). 1.102 PROPERTY. "Property" means all assets of the Company, including all real, personal and intangible property, or any portion thereof. 14 1.103 PROPORTIONATE PERCENTAGE. "Proportionate Percentage" means, as to each Tag Along Member, the quotient obtained (expressed as a percentage) by dividing the number of Common Shares owned by such Tag Along Member by the aggregate number of Common Shares owned by all Tag Along Members. 1.104 PURCHASE OPTION. "Purchase Option" has the meaning ascribed thereto in Section 12.3. 1.105 PURCHASING MEMBER. "Purchasing Member" has the meaning ascribed thereto in Section 12.4. 1.106 QUARTER. "Quarter" means any three month period commencing on January 1, April 1, July 1 or October 1 of any year during the term of this Agreement. 1.107 RECIPROCAL EASEMENT AGREEMENT. "Reciprocal Easement Agreement" means the Construction, Operation and Reciprocal Easement Agreement by and among Aladdin Gaming, Bazaar and Aladdin Music, LLC dated on or about the date hereof. 1.108 RECORDS OFFICE. "Records Office" means the records office of the Company maintained in the State of Nevada. 1.109 REDEVELOPMENT. "Redevelopment" means (a) the redevelopment of the existing Aladdin hotel and casino to include a total of approximately 2,600 rooms and approximately 116,000 square feet of main casino space; (b) the development of the Shopping Center and the Parking; (c) the development of the Salle Privee Facilities; and (d) the construction, fitting out and furnishing of all or any part of the foregoing. 1.110 REDEVELOPMENT DOCUMENT. "Redevelopment Document" means (a) any and all material contracts and agreements relating to the construction phase of the Redevelopment or any part thereof, (b) any and all material contracts and agreements relating to the financing of the Redevelopment or any part thereof, (c) any and all budgets relating to the construction phase of the Redevelopment or any part thereof and (d) any and all material plans and specifications relating to the Redevelopment or any part thereof. 1.111 REFUSAL PERIOD. "Refusal Period" has the meaning ascribed thereto in Section 8.3. 1.112 RELATED PARTY. "Related Party" means, in respect of a Member, its Affiliates, and such Member's and its Affiliates' respective shareholders, partners, members, directors, managers and officers. 15 1.113 RESTRICTED MEMBERSHIP INTERESTS. "Restricted Membership Interests" means any unvested Interests issued pursuant to the Employment and Consulting Agreements. 1.114 REMAINING TAG ALONG SHARES. "Remaining Tag Along Shares" has the meaning ascribed thereto in Section 8.4. 1.115 SALLE PRIVEE AGREEMENT. "Salle Privee Agreement" means the agreement dated as of the date hereof between LCI, LCI Parent and Aladdin Gaming with respect to the construction, operation, maintenance and marketing of the Salle Privee Facilities. 1.116 SALLE PRIVEE AMOUNT. "Salle Privee Amount" means with respect to a specified Quarter, an amount equal to the product of (a) the Salle Privee EBITDA Difference for such Quarter and (b) the EBITDA Factor for such Quarter. 1.117 SALLE PRIVEE EBITDA DIFFERENCE. The "Salle Privee EBITDA Difference" means, with respect to a specified Quarter, the (a) the Salle Privee Projected EBITDA for such Quarter, less (b) the EBITDA (as determined in accordance with the Keep Well Agreement) attributable to the Salle Privee Facilities for such Quarter, after deducting or excluding therefrom, as the case may be, any Net Above Limits Gaming Losses for such Quarter which LCI Parent has paid (or, to the extent acceptable to the Bank Lenders, guaranteed) pursuant to the Salle Privee Agreement; PROVIDED that, if such amount is negative, the Salle Privee EBITDA Difference shall be zero. 1.118 SALLE PRIVEE FACILITIES. "Salle Privee Facilities" means facilities open to the public at large, consisting of (a) a gaming facility, containing approximately 20 to 30 high limit tables and approximately 100 high limit slot devices, located on the mezzanine level directly above the main gaming floor of the Aladdin hotel and casino;(b) a super-premium gourmet restaurant facility, located adjacent to and as part of the gaming facility of the Salle Privee Facilities and containing a separate kitchen, a bar, approximately 25 dining tables inside the restaurant, as well as several additional dining tables located in a roof garden accessible through the restaurant;(c) an exclusive hospitality facility comprising approximately 25 double-module luxury suites, 5 triple-module suites, a concierge facility and guest bar and lounge, to be located in the main tower of the Aladdin hotel and casino;(d) a separate entrance and reception area for guests of the Salle Privee Facilities, offering secure and discrete access for arrivals and departures; and (e) vertical and horizontal circulation infrastructure providing for private elevator access to the hospitality facility and private corridor access from the hospitality facility to the gaming facility of the Salle Privee Facilities. 1.119 SALLE PRIVEE PERCENTAGE. "Salle Privee Percentage" means, with respect to a specified Quarter, the fraction, expressed as a percentage, the numerator of which is the Salle Privee EBITDA Difference for such Quarter and the denominator of which is the Salle Privee Projected EBITDA for such Quarter. 16 1.120 SALLE PRIVEE PROJECTED EBITDA. "Salle Privee Projected EBITDA" means, with respect to a specified Quarter, projected EBITDA for the Salle Privee Facilities for the applicable Quarter, as set forth on Schedule 3. 1.121 SECOND HOTEL. "Second Hotel" means a second hotel and casino separately themed to the Aladdin hotel and casino to be developed on the Aladdin Development with approximately 1,000 rooms and approximately 50,000 square feet of casino space. 1.122 SECRETARY OF STATE. "Secretary of State" means the office of the Nevada Secretary of State. 1.123 SECURITIES ACT. "Securities Act" means the Securities Act of 1933, or any similar federal statute, and the rules and regulations of the Securities and Exchange Commission thereunder, all as shall be in effect at the time. 1.124 SELLING MEMBER. "Selling Member" has the meaning ascribed thereto in Section 8.4. 1.125 SERIES A INVESTED CAPITAL. "Series A Invested Capital" means, with respect to each Member, the cumulative capital contributions of that Member in respect of the Series A Preferred Shares as reflected on Schedule 1, as the same may be amended from time to time, less cumulative amounts distributed pursuant to Section 6.2(b). 1.126 SERIES A PREFERRED RETURN. "Series A Preferred Return" means, as of any date of determination, with respect to a holder of Series A Preferred Shares, an amount equal to twelve percent per annum, cumulative and compounded semi-annually, on the amount of the holder's Series A Invested Capital, from the date of the initial Capital Contribution in respect of such Series A Preferred Shares to the date of determination (taking into account, as appropriate, payments pursuant to Section 6.2(a) with respect to such Series A Preferred Return). 1.127 SERIES B PREFERRED SHARES. "Series B Preferred Shares" means cumulative and compounding preferred Shares with rights and obligations as provided in Section 3.2(d). 1.128 SERIES B INVESTED CAPITAL. "Series B Invested Capital" means, with respect to each Member, the cumulative capital contributions of that Member in respect of the Series B Preferred Shares as reflected on Schedule 1, as the same may be amended from time to time, less cumulative amounts distributed pursuant to Section 6.2(d). 1.129 SERIES B PREFERRED RATE. "Series B Preferred Rate" means with respect to each holder of Series B Preferred Shares, an interest rate equal to the weighted average interest rate from 17 time to time of the debt under the Bank Financing which was repaid with the funds paid to or on behalf of Aladdin Gaming for the relevant Series B Preferred Shares. 1.130 SERIES B PREFERRED RETURN. "Series B Preferred Return" means, as of any date of determination, with respect to a holder of Series B Preferred Shares, an amount equal to the Series B Preferred Rate, cumulative and compounded semi-annually, on the amount of the holder's Series B Invested Capital, from the date of the initial Capital Contribution in respect of such Series B Shares to the date of determination (taking into account, as appropriate, payments pursuant to Section 6.2(c) with respect to such Series B Preferred Return). 1.131 SHARE. "Share" represents a share of an Interest in the Company held by a Member, and includes Preferred Shares and Common Shares. 1.132 SHOPPING CENTER. "Shopping Center" means a themed entertainment shopping center containing approximately 462,000 square feet of gross leasable area to be developed by Bazaar as part of the Redevelopment. 1.133 STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT. "Stockholders and Registration Rights Agreement" means a Stockholders and Registration Rights Agreement to be entered into by certain of the stockholders of the IPO Corporation prior to the IPO, substantially, in the form set forth in Exhibit A. 1.134 SUBSIDIARY. "Subsidiary" means (subject to the second sentence of this definition), with respect to a specified Person, any other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by the specified Person. Unless a contrary intention is indicated in this Agreement, any reference to a Subsidiary shall mean a Subsidiary of the Company, which shall include Aladdin Gaming and, if Aladdin Gaming owns more than fifty percent of the common stock of Aladdin Music Holdings, LLC, Aladdin Music Holdings, LLC, but (notwithstanding the foregoing sentence) shall not include Aladdin Music, LLC or any Subsidiary of Aladdin Music, LLC. 1.135 SUBSTITUTED MEMBER. "Substituted Member" means the transferee of a Member's Shares, or a permitted successor or assign of such Member who is admitted to the Company as a Member. 1.136 SUPERMAJORITY. "Supermajority" means an affirmative vote or consent of the Member or Members owning an aggregate of at least eighty percent of the Percentage Interests. 1.137 TAG ALONG MEMBERS. "Tag Along Members" has the meaning ascribed thereto in Section 8.4. 18 1.138 TAG ALONG NOTICE. "Tag Along Notice" has the meaning ascribed thereto in Section 8.4. 1.139 TAG ALONG OFFER. "Tag Along Offer" has the meaning ascribed thereto in Section 8.4. 1.140 TAG ALONG PERIOD. "Tag Along Period" has the meaning ascribed thereto in Section 8.4. 1.141 TAG ALONG PRICE PER SHARE. "Tag Along Price Per Share" has the meaning ascribed thereto in Section 8.4. 1.142 TAG ALONG SALE. "Tag Along Sale" has the meaning ascribed thereto in Section 8.4. 1.143 TAG ALONG SHARES. "Tag Along Shares" has the meaning ascribed thereto in Section 8.4. 1.144 TAG ALONG TRANSFEREE. "Tag Along Transferee" has the meaning ascribed thereto in Section 8.4. 1.145 TAX MATTERS PARTNER. "Tax Matters Partner" means the Person designated as Tax Matters Partner pursuant to Section 10.5. 1.146 TIMESHARE PARCEL. "Timeshare Parcel" has the meaning ascribed thereto in the LCI Purchase Agreement. 1.147 TOTAL COMMON SHARES. "Total Common Shares" means all issued and outstanding Common Shares. 1.148 TRANSFER. "Transfer" means any transfer, sale, conveyance, distribution, hypothecation, pledge, encumbrance, assignment or other disposal, either voluntary or involuntary. 1.149 TRANSFEROR. "Transferor" has the meaning ascribed thereto in Section 8.3. 1.150 TREASURY REGULATIONS. "Treasury Regulations" means the U.S. federal income tax regulations promulgated by the U.S. Treasury Department under the Code and codified at Title 26 of the Code of Federal Regulations, as amended from time to time. 1.151 TRIGGER EVENT. "Trigger Event" has the meaning ascribed thereto in Section 8.7. 19 1.152 TRIGGERING MEMBER. "Triggering Member" has the meaning ascribed thereto in Section 8.7. 1.153 TRUST. "Trust" means Trust Under Article Sixth u/w/o Sigmund Sommer, a New York trust. 1.154 ULTIMATE PERCENTAGE INTEREST. "Ultimate Percentage Interest" means, with respect to a specified Person, the aggregate directly and indirectly held Percentage Interest of such Person, calculated by adding (a) such Person's Percentage Interest, plus (b) the percentage of the issued and outstanding shares (class A voting common stock and class B non-voting common stock) in the capital of Aladdin Enterprises owned by such Person multiplied by Aladdin Enterprises' Percentage Interest. 1.155 UNPAID PREFERRED RETURN. "Unpaid Preferred Return" means, with respect to any Series A Preferred Shares or Series B Preferred Shares, at any time of determination, the excess, if any, of (i) the Series A Preferred Return or Series B Preferred Return, as relevant, with respect to such Shares, over (ii) the cumulative Distributions made pursuant to section 6.2(a) or (c), as appropriate, through such time with respect to such Shares. 1.156 UNRECOVERED SERIES A INVESTED CAPITAL. "Unrecovered Series A Invested Capital" means, at any time of determination, and with respect to any Member, the Series A Invested Capital less the cumulative Distributions, if any, theretofore made pursuant to section 6.2(b) through such time. 1.157 UNRECOVERED SERIES B INVESTED CAPITAL. "Unrecovered Series B Invested Capital" means, at any time of determination, and with respect to any Member, the Series B Invested Capital less the cumulative Distributions, if any, theretofore made pursuant to section 6.2(d) through such time. 1.158 UPSTREAM NOTICE OF OFFER. "Upstream Notice of Offer" has the meaning ascribed thereto in Section 8.6. 1.159 UPSTREAM OFFEROR. "Upstream Offeror" has the meaning ascribed thereto in Section 8.6. 1.160 UPSTREAM OWNERSHIP INTEREST. "Upstream Ownership Interest" has the meaning ascribed thereto in Section 8.6. 1.161 UPSTREAM TRANSFEROR. "Upstream Transferor" has the meaning ascribed thereto in Section 8.6. 20 1.162 WARRANTS. "Warrants" means warrants issued by Aladdin Enterprises on or about the date hereof to purchase class B non-voting common stock in the capital of Aladdin Enterprises. 1.163 WARRANT AGREEMENT. "Warrant Agreement" means the Warrant Agreement dated the date hereof among Aladdin Enterprises, the Company and State Street Bank and Trust Company as warrant agent. 1.164 WARRANT SHARES. "Warrant Shares" means class B non-voting common stock in the capital of Aladdin Enterprises issued upon the exercise of any Warrants. ARTICLE II INTRODUCTORY MATTERS 2.1 RECORDS OFFICE. The Company shall continuously maintain in the state of Nevada a Records Office, which may, but need not be, a place of its business in the state of Nevada, at which it shall keep all records identified in NRS 86.241. As of the date hereof, the Records Office shall be 2810 West Charleston Boulevard, Suite F-58, Las Vegas, Nevada 89102. The Records Office may be changed to another location within the State of Nevada as the Board may from time to time determine. 2.2 OTHER OFFICES. The Company may establish and maintain other offices at any time and at any place or places as the Members may designate or as the business of the Company may require. 2.3 RESIDENT AGENT AND REGISTERED OFFICE. The resident agent for service of process shall be as set forth in the Articles. The resident agent may be changed as the Board may from time to time determine. The Company shall have as its registered office in the state of Nevada the street address of its resident agent. 2.4 PURPOSE. The Company is organized for the purpose(s) of developing, constructing, financing, owning and operating hotels and casinos and related businesses and to engage in such other lawful enterprises as may be incidental or appurtenant to the foregoing. 2.5 NO STATE LAW PARTNERSHIP; NO LIABILITY TO THIRD PARTIES. The Members intend that the Company not be a partnership (including, without limitation, a limited partnership) or joint venture, and that no Member be a partner or joint venturer of any other Member, for any purposes other than federal, state and local tax purposes, and this Agreement not be construed to suggest otherwise. No Member shall be liable for the debts, obligations or liabilities of the Company, including under a judgment decree or order of a court. 21 2.6 LEGEND. In addition to any legend required pursuant to Section 3.8, each Certificate of Shares shall bear the following legend: "The securities represented by this certificate are subject to that certain operating agreement of the company dated February 26, 1998 (the "Operating Agreement") and the provisions set forth therein, including, without limitation provisions relating to: (a) the voting rights of the members, (b) circumstances under which distributions to the members may be diverted and (c) circumstances under which the interests of the members may be subject to mandatory transfer. A copy of the Operating Agreement is available for inspection at the company's registered office during regular business hours". ARTICLE III INTERESTS AND ADJUSTMENTS IN INTERESTS 3.1 MEMBER'S INTEREST. A Member's Interests shall for all purposes be personal property. A Member shall have no interest in specific Company assets or property, including any assets or property contributed to the Company by such Member as part of any Capital Contribution. 3.2 CLASSES OF SHARES. (a) The Shares shall be divided between Common Shares, Series A Preferred Shares and Series B Preferred Shares. (b) There shall be authorized 10,000,000 Common Shares. Each of such Shares shall have identical rights and terms in all respects except as specifically set forth in this Agreement. The Common Shares shall have rights to an allocation of Profits and Losses and to any Distributions as may be authorized under this Agreement and under the NRS. Except as specifically provided in this Agreement or under the NRS, the Common Shares collectively shall have all management and voting rights of the Company. (c) There shall be authorized 1,500,000 Series A Preferred Shares. Each of such Shares shall have identical rights and terms in all respects. The Series A Preferred Shares shall have rights to an allocation of Profits and Losses, other allocations and any Distributions as may be authorized under this Agreement and under the NRS. Except as specifically provided in this Agreement or the NRS, the Series A Preferred Shares shall not have management or voting rights under the NRS or otherwise. (d) There shall be authorized 1,500,000 Series B Preferred Shares. Each of such Shares shall have identical rights and terms in all respects. The Series B Preferred Shares shall have rights to an allocation of Profits and Losses and to any Distributions as may be authorized under this Agreement and under the NRS. Except as specifically provided in this Agreement or the NRS, the Series B Preferred Shares shall not have management or voting rights under the NRS or otherwise. 22 3.3 COMPLETION GUARANTY PAYMENTS. (a) Any payment required pursuant to the Completion Guaranty ("Completion Guaranty Payments") by LCI Parent or the Trust shall be made by them in the proportions as provided in the Contribution Agreement. Series A Preferred Shares shall be issued in consideration for such payments to LCI, in the case of a payment by LCI Parent, or to Sommer Enterprises, in the case of a payment by the Trust, at the rate of one Series A Preferred Share per $100 paid. The Company shall issue such Series A Preferred Shares and shall establish and credit a Capital Account for the relevant Member in respect of such Preferred Shares in the amount of the relevant payment. (b) Without limiting Section 3.3(a) or the Contribution Agreement, if either LCI Parent or the Trust (the "Non-Contributing Obligor") fails to make its share of a Completion Guaranty Payment as provided in the Contribution Agreement (the "Delinquent Amount"), then the other such Person (the "Contributing Obligor") may, in addition to any and all other rights and remedies the Contributing Obligor may have at law and in equity, in addition to its payment obligations under the Contribution Agreement, pay as provided in the Completion Guaranty an additional amount equal to the Delinquent Amount, and such payment of the amount equal to the Delinquent Amount shall be treated as a recourse loan (a "Completion Guaranty Loan") by the Contributing Obligor to the Non-Contributing Obligor on the terms and conditions provided in the Contribution Agreement. As of the date of any advance of a Completion Guaranty Loan, the Non-Contributing Obligor, shall be deemed to have paid to Aladdin Gaming an amount equal to the principal amount of such Completion Guaranty Loan and Series A Preferred Shares shall be issued to LCI or Sommer Enterprises (as the case may be) pursuant to Section 3.3(a). Until any and all Completion Guaranty Loans are repaid in full, LCI, if LCI Parent is the Non-Contributing Obligor, or Sommer Enterprises, if the Trust is the Non-Contributing Obligor, shall draw no further Distributions in respect of any Shares or shares in Aladdin Enterprises, and all cash or property otherwise distributable to such Member with respect to any Shares or shares in Aladdin Enterprises shall be paid to the Contributing Obligor in repayment of the outstanding balance of the Completion Guaranty Loan, with such funds being applied first to reduce any and all interest accrued on such Completion Guaranty Loan and then to reduce the principal amount thereof. Any amounts so applied shall be treated, for all purposes under this Agreement, as having actually been distributed to LCI, if LCI Parent is the Non-Contributing Obligor, or to Sommer Enterprises, if the Trust is the Non-Contributing Obligor, and applied to repay the outstanding Completion Guaranty Loan. (c) In order to secure the repayment of any and all Completion Guaranty Loans made to the Non-Contributing Obligor, LCI, if LCI Parent is the Non-Contributing Obligor, or Sommer Enterprises, if the Trust is the Non-Contributing Obligor, hereby grants a security interest and continuing lien in favor of the Contributing Obligor in and to all Shares and any shares in Aladdin Enterprises held by such Person at any time, and hereby irrevocably appoints the Contributing Obligor, and any of the Contributing Obligor's respective agents, officers, or employees, as such Person's attorneys-in-fact, with full power to prepare, execute, acknowledge, and deliver, as applicable, all documents, instruments and agreements memorializing or securing such 23 Completion Guaranty Loans including, without limitation, such Uniform Commercial Code financing and continuation statements, pledge or security agreements, mortgages and other security instruments as may be reasonably appropriate to perfect and continue the security interest in favor of the Contributing Obligor; PROVIDED that such security interest and continuing lien shall be (i) subordinated to the security interests and liens granted in favor of the Bank Lenders pursuant to the Loan Documents (as defined in the Credit Agreement) and the Contributing Obligor shall not enforce any such security interest or continuing lien until all Loans (as defined in the Credit Agreement) and other Obligations (as defined in the Credit Agreement) have been paid in full in cash, all Letters of Credit (as defined in the Credit Agreement) have been terminated or expired and all Commitments (as defined in the Credit Agreement) have been terminated under the Credit Agreement (PROVIDED that to the extent any distributions on any relevant shares or membership interests are permitted to be made to the holder(s) thereof under the Loan Documents, the Contributing Obligor shall be permitted to enforce its security interest and continuing lien thereon, including, without limitation, diverting distributions thereon to the Contributing Obligor), and (ii) suspended for any period in which an Event of Default exists which was Caused by the Contributing Obligor or its Affiliates. (d) If an Affiliate of the Majority Member (if any) fails to make its pro rata share of any Completion Guaranty Payment as required by the Contribution Agreement, then, provided that (i) the Contributing Obligor or its Affiliates have not Caused an existing Event of Default and (ii) the Contributing Obligor does not already have an Ultimate Percentage Interest greater than fifty percent, from the date on which the relevant Completion Guaranty Payment would have been past due if not paid (the "Completion Guaranty Payment Due Date") until such payments are made, the Non-Contributing Obligor and its Affiliates shall vote their Common Shares and, if applicable, shall cause Aladdin Enterprises to vote its Common Shares so that (taking into account any Common Shares held by the Contributing Obligor or its Affiliates) the Contributing Obligor controls fifty percent of the voting power of the Total Common Shares. 3.4 KEEP WELL PAYMENTS. (a) Any payment required pursuant to the Keep Well Agreement ("Keep Well Payments") by LCI Parent or Aladdin Holdings shall be made by them in the proportions as provided in the Contribution Agreement. Where such payments are required other than pursuant to Section 13 of the Keep Well Agreement, Series A Preferred Shares shall be issued in consideration therefor to LCI, in the case of a payment by LCI Parent, or to Sommer Enterprises, in the case of a payment by Aladdin Holdings, at the rate of one Series A Preferred Share per $100 paid. Where such payments are required to be made by LCI Parent pursuant to Section 13 of the Keep Well Agreement, Series B Preferred Shares shall be issued in consideration therefor to LCI at the rate of one Series B Preferred Share per $100 paid. The Company shall issue such Series A Preferred Shares or Series B Preferred Shares and shall establish and credit a Capital Account for the relevant Member in respect of such Preferred Shares in the amount of the relevant payment. 24 (b) Without limiting Section 3.4(a) or the Contribution Agreement, if either LCI Parent or Aladdin Holdings (the "Non-Contributing Obligor") fails to make its share of a payment required under the Keep Well Agreement as provided in the Contribution Agreement (the "Delinquent Amount"), then the other such Person (the "Contributing Obligor") may, in addition to any and all other rights and remedies the Contributing Obligor may have at law and in equity, in addition to its payment obligations under the Contribution Agreement, pay as provided in the Keep Well Agreement an additional amount equal to the Delinquent Amount, and such payment of the amount equal to the Delinquent Amount shall be treated as a recourse loan (a "Keep Well Loan") by the Contributing Obligor to the Non-Contributing Obligor, on the terms and conditions provided in the Contribution Agreement. As of the date of any advance of a Keep Well Loan, the Non-Contributing Obligor shall be deemed to have paid to Aladdin Gaming an amount equal to the principal amount of such Keep Well Loan and Series A Preferred Shares or Series B Preferred Shares (as the case may be) shall be issued to LCI or Sommer Enterprises (as the case may be) pursuant to Section 3.4(a). Until any and all Keep Well Loans are repaid in full, LCI, if LCI Parent is the Non-Contributing Obligor, or Sommer Enterprises, if Aladdin Holdings is the Non-Contributing Obligor, shall draw no further Distributions in respect of any Shares or shares in Aladdin Enterprises, and all cash or property otherwise distributable to such Member with respect to Shares or shares in Aladdin Enterprises shall be paid to the Contributing Obligor in repayment of the outstanding balance of the Keep Well Loan, with such funds being applied first to reduce any and all interest accrued on such Keep Well Loan and then to reduce the principal amount thereof. Any amounts so applied shall be treated, for all purposes under this Agreement, as having actually been distributed to LCI, if LCI Parent is the Non-Contributing Obligor, or to Sommer Enterprises, if Aladdin Holdings is the Non-Contributing Obligor, and applied to repay the outstanding Keep Well Loan. (c) In order to secure the repayment of any and all Keep Well Loans made to the Non-Contributing Obligor, LCI, if LCI Parent is the Non-Contributing Obligor, or Sommer Enterprises, if Aladdin Holdings is the Non-Contributing Obligor, hereby grants a security interest and continuing lien in favor of the Contributing Obligor in and to all Shares and any shares in Aladdin Enterprises held by such Person at any time, and hereby irrevocably appoints the Contributing Obligor, and any of the Contributing Obligor's respective agents, officers, or employees, as such Person's attorneys-in-fact, with full power to prepare, execute, acknowledge, and deliver, as applicable, all documents, instruments and agreements memorializing or securing such Keep Well Loans including, without limitation, such Uniform Commercial Code financing and continuation statements, pledge or security agreements, mortgages and other security instruments as may be reasonably appropriate to perfect and continue the security interest in favor of the Contributing Obligor; PROVIDED that such security interest and continuing lien shall be (i) subordinated to the security interests and liens granted in favor of the Bank Lenders pursuant to the Loan Documents (as defined in the Credit Agreement) and the Contributing Obligor shall not enforce any such security interest or continuing lien until all Loans (as defined in the Credit Agreement) and other Obligations (as defined in the Credit Agreement) have been paid in full in 25 cash, all Letters of Credit (as defined in the Credit Agreement) have been terminated or expired and all Commitments (as defined in the Credit Agreement) have been terminated under the Credit Agreement (PROVIDED that to the extent any distributions on any relevant shares or membership interests are permitted to be made to the holder(s) thereof under the Loan Documents, the Contributing Obligor shall be permitted to enforce its security interest and continuing lien thereon, including, without limitation, diverting distributions thereon to the Contributing Obligor), and (ii) suspended for any period in which an Event of Default exists which was Caused by the Contributing Obligor or its Affiliates. (d) If either LCI Parent or Aladdin Holdings is a Non-Contributing Obligor by reason of its failure to make its pro rata share of any Keep Well Payment as required by the Contribution Agreement and a Keep Well Loan has been made by the Contributing Obligor to the Non-Contributing Obligor for such Delinquent Amount pursuant to Section 3.4(b), then, provided that the Contributing Obligor or its Affiliates have not Caused an existing Event of Default, the directly held Percentage Interest of LCI, if LCI Parent is the Non-Contributing Obligor, or of Sommer Enterprises, if Aladdin Holdings is the Non-Contributing Obligor, shall be decreased, and the directly held Percentage Interest of LCI or Sommer Enterprises, as the case may be, shall be correspondingly increased, as of the date the relevant Keep Well Payment would have been past due if not paid (the "Keep Well Due Date"), by an amount (expressed as a percentage) equal to either (i) in the case of a failure by the Non-Contributing Obligor to pay the Delinquent Amount within thirty business days of the Keep Well Due Date, the fraction (the "Dilution Fraction") (A) the numerator of which is the Delinquent Amount, and (B) the denominator of which is $200 million, or (ii) in the case of a failure by the Non-Contributing Obligor to pay the Delinquent Amount within forty-five business days of the Keep Well Due Date, one and a half times the Dilution Fraction, or (iii) in the case of a failure by the Non-Contributing Obligor to pay the Delinquent Amount within sixty business days of the Keep Well Due Date, two times the Dilution Fraction. The Parties agree that after the directly held Percentage Interest of LCI, if LCI Parent is the Non-Contributing Obligor, or Sommer Enterprises, if Aladdin Holdings is the Non-Contributing Obligor, is reduced to zero pursuant to the foregoing sentence of this Section 3.4(d), if such Party holds any shares in Aladdin Enterprises, a number of such shares shall be transferred to LCI or Sommer Enterprises (as the case may be), with class A voting common stock being transferred first and then class B non-voting common stock being transferred, in order to give effect to the adjustments pursuant to the foregoing sentence by thereby reducing and increasing the such Parties' Ultimate Percentage Interests instead of their directly held Percentage Interests. (e) If an Affiliate of the Majority Member (if any) fails to make its pro rata share of any Keep Well Payment as required by the Contribution Agreement, then, provided that (i) the Contributing Obligor or its Affiliates have not Caused an existing Event of Default and (ii) the Contributing Obligor does not already have an Ultimate Percentage Interest greater than fifty percent, from the Keep Well Due Date until such payments are made, the Non-Contributing Obligor and its Affiliates shall vote their Common Shares and, if applicable, shall cause Aladdin Enterprises 26 to vote its Common Shares so that (taking into account any Common Shares held by the Contributing Obligor or its Affiliates) the Contributing Obligor controls fifty percent of the voting power of the Total Common Shares. (f) Nothing in this Agreement shall give LCI or any of its Affiliates or any other Person whatsoever any right or claim whatsoever against the Trust for any reimbursement or other payment in connection with obligations under the Keep Well Agreement. 3.5 EBITDA SHORTFALL PAYMENTS. (a) Any payment required pursuant to Section 1(b) of the Contribution Agreement ("EBITDA Shortfall Payments") by LCI Parent or the Trust shall, unless otherwise agreed by the Trust and LCI Parent, be made by them in the proportions as provided in the Contribution Agreement. Series A Preferred Shares shall be issued in consideration therefor to LCI, in the case of a payment by LCI Parent, or Sommer Enterprises, in the case of a payment by the Trust, at the rate of one Series A Preferred Share per $100 paid. The Company shall issue such Series A Preferred Shares and shall establish and credit a Capital Account for the relevant Member in respect of such Preferred Shares in the amount of the relevant payment. (b) Without limiting Section 3.5(a) or the Contribution Agreement, if either LCI Parent or the Trust (the "Non-Contributing Obligor") fails to make its share of an EBITDA Shortfall Payment (the "Delinquent Amount"), then the other such Person (the "Contributing Obligor") may, in addition to any and all other rights and remedies the Contributing Obligor may have at law and in equity, in addition to its payment obligations under the Contribution Agreement, pay to Aladdin Gaming an additional amount equal to the Delinquent Amount, and such payment of the amount equal to the Delinquent Amount shall be treated as a recourse loan (an "EBITDA Shortfall Loan") by the Contributing Obligor to the Non-Contributing Obligor, on the terms and conditions provided in the Contribution Agreement. As of the date of any advance of a EBITDA Shortfall Loan, the Non-Contributing Obligor shall be deemed to have paid to Aladdin Gaming an amount equal to the principal amount of such EBITDA Shortfall Loan and Series A Preferred Shares shall be issued to LCI or Sommer Enterprises (as the case may be) pursuant to Section 3.5(a). Until any and all EBITDA Shortfall Loans are repaid in full, LCI, if LCI Parent is the Non-Contributing Obligor, or Sommer Enterprises, if the Trust is the Non-Contributing Obligor, shall draw no further Distributions in respect of any Shares or shares in Aladdin Enterprises, and all cash or property otherwise distributable to such Member with respect to Shares or shares in Aladdin Enterprises shall be paid to the Contributing Obligor in repayment of the outstanding balance of the EBITDA Shortfall Loan, with such funds being applied first to reduce any and all interest accrued on such EBITDA Shortfall Loan and then to reduce the principal amount thereof. Any amounts so applied shall be treated, for all purposes under this Agreement, as having actually been distributed to LCI, if LCI Parent is the Non-Contributing Obligor, or to Sommer Enterprises, if the Trust is the Non-Contributing Obligor, and applied to repay the outstanding EBITDA Shortfall Loan. 27 (c) In order to secure the repayment of any and all EBITDA Shortfall Loans made to the Non-Contributing Obligor, LCI, if LCI Parent is the Non-Contributing Obligor, or Sommer Enterprises, if the Trust is the Non-Contributing Obligor, hereby grants a security interest and continuing lien in favor of the Contributing Obligor in and to all Shares and any shares in Aladdin Enterprises held by such Person at any time, and hereby irrevocably appoints the Contributing Obligor, and any of the Contributing Obligor's respective agents, officers, or employees, as such Person's attorneys-in-fact, with full power to prepare, execute, acknowledge, and deliver, as applicable, all documents, instruments and agreements memorializing or securing such EBITDA Shortfall Loans including, without limitation, such Uniform Commercial Code financing and continuation statements, pledge or security agreements, mortgages and other security instruments as may be reasonably appropriate to perfect and continue the security interest in favor of the Contributing Obligor; PROVIDED that such security interest and continuing lien shall be (i) subordinated to the security interests and liens granted in favor of the Bank Lenders pursuant to the Loan Documents (as defined in the Credit Agreement) and the Contributing Obligor shall not enforce any such security interest or continuing lien until all Loans (as defined in the Credit Agreement) and other Obligations (as defined in the Credit Agreement) have been paid in full in cash, all Letters of Credit (as defined in the Credit Agreement) have been terminated or expired and all Commitments (as defined in the Credit Agreement) have been terminated under the Credit Agreement (PROVIDED that to the extent any distributions on any relevant shares or membership interests are permitted to be made to the holder(s) thereof under the Loan Documents, the Contributing Obligor shall be permitted to enforce its security interest and continuing lien thereon, including, without limitation, diverting distributions thereon to the Contributing Obligor), and (ii) suspended for any period in which an Event of Default exists which was Caused by the Contributing Obligor or its Affiliates. (d) If either LCI Parent or the Trust is a Non-Contributing Obligor by reason of its failure to make its pro rata share of any EBITDA Shortfall Payment as required by the Contribution Agreement and an EBITDA Shortfall Loan has been made by the Contributing Obligor to the Non-Contributing Obligor for such Delinquent Amount pursuant to Section 3.5(b), then, provided that the Contributing Obligor or its Affiliates have not Caused an existing Event of Default, the directly held Percentage Interest of LCI, if LCI Parent is the Non-Contributing Obligor, or of Sommer Enterprises, if the Trust is the Non-Contributing Obligor, shall be decreased, and the directly held Percentage Interest of LCI or Sommer Enterprises, as the case may be, shall be correspondingly increased, as of the date the relevant EBITDA Shortfall Payment would have been past due if not paid (the " EBITDA Shortfall Due Date"), by an amount (expressed as a percentage) equal to either (i) in the case of a failure by the Non-Contributing Obligor to pay the Delinquent Amount within thirty business days of the EBITDA Shortfall Due Date, the fraction (the "Dilution Fraction") (A) the numerator of which is the Delinquent Amount, and (B) the denominator of which is $200 million, or (ii) in the case of a failure by the Non-Contributing Obligor to pay the Delinquent Amount within forty-five business days of the EBITDA Shortfall Due Date, one and a half times the Dilution Fraction, or (iii) in the case of a failure by the Non-Contributing Obligor to pay the 28 Delinquent Amount within sixty business days of the Keep Well Due Date, two times the Dilution Fraction. The Parties agree that after the directly held Percentage Interest of LCI, if LCI Parent is the Non-Contributing Obligor, or Sommer Enterprises, if the Trust is the Non-Contributing Obligor, is reduced to zero pursuant to the foregoing sentence of this Section 3.5(d), if such Party holds any shares in Aladdin Enterprises, a number of such shares shall be transferred to LCI or Sommer Enterprises (as the case may be), with class A voting common stock being transferred first and then class B non-voting common stock being transferred, in order to give effect to the adjustments pursuant to the foregoing sentence by thereby reducing and increasing the such Parties' Ultimate Percentage Interests instead of their directly held Percentage Interests. 3.6 OTHER ADJUSTMENTS. (a) On the Opening Date LCI's Percentage Interest shall be decreased by 0.5% and Sommer Enterprises' Percentage Interest shall be correspondingly increased by 0.5%. (b) Upon (i) the vesting of Common Shares pursuant to any Employment and Consulting Agreement, (ii) the exercise of any employee options to purchase Common Shares or (iii) any other issuance of Common Shares after the date hereof in accordance with this Agreement, Schedule 1 shall be updated to include such new Common Shares and any Capital Contributions in connection therewith and to reflect the changes in the Percentage Interests of the Members resulting therefrom. (c) Upon the exercise of any Warrants, the Percentage Interests of all Members other than LCI and Aladdin Enterprises as well as the Restricted Membership Interests shall be adjusted so that all such Members and holders of Restricted Membership Interests shall bear the dilutive effect of such exercise equally in proportion to their Ultimate Percentage Interests (or intended Ultimate Percentage Interests upon vesting in the case of holders of Restricted Membership Interests). The Parties acknowledge that consequential adjustments to such Percentage Interests may be necessary, and if so shall occur, upon the vesting of any Restricted Membership Interests to give effect to such equal sharing of such dilutive effect. (d) The Parties acknowledge that adjustments to the Percentage Interest of Aladdin Enterprises shall occur in certain circumstances as provided in the Warrant Agreement. Upon any such adjustment, the Percentage Interests of all Members other than Aladdin Enterprises as well as the Restricted Membership Interests shall be adjusted so that all such Members and holders of Restricted Membership Interests shall bear the dilutive effect or the benefit of such adjustments equally in proportion to their Ultimate Percentage Interests (or intended Ultimate Percentage Interests in the case of the holders of Restricted Membership Interests). The Parties acknowledge that consequential adjustments to such Percentage Interests may be necessary, and if so shall occur, upon the vesting of any Restricted Membership Interests to give effect to such equal sharing of such dilutive effect or benefit. 29 (e) Upon the vesting of any Restricted Membership Interest, in addition to any necessary consequential adjustments to the Members' Percentage Interests pursuant to Sections 3.6(c) and (d), (i) the Percentage Interest of Aladdin Enterprises shall not change; (ii) the Percentage Interest of LCI shall be reduced by twenty-five percent of the dilutive effect of such vesting (assuming, in the case of a vesting of a Restricted Membership Interest after any Warrants have been exercised, that no adjustment to the Restricted Membership Interest had occurred pursuant to Section 3.6(c)) and (iii) Sommer Enterprises' Percentage Interest shall be reduced to bear the remaining dilutive effect of such vesting, and the Capital Accounts of LCI and Sommer Enterprises shall be reduced pro-rata in proportion to such reductions in Percentage Interest to take account of any Capital Account to be established pursuant to the relevant Employment and Consulting Agreement for the holder of such Restricted Membership Interest upon the vesting of such Restricted Membership Interest. (f) Upon any Warrantholder validly exercising a right to exchange its Warrants or Warrant Shares into Common Shares pursuant to Section 4 of the Equity Participation Agreement, the Company shall (subject to such Warrantholder agreeing in writing to be bound by this Agreement) issue such Common Shares to such Warrantholder as provided in the Equity Participation Agreement, and admit such Warrantholder as a Member, and shall reduce Aladdin Enterprises' Percentage Interest thereupon to ensure that Aladdin Enterprises bears all of the dilutive effect of such issuance. (g) No adjustments shall be made to the Capital Accounts of Members with respect to any of the adjustments in Percentage Interests provided for in this Section 3.6. 3.7 ADJUSTMENTS. Following any adjustments of the Percentage Interests of any Members pursuant to this Article III, the Common Shares issued and outstanding shall be adjusted, Schedule 1 shall be updated and the Members shall cooperate with the Company as necessary to amend, cancel or issue Certificates accordingly. Notwithstanding anything else herein to the contrary, any issuance of Shares and adjustment of Percentage Interests pursuant to this Article III shall be subject to receipt of all approvals required by the Nevada Act (such approval to be obtained as soon as reasonably practicable). In the event that any Distributions are declared on the Shares during the period that such approvals are pending under the Nevada Act, then to the extent permitted by the Nevada Act and other applicable law the amount of such Distributions in respect of the Shares to be transferred, issued or cancelled (without duplication) shall be held in an escrow account by the Company until such approvals are obtained, at which time such amount shall be paid to the new holder of such Shares. 3.8 UCC ELECTION. The Company hereby irrevocably elects that all membership interests in the Company shall be securities governed by Article 8 of the Uniform Commercial Code. Each Certificate of Shares shall bear the following legend: "This certificate evidences an interest in Aladdin Gaming Holdings, LLC and shall be a security for purposes of Article 8 of the Uniform 30 Commercial Code." No change to this provision shall be effective until all outstanding Certificates of Shares have been surrendered for cancellation and any new Certificates of Shares thereafter issued shall not bear the foregoing legend. ARTICLE IV CAPITAL ACCOUNTS 4.1 INITIAL CAPITAL. As of the date hereof the capital of the Company shall be the Capital Contributions of the Members on or prior to the date hereof in such amounts or value as are set forth opposite the name of each Member on Schedule 1, such Capital Contributions made in exchange for the Shares indicated on Schedule 1. No such initial Capital Contributions shall be accepted by the Company and no Shares shall be issued until all necessary approvals under the Nevada Act are obtained with respect to such Capital Contribution and issuance of Shares. 4.2 CAPITAL ACCOUNTS. Capital Accounts shall be established on the Company's books representing the Members' respective Capital Contributions to the Company. A separate Capital Account shall be maintained for each Member and, for book purposes, separated into a contribution account and an income (loss) account for each class of Shares held by each Member at any time maintained in accordance with the accounting methods elected to be followed by the Company. The Capital Account of each contributing Member shall be credited with the amount of such Member's initial Capital Contribution and any subsequent Capital Contributions upon receipt thereof by the Company (including payments pursuant to the Completion Guaranty and Keep Well Agreement); PROVIDED, however, that the Capital Account of a Member shall not be credited with the amount of any Capital Contribution until all necessary approvals under the Nevada Act are obtained with respect to such initial Capital Contribution. 4.3 GENERAL RULES FOR ADJUSTMENT OF CAPITAL ACCOUNTS. Subject to Section 4.4, the Capital Account of each Member shall be: (a) increased by: (i) the amount of the Member's cash contributions to the Company; (ii) the agreed fair market value of any property contributed by the Member to the Company (net of liabilities secured by any such contributed property that the Company is considered to assume or take subject to for purposes of Code Section 752); 31 (iii) the amount of Profits allocated to the Member pursuant to Article V or other provisions of this Agreement and any items in the nature of income or gain which are specially allocated to the Member; (iv) the amount of any Company liabilities assumed by the Member; and (v) any other increases required by this Agreement or the Treasury Regulations; and (b) decreased by: (i) all amounts paid or distributed to the Member, other than amounts required to be treated as a payment for property or services under the Code; (ii) the agreed fair market value of any property distributed in kind to the Member pursuant to this Agreement (net of any liabilities secured by such distributed property that such Member is considered to assume or take subject to for purposes of Code Section 752); (iii) the amount of Losses allocated to the Member pursuant to Article V or other provisions of this Agreement and any items in the nature of expenses or losses which are specially allocated to the Member; (iv) the amount of any liabilities of the Member assumed by the Company; and (v) any other decreases required by this Agreement or the Treasury Regulations. In the event that any Shares are Transferred in accordance with the terms of this Agreement (except with respect to Transfers referred to in Section 3.6), the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Shares. Before decreasing a Member's Capital Account with respect to the distribution of any property to such Member, all Members' accounts shall be adjusted to reflect the manner in which the unrealized income gain, loss, and deduction inherent in such property (that has not been previously reflected in the Members' Capital Accounts) would be allocated among the Members if there were a taxable disposition of such property by the Company on the date of distribution, in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(e). 32 4.4 SPECIAL RULES WITH RESPECT TO CAPITAL ACCOUNTS. (a) Notwithstanding any other provision of this Agreement, each Member's Capital Account shall be maintained and adjusted in accordance with the Code and the Treasury Regulations, including Treasury Regulations Section 1.704-1(b)(2)(iv) and appropriate adjustments to the Capital Accounts permitted in the case of a Member who receives the benefit of any special basis adjustments under Code Sections 734, 743 and 754. In determining the amount of any liability for purposes of Sections 4.3(a) and 4.3(b), there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and the Treasury Regulations. (b) For purposes of computing the balance in a Member's Capital Account no credit shall be given for any Capital Contribution which such Member is to make until such Capital Contribution is actually received by the Company. (c) All provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner consistent with such Treasury Regulations. The Members shall make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Treasury Regulations Section 1.704-1(b). 4.5 RIGHTS WITH RESPECT TO CAPITAL; INTEREST. No Member shall have the right to withdraw or receive any return of such Member's Capital Contribution, and no Capital Contribution must be returned in the form of property other than cash except as specifically provided herein. No interest shall be paid or credited to the Members on their Capital Accounts or upon any undistributed profits left on deposit with the Company. 4.6 ADDITIONAL CAPITAL CONTRIBUTIONS. Except as specifically provided in this Agreement, the Keep Well Agreement, the Keep Well Agreement or the Contribution Agreement, (a) no Member shall be required to make an additional Capital Contribution to the Company, or to make any loan (or cause any loan to be made) to the Company, and (b) no Member shall have the right to make an additional Capital Contribution to the Company without the consent of the Company. 4.7 ADJUSTMENT OF CAPITAL ACCOUNTS ON REDEMPTION OF DISCOUNT NOTES. After the redemption of any Discount Notes, and immediately prior to (a) any material Distribution in redemption or liquidation of the Common Shares held by Sommer Enterprises or LCI (or other substantial Distribution with respect to such Shares as to which the adjustment would have material effect), or (b) any merger or incorporation of the Company, or similar transaction preparatory to an IPO, and with effect to the determination of the entitlement of the parties in any transaction described in (a) or (b), Sommer Enterprises' Capital Account in respect of its Common Shares shall be reduced by an amount equal to the product of LCI's Percentage Interest at the time of such redemption multiplied by the accreted value on the issue date of the Discount Notes redeemed, and 33 LCI's Capital Account shall be increased by the same amount. Immediately prior to an adjustment to the relative Capital Accounts of Sommer Enterprises and LCI pursuant to this Section 4.7, each asset of the Company shall be deemed to have been sold at its fair market value, and Profits and Losses recognized upon such deemed sale shall be allocated in accordance with Article V. Sommer Enterprises and LCI shall mutually agree on an appropriate method for an equivalent payment or transfer of value with respect to any redemption of Discount Notes which takes place at the time of or after the Company has been merged or incorporated, such payment or transfer of value to be made reasonably promptly at the time of or after any such redemption. ARTICLE V PROFITS AND LOSSES 5.1 PROFITS. After giving effect to the special allocations set forth in Section 5.3, Profits for any Fiscal Year shall be allocated in the following order and priority: (a) first, to the Members holding Series A Preferred Shares to the extent of and in proportion to the excess of the sum of (A) the cumulative Series A Preferred Return of the relevant Member from the commencement of the Company through the last day of the relevant Fiscal Year, plus (B) the cumulative Losses allocated to such Member pursuant to Section 5.2(c) for all prior Fiscal Years, over (ii) the cumulative Profits allocated to such Member pursuant to this Section 5.1(a) for all prior Fiscal Years; and (b) second, to the Members holding Series B Preferred Shares to the extent of an in proportion to the excess of the sum of (A) the cumulative Series B Preferred Return of the relevant Member from the commencement of the Company through the last day of the relevant Fiscal Year, plus (B) the cumulative Losses allocated to such Member pursuant to Section 5.2(b) for all prior Fiscal Years, over (ii) the cumulative Profits allocated to such Member pursuant to this Section 5.1(b) for all prior Fiscal Years; (c) third, to the Members holding Common Shares to the extent of any excess of (i) the cumulative losses allocated to the Member's Common Shares over (ii) the sum of the cumulative allocations of Profits, pursuant to this Section 5.1(c), with respect to such Shares; and (d) the balance, if any, among the Members holding Common Shares in proportion to their Percentage Interests. 5.2 LOSSES. After giving effect to the special allocations set forth in Section 5.3, Losses for any Fiscal Year shall be allocated in the following order and priority: 34 (a) first, to the Members holding Common Shares, to reverse any excess of (i) the sum of the cumulative allocations of Profits, pursuant to Section 5.1(c), with respect to such Shares, over (ii) the cumulative allocation of Losses with respect to such Shares, in proportion to and to the extent of such excess; (b) second, to the Members holding Common Shares in proportion to, and to the extent of, the Member's Capital Account with respect to the Common Shares; (c) third, to the Members holding Series B Preferred Shares to the extent of the Members' Capital Accounts with respect to the Series B preferred Shares; (d) fourth, to the Members holding Series A Preferred Shares to the extent of the Members' Capital Account with respect to the Series A Preferred Shares; and (e) the balance, if any, among the Members holding Common Shares in proportion to their Percentage Interests. 5.3 SPECIAL ALLOCATIONS. (a) MINIMUM GAIN CHARGEBACK. Except as provided in Treasury Regulations Section 1.704.2(f), notwithstanding any other provision of this Article V, if there is a net decrease in Minimum Gain during any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent years) in proportion to and to the extent of an amount equal to such Member's share of the net decrease in Minimum Gain determined in accordance with Treasury Regulations Section 1.704-2(g). Items to be so allocated shall be determined in accordance with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 5.3(a) is intended to comply with the "minimum gain chargeback" provisions of Treasury Regulations Section 1.704-2(f) and shall be interpreted consistently therewith. (b) MEMBER MINIMUM GAIN CHARGEBACK. Except as provided in Treasury Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Article V, if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Fiscal Year of the Company, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Section 1.704-2(i)(5), shall be specially allocated items of income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Member's share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulations Sections 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 5.3(b) is intended to comply with the "minimum gain 35 chargeback" requirement of Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently therewith. (c) QUALIFIED INCOME OFFSET. In the event any Member unexpectedly receives any adjustments, allocations or distributions described in clauses (4), (5) or (6) of Treasury Regulations Section 1.704-1(b)(2)(ii)(d), items of income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit created by such adjustments, allocations or distributions of such Member as quickly as possible. Allocation pursuant to this Section 5.3(c) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been tentatively made as if this Section 5.3(c) were not in the Agreement. This Section 5.3(c) is intended to constitute a "qualified income offset" within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(3). (d) GROSS INCOME ALLOCATION. In the event any Member has a deficit Capital Account at the end of any Fiscal Year which is in excess of the sum of (i) the amount such Member is obligated to restore pursuant to any provision of the Agreement and (ii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially allocated items of income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this Section 5.3(d) shall be made only if and to the extent that such Member would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Article V have been made as if Sections 5.3(c) and 5.3(d) were not in this Agreement. (e) MEMBER NONRECOURSE DEDUCTIONS. Any Member Nonrecourse Deductions for any Fiscal Year or other period shall be specially allocated to the Member who bears (or is deemed to bear) the economic risk of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.704-2(i)(1). (f) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any year shall be specially allocated among the Members pro rata in proportion to their Percentage Interests. (g) REGULATORY ALLOCATIONS. Any special allocation of items pursuant to this Section 5.3 shall be taken into account in determining subsequent allocations pursuant to Sections 5.1 and 5.2 so that the cumulative net amount of all items allocated to each Member shall, to the extent possible, be equal to the amount that would have been allocated to such Member if there had never been any special allocation pursuant to this Section 5.3. 5.4 SECTION 704(C) ALLOCATION. For tax purposes, all items of income, gain, loss, deduction, expense and credit, other than tax items corresponding to items allocated pursuant to 36 Section 5.3, shall be allocated in the same manner as are Profits and Losses; PROVIDED that in accordance with Code Section 704(c) and the Treasury Regulations promulgated thereunder, income, gain, loss and deduction with respect to property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property for federal income tax purposes and its fair market value. In the event that any asset of the Company is revalued pursuant to this Agreement in accordance with Section 704 of the Code and the regulations thereunder, subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its fair market value in the same manner as under Code Section 704(c) and the Treasury Regulations promulgated thereunder. Any elections or other decisions relating to allocations referred to in this Section 5.4 shall be made by the Board in any manner that reasonably reflects the purpose and intention of this Agreement; PROVIDED that the Company elects to apply the traditional method described in Treasury Regulations Section 1.704-3(b) without curative allocations; PROVIDED, however, that curative allocations as described in Treasury Regulations Section 1.704-3(c) shall be made with respect to $7 million of prepaid costs contributed to the Company by Aladdin Enterprises. Allocations pursuant to this Section 5.4 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement. 5.5 FEDERAL INCOME TAX. It is the intent of the Company and its Members that the Company will be governed by the applicable provisions of Subchapter K of Chapter 1 of the Code. ARTICLE VI DISTRIBUTIONS 6.1 TAX DISTRIBUTIONS. (a) No later than thirty days following the end of each Quarter, the Company shall, to the extent of Available Cash, make a Distribution of cash pro-rata to each Member (based on the balance in each Member's Cumulative Tax Liability Account) to the extent that the balance in that Member's Cumulative Tax Liability Account (determined as of the end of such Quarter) exceeds the cumulative Distributions of cash made to such Member pursuant to this Section 6.1. In computing the Cumulative Tax Liability Account of LCI for this purpose, the amount of LCI's federal taxable income or gain allocated or expected to be allocated for any Quarter shall be increased by 25 percent of the increase in LCI's federal taxable income resulting from the applicability of section 163(i) of the Code to the income and deductions allocated, or expected to be allocated (as appropriate) to LCI. (b) The Distribution to Aladdin Enterprises under Section 6.1(a) shall be increased to the extent necessary to finance the increase in Aladdin Enterprise's tax liability resulting 37 from the applicability of Section 163(i) of the Code to the income and deductions allocated, or expected to be allocated (as appropriate) to Enterprises. (c) Subject to making the current and anticipated Distributions provided for in Sections 6.1(a) and (b), at the discretion of the Board and to the extent of remaining available cash the Company may make a Distribution to Sommer Enterprises to the extent that a payment is required at such time under the Tax Indemnification Agreement dated February 26, 1998 among the Trust, Sommer Enterprises and LCI. (d) Amounts distributed pursuant to this Section 6.1 shall be treated as non-interest bearing advances of Distributions under Section 6.2, and shall be taken into account in determining the amount of future Distributions under Section 6.2. 6.2 DISTRIBUTIONS. Subject to having made all Distributions provided for in Section 6.1 and subject to Section 7.5, additional Distributions shall be made Quarterly as determined by the Board, subject to the following order of priority: (a) first, to the Members holding Series A Preferred Shares in proportion to their Unpaid Preferred Return with respect to such Shares until the balance of the Unpaid Preferred Return with respect to such Shares is zero; (b) second, to the Members holding Series A Preferred Shares in proportion to their Unrecovered Series A Invested Capital until the balance of the Unrecovered Series A Invested Capital is zero; (c) third, to the Members holding Series B Preferred Shares in proportion to their Unpaid Preferred Return with respect to such Shares until the balance of the Unpaid Preferred Return with respect to such Shares is zero; (d) fourth, to the Members holding Series B Preferred Shares in proportion to their Unrecovered Series B Invested Capital until the balance of the Unrecovered Series B Invested Capital is zero; and (e) the balance, if any, among the Members holding Common Shares, in proportion to their Percentage Interests. 6.3 LIMITATIONS ON DISTRIBUTION. Notwithstanding any other provision of this Agreement, the Company shall not make any Distribution if such Distribution would violate the NRS, the Nevada Act or other applicable law or would cause a breach or default under any agreement or instrument to which the Company is a party or by which the Company or any of its 38 assets are bound, but shall instead make such Distribution as soon as practicable after the making of such Distribution would not cause such violation, breach or default. ARTICLE VII MEMBERS 7.1 POWERS OF MEMBERS. Except as provided in Section 7.4, Members shall not have the authority to bind the Company by virtue of their status as Members. 7.2 LIMITATION OF LIABILITY. No Member shall be individually liable under a judgment, decree or order of a court, or in any other manner, for a debt, obligation or liability of the Company or any other Member, except as provided by law or in an agreement signed by the Member to be charged. No Member shall be required to loan any funds to the Company, nor shall any Member be required to make any contribution to the Company, nor shall any Member be subject to any liability to the Company, the other Members, or any third party, solely as a result of a Member's negative Capital Account balance. 7.3 COMPENSATION OF MEMBERS. Subject to Section 7.5, the Company shall have authority to pay to any Member a reasonable salary for said Member's services to the Company. It is understood that the salary paid to any Member under the provisions of this Section 7.3 shall be determined without regard to the income of the Company and shall be considered as an operating expense of the Company and shall be deducted as an expense item in determining Profits and Losses. 7.4 ACTION BY THE MEMBERS. Except as otherwise specifically provided in this Agreement, all actions of the Members shall be taken by the Members in proportion to their Percentage Interests at the time of the action taken. Except as otherwise specifically provided herein, the Members may vote, approve a matter or take any action by the vote of the Members at a meeting at which a quorum is present, in person or by proxy, or without a meeting by written consent as provided in Section 7.10. The vote or written consent of a Majority shall be required to approve any matter or to take any action at any meeting of Members at which a quorum is present, unless a greater or lesser vote or consent is provided for by this Agreement or required by the NRS. 7.5 MEMBER APPROVAL. (a) Subject to Section 7.5(b) and except as otherwise specifically provided for in this Agreement, any of the following actions by the Company or any Subsidiary shall require the vote or consent in writing of a Supermajority: (i) except as contemplated in the Equity Participation Agreement, the admission of a new Member, the acceptance of any Capital Contributions not provided for in this Agreement, the Completion Guaranty, the Keep Well Agreement or the Contribution 39 Agreement, or the issuance of additional Shares or securities of the Company or Aladdin Gaming convertible into or exchangeable for Shares or the granting of any options or other rights to acquire from the Company or Aladdin Gaming, or other obligation of the Company or Aladdin Gaming to issue, any Shares or securities convertible into or exchangeable for Shares (other than in respect of the matters referred to in Section 7.5(a)(xvi) for which Section 7.5(a)(xvi) shall govern), except for any such acceptance, issuance or grant provided for in the Employment and Consulting Agreements; (ii) other than (A) dividends and distributions by Subsidiaries, or (B) Distributions referred to in Sections 6.1 and 12.5, any declaration, setting aside or payment of any Distribution; (iii) any voluntary dissolution or liquidation of the Company or any Subsidiary or the sale of all or substantially all of the assets of the Company and its Subsidiaries; (iv) any merger or consolidation of the Company or any Subsidiary with any Person; (v) any amendment to the Articles or this Agreement or the adoption of or amendment to the Articles of Organization or Operating Agreement of any Subsidiary; (vi) (A) during the period that the Keep Well Agreement is in force, the creation, incurrence, assumption or guarantee of any indebtedness (excluding obligations under leases made in the ordinary course of business) and (B) after the Keep Well Agreement is no longer in force, the creation, incurrence, assumption or guarantee of any indebtedness (excluding obligations under leases made in the ordinary course of business) in excess of $10 million in any individual transaction (such threshold limit to be increased at the end of each Fiscal Year by an amount determined by the Board to correspond to increases in consumer prices in the United States for such Fiscal Year); (vii) the creation of any lien, pledge or other security interest in assets of the Company or any Subsidiary securing indebtedness of any third party which is not for the benefit of any business carried on by the Company or any Subsidiary; (viii) the commencement of a voluntary case under Title 11 of the Untied States Code entitled "Bankruptcy" or any other voluntary proceeding under any Debtor Relief Laws or any voluntary general assignment for the benefit of creditors; (ix) any material transactions (other than transactions provided for in Sections 6.7(a) or 6.9 of the LCI Purchase Agreement) between the Company or any 40 Subsidiary, on the one hand, and any Member or any Affiliate of any Member, on the other hand; (x) any entry into any new business opportunity unrelated to the Aladdin Development; (xi) the appointment or removal of the Company's or its Subsidiaries' independent auditors; (xii) any material amendment to, or any material waiver under, the Bazaar Lease (such consent not to be unreasonably withheld); (xiii) any material amendment to, or any material waiver under, the Reciprocal Easement Agreement (such consent not to be unreasonably withheld); (xiv) any arrangement or agreement for the Company or any Subsidiary to pay a salary to any Member or any Affiliate of any Member (other than pursuant to the Employment and Consulting Agreements and other than in respect of the matters referred to in Section 7.5(a)(xvi) for which Section 7.5(a)(xvi) shall govern); (xv) the employment of any member of the Executive Management Committee of Aladdin Gaming or any material amendment to the terms of employment of any such Person, including the Employment and Consulting Agreements; (xvi) the adoption of, or any material amendment to, any employee benefit, profit sharing, incentive, bonus, pension, retirement or employee stock option plans (such consent not to be unreasonably withheld in the context of industry practice); (xvii) any license of the Aladdin trademark to any Person other than a Subsidiary or otherwise in connection with operations of any Person in connection with the Aladdin Development (such consent not to be unreasonably withheld); (xviii) any contract (including leases) outside the ordinary course of business or for capital expenditure not included in the Company's annual budgets (such consent not to be unreasonably withheld); and (xix) the initiation or settlement of any material litigation outside the ordinary course of business and the selection of counsel therefor (such consent not to be unreasonably withheld). 41 (b) Without limiting Articles VIII and XIV, Section 7.5(a) shall be of no further force and effect in the event that LCI (i) has Caused an Event of Default or (ii) is a Bankrupt Member; PROVIDED that Section 7.5(a) shall continue to be of force and effect at such time if LCI is the Majority Member. (c) Notwithstanding any other provision of this Agreement, the rights of the holders of any class of Preferred Shares to Distributions pursuant to this Agreement may not be diminished or adversely affected without the vote of the holders of at least two-thirds of the issued and outstanding Shares of that class. (d) Notwithstanding any other provision of this Agreement, Sections 3.6(d) and (f) and 8.4 may not be amended without the written consent of Aladdin Enterprises. 7.6 LCI CONSENT. (a) In addition to any other requirements under this Agreement or the NRS, the Company shall not enter into, or make any material amendment to or material waiver under, any Redevelopment Document or any part thereof (other than transactions provided for in Sections 6.7(a) or 6.9 of the LCI Purchase Agreement) without the consent of LCI or a Board Member appointed by LCI. In addition, LCI shall have the rights in respect of consultation and approval (a) in respect of the Redevelopment as provided in Section 6.5 of the LCI Purchase Agreement, (b) in respect of the Second Hotel as provided in Section 6.7(c) of the LCI Purchase Agreement and (c) in respect of the Timeshare Parcel as provided in Section 6.9(b) of the LCI Purchase Agreement; PROVIDED that such rights shall not extend to matters relating to operation and maintenance of the Redevelopment, the Second Hotel or the Timeshare Parcel. Without limiting Articles VIII and XIV, this Section 7.6 shall be of no further force and effect if Sommer Enterprises is the Majority Member and LCI (i) has Caused an Event of Default, or (ii) is Bankrupt. (b) Without limiting any of the foregoing, (i) any change order in the budget or the plans and specifications relating to the construction and fitting out of the Salle Privee Facilities shall require the approval of LCI in its sole discretion and (ii) any change order in the budget or the plans and specifications relating to the construction phase of the Redevelopment, or any part thereof, which is in excess of $1 million or any change order of $1 million or less, to the extent such changes cumulatively exceed $10 million shall be subject to LCI's approval, such approval not to be unreasonably withheld. 7.7 MEETINGS OF MEMBERS. Meetings of the Members for any purpose may be called at any time by the Board or by one or more Members holding in the aggregate more than a ten percent Percentage Interest. Except in special cases where other express provision is made by the NRS, written notice of each meeting, signed by a Board representative or by a Member or Members, as the case may be, shall be given to each Member entitled to vote. All notices shall be sent in accordance with Section 16.1 to each Member entitled thereto not less than ten (except in respect of an adjournment of a meeting of the Members) nor more than sixty days before each 42 meeting, and shall specify the place, date and time of such meeting, as well as the purpose or purposes for which the meeting is called. 7.8 WAIVER OF NOTICE. The transactions carried out at any meeting of the Members, however called and noticed or wherever held, shall be as valid as though carried out at a meeting regularly called and noticed if (a) all of the Members holding Common Shares are present at the meeting or (b) a quorum of the Members is present and if, either before or after the meeting, each of the Members holding Common Shares who are not present signs a written waiver of notice or a consent to holding such meeting or an approval of the minutes thereof, which waiver, consent or approval shall be filed with the other records of the Company or made a part of the minutes of the meeting; PROVIDED that no Member holding Common Shares attending such meeting without notice protests prior to the meeting or at its commencement that notice was not given to such Member. 7.9 ADJOURNED MEETINGS AND NOTICE THEREOF. Any Members' meeting, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of Members holding Common Shares present in person or represented by proxy, but in the absence of a quorum no other business may be transacted at any such meeting. When any Members' meeting is adjourned for five days or more, notice of the adjourned meeting shall be given as in the case of an original meeting, otherwise it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken. 7.10 ACTION BY WRITTEN CONSENT. Any action which may be taken at a meeting of Members may be taken by the Members without a meeting if authorized by the written consent of Members holding at least a Majority, or such other greater or lesser Percentage Interest as is provided for in this Agreement or required by the NRS. Whenever action is taken by written consent, a meeting of Members need not be called nor notice of meeting given. The written consent may be executed in one or more counterparts and by facsimile, and each such consent so executed shall be deemed an original. A copy of such consent shall be sent to each Member holding Common Shares. 7.11 TELEPHONIC MEETINGS. Members may participate in a meeting of the Members by means of a telephone conference or similar method of communication by which all individuals participating in the meeting can hear each other. Participation in a meeting pursuant to this Section 7.11 constitutes presence in person at the meeting. 7.12 QUORUM. A Majority, represented in person or by proxy, shall constitute a quorum for the transaction of business. Except as specifically provided in this Agreement, each Member shall be entitled to vote in proportion to such Member's Percentage Interest, provided that if, pursuant to the NRS or the terms of this Agreement, a Member is not entitled to vote on a specific 43 matter, then such Member's vote and Percentage Interest shall not be considered for purposes of determining whether a quorum is present or whether approval by the vote of the Members has been obtained in respect of such specific matter. ARTICLE VIII RESIGNATION, TRANSFER OF SHARES, CHANGE IN CONTROL, TRUST MEMBERS 8.1 RESIGNATION. A Member may not resign from the Company before the dissolution and winding up of the Company, subject to the provisions of Chapter 463 of the NRS or other applicable law. Except as specifically provided in this Agreement, any right of a Member under applicable law to demand a return of that Member's Capital Contribution prior to dissolution is hereby waived. 8.2 TRANSFERS OF INTERESTS. (a) The Common Shares of each Member are personal property, and such Shares may be Transferred only as provided in this Agreement and any attempt to Transfer other than as provided in this Agreement shall be null and void and of no effect whatsoever. If a Member Transfers any of its Common Shares to any Person pursuant to the provisions of this Article VIII, in addition to any other requirements under this Agreement, no such Transfer shall be effective unless and until the proposed transferee (i) notifies the Company in writing of such Transfer, and (ii) agrees in writing to be bound by the terms and provisions of and to assume all obligations of the transferor and to be subject to all obligations with respect to voting, adjustments to Percentage Interests, and restrictions (including all security interests) to which the transferor was and is subject under the Articles and this Agreement. Any new Member shall pay any reasonable expenses in connection with admission as a new Member, including the costs associated with any approval required by the Nevada Act. In addition, no Person shall be admitted as a Member until all approvals required by the Nevada Act are obtained. (b) Except as specifically provided in this Agreement, a Member may not Transfer any Preferred Share to any Person other than a Permitted Transferee without the consent of a Supermajority and any attempt to do so shall be null and void and of no effect whatsoever. 8.3 RIGHT OF FIRST OFFER AND LAST REFUSAL. (a) Any Member (a "Transferor") who wishes to Transfer any or all of its Common Shares (the "Offered Shares") to any Person other than a Permitted Transferee shall, prior to soliciting or pursuing any offer from any Person, by written notice, offer the other Members holding Common Shares the right to purchase such Offered Shares at a stated price (the "Offer Price"). For the period (a "Refusal Period") of sixty days following receipt of such offer each other Member may purchase that percentage of the Offered Shares which is equal to the percentage of the Total Common Shares (excluding the Offered Shares) owned by each such Member ("Applicable Percentage"). To the extent any Member shall fail to purchase the 44 Applicable Percentage of the Offered Shares prior to the expiration of the Refusal Period, the Members accepting the offer ("Accepting Members") may purchase such Shares on a pro rata basis in proportion to the number of Common Shares owned by each of them. If any of the Offered Shares remain unsold thereafter, the Transferor may for a period of six months from the expiration of the Refusal Period solicit and pursue offers at or above the stated per Share price in the written notice in the foregoing procedure for such remaining Offered Shares from non-Member third Parties who are not Prohibited Transferees. (b) Except for Sections 3.7, 8.9 and 8.10, nothing in this Agreement shall prohibit or restrict a Transfer of Common Shares (i) in connection with the adjustments in Percentage Interests provided in Article III, (ii) pursuant to the Employment and Consulting Agreements or (iii) in connection with the purchase of Common Shares from Aladdin Gaming by the Company pursuant to the Operating Agreement of Aladdin Gaming following the Transfer of such Common Shares to Aladdin Gaming pursuant to the Employment and Consulting Agreements; PROVIDED that Transfers referred to in clauses (ii) and (iii) immediately above shall be subject to Section 8.2(a)(ii). (c) Any Member who, having followed the procedure in Section 8.3(a), shall subsequently receive a bona fide offer from any Person (the "Offeror") who is not a Prohibited Transferee for the purchase of all or any portion of its Common Shares shall, prior to accepting such offer, provide written notice (the "Notice of Offer") thereof to each other Member holding Common Shares, which notice shall set forth the terms and conditions of the offer so received, including the per Share purchase price and the identity of the Offeror. Following the delivery to the other Members holding Common Shares of the Notice of Offer, each other Member may purchase its Applicable Percentage during a thirty day Refusal Period on the terms set forth in the Notice of Offer. To the extent any Member shall fail to purchase its Applicable Percentage prior to the expiration of the Refusal Period, the Accepting Members may purchase such Shares on a pro rata basis in proportion to the number of Common Shares owned by each of them (and the foregoing procedure shall be repeated in respect of any Shares not purchased until all Accepting Members have had an opportunity to purchase any remaining Shares). (d) Subject to Sections 8.2, 8.4 and 8.5, if all or any of the Offered Shares shall remain unsold after completion of the procedures set forth in Sections 8.3(a) and (b), the Transferor may sell such remaining Offered Shares to the Offeror within six months of the completion of such procedures on terms no more favorable than those set forth in the Notice of Offer; PROVIDED that the Offeror is not a Prohibited Transferee. To the extent any of the Offered Shares are not sold in accordance with the foregoing, the Members shall continue to have a right of first refusal under this Section 8.3 with respect to any Transfers to any Person which are subsequently proposed by such Transferor. 45 (e) The closing of a purchase by a Member under this Section 8.3 shall occur within the Refusal Period or at such later date when all approvals required by the Nevada Act are obtained (such approvals to be obtained as soon as is reasonably practicable). At such closing the Transferor and the relevant Accepting Member (and any or all other Members, as may be required) shall execute an assignment and assumption agreement and any other instruments and documents as may be reasonably required by such Member to effectuate the transfer of such Shares free and clear of any liens, claims or encumbrances, other than as specifically permitted hereunder. Any Transfer to any Person which does not comply with the provisions of this Section 8.3, other than a Transfer expressly provided for in the other provisions of this Agreement, shall be null and void and of no effect whatsoever. 8.4 TAG ALONG RIGHTS. (a) No Member may, alone or in concert with any other Member, in any transaction or series of related transactions, Transfer any Common Shares to another Person or Persons other than a Transfer to a Permitted Transferee if, after giving effect to such Transfer of Common Shares, such Person or Persons together with their Affiliates would own in the aggregate an amount of Common Shares greater than ten percent of the Total Common Shares (such Transfer being referred to herein as a "Tag Along Sale"), except in accordance with the procedures set forth in this Section 8.4. (b)(i) If a Member (a "Selling Member") proposes to make a Tag Along Sale the Selling Member shall first deliver to each other Member holding Common Shares a written notice (the "Tag Along Notice"), which shall specifically identify the proposed transferee or transferees (the "Tag Along Transferee"), the number of Common Shares being Transferred (the "Tag Along Shares"), the purchase price per Share therefor ("Tag Along Price Per Share"), and a summary of the other material terms and conditions of the proposed Tag Along Sale, and shall contain an offer (the "Tag Along Offer") by the Tag Along Transferee to each Member holding Common Shares other than the Selling Member, which shall be irrevocable for a period of twenty days after the delivery thereof (the "Tag Along Period"), to purchase such Member's Common Shares at a price per share equal to the Tag Along Price Per Share and upon all such other terms offered by the Tag Along Transferee to the Selling Member including, without limitation, those set forth in the Tag Along Notice. (ii) The Tag Along Offer may be accepted in whole or in part at the option of each of the Members. Notice of a Member's intention to accept a Tag Along Offer, in whole or in part, shall be evidenced by a writing signed by such Member and delivered to the Selling Member, the Tag Along Transferee and the Company prior to the end of the Tag Along Period, setting forth the amount of Common Shares that such Member elects to sell. (iii) Upon the expiration of the Tag Along Period, the Tag Along Shares shall be allocated among the Selling Member and the other Members who have accepted the Tag Along Offer in whole or part (collectively, the "Tag Along Members") as follows: (A) First, each Tag 46 Along Member shall be entitled to sell no more than its Proportionate Percentage of the Tag Along Shares; (B) second, if an amount of Tag Along Shares has not been allocated for sale pursuant to clause (A) (the "Remaining Tag Along Shares"), each Tag Along Member (an "Oversubscribed Tag Along Member") which had accepted the Tag Along Offer with respect to an amount of Tag Along Shares in excess of the amount of Common Shares allocated to it for sale under clause (A) shall be entitled to sell an amount of Remaining Tag Along Shares equal to no more than its Proportionate Percentage (treating only Oversubscribed Tag Along Members as Tag Along Members for these purposes) of the Remaining Tag Along Shares; and (C) third, the process set forth in clause (B) shall be repeated with respect to any amounts of Tag Along Shares not allocated for sale until the Tag Along Shares are allocated for sale in their entirety. (c) All sales of Common Shares to the Tag Along Transferee shall be consummated contemporaneously at the offices of the Company on the later of (i) a mutually satisfactory business day as soon as practicable, but in no event more than thirty days after the expiration of the Tag Along Period, (ii) the closing date, if any, set forth in the Tag Along Notice, (iii) the fifth business day following the expiration or termination of all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, applicable to such sales, and (iv) the date when all approvals in respect of such sales required by the Nevada Act are obtained (such approvals to be obtained as soon as is reasonably practicable). The delivery of certificates or other instruments evidencing the Tag Along Shares as allocated pursuant to this Section 8.4 duly endorsed for Transfer shall be made on such date against payment of the purchase price for such Shares. (d) The Parties acknowledge the rights of the holders of Warrants and Warrant Shares under the Equity Participation Agreement to participate in the arrangements in this Section 8.4. 8.5 TRANSFERS TO PERMITTED TRANSFEREES. Subject to Section 8.2, a Member may Transfer its Common Shares, or any part thereof, at any time to a Permitted Transferee, and shall not be required to comply with the procedures set forth in Sections 8.3 and 8.4 in respect of such Transfers. 8.6 TRANSFER OF OWNERSHIP INTERESTS IN MEMBERS. (a) Except for (i) the Transfer of any Warrants and, the issuance or Transfer of Warrant Shares, (ii) any change in any ownership interest in LCI Parent, (iii) any Transfer to a revocable, inter vivos trust of which the transferee is the sole trustee and of which the transferee and/or his or her family is a beneficiary or (iv) any purchase of any interest in Aladdin Holdings by the Trust, in respect of each of which this Section 8.6 shall not apply, any Transfer or issuance of any ownership interest in any holder of Common Shares or in any entity that directly or indirectly owns a majority ownership interest in a holder of Common Shares (an "Upstream Ownership Interest"), other than to a Permitted Transferee, shall be prohibited unless in compliance with the procedures and requirements set forth in this Section 47 8.6. Notwithstanding any other provision of this Agreement, no Upstream Ownership Interest shall be Transferred or issued until all approvals required by the Nevada Act are obtained. (b) Any holder of any Upstream Ownership Interest in any holder of Common Shares or in any entity that owns a majority ownership interest in a holder of Common Shares (an "Upstream Transferor") who shall receive a bona fide offer from any Person (an "Upstream Offeror") who is not a Prohibited Transferee for the purchase of all or any portion of its Upstream Ownership Interest shall, prior to accepting such offer, provide written notice (the "Upstream Notice of Offer") thereof to each other holder of Common Shares, which notice shall set forth the terms and conditions of the offer so received, including the purchase price and the identity of the Upstream Offeror. Following the delivery to the other holders of Common Shares of the Upstream Notice of Offer, each other holder of Common Shares may purchase the percentage of the Common Shares indirectly owned by the Upstream Transferor equal to the percentage of the Total Common Shares (excluding the Common Shares indirectly owned by the Upstream Transferor) owned by each such other holder of Common Shares during a thirty day Refusal Period on terms equivalent to those set forth in the Upstream Notice of Offer in respect of the Upstream Ownership Interest. To the extent any holder of Common Shares shall fail to purchase such percentage prior to the expiration of the Refusal Period, the accepting holders of Common Shares may purchase such Common Shares on a pro rata basis in proportion to the number of Common Shares owned by each of them. (c) The closing of a purchase by a Member under this Section 8.6 shall occur within the Refusal Period or at such later date when all approvals required by the Nevada Act are obtained (such approvals to be obtained as soon as practicable). At later of the expiration of the Refusal Period and the Closing of the sales of Common Shares under this Section 8.6, the Upstream Transferor may sell the Upstream Ownership Interest to the Upstream Offeror on terms no more favorable than those set forth in the Upstream Notice of Offer (as adjusted for any sales of Common Shares under this Section 8.6); PROVIDED that, if any Common Shares remain owned by the Person in whom the Upstream Ownership Interest exists, the Upstream Offeror is not a Prohibited Transferee. To the extent any of the Upstream Ownership Interests are not sold in accordance with the foregoing within six months after giving the Upstream Notice of Offer, the holders of Common Shares shall continue to have a right of first refusal under this Section 8.6 with respect to any Transfers to any Person which are subsequently proposed by such Upstream Transferor. 8.7 CALL. After the occurrence of (a) any Change In Control with respect to a Member (other than a Transfer of an Upstream Ownership Interest permitted under Section 8.6), (b) any Transfer in breach of Section 8.6, or (c) any breach of Article XV (each, a "Trigger Event"), the Company (acting without the Member to which the Trigger Event relates (the "Triggering Member") or Board Members appointed by the Triggering Member) shall have an irrevocable right (the "Call") to purchase, or have its nominee purchase, within ninety days after the Company's first knowledge of such Trigger Event (other than knowledge imputed from the Triggering Member or 48 Board Members appointed by the Triggering Member), all of the Triggering Member's Common Shares for a cash purchase price equal to seventy-five percent of the fair market value of such Common Shares at such time, as determined after the exercise of the Call by an independent qualified appraiser appointed by the Company (acting without the Triggering Member or the Board Members appointed by such Triggering Member appointed by the Triggering Member). The fees and expenses of such appraiser shall be paid by the Triggering Member and its determination of fair market value shall be conclusive and binding on the Company and the Triggering Member. The Call may be exercised within the ninety day exercise period by delivery of a written notice by the Company to the Triggering Member and the other Members holding Common Shares stating that the Company is exercising its Call and specifying the identity of the Person that will be purchasing the Shares; PROVIDED that the Triggering Member shall have thirty days from receipt of such written notice to cure the Trigger Event and thereby avoid a purchase of its Common Shares under this Section 8.7. The closing of the purchase of such Common Shares shall take place on a date to be designated by the Company within thirty days of the determination of the fair market value of the Common Shares. 8.8 CONVEYANCE TO LIVING TRUST. (a) The foregoing notwithstanding, any Member shall be entitled to Transfer all such Member's Common Shares or Preferred Shares, without consideration, to a revocable, INTER VIVOS trust of which the Member is trustee and of which the Member and/or his or her family is a beneficiary, without obtaining the consent of the other Members; provided, however, that transfers pursuant to this Section 8.8 shall not be effective until all approvals required under the Nevada Act are obtained. Transfers pursuant to this Section 8.8 shall be subject to Section 8.2. (b) When any such trustee becomes a Member, such trustee shall be a Member not individually but solely as a trustee, in the exercise of and under the power and authority conferred upon and vested in such trustee. Nothing contained in this Agreement shall be construed as creating any personal liability for any such trustee to pay any amounts required to be paid hereunder, or to perform any covenant, either express or implied, contained herein. The claim of any such liability is hereby expressly waived by the other Members. Any liability of any Member which is a trust (whether to the Company or to any third person) shall be a liability to the full extent of the trust estate and shall not be a personal liability of any trustee, grantor or beneficiary of any trust. (c) Any successor trustee or co-trustee of any trust which is a Member shall be entitled to exercise the same rights and privileges and be subject to the same duties and obligations as the predecessor trustee. As used in this Section 8.8, the term "trustee" shall include any and all such successor trustees. 8.9 GAMING CONTROL ACT. Notwithstanding any other provision of this Agreement, no Shares or other ownership interest in the Company, and no Upstream Ownership Interest, shall 49 be issued or Transferred in any manner whatsoever except in compliance with the provisions of the Nevada Act. 8.10 FURTHER RESTRICTION ON TRANSFER OF SHARES. In addition to the other restrictions set forth in this Agreement, no Member may assign, convey, sell, encumber or in any way alienate all or any part of such Member's Shares, if the Shares to be assigned, conveyed, sold or encumbered, when added to the total of all other Shares assigned, conveyed, sold or encumbered in the preceding twelve months, would result in the termination of the Company under Code Section 708, if such termination will result in adverse tax consequences to the non-transferring Member. ARTICLE IX BOARD OF MANAGERS 9.1 BOARD OF MANAGERS. (a) Except for matters expressly requiring the approval of the Members (or a percentage or class of the Members) pursuant to this Agreement or the NRS, the business and affairs of the Company shall be managed by a Board of Managers pursuant to this Article IX. Subject to the provisions of the Nevada Act and except as specifically provided in this Agreement, the Board Members shall each serve for a three year term or until such Board Member shall resign or be removed or otherwise disqualified to serve, or until such Board Member's successor shall have been appointed. (b) The Members agree to take all necessary action such that each Member shall have rights identical to those set forth in this Article IX with respect to the boards of management (or comparable bodies) and management of the Subsidiaries. (c) Subject to the remaining provisions of this Section 9.1, the Members shall appoint five Board Members as follows: (i) Aladdin Enterprises shall appoint three Board Members (who shall be deemed to have been designated by the Person who Controls Aladdin Enterprises) and (ii) LCI shall designate and appoint two Board Members. On the date hereof the Board Members shall be: Jack Sommer, Ronald B. Dictrow and Richard J. Goeglein as Aladdin Enterprises appointees and Alan L. Goodenough and G. Barry C. Hardy as LCI appointees. Each of Aladdin Enterprises and LCI shall have the right to have one of the Board Members appointed by it on any committee of the Board. The first Chairman of the Board shall be Jack Sommer. In the event of the resignation or removal of Jack Sommer as the Chairman of the Board prior to the Opening Date, the successor Chairman of the Board shall be a Person with a substantially similar or higher level of experience as Jack Sommer with respect to the development of commercial properties and shall be appointed by Aladdin Enterprises subject to the approval of LCI, such approval not to be unreasonably withheld. 50 (d) Provided that the Member with the highest Percentage Interest, other than the Majority Member (if any) and its Affiliates have not Caused an existing Event of Default and have paid their pro rata share (as provided in the Contribution Agreement) of all Completion Guaranty Payments up to such time, if the Majority Member or its Affiliates fails to pay their pro rata share (as provided in the Contribution Agreement) of any two separate Completion Guaranty Payments, then such Majority Member shall remove, or (if such Majority Member Controls Aladdin Enterprises) such Majority Member shall cause Aladdin Enterprises to remove, from the Board one of the Board Members designated by such Majority Member, as of the relevant second Completion Guaranty Payment Due Date, and such Party removing a Board Member shall appoint a new independent Board Member agreed by the remaining Board Members who shall be Chairman of the Board. (e) Provided that the Member with the highest Percentage Interest, other than the Majority Member (if any) and its Affiliates have not Caused an existing Event of Default under the Keep Well Agreement and have paid their pro rata share (as provided in the Contribution Agreement) of all Keep Well Payments up to such time, if the Majority Member or its Affiliates (i) fails to pay their pro rata share (as provided in the Contribution Agreement) of a Keep Well Payment (provided that no alterations to the Board have occurred pursuant to Section 9.1(d)) such Majority Member shall remove, or (if such Majority Member Controls Aladdin Enterprises) such Member shall cause Aladdin Enterprises to remove, from the Board one of the Board Members designated by such Majority Member, as of the relevant Keep Well Due Date and such Party removing a Board Member shall appoint a new independent Board Member agreed by the remaining Board Members who shall be Chairman of the Board and (ii) fails to make its pro rata share (as provided in the Contribution Agreement) of a second Keep Well Payment, the independent Board Member shall be removed from the Board and such Party removing a Board Member shall appoint a new Board Member designated by the Member holding the highest Percentage Interest, other than any Majority Member, as of the relevant second Keep Well Due Date and such new Board Member shall be Chairman of the Board. (f) Provided (i) that Sommer Enterprises and its Affiliates (if LCI is the Majority Member) or LCI and its Affiliates (if Sommer Enterprises is the Majority Member) have not Caused an existing Event of Default under the Keep Well Agreement and has paid their pro rata share (as provided in the Contribution Agreement) of all Keep Well Payments up to such time and (ii) no alterations to the Board have occurred pursuant to Section 9.1(d) or (e), if there is a Non-Default Keep Well Trigger, the Majority Member shall, or (if such Majority Member Controls Aladdin Enterprises) such Majority Member shall cause Aladdin Enterprises to, remove one of the Board Members designated from the Board as of the commencement of the Non-Default Keep Well Trigger and designate a new independent Board Member who shall be Chairman of the Board; PROVIDED that, if Jack Sommer is Chairman of the Board at such time, Jack Sommer shall remain as Chairman of the Board. At any time after the occurrence of a Non-Default Keep Well Trigger, upon the occurrence of four successive Quarters when no payments are due (other than any Salle Privee 51 Amount) under the Keep Well Agreement, then the Party who removed the Board Member shall restore to the Board a designee of the Member which originally designated such Board Member who was removed and shall remove the independent Board Member, if any, designated pursuant to the preceding sentence. 9.2 POWERS AND DUTIES OF THE BOARD. The Board (or any Officer acting at the direction of the Board) shall manage the business affairs of the Company. The Board shall have the general powers and duties of management typically vested in a director or board of directors of a corporation, and all powers and duties necessary, advisable or convenient to administer and operate the business and affairs of the Company, and such other powers and duties as may be prescribed by the Members or implied by law. Subject to the provisions of this Agreement, such powers and duties shall include, without limitation, the following: (i) to select and remove all Officers (as more fully described in Section 9.3), agents and employees of the Company, prescribe such powers and duties for them as may be consistent with law, the Articles and this Agreement, and fix their compensation; (ii) to borrow money and incur indebtedness on behalf of the Company for the purposes of the Company, and to cause to be executed and delivered therefor, in the name of the Company, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidence of debt and securities; (iii) to change the principal office of the Company from one location to another within Nevada and to establish from time to time one or more subsidiary offices of the Company; and (iv) to enter into or commit to any agreement, contract, commitment, instrument, deed, mortgage or obligation on behalf of the Company for any Company purpose. 9.3 ELECTION OF OFFICERS. Subject to the applicable provisions of the Nevada Act, the Board may from time to time elect such Officers as the Board shall deem appropriate. Subject to the provisions of this Agreement, the Board may confer upon any of the Officers such duties, authority and titles as the business of the Company may require in the reasonable judgment of the Board (including the authority to represent and bind the Company in accordance with the scope of the particular duties involved and such other general powers and duties of a type similar to those typically vested in an officer of a corporation). The Officers shall serve at the sole discretion of the Board. 9.4 REMOVAL, RESIGNATION AND VACANCIES. (a) A Board Member may be removed at any time for any reason (i) by Aladdin Enterprises, if such Board Member was appointed by Aladdin Enterprises and (ii) by LCI, if such Board Member was appointed by LCI. In addition, a Majority may remove any Board Member for incapacity to carry out, or acting with malfeasance in connection with, his or her duties, powers or obligations hereunder. In the event any Person elected to serve as a Board Member at any time is found by the Nevada Gaming Authorities to be unsuitable to hold a gaming license, such Person shall thereupon automatically cease to be a Board Member without any further action and a substitute Board Member shall be appointed in accordance with Section 9.4(c). 52 (b) Any Board Member may resign at any time by giving written notice to the Company and the Members. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. (c) Subject to the applicable provisions of the Nevada Act, any vacancy on the Board shall be filled by the appointment of a successor Board Member. Such successor Board Member shall be (i) appointed by Aladdin Enterprises if such successor Board Member's predecessor was appointed by Aladdin Enterprises and (ii) appointed by LCI if such successor Board Member's predecessor was appointed by LCI. 9.5 MEETINGS OF THE BOARD. (a) PLACE AND TIME OF MEETINGS. The meetings of the Board shall be held at least quarterly at the Records Office, unless some other place is designated in the notice of the meeting. Meetings of the Board shall be held at such times as is determined by the Board; PROVIDED that one meeting of the Board shall be held in New York, New York in each Fiscal Year unless the Members agree otherwise in writing. Accurate minutes of any meeting of the Board shall be maintained by the Officer designated by the Board for such purpose. (b) SPECIAL MEETINGS; NOTICE. Special meetings of the Board for any purpose may be called at any time by any Board Member. At least forty-eight hours written notice of the time and place of a special meeting of the Board shall be delivered personally to the Board Members at their last known business addresses as it is shown on the records of the Company or personally communicated to them by a Board Member or officer of the Company by telegraph or facsimile. Such telegraphing, faxing or delivery shall be considered due, legal and personal notice to such Board Member. (c) WAIVER OF NOTICE. The transactions carried out at any meeting of the Board, however called and noticed or wherever held, shall be as valid as though had at a meeting regularly called and noticed if: (i) all Board Members are present at the meeting or (ii) if a majority of the Board Members are present and if, either before or after the meeting, those not present sign a waiver of notice of such meeting or a consent to holding the meeting or an approval of the minutes thereof, which waiver, consent or approval shall be filed with the other records of the Company or made a part of the minutes of the meeting; PROVIDED that no Board Member attending such meeting without notice protests prior to the meeting or at its commencement that notice was not given to him or her. (d) ACTION BY WRITTEN CONSENT. Any action required or permitted to be taken by the Board may be taken without a meeting and will have the same force and effect as if taken by a vote of the Board Members at a meeting properly called and noticed, if authorized by the written consent of all, but not less than all, of the Board Members. In no instance where action is authorized by written consent need a meeting of the Board be called or noticed. A copy of the 53 action taken by written consent shall be filed with the records of the Company. The written consent may be executed in one or more counterparts and by facsimile, and each such consent so executed shall be deemed an original. (e) QUORUM. Three incumbent Board Members present in person or by proxy shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board. Except as otherwise provided in this Agreement or by the NRS, the action of a majority of the Board Members present in person or by proxy at any meeting at which there is a quorum, when duly assembled, is valid. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of Board Members, if any action taken is approved by a majority of the required quorum for such meeting. (f) TELEPHONIC MEETINGS. Board Members may participate in a meeting of the Board by means of a telephone conference call or similar method of communication so long as all Persons participating in the meeting can hear one another. Participation in a meeting of the Board pursuant to this Section 9.5(f) constitutes presence in person at the meeting. 9.6 COMPENSATION OF BOARD MEMBERS; COMPENSATION OF OFFICERS. The Company shall not pay any Board Member in their capacity as a Board Member any salary or other benefits, other than such insurance and/or indemnification as may be determined by the Board and is permitted under the Articles, this Agreement and the NRS. The Company shall pay to each Officer such salary and other benefits as shall be approved from time to time by the Board. 9.7 EXPENSE REIMBURSEMENTS. The Company shall reimburse the Board Members for all expenses reasonably incurred by the Board Members on behalf of the Company or in connection with the performance of the obligations of the Board Members hereunder. 9.8 EMPLOYMENT AND CONSULTING AGREEMENTS. The Parties acknowledge that the Company has entered into the Employment and Consulting Agreements and that such Employment and Consulting Agreements shall prevail notwithstanding any other provision of this Agreement other than Section 3.6. ARTICLE X ACCOUNTING, RECORDS AND BANK ACCOUNTS 10.1 RECORDS AND ACCOUNTING. The books and records of the Company shall be kept, and the financial position and the results of its operations recorded, in accordance with the accounting methods elected to be followed by the Company for federal income tax purposes. The books and records of the Company shall reflect all Company transactions and shall be appropriate and adequate for the Company's business. 54 10.2 ACCESS TO ACCOUNTING RECORDS. All accounting books and records of the Company and its Subsidiaries, including files, tax returns and information, shall be maintained at an office of the Company or at the Records Office. Each Member, and its duly authorized representative, agent or attorney, upon written demand providing at least five days notice, shall have access to such books and records and the right to inspect, examine and copy them (at such Member's expense) at reasonable times during normal business hours. The rights authorized by this Section 10.2 may be denied to a Member upon such Member's refusal to provide to the Company an affidavit stating that such inspection, extracts or audit is not desired for any purpose not related to the Member's interest in the Company as a Member. 10.3 ANNUAL TAX INFORMATION. The Board shall use its best efforts to cause the Company to deliver to each Member within ninety days after the end of each Fiscal Year all information necessary for the preparation of such Member's federal income tax return. Federal, state and local tax returns of the Company shall be prepared or caused to be prepared and filed in a timely manner by the Board. 10.4 OBLIGATIONS OF MEMBERS TO REPORT ALLOCATIONS. The Members are aware of the income tax consequences of the allocations made by this Agreement and hereby agree to be bound by the provisions of this Agreement in reporting their shares of the income and loss for income tax purposes. 10.5 TAX MATTERS. Sommer Enterprises is hereby designated "Tax Matters Partner" (as that term is defined in Code Section 6231) and is authorized to represent the Company in connection with all tax examinations and proceedings (whether judicial or administrative) and to oversee the Company's tax affairs all in a manner consistent with the best interests of the Company; PROVIDED that if Sommer Enterprises is the Tax Matters Partner it shall keep LCI reasonably informed as to the status of any audit of the Company's tax affairs by any taxing authority and shall not settle any audit or other controversy without the consent of LCI, such consent not to be unreasonably withheld. The Members agree to cooperate with the Tax Matters Partner and to do or refrain from doing any or all things reasonably required by the Tax Matters Partner in connection with any such examinations or proceedings. The Board may from time to time designate any other Member to serve as "Tax Matters Partner". 10.6 TAX ELECTIONS. The Board may in its discretion determine whether or not to make any available elections pursuant to the Code. 10.7 TAXATION AS A PARTNERSHIP. The Company shall be treated as a partnership for United States federal income tax purposes and each Member agrees not to take any action inconsistent with the Company's classification as a partnership for United States federal, state or local income tax purposes. 55 10.8 TAX REPORTING. The Company shall timely file such tax returns and information reports as required by the Code and applicable foreign, state and local taxing jurisdictions. Each income tax return of the Company shall be delivered to LCI for its review at least [thirty] days prior to earlier of (a) the final due date (with extensions) of such return or (b) the date such return is to be filed. If LCI objects in writing to the reporting of any item on any such income tax return, the Company shall not finalize the form of such return without the written consent of LCI, such consent not to be unreasonably withheld. If no agreement is reached with respect to an item contained in any such return prior to fifteen days prior to the final due date (with extensions) of such return, the Company's position with respect to such item shall be reflected on the final form of the return provided an independent nationally recognized accounting firm mutually selected by LCI and the Company, at the Company's expense, determines that the Company has a reasonable basis for its reporting position with respect to the item. ARTICLE XI IPO 11.1 IPO TIMING. (a) The Parties anticipate that an IPO will be executed as soon as it is commercially reasonable to do so after the Opening Date. (b) If an IPO has not taken place within three years from the Opening Date, Sommer Enterprises and LCI shall each have the right to demand that such an IPO be executed; PROVIDED that at the time of the demand such party and its Affiliates have a Percentage Interest equal to at least twenty percent, and PROVIDED further that Sommer Enterprises or LCI, as the case may be, first submits to the Board a letter from a reputable, nationally recognized underwriter stating that the public sale of such shares is economically and commercially feasible, and PROVIDED further that Sommer Enterprises shall have the right to defer such an IPO demanded by LCI for up to twelve months if, in the reasonable opinion of Sommer Enterprises, it is commercially reasonable to do so and if and for so long as Sommer Enterprises is the Majority Member. (c) Concurrently with or prior to any IPO the Members shall enter into the Stockholders and Registration Rights Agreement governing their rights and obligations as members or stockholders of the IPO Corporation. 11.2 PRE-IPO PURCHASES. (a) LCI and Sommer Enterprises will, immediately prior to, or as part of, the IPO, be entitled (subject to the market requirements in respect of such IPO and subject further to any restrictions imposed by any law including the Nevada Act) acquire additional Common Shares in the IPO Corporation, at a mutually agreeable price (based on the IPO price discounted to reflect the absence of underwriters' fees and costs). 56 (b) Notwithstanding Sommer Enterprises' rights under Section 11.2 (a), LCI shall have the right to purchase at a mutually agreeable price (based on the IPO price discounted to reflect the absence of underwriters' fees and costs) from either (at the option of Sommer Enterprises) the IPO Corporation pursuant to Section 11.2(a) or from Sommer Enterprises immediately prior to or as part of, the IPO, Common Shares in the IPO Corporation sufficient for it to maintain a holding of more than twenty percent of the common shares of IPO Corporation after the IPO. 11.3 INCORPORATION OF PARTNERSHIP. In connection with an IPO, if the Company changes its classification for federal income tax purposes from a partnership to an association (or publicly traded partnership) taxable as a corporation, the Members hereto acknowledge that it is intended that such change be effected as a tax-free incorporation and each Member shall, to the extent commercially feasible, use its best efforts to effect such intent. ARTICLE XII DISSOLUTION OF THE COMPANY AND TERMINATION OF A MEMBER'S INTEREST 12.1 DISSOLUTION. The Company shall be dissolved and its affairs wound up (a) at the time specified in the Articles or (b) upon the written agreement of all of the Members, in which event the Members will proceed with reasonable promptness to liquidate the Company. The death, insanity, retirement, resignation, expulsion, Bankruptcy or dissolution of any Member, or the occurrence of any other event which terminates a Member's continued membership in the Company shall not, in and of itself, cause the dissolution of the Company. 12.2 DEATH OF A MEMBER; CONTINUATION. After the death of a Member, the deceased Member shall cease to be a Member and the personal representative of the deceased Member and, after the distribution of the deceased Member's estate, the deceased Member's heirs or legatees (in place and instead of the personal representative), shall have no right to participate in the management of the business and affairs of the Company, but shall be Disassociated Members and entitled only to receive distributions and any other share of profits to which the deceased Member would have been entitled under this Agreement and the NRS but for the death of such Member; PROVIDED that if a majority of the remaining Members consent, the personal representative of the deceased Member and, after the distribution of the deceased Member's estate, the deceased Member's heirs and legatees (in place and instead of the personal representative), shall succeed to the Shares of the deceased Member as a Substituted Member or Substituted Members. 12.3 COMPANY'S OPTION TO PURCHASE BANKRUPT MEMBER'S INTEREST. Upon the institution of a Bankruptcy by or against a Member, the Company shall have the option (the "Purchase Option"), exercisable by written notice to all the Members within 120 days of the date the Bankruptcy petition is filed by or against the Bankrupt Member, to purchase the Bankrupt 57 Member's Common Shares, subject, however, to receipt of all required approvals under the Nevada Act (such approvals to be obtained as soon as reasonably practicable), for an agreed upon price, or if no price can be agreed upon, for the fair market value of such Common Shares at the time of such Bankruptcy, as determined by an independent qualified appraiser appointed by unanimous agreement by the Members, including the Bankrupt Member. If they cannot agree on an appraiser, the Members not including the Bankrupt Member and its Affiliates, on the one hand, and the Bankrupt Member, on the other hand, shall each select an appraiser, which appraisers together shall select a third appraiser, which third appraiser shall determine the fair market value of such Common Shares, which determination shall be binding upon the Parties. If the Company elects to exercise the Purchase Option, it shall pay the agreed price or the fair market value, as the case may be, of the Bankrupt Member's Shares to the Bankrupt Member, in cash, within such 120-day period or at such later time as all approvals required under the Nevada Act are obtained. If the Company elects to not exercise the Purchase Option, the Company shall notify the Members including the Bankrupt Member of its decision in writing (the "Non-Exercise Notice"), within such 120-day period. 12.4 MEMBERS' OPTION TO PURCHASE BANKRUPT MEMBER'S INTEREST. Upon the institution of a Bankruptcy by or against a Member, if the Company does not exercise the Purchase Option, the Members not including the Bankrupt Member shall have the right to purchase the Bankrupt Member's Common Shares, subject, however, to receipt of all required approvals under the Nevada Act (such approvals to be obtained as soon as reasonably practicable), for an agreed upon price, or if no price can be agreed upon, for the price previously determined under the independent appraisal procedure in Section 12.3 or, if no such price has been so determined, for the fair market value of such Shares at the time of such Bankruptcy, as determined by an independent qualified appraiser appointed by the Members, including the Bankrupt Member. If they cannot agree on an appraiser, the Members not including the Bankrupt Member and its Affiliates, on the one hand, and the Bankrupt Member, on the other hand, shall each select an appraiser, which appraisers together shall select a third appraiser, which third appraiser shall determine the fair market value of such Common Shares, which determination shall be binding upon the Parties. The Member or Members wishing to purchase all or a part of the Shares of the Bankrupt Member (each, a "Purchasing Member") shall pay the agreed price or the fair market value of such Shares to the Bankrupt Member, in cash, by the earlier of (a) 120 days after the Company delivers the Non-Exercise Notice to the Members, and (b) 240 days after the date the Bankruptcy petition is filed by or against the Bankrupt Member; PROVIDED, that such purchase shall not occur until all approvals required under the Nevada Act are obtained. Each Purchasing Member must notify the other Members of such Purchasing Member's desire to purchase all or a portion of the Bankrupt Member's Shares in writing by the earlier of (x) twenty days after the Company delivers the Non-Exercise Notice to the Members, and (y) 140 days after the date the Bankruptcy petition is filed by or against the Bankrupt Member. Unless they agree otherwise, if there is more than one Purchasing Member, each Purchasing Member may purchase up to the proportion of the Bankrupt Member's Shares that such Purchasing Member's Percentage Interest bears to the Ultimate Percentage Interests of all Purchasing Members (if any Purchasing Member elects to Purchase less than its full entitlement 58 hereunder the other Purchasing Members may purchase such entitlement pro rata). If no remaining Member wishes to purchase the Bankrupt Member's Shares, or the Purchasing Members do not purchase the Bankrupt Member's Shares within the earlier of the time periods set forth above, then all rights to purchase the Bankrupt Member's Shares pursuant to this Section 12.4 shall terminate and the Bankrupt Member shall retain such Shares as a Disassociated Member. 12.5 DISTRIBUTION ON DISSOLUTION AND LIQUIDATION. In the event of the dissolution of the Company for any reason, the business of the Company shall be continued to the extent necessary to allow an orderly winding up of its affairs, including the liquidation and termination of the Company pursuant to the provisions of this Section 12.5, as promptly as practicable thereafter, and each of the following shall be accomplished: (a) holders of a Supermajority of the Common Shares shall elect or appoint a liquidator; (b) the liquidator shall cause to be prepared a statement setting forth the Property and liabilities of the Company as of the date of dissolution, a copy of which statement shall be furnished to the Members; (c) the Property of the Company shall be liquidated by the liquidator as promptly as possible, but in an orderly and businesslike manner. The liquidator may, in the exercise of its business judgment, determine not to sell all or any portion of the Property, in which event such Property shall be distributed in kind based upon fair market value as of the date of such distribution; (d) any Profits or Losses realized by the Company upon the sale of its Property shall be recognized and allocated to the Members in the manner set forth in Article V; and (e) the proceeds of sale and all other Property of the Company shall be applied and distributed as follows and in the following order of priority: (i) to the expenses of liquidation; (ii) to the payment of the debts and liabilities of the Company (including loans from Members); (iii) to the setting up of any reserves which the liquidator shall determine to be reasonably necessary, for such period as the liquidator shall deem advisable, for contingent, unliquidated or unforeseen liabilities or obligations of the Company or the Members arising out of or in connection with the Company. Such reserves shall be held by the liquidator or paid over to a bank or title company selected by it, to be held by such bank 59 or title company as escrow holder or liquidator for the purposes of disbursing such reserves to satisfy the liabilities and obligations described above; (iv) to the holder of the Series A Preferred Shares to the extent of its Capital Account balance in respect of the Series A Preferred Shares; (v) to the holders of the Series B Preferred Shares to the extent of their pro rata share of the Capital Account balance in respect of the Series B Preferred Shares; and (vi) the balance (including amounts released from any unnecessary reserves set up pursuant to Section 12.5(e)(iii)), if any, after giving effect to all contributions, distributions and allocations for all periods, to the holders of Common Shares pro rata in proportion to their positive Capital Account balances. Each Member understands and agrees that by accepting the provisions of this Section 12.5 setting forth the priority of the distribution of assets of the Company to be made upon a liquidation, such Member expressly waives any right which it, as a creditor of the Company, might otherwise have to receive distributions of assets pari passu with the other creditors of the Company in connection with a distribution of assets of the Company in satisfaction of any liability of the Company, and hereby subordinates to said creditors any such right. ARTICLE XIII LIABILITY, EXCULPATION AND INDEMNIFICATION 13.1 EXCULPATION. (a) No Covered Person shall be liable to the Company or any other Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Covered Person in good faith on behalf of the Company and in a manner reasonably believed to be within the scope of authority conferred on such Covered Person by this Agreement, the Board or an appropriate Officer or employee of the Company, except that a Covered Person shall be liable for any such loss, damage or claim incurred by reason of such Covered Person's gross negligence, fraud or willful misconduct. (b) A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports or statements presented to the Company by any Person as to matters the Covered Person reasonably believes are within such other Person's professional or expert competence, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, Profits or Losses or any other facts pertinent to the existence and amount of assets from which distributions to Members might properly be paid. 60 13.2 FIDUCIARY DUTY. To the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any Member, then, to the fullest extent permitted by applicable law, a Covered Person acting under this Agreement shall not be liable to the Company or to any Member for its good faith acts or omissions in reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the Parties to replace such other duties and liabilities of such Covered Person. 13.3 OUTSIDE BUSINESSES. Subject to Article XV and to any other agreement to the contrary, any Covered Person, Member or Affiliate thereof may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Company, and the Company and the Members shall have no rights by virtue of this Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Company, shall not be deemed wrongful or improper. Subject to any agreement to the contrary, no Covered Person, Member or Affiliate thereof shall be obligated to present any particular investment opportunity to the Company even if such opportunity is of a character that, if presented to the Company, could be taken by the Company, and any Covered Person, Member or Affiliate thereof shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment opportunity. 13.4 INDEMNITY. The Company does hereby indemnify and hold harmless each Covered Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the Company, by reason of the fact that he or she is or was a Member, Affiliate, Board Member, Officer, employee or agent of the Company, or is or was serving at the request of the Company as manager, member, director, officer, employee or agent of another limited-liability company, corporation, partnership, joint venture, trust or other enterprise against expenses, including attorneys' fees, judgment, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action, suit or proceeding, if he or she acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the Covered Person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company, and that, with respect to any criminal action or proceeding, he or she had reasonable cause to believe that his or her conduct was unlawful. 13.5 INDEMNITY FOR ACTIONS BY OR IN THE RIGHT OF THE COMPANY. The Company does hereby indemnify each Covered Person who was or is a party or is threatened to be made a 61 party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he or she is or was a Member, Affiliate, manager, Board Member, Officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, manager, officer, employee or agent of another limited-liability company, corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him or her in connection with the defense or settlement of the action or suit, if he or she acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company. Indemnification may not be made for any claim, issue or matter as to which such Covered Person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the Company or for amounts paid in settlement to the Company, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that, in view of all the circumstances of the case, he or she is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. 13.6 INDEMNITY IF SUCCESSFUL. To the extent that a Covered Person has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 13.4 and 13.5, or in defense of any claim, issue or matter therein, the Company does hereby indemnify such Covered Person against expenses, including attorneys' fees actually and reasonably incurred by it in connection with the defense. 13.7 DETERMINATION OF RIGHT TO INDEMNIFICATION. Any indemnification under Sections 13.4 and 13.5, unless ordered by a court or advanced pursuant to Section 13.8 below, must be made by the Company only as authorized in the specific case upon a determination that indemnification of the Covered Person is proper in the circumstances. The determination must be made: (a) by a Majority at a meeting at which a quorum is present, which quorum must consist of Members who (and who's Affiliates) were not parties to the action, suit or proceeding; or (b) by independent legal counsel in a written opinion, (i) if a Majority at a meeting at which a quorum is present so orders, which quorum must consist of Members who (and who's Affiliates) were not parties to the action, suit or proceeding, or (ii) if at a meeting of the Members, a quorum consisting of Members who (and who's Affiliates) were not parties to the action, suit or proceeding cannot be obtained. 13.8 ADVANCE PAYMENT OF EXPENSES. The expenses of Members and Board Members incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Company as they are incurred and in advance of the final disposition of the action, suit or 62 proceeding, upon receipt of an undertaking by or on behalf of the Member or Board Member to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she is not entitled to be indemnified by the Company. The provisions of this subsection do not affect any rights to advancement of expenses to which personnel of the Company other than Members or Board Members may be entitled under any contract or otherwise by law. 13.9 OTHER ARRANGEMENTS NOT EXCLUDED. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this Article XIII: (a) do not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the Articles or any agreement, vote of Members, or disinterested Board Members, if any, or otherwise, for an action in their official capacity or an action in another capacity while holding their office, except that indemnification, unless ordered by a court pursuant to Section 13.5 or for the advancement of expenses made pursuant to Section 13.8, may not be made to or on behalf of any Member or Board Member if a final adjudication establishes that their acts or omissions involved intentional misconduct, fraud or a knowing violation of the law which was material to the cause of action; and (b) continue for a Person who has ceased to be a Member, Board Member, Officer, employee or agent and inures to the benefit of his or her heirs, executors and administrators. 13.10 ERRORS AND OMISSIONS INSURANCE. (a) The Company may purchase and maintain insurance or (by a Board Supermajority) make other financial arrangements on behalf of any Covered Person for any liability asserted against him or her and liability and expenses incurred by him or her in his or her capacity as a Board Member, an officer, director, employee or agent of the Company or of another entity at the request of the Company, or arising out of his or her status as such, whether or not the Company has the authority to indemnify him or her against such liability and expenses. (b) The other financial arrangements made by the Company pursuant to Section 13.10(a) may include (i) the creation of a trust fund; (ii) the establishment of a program of self-insurance; (iii) the security of its obligation of indemnification by granting a security interest or other lien on any assets of the Company; and (iv) the establishment of a letter of credit, guaranty or surety. No financial arrangement made pursuant hereto may provide protection for a person adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for intentional misconduct, fraud or a knowing violation of law, except with respect to the advancement of expenses or indemnification ordered by a court. (c) In the absence of fraud, no Board Member or Member approving the insurance or financial arrangement made pursuant to this Section 13.10 shall be subject to personal 63 liability for such action, even if the Board Member approving the insurance or other financial arrangement is a beneficiary of the insurance or other financial arrangement. 13.11 PROPERTY OF THE COMPANY. Any indemnification under this Article XIII shall be satisfied solely out of the Property of the Company. 13.12 VIOLATION OF THIS AGREEMENT. Any Member who commits fraud or otherwise violates any of the terms, conditions and provisions of this Agreement will keep and save harmless the Property and the Company, and will indemnify the Company and the other Members from any and all claims, demands and actions of every kind and nature whatsoever which may arise out of or by reason of such fraud or violation. ARTICLE XIV GAMING MATTERS 14.1 LICENSING. (a) The Members and their Related Parties will be subject to the provisions of the Nevada Act and to the licensing and regulatory control of the Nevada Gaming Authorities. Each Member acknowledges that, in order for the Company to carry on its business, each Member and its Related Parties may be required to submit personal history and financial information to, and be found suitable by, the Nevada Gaming Authorities and gaming authorities of other jurisdictions. If required by the Nevada Gaming Authorities or gaming authorities of other jurisdictions, each Member shall, and shall cause its respective Related Parties to, (i) promptly submit such personal history and financial history, (ii) cooperate in any investigation and (iii) diligently seek a finding of suitability. (b) Each Member shall be responsible for paying or causing to be paid all of its and its Related Parties' costs and expenses in connection with obtaining, attempting to obtain or retaining a license in accordance with this Article XIV. (c) In addition, the Company anticipates that in due course the Company may register pursuant to Section 12(g) of the Exchange Act. From and after such registration under the Exchange Act (i) any Person who acquires more than five percent of the Total Common Shares shall promptly report the acquisition to the Nevada Commission in a filing prepared in accordance with applicable law and (ii) beneficial owners of more than ten percent of the Total Common Shares must apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada State Gaming Control Board mails written notice requiring such filing. Notwithstanding the foregoing, any member who (i) acquires more than ten percent, but not more than fifteen percent, of the Total Common Shares, (ii) holds such Shares for investment purposes only, and (iii) qualifies as an "Institutional Investor" as such term is defined in the Nevada Act, may 64 apply to the Nevada Commission for a waiver of such finding of suitability, and need not apply for such finding of suitability if such waiver is granted. 14.2 NOMINEES. If any Share(s) shall be held in trust by an agent or by a nominee, the record holder must, immediately upon the request of the Nevada Gaming Authorities, disclose to said authorities the identity of the beneficial owner of any such Share(s). Each record owner of any Share must comply with all applicable rules and regulations of the Nevada Gaming Authorities. 14.3 GAMING PROBLEM. In the event the Board shall determine, in good faith, based upon verifiable information and specific provisions of the applicable gaming statutes and rules promulgated thereunder or upon specific information received from the Nevada Gaming Authorities, that a Gaming Problem exists, then the Company shall provide written notice to the applicable Member requesting that such Member provide for the elimination of the Gaming Problem, and: (a) (i) if the Gaming Problem is caused by a director, officer or manager or trustee of such Member, such Member shall terminate the employment of such Person and (ii) if the Gaming Problem is caused by a shareholder, partner, member or beneficiary, of such Member, such Member shall either purchase such Person's ownership or other interest in such Member or require such Person to transfer its ownership or other interest to a trust or other entity (if any) that would eliminate the Gaming Problem; or (b) after providing the applicable Member with ninety days to eliminate such Gaming Problem, the Company shall redeem or have other Persons purchase all of the Shares held or owned by such Member at a redemption price equal to the fair market value of such Shares, as determined by an independent qualified appraiser appointed by the Company and the applicable Member or, if there is a Majority Member, by the applicable Member and the Member with the highest Percentage Interest (other than the applicable Member). If they cannot agree on an appraiser, the such persons shall each select an appraiser, which appraisers together shall select a third appraiser, which third appraiser shall determine the fair market value of such Shares, which determination shall be binding upon the Parties. Subject to the applicable provisions of the Nevada Act, the foregoing right of redemption shall be exercised upon twenty days' prior written notice to the applicable Member. On and after the date set forth in such notice as the date of redemption, all rights of such Member as a Member of the Company shall cease and terminate and the such Member's Shares shall no longer be deemed outstanding. ARTICLE XV NON-COMPETE 15.1 LCI. So long as LCI is a Member and for a period of one year thereafter, LCI agrees that, other than through the Company, LCI and its Affiliates shall not, directly or indirectly, 65 engage in the development of or own, operate, lease, manage, control, invest in, act as consultant or advisor to or otherwise assist any Person that engages in the development or operation of gaming operations which (a) involve or are in any way associated with golf resorts located in Clark County, Nevada or (b) involve or are in any way associated with operations of a type similar to the Salle Privee Facilities located in Las Vegas, Nevada, without the consent of the Company; PROVIDED that LCI and its Affiliates may own and/or operate a casino and/or hotel project in Las Vegas, Nevada that is so involved or associated if they first provide to the Company detailed written descriptions of such proposed venture (including financial analysis and projections) and offer the Company the opportunity to invest equally with and on substantially the same terms as LCI and its Affiliates, and the Company (by way of the Board excluding the Board Members appointed by LCI) declines such opportunity or fails to take up such opportunity within a reasonable time period. 15.2 SOMMER ENTERPRISES. So long as Sommer Enterprises is a Member and for a period of one year thereafter, Sommer Enterprises agrees that, other than through the Company, Sommer Enterprises and its Affiliates shall not, directly or indirectly, engage in the development of or own, operate, lease, manage, control, invest in, act as consultant or advisor to or otherwise assist any Person that engages in the development or operation of any casino and/or hotel project in Las Vegas, Nevada, other than the Mountain Spa Resort; PROVIDED that Sommer Enterprises and its Affiliates may own and/or operate a casino and/or hotel project in Las Vegas, Nevada if such opportunity has been offered to the Company and LCI, or the Board Members other than the Board Members appointed by Sommer Enterprises, have caused the Company to decline to take up, or to fail to pursue, such opportunity. 15.3 REASONABLE TERMS. (a) LCI and Sommer Enterprises acknowledge and agree that the covenants set forth in this Article XV are reasonable in geographical and temporal scope and in all other respects and that the other Parties would not have entered into this Agreement but for the covenants contained in this Article XV. (b) If, at the time of enforcement of this Article XV, a court shall hold that the duration, scope, or area restrictions stated herein are unreasonable under the circumstances then existing, the Parties agree that the maximum duration, scope, or area reasonable under such circumstances shall be substituted for the stated duration, scope, or area. (c) LCI and Sommer Enterprises recognize and affirm that in the event of a breach of any provision of this Article XV the exercise of the Call under Section 8.7 and money damages would both be inadequate and the damaged party would have no adequate remedy at law. Accordingly, the Company and the Parties hereto shall have the right, in addition to any other rights and remedies existing in their favor, to enforce their rights under this Article XV not only by the exercise of the Call under Section 8.7 and an action or actions for damages, but also by an action or actions for specific performance, injunction and/or equitable relief in order to enforce or prevent any violations (whether anticipatory, continuing or future) of the provisions of this Article XV. 66 ARTICLE XVI MISCELLANEOUS PROVISIONS 16.1 NOTICES. All notices to be given hereunder shall be in writing and shall be addressed to the party at such party's last known address or facsimile number appearing on the books of the Company. If no such address or facsimile number has been provided, it will be sufficient to address any notice (or fax any notice that may be faxed) to such party at the Records Office of the Company. Notice shall, for all purposes, be deemed given and received, (a) if hand-delivered, when the notice is received, (b) if sent by an internationally recognized delivery service, when the notice is received, or (c) if sent by facsimile, when the facsimile is transmitted and confirmation of complete receipt is received by the transmitting party during normal business hours. If any notice is sent by facsimile, the transmitting party shall send a duplicate copy of the notice to the Parties to whom it is faxed by regular mail. If notice is tendered and is refused by the intended recipient, the notice shall nonetheless be considered to have been given and shall be effective as of the date of such refusal. The contrary notwithstanding, any notice given in a manner other than that provided in this Section 16.1 that is actually received by the intended recipient shall be deemed an effective delivery of such notice. Any party may, at any time, by giving ten days written notice to the Company, designate a new address for the giving of notice to such party. 16.2 INSURANCE. The Company shall carry insurance in such amounts as deemed appropriate by the Board and as may be required by lenders or contract (including, without limitation, liability insurance). 16.3 MEMBERSHIP CERTIFICATES. The Company shall issue a Certificate to each Member to represent such Member's Shares in the Company upon execution of this Agreement and the payment of the Capital Contributions by such Member. The Company shall issue a new Certificate in place of any previously issued if the record holder of the Certificate (a) presents proof by affidavit, in form and substance satisfactory to the Board, that a previously issued Certificate has been lost, destroyed or stolen, or (b) if requested by the Board, delivers to the Company a bond, in form and substance reasonably satisfactory to the Board, with such surety or sureties and with fixed or open penalty as the Board may direct in its reasonable discretion, to indemnify the Company against any claim that may be made on account of the alleged loss, destruction or theft of the Certificate. If a Member fails to notify the Company within a reasonable time after it has knowledge of the loss, destruction or theft of a Certificate, and a transfer of the Member's Shares represented by that Certificate is registered before receiving such notification, the Company shall have no liability with respect to any claim against the Company for such transfer or for the issuance of a new Certificate consistent with such registration. 16.4 COMPLETE AGREEMENT. This Agreement, together with the Articles to the extent referenced herein, constitute the complete and exclusive agreement and understanding of the 67 Members with respect to the subject matter contained herein. This Agreement and the Articles replace and supersede all prior agreements, negotiations, statements, memoranda and understandings, whether written or oral, by and among the Members or any of them. 16.5 AMENDMENTS. This Agreement may be amended by the Members only if all of the Members agree to the proposed amendment and such amendment is set forth in a writing signed by all Members making express reference to this Agreement and expressly stating that such writing is an amendment of this Agreement; PROVIDED that this Agreement, including Schedule 1, shall be amended to reflect any admission of a new Member, Transfer of Shares or change in Percentage Interests pursuant to the terms of this Agreement. 16.6 APPLICABLE LAW; JURISDICTION. This Agreement and the rights and obligations of the Parties hereto shall be interpreted and enforced in accordance with and governed by the laws of the State of Nevada without regard to the conflict laws of that State. Each party further agrees that service of any process, summons, notice or document by U.S. registered mail to its respective address set forth in this Agreement shall be effective service of process for any action brought against it in connection with this Agreement in said court. 16.7 INTERPRETATION. The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this Agreement or any provisions contained herein. In the interpretation of this Agreement, the singular may be read as the plural, and VICE VERSA, the neuter gender as the masculine or feminine, and VICE VERSA, and the future tense as the past or present, and VICE VERSA, all interchangeably as the context may require in order to fully effectuate the intent of the Parties and the transactions contemplated herein. 16.8 COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which shall be deemed to constitute one and the same instrument, and it shall be sufficient for each party to have executed at least one, but not necessarily the same, counterpart. 16.9 FACSIMILE COPIES. Facsimile copies of this Agreement or of any counterpart, and facsimile signatures hereon or on any counterpart, shall have the same force and effect as originals. 16.10 SEVERABILITY. If any provision of this Agreement, or any application thereof, should be held by a court of competent jurisdiction to be invalid, void, illegal or unenforceable to any extent, that provision shall be deemed severable and the remainder of this Agreement, and all applications thereof, shall not be affected, impaired or invalidated thereby, and shall continue in full force and effect to the fullest extent permitted by law. 68 16.11 WAIVERS. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver, and no waiver shall be binding unless evidenced by an instrument in writing and executed by the Party making the waiver, expressly making reference to this Agreement and to the matter being waived and expressly stating that it is a waiver. 16.12 NO THIRD PARTY BENEFICIARIES. This Agreement is made solely among and for the benefit of the Members and their respective successors and assigns, and no other Person shall have any rights, interest or claims hereunder or be entitled to any benefits under or on account of this Agreement as a third party beneficiary or otherwise. 69 IN WITNESS WHEREOF, this Agreement was executed as of the date first-above written. SOMMER ENTERPRISES, LLC By: ------------------------------- Name: Jack Sommer Title: Manager LONDON CLUBS NEVADA INC. By: ------------------------------- Name: Linda Lillis Title: Assistant Secretary ALADDIN GAMING ENTERPRISES, INC. By: ------------------------------- Name: Jack Sommer Title: Chairman and President GAI, LLC By: ------------------------------- Name: Richard J. Goeglein Title: 70 ---------------------------------- RICHARD J. GOEGLEIN ---------------------------------- JAMES H. MCKENNON ---------------------------------- CORNELIUS T. KLERK ---------------------------------- JOSE A. RUEDA ---------------------------------- LEE GALATI 71 SCHEDULE 1 CAPITAL STRUCTURE
INITIAL SERIES A SERIES B CAPITAL CAPITAL PERCENTAGE COMMON PREFERRED PREFERRED MEMBER CONTRIBUTION ACCOUNT INTEREST SHARES SHARES SHARES - ------ ------------ ------- -------- ------ ------ ------ Sommer Enterprises 81.3% of the Aladdin $95,000,000 47% 470,000 0 0 Development Aladdin Enterprises $7 million predevelopment $50,000,000 25% 250,000 0 0 costs, $15 million cash and 18.7% of the Aladdin Development LCI $50,000,000 $49,000,000 25% 250,000 0 0 GAI 3% interest in Gaming $6,000,000 3% 30,000 0 0 Goeglein 2% unvested interest in Gaming -- 0% 20,000(unvested) 0 0 James H. McKennon 1% unvested interest in Gaming -- 0% 10,000(unvested) 0 0 Cornelius T. Klerk .75% unvested interest in Gaming -- 0% 7,500(unvested) 0 0
INITIAL SERIES A SERIES B CAPITAL CAPITAL PERCENTAGE COMMON PREFERRED PREFERRED MEMBER CONTRIBUTION ACCOUNT INTEREST SHARES SHARES SHARES - ------ ------------ ------- -------- ------ ------ ------ Jose A. Rueda .75% unvested interest in Gaming -- 0% 7,500(unvested) 0 0 Lee Galati .25% unvested interest in Gaming -- 0% 2,500(unvested) 0 0
SCHEDULE 2 QUARTERLY BREAKDOWN HOTEL AND CASINO PROJECTED EBITDA (IN $ MILLIONS) Year Q1 Q2 Q3 Q4 - ---- -- -- -- -- 2000 $ 32.40 $ 32.40 $ 32.40 $ 32.40 2001 $ 33.35 $ 33.35 $ 33.35 $ 33.35 2002 $ 35.01 $ 35.01 $ 35.01 $ 35.01 2003 $ 36.20 $ 36.20 $ 36.20 $ 36.20 2004 $ 37.42 $ 37.42 $ 37.42 $ 34.72 2005 $ 42.06 $ 42.06 $ 42.06 $ 42.06 2006 $ 43.33 $ 43.33 $ 43.33 $ 43.33 2007 $ 44.64 $ 44.64 $ 44.64 $ 44.64 SCHEDULE 3 QUARTERLY BREAKDOWN OF SALLE PRIVEE PROJECTED EBITDA (IN $ MILLIONS) Year Q1 Q2 Q3 Q4 - ---- -- -- -- -- 2000 $ 3.03 $ 2.02 $ 2.02 $ 3.03 2001 $ 3.12 $ 2.08 $ 2.08 $ 3.12 2002 $ 3.21 $ 2.14 $ 2.14 $ 3.21 2003 $ 3.31 $ 2.20 $ 2.20 $ 3.31 2004 $ 3.41 $ 2.27 $ 2.27 $ 3.41 2005 $ 3.51 $ 2.34 $ 2.34 $ 3.51 2006 $ 3.61 $ 2.41 $ 2.41 $ 3.61 2007 $ 3.72 $ 2.48 $ 2.48 $ 3.72 EXHIBIT A FORM OF STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT EXHIBOT A TO ALADDIN GAMING HOLDINGS, LLC OPERATING AGREEMENT FORM OF STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT [ALADDIN GAMING, INC.] TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II CORPORATE GOVERNANCE 2.1 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.2 Supermajority Required on Certain Matters. . . . . . . . . . . . . . . 8 2.3 Executive Management Committee. . . . . . . . . . . . . . . . . . . . . 9 2.4 Vacancies; Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.5 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.6 Directors' Indemnification. . . . . . . . . . . . . . . . . . . . . . . 10 2.7 Quorum Requirements and Actions by the Board. . . . . . . . . . . . . . 10 2.8 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE III RESTRICTIONS ON SALES OF STOCK BY STOCKHOLDERS 3.1 No Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.2 Permitted Transferees . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.3 Agreement to be Bound . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.4 Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE IV TAG ALONG RIGHTS 4.1 Tag Along Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.2 Tag Along Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.3 Tag Along Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.4 Exempted Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE V HOLDBACK AGREEMENT 5.1 Holdback. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE VI DEMAND REGISTRATION RIGHTS 6.1 Request by the Stockholders . . . . . . . . . . . . . . . . . . . . . . 13 6.2 Registration Statement Form . . . . . . . . . . . . . . . . . . . . . . 15 6.3 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 6.4 Effective Registration Statement. . . . . . . . . . . . . . . . . . . . 15 6.5 Priority in Requested Registrations . . . . . . . . . . . . . . . . . . 15 6.6 Underwriters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE VII INCIDENTAL REGISTRATION 7.1 Right to Include Registrable Securities . . . . . . . . . . . . . . . . 16 7.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.3 Priority in Incidental Registrations. . . . . . . . . . . . . . . . . . 17 7.4 Underwriters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE VIII REGISTRATION PROCEDURES 8.1 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . 18 8.2 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 8.3 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE IX INDEMNIFICATION 9.1 Indemnification by the Company. . . . . . . . . . . . . . . . . . . . . 22 9.2 Indemnification by the Sellers. . . . . . . . . . . . . . . . . . . . . 23 9.3 Notices of Claims, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 24 9.4 Other Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 25 9.5 Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 9.6 Limitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE X RULE 144 10.1 Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE XI LEGEND 11.1 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 11.2 Termination of Requirement . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE XII REPRESENTATIONS AND WARRANTIES 12.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . 29 ARTICLE XIII NON-COMPETE 13.1 LCI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 13.2 Sommer Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . 30 13.3 Reasonable Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE XIV MISCELLANEOUS 14.1 Duration of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 31 14.2 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 31 14.3 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 31 14.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 14.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 14.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 32 14.7 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 14.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 14.9 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . 33 14.10 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 14.11 Survival of Representations and Warranties . . . . . . . . . . . . . . 34 14.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 THIS STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT, dated as of __________________ (this "AGREEMENT"), by and among [Aladdin Gaming, Inc.], a Nevada corporation (the "COMPANY") and [the stockholders of the Company immediately prior to the IPO]. W I T N E S S E T H : WHEREAS, the shareholders of the Company have determined that it is in their best interest to execute an initial public offering ("IPO") of the shares of common stock of the Company; and WHEREAS, such shareholders deem it to be in their best interests to enter into an agreement establishing and setting forth their agreement with respect to certain rights and obligations associated with ownership of shares of common stock in the capital of the Company following the IPO. NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements herein set forth, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 DEFINITIONS. As used herein, the following terms shall have the following meanings: "A DIRECTORS" has the meaning ascribed thereto in Section 2.1. "AFFILIATE" means with respect to a specified Person, any other Person who or which is (a) the principal of the specified Person, (b) directly or indirectly Controlling, Controlled by or under common Control with the specified Person or (c) any member, director, officer, manager, relative or spouse of the specified Person. "BAZAAR LEASE" means the lease dated February 26, 1998 between the Company and Aladdin Bazaar, LLC. "B DIRECTOR" has the meaning ascribed thereto in Section 2.1. "BOARD" shall mean the Board of Directors of the Company. "CEO" means the chief executive officer of the Company, from time to time. "COMMON STOCK" means the Common Stock, par value per share, of the Company. "COMMON STOCK EQUIVALENTS" means securities convertible into, or exchangeable or exercisable for, Common Stock. "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through ownership of voting securities, by contract or otherwise, and "Controlling" and "Controlled" shall have corresponding meanings. "DESIGNATING PARTY" means, (a) with respect to any A Director, Sommer Enterprises and (b) with respect to any B Director, LCI. "EXCHANGE ACT" means the Securities Exchange Act of 1934, or any similar Federal statute, and the rules and regulations of the SEC thereunder, all as in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934 shall include a reference to the comparable section, if any, of any such similar Federal statute. "EXECUTIVE MANAGEMENT COMMITTEE" has the meaning ascribed thereto in Section 2.3. "IPO" means the initial underwritten offering pursuant to which the Common Stock becomes registered under Section 12 of the Securities Exchange Act of 1934, as amended. "LCI" means London Clubs Nevada Inc., a Nevada corporation, and its permitted successors and assigns who are Stockholders at the relevant time. "LITIGATION" has the meaning ascribed thereto in Section 14.10. "OTHER STOCKHOLDERS" means, with respect to any Stockholder, all Stockholders of the Company other than such Stockholder. 2 "OVERSUBSCRIBED TAG ALONG STOCKHOLDER" has the meaning ascribed thereto in Section 4.2. "PERMITTED TRANSFEREE" "Permitted Transferee" means, with respect to a particular Stockholder, a Person other than a Prohibited Transferee who is (a) an Affiliate of the Stockholder which, other than in respect of immediate family members of Viola Sommer or Jack Sommer, is approved by the other Stockholders in writing, such approval not to be unreasonably withheld or delayed, (b) a wholly owned Subsidiary of the Stockholder, (c) another Stockholder or (d) any other Person approved in writing by all the other Stockholders. "PERSON" means any individual, corporation, limited-liability company, limited or general partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivisions thereof. "PRIMARY REGISTRABLE SECURITIES" has the meaning ascribed thereto in Section 7.1. "PROHIBITED TRANSFEREE" means (a) any owner, operator or manager of a hotel or casino competitive with the Company in locations where the Company or any of its Affiliates has hotel or casino operations (other than Viola Sommer and Jack Sommer and their immediate family members, Sommer Enterprises and its Affiliates or LCI and its Affiliates) (b) any "non-profit" or "not-for profit" corporation, association, trust fund, foundation or other similar entity organized and operated exclusively for charitable purposes that qualifies as a tax exempt entity under applicable federal and state tax law or corresponding foreign law, (c) any federal, state, local or foreign governmental agency, instrumentality or other similar entity, (d) any Person primarily engaged in the business of owning or operating a casino or other similar type of gambling facility (other than Viola Sommer and Jack Sommer and their immediate family members, Sommer Enterprises and its Affiliates or LCI and its Affiliates), (e) any Person that has been convicted of a felony, (f) any Person who has been found unsuitable or has withdrawn an application to be found suitable by the Nevada Gaming Authorities, (g) Focus 2000, Inc., or the then current owner or lessee of the real property located at the north-east corner of Las Vegas Boulevard and Harmon Avenue, in Las Vegas, Nevada, (h) any member of Aladdin Bazaar, LLC, a Nevada limited liability company or any Affiliate of any such member; or (i) any owner or opera- 3 tor of a distillery, winery, brewery or distributorship of alcoholic beverages. "PROPORTIONATE PERCENTAGE" means, as to each Tag Along Stockholder, the quotient obtained (expressed as a percentage) by dividing the number of shares of Common Stock owned by such Tag Along Stockholder by the aggregate number of shares of Common Stock owned by all Tag Along Stockholders. "PUBLIC SALE" means a Sale pursuant to a bona fide underwritten public offering pursuant to an effective registration statement filed under the Securities Act or pursuant to Rule 144 under the Securities Act (other than in a privately negotiated Sale). "RECIPROCAL EASEMENT AGREEMENT" means the Construction, Operation and Reciprocal Easement Agreement by and among the Company, Aladdin Bazaar, LLC and Aladdin Music, LLC dated February 26, 1998. "REGISTRABLE SECURITIES" means any issued and outstanding shares of Common Stock. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective and such securities shall have been disposed of in accordance with such registration statement, (b) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (c) they shall have been otherwise Sold, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar State law then in force, or (d) they shall have ceased to be outstanding. "REGISTRATION EXPENSES" means all expenses incident to the Company's performance of or compliance with Articles VI, VII and VIII, including, without limitation, (a) all registration, filing and NASD fees, (b) all fees and expenses of complying with securities or blue sky laws, (c) all word processing, duplicating and printing expenses, (d) all messenger and delivery expenses, (e) the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such perfor- 4 mance and compliance, (f) the fees and disbursements of any one counsel and any one accountant retained by the holder or holders of more than fifty percent (50%) of the Registrable Securities being registered, (g) premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Registrable Securities being registered if the Company desires such insurance, and (h) any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding underwriting discounts and commissions and transfer taxes, if any; PROVIDED that, in any case where Registration Expenses are not to be borne by the Company, such expenses shall not include salaries of Company personnel or general overhead expenses relating to liability insurance required by underwriters of the Company or other expenses for the preparation of financial statements or other data normally prepared by the Company in the ordinary course of its business or which the Company would have incurred in any event. "REMAINING TAG ALONG STOCK" has the meaning ascribed thereto in Section 4.2. "REQUISITE SHARE NUMBER" means at least twenty-three percent (23%) of the Registrable Securities. "SALLE PRIVEE FACILITIES" means facilities open to the public at large, consisting of: (a) a gaming facility, containing approximately 20 to 30 high limit tables and approximately 100 high limit slot devices, located on the mezzanine level directly above the main gaming floor, (b) a super-premium gourmet restaurant facility located adjacent to and as part of the gaming facility of the Salle Privee Facilities and containing a separate kitchen, a bar, approximately 25 tables inside the restaurant, as well as several additional dining tables located in a roof garden accessible through the restaurant, (c) an exclusive hospitality facility comprising approximately 25 double-module luxury suites, 5 triple-module suites, a concierge facility and guest bar and lounge, located in the main tower of the Aladdin hotel and casino, (d) a separate entrance and reception area for guests of the Salle Privee Facilities, offering secure and discreet access for arrivals and departures, and (e) vertical and horizontal circulation infrastructure providing for private elevator access to the hospitality facility and private corridor access from the hospitality facility to the gaming facility of Salle Privee Facilities. 5 "SEC" means the Securities and Exchange Commission. "SECTION 6.1 NOTICE" has the meaning ascribed thereto in Section 6.1. "SECTION 6.1 REQUEST" has the meaning ascribed thereto in Section 6.1. "SECTION 7.1 NOTICE" has the meaning ascribed thereto in Section 7.1. "SECTION 7.3 SALE NUMBER" has the meaning ascribed thereto in Section 7.3. "SECURITIES ACT" means the Securities Act of 1933, or any similar Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. References to a particular section of the Securities Act shall include a reference to the comparable section, if any, of any such similar Federal statute. "SELL" as to any Stock, means to sell, or in any other way directly or indirectly transfer, assign, distribute, pledge, encumber or otherwise dispose of, either voluntarily or involuntarily; and the terms "SALE" and "SOLD" shall have correlative meanings. "SELLING STOCKHOLDER" has the meaning ascribed thereto in Section 4.2. "SOMMER ENTERPRISES" means Sommer Enterprises, LLC and its permitted successors and assigns who are Stockholders at the relevant time. "STOCK" means (a) any Common Stock and (b) any Common Stock Equivalents, in each case, whether owned on the date hereof or acquired hereafter. "STOCKHOLDERS" means the parties to this Agreement (other than the Company) and any other subsequent holder of Stock who agrees to be bound by the terms of this Agreement. "STOCKHOLDERS' REGISTRABLE SECURITIES" has the meaning ascribed thereto in Section 7.1. "SUBSIDIARY" means, with respect to a specified Person, any other entity of which securities or other 6 ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by the specified Person. Unless a contrary intention is indicated in this Agreement, any reference to a Subsidiary shall mean a Subsidiary of the Company. "TAG ALONG NOTICE" has the meaning ascribed thereto in Section 4.2. "TAG ALONG OFFER" has the meaning ascribed thereto in Section 4.2. "TAG ALONG PERIOD" has the meaning ascribed thereto in Section 4.2. "TAG ALONG PRICE PER SHARE" has the meaning ascribed thereto in Section 4.2. "TAG ALONG SALE" has the meaning ascribed thereto in Section 4.1. "TAG ALONG STOCK" has the meaning ascribed thereto in Section 4.2. "TAG ALONG STOCKHOLDERS" has the meaning ascribed thereto in Section 4.2. "TAG ALONG TRANSFEREE" has the meaning ascribed thereto in Section 4.2. "THIRD PARTY" means any Person other than a Stockholder or the Company. ARTICLE II CORPORATE GOVERNANCE Each Stockholder agrees to take all actions required to be taken in its capacity as a shareholder of the Company or otherwise, including, without limitation, (a) to appear, or cause an individual holding its proxy to appear, at all annual and special meetings of shareholders of the Company, and to vote, or cause an individual holding its proxy to vote, all of its shares of Common Stock, (b) to sign a unanimous resolution of the shareholders of the Company, having the same effect as a 7 vote of shareholders at a meeting of the shareholders of the Company, and (c) to cause its representative or the Board to take action or refrain from taking action in its capacity as a director, in order to effect and/or maintain the following: 2.1 BOARD. The Board shall be comprised of seven (7) members. In connection with any election for members of the Board, the slate of directors recommended by the Board to Stockholders for election as directors shall consist of: four (4) representatives designated by Sommer Enterprises (the "A DIRECTORS"), two (2) representative 2 designated by LCI (the "B DIRECTOR") and one (1) independent director agreed upon by Stockholders holding at least two-thirds of the Common Stock held by the Stockholders; PROVIDED that: (a) LCI shall not have the right to designate B Directors in the slate of directors recommended by the Board to Stockholders for election as directors, and the Stockholders (including LCI) shall use their best efforts to remove the B Directors from office, if the shares of Common Stock held by LCI shall be less than (i) 20% of the total issued and outstanding shares of Common Stock, or (ii) 25% of the shares of Common Stock held by Sommer Enterprises; (b) Sommer Enterprises shall not have the right to designate A Directors in the slate of directors recommended by the Board to Stockholders for election as directors, and the Stockholders (including Sommer Enterprises) shall use best efforts to remove the A Directors from office, if the shares of Common Stock held by Sommer Enterprises shall be less than 20% of the total issued and outstanding shares of Common Stock; and (c) if, pursuant to the Operating Agreement of Aladdin Gaming Holdings, LLC, LCI is the Majority Member (as defined in such Operating Agreement) of Aladdin Gaming Holdings, LLC on the date hereof, subject to paragraphs (a) and (b) of this proviso, LCI shall designate four (4) B Directors, Sommer Enterprises shall designate two (2) A Directors and one (1) independent director shall be agreed upon by Stockholders holding at least two-thirds of the Common Stock held by the Stockholders. 2.2 SUPERMAJORITY REQUIRED ON CERTAIN MATTERS. The Company and its Subsidiaries shall not take any of the following actions unless Stockholders owning an 8 aggregate of more than 80% of the Common Stock that is held by the Stockholders consent in writing to such action: (a) the issuance of additional shares of the Company or securities of the Company convertible into or exchangeable for shares of the Company or the granting of any options or other rights to acquire from the Company, or other obligation of the Company to issue, any shares of the Company or securities convertible into or exchangeable for shares of the Company (other than in respect of matters referred to in Section 2.2(p) for which Section 2.2(p) shall govern); (b) any voluntary dissolution or liquidation of the Company or any Subsidiary or the sale of all or substantially all of the assets of the Company and its Subsidiaries; (c) any merger of consolidation of the Company with any Person; (d) any amendment to the Certificate or By-laws of the Company; (e) the creation, incurrence, assumption or guarantee of any indebtedness (excluding obligations as lessee under leases made in the ordinary course of business) in any individual transaction in excess of the threshold limit in force as of the date hereof under Section 7.5(a)(vi)(B) of the Operating Agreement of Aladdin Gaming Holdings, LLC (such threshold limit to be increased annually by an amount to be determined by the Board to correspond to increases in consumer prices in the United States for each year). (f) the creation of any lien, pledge or other security interest in assets of the Company or any Subsidiary securing indebtedness of any third party which is not for the benefit of any business carried on by the Company and its Subsidiaries; (g) other than dividends and distributions by Subsidiaries, the declaration, 9 setting aside or payment of any dividends or other distributions on shares; (h) the commencement of a voluntary case under Title 11 of the United States Code entitled "Bankruptcy" or any other voluntary proceeding under and laws relating to bankruptcy or insolvency or any assignment for the benefit of creditors; (i) the employment of any member of the Executive Management Committee or any material amendment to the terms of employment of any such Person; (j) any material transactions between the Company or any Subsidiary, on the one hand, and any Stockholder or any Affiliate of any Stockholder, on the other hand; (k) any entry into any new business opportunity unrelated to the Aladdin hotel and casino and the second hotel; (l) the appointment or removal of the Company's independent auditors; (m) any material amendment to, or any material waiver under, the Bazaar Lease (such consent not to be unreasonably withheld); (n) any material amendment to, or any material waiver under, the Reciprocal Easement Agreement (such consent not to be unreasonably withheld); (o) any arrangement or agreement for the Company to pay a salary to any Stockholder or any Affiliate of any Stockholder (other than in respect of the matters referred to in Section 2.2(q) for which Section 2.2(q) shall govern); (p) the adoption of, or any material amendment to, any employee benefit, profit sharing, incentive, bonus, pension, retirement or employee stock option plans (such consent not to be unreasonably withheld in the context of industry practice); 10 (q) any license of the Aladdin trademark to any Person other than a Subsidiary (such consent not to be unreasonably withheld); (r) any contract (including leases) outside the ordinary course of business or for capital expenditure not included in the Company's annual budgets (such consent not to be unreasonably withheld); and (s) the initiation or settlement of any material litigation outside the ordinary course of business and the selection of counsel therefor (such consent not to be unreasonably withheld). 2.3 EXECUTIVE MANAGEMENT COMMITTEE. The Board shall delegate day-to-day management responsibility of the Company to a committee of management (the "EXECUTIVE MANAGEMENT COMMITTEE") to include of the following persons: the president and chief executive officer of the Company, the chief financial officer of the Company, the senior vice president of the Company who is the president and chief operating officer of the Aladdin hotel and casino, the senior vice president of the Company who is the president and chief operating officer of the second hotel and casino, the senior vice president human resources of the Company, the senior vice president electronic gaming of the Company and the managing director of the Salle Privee Facilities. 2.4 VACANCIES; REMOVAL. If any director shall cease to serve as a director of the Company for any reason, the vacancy resulting thereby shall be filled by another person selected by its Designating Party or by the holders of two-thirds of the Common Stock if so appointed, as the case may be. Upon the request of a Designating Party for the removal of a director designated by it, the Stockholders shall use best efforts to cause such director to be removed from office. 2.5 EXPENSES. The Company shall pay the reasonable out-of-pocket expenses incurred by each of the directors in connection with performing his or her duties as a member of the Board, including, without limitation, the reasonable out-of-pocket expenses incurred by such person attending meetings of the Board or any committee thereof or meetings of any board of directors or other 11 similar managing body (and any committee thereof) of any subsidiary of the Company. 2.6 DIRECTORS' INDEMNIFICATION. (a) The Company shall obtain and cause to be maintained in effect, with financially sound insurers, a policy of directors' and officers' liability insurance covering each of the directors in an amount of at least $__________. (b) The Certificate of Incorporation, By-Laws and other organizational documents of the Company shall at all times, to the fullest extent permitted by law, provide for indemnification of, advancement of expenses to, and limitation of the personal liability of, the members of the Board and such other persons, if any, who, pursuant to a provision of such Certificate of Incorporation, By-Laws or other organizational documents, exercise or perform any of the powers or duties otherwise conferred or imposed upon members of the Board. 2.7 QUORUM REQUIREMENTS AND ACTIONS BY THE BOARD. The By-laws of the Company shall provide that a simple majority of the Board shall constitute a quorum for the transaction of any business of the Company at meetings of the Board. 2.8 COOPERATION. Each Stockholder shall vote all of its Common Shares and shall take all other necessary or desirable actions within its control (including, without limitation, attending all meetings in person or by proxy for purposes of obtaining a quorum and/or executing all written consents in lieu of meetings as applicable), and the Company shall take all necessary and desirable actions within its control (including, without limitation, calling special Board and Stockholder meetings), to effectuate the provisions of this Article II. ARTICLE III RESTRICTIONS ON SALES OF STOCK BY STOCKHOLDERS 3.1 NO SALES. Subject to the remaining provisions of this Article III, no Stockholder shall Sell any Stock (a) prior to the consummation of an IPO, other than to a Permitted Transferee in accordance with the terms hereof, or (b) without first, if applicable, complying with the provisions of Article IV. Notwithstanding any 12 other provision of this Agreement, in no event shall any Stockholder Sell any Stock to a Prohibited Transferee. 3.2 PERMITTED TRANSFEREES. Subject to Section 3.3, and notwithstanding Article IV, a Stockholder may Sell its Stock, or any part thereof, at any time to a Permitted Transferee. 3.3 AGREEMENT TO BE BOUND. Anything contained in this Agreement to the contrary notwithstanding, except in connection with a Public Sale, any transferee (who is not already a Stockholder) of Stock from a Stockholder shall upon consummation of, and as a condition to, such Sale execute and deliver to the Company (which the Company shall then deliver to all other Stockholders) an agreement pursuant to which such transferee agrees to be bound by the terms of this Agreement, and such transferee shall thereafter be deemed to be a Stockholder for all purposes of this Agreement. 3.4 VIOLATION. Any Sale or attempted Sale of Stock in violation of any provision of this Agreement shall be void, and the Company shall not record such Sale on its books or treat any purported transferee of such Stock as the owner of such Stock for any purpose. ARTICLE IV TAG ALONG RIGHTS 4.1 TAG ALONG SALE. Subject to Section 4.4, no Stockholder may, alone or in concert with any Other Stockholder, in any transaction or series of related transactions, Sell any Stock to another Person or Persons if, after giving effect to such Sale of Stock (whether as a result of such Sale or otherwise), such Person or Persons together with their Affiliates would own in the aggregate an amount of Common Stock greater than 10% of the outstanding Common Stock (such Sale being referred to herein as a "TAG ALONG SALE"), except in accordance with the procedures of this Article IV. 4.2 TAG ALONG PROCEDURE. (a) If a Stockholder (a "SELLING STOCKHOLDER") proposes to make a Tag Along Sale the Selling Stockholder shall first deliver to each Other Stockholder a written notice (the "TAG ALONG NOTICE"), which shall specifically identify the proposed transferee or transferees (the "TAG ALONG TRANSFEREE"), 13 the amount and type of Stock proposed to be Sold (the "TAG ALONG STOCK"), the purchase price per share therefor ("TAG ALONG PRICE PER SHARE"), and a summary of the other material terms and conditions of the proposed Tag Along Sale, and shall contain an offer (the "TAG ALONG OFFER") by the Tag Along Transferee to each Other Stockholder, which shall be irrevocable for a period of 20 days after the delivery thereof (the "TAG ALONG PERIOD"), to purchase such Other Stockholder's Stock at a price per share equal to the Tag Along Price Per Share and upon all such other terms offered by the Tag Along Transferee to the Selling Stockholder including, without limitation, those set forth in the Tag Along Notice. (b) The Tag Along Offer may be accepted in whole or in part at the option of each of the Other Stockholders. Notice of an Other Stockholder's intention to accept a Tag Along Offer, in whole or in part, shall be evidenced by a writing signed by such Other Stockholder and delivered to the Selling Stockholder, the Tag Along Transferee and the Company prior to the end of the Tag Along Period, setting forth the amount and type of Stock that such Other Stockholder elects to Sell. (c) Upon the expiration of the Tag Along Period, the Tag Along Stock shall be allocated among the Selling Stockholder and the Other Stockholders electing to participate in the Tag Along Sale (collectively, the "TAG ALONG STOCKHOLDERS") as follows: (i) First, each Tag Along Stockholder shall be entitled to Sell its Proportionate Percentage of the Tag Along Stock; (ii) second, if an amount of Tag Along Stock has not been allocated for Sale pursuant to clause (i) (the "REMAINING TAG ALONG STOCK"), each Tag Along Stockholder (an "OVERSUBSCRIBED TAG ALONG STOCKHOLDER") which had offered to Sell an amount of Tag Along Stock in excess of the amount of Stock allocated for Sale to it in accordance with the allocation set forth in clause (i) shall be entitled to Sell an amount of Remaining Tag Along Stock equal to its Proportionate Percentage (treating only Oversubscribed Tag Along Stockholders as Tag Along Stockholders) of the Remaining Tag Along Stock; and (iii) third, the process set forth in clause (ii) shall be repeated with respect to any amounts of Tag Along Stock not allocated for Sale until the Tag Along Stock is allocated for Sale in its entirety. 4.3 TAG ALONG CLOSING. All Sales of Stock to the Tag Along Transferee shall be consummated contemporaneously at the offices of the Company on the later of (a) 14 a mutually satisfactory business day as soon as practicable, but in no event more than 30 days after the expiration of the Tag Along Period, (b) the closing date, if any, set forth in the Tag Along Notice, (c) the fifth business day following the expiration or termination of all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, applicable to such Sales, and (d) the date when all approvals in respect of such Sales required by the Nevada Gaming Control Act (or any successor statute) and any rules or regulations promulgated thereunder are obtained (such approvals to be obtained as soon as is reasonably practicable). The delivery of certificates or other instruments evidencing the Tag Along Stock as allocated pursuant to Section 4.2(c) duly endorsed for transfer shall be made on such date against payment of the purchase price for such Stock. 4.4 EXEMPTED SALES. The requirements of this Article IV shall not apply to (a) any Sale of Stock by a Selling Stockholder to any Permitted Transferee of such Stockholder or (b) any Sale of Stock by a Stockholder in a Public Sale. ARTICLE V HOLDBACK AGREEMENT 5.1 HOLDBACK. Each Stockholder agrees that, to the extent requested in writing by a managing underwriter of a Public Sale effected pursuant to a registration under Articles VI or VII, it will not Sell any Stock (other than as part of such Public Sale) during the time period reasonably requested by the managing underwriter, not to exceed two years. ARTICLE VI DEMAND REGISTRATION RIGHTS 6.1 REQUEST BY THE STOCKHOLDERS. Upon the written request (a "SECTION 6.1 REQUEST") of one or more Stockholders holding Common Stock representing in aggregate at least the Requisite Share Number requesting that the Company effect the registration under the Securities Act of all or part of such Stockholders' Registrable Securities and specifying the intended method of disposi- 15 tion thereof, the Company will promptly give written notice of such requested registration (a "SECTION 6.1 NOTICE") to all registered holders of Registrable Securities, and thereupon the Company will, subject to the terms of this Agreement, use its best efforts to effect, as promptly as practicable, the registration under the Securities Act of: (a) the Registrable Securities that the Company has been requested to register by the Section 6.1 Request, (b) all other Registrable Securities that the Company has been requested to register by any Other Stockholder by written request given to the Company within fifteen business days after the giving of the Section 6.1 Notice (which request shall specify the intended method of disposition of such Registrable Securities), and (c) all shares of Common Stock which the Company or any Third Party may elect to register in connection with the offering of Registrable Securities pursuant to this Section 6.1, all to the extent requisite to permit the disposition (in accordance with the stated intended methods thereof) of the Registrable Securities and the additional shares of Common Stock, if any, so to be registered; PROVIDED that (i) the Company shall not be required to effect any registration of Registrable Securities pursuant to this Section 6.1 within a period of six months after the effective date of any other registration statement of the Company filed pursuant to this Section 6.1 or Section 7.1 (other than registration statements on Form S-4 or Form S-8, or any successor or similar forms), (ii) the Company shall not be obligated to effect more than a total of four registration statements pursuant to this Section 6.1, (iii) the Company may postpone filing a registration statement relating to a registration request under this Section 6.1 twice within a period of twelve months, for a reasonable period (not in excess of 90 days), (iv) at the request of either Sommer Enterprises or LCI, whichever is entitled to designate four (4) representatives on the Board pursuant to Section 2.1, provided that such party believes it to be commercially reasonable to so request, the Company shall defer a registration pursuant to a Section 6.1 Request and (vi) prior to LCI or Sommer 16 Enterprises, whichever is only entitled to designate two (2) representatives on the Board pursuant to Section 2.1, making any Section 6.1 Request, such party must first submit to the Board a letter from a reputable, nationally recognized underwriter stating that a Public Sale is economically feasible. Any Stockholder may, during any such postponement, revoke such registration request by providing written notice to the Company and such request shall thereafter not be counted as a registration request pursuant to this Article VI. 6.2 REGISTRATION STATEMENT FORM. Registrations under this Article VI shall be on such appropriate registration form of the SEC for the disposition of the Registrable Securities as shall be selected by the Company and shall be reasonably acceptable to any Stockholders who are the registered holders of Registrable Securities participating in the registration representing in the aggregate at least the Requisite Share Number. 6.3 EXPENSES. The Company shall pay all Registration Expenses in connection with each registration requested pursuant to this Article VI; PROVIDED that each Stockholder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Stockholder's Registrable Securities pursuant to a registration statement requested pursuant to this Article VI. 6.4 EFFECTIVE REGISTRATION STATEMENT. A registration requested pursuant to this Article VI shall not be deemed to have been effected unless a registration statement with respect thereto has become effective; PROVIDED that (a) a registration statement that does not become effective after the Company has filed a registration statement with respect thereto by reason of the refusal to proceed of the Stockholder or Stockholders who made the Section 6.1 Request with respect thereto (other than a refusal to proceed based upon the written advice of counsel relating to a matter with respect to the Company) shall be deemed to have been effected by the Company unless such Stockholder or Stockholders shall have elected to pay all Registration Expenses in connection with such registration and (b) after a registration has become effective the offering of Registrable Securities pursuant to such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such registration will be deemed not to have been effected. 17 6.5 PRIORITY IN REQUESTED REGISTRATIONS. If the managing underwriter for a requested registration pursuant to this Article VI shall advise the Company in writing that, in its opinion, the number of securities requested to be included in such registration exceeds the number that can be sold in an orderly manner in such offering within a price range acceptable to the Stockholder or Stockholders who made the Section 6.1 Request, then the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, (a) first, Registrable Securities, if any, the Company proposes to Sell, (b) second, Registrable Securities allocated pro rata among all Stockholders requesting that Registrable Securities be included in such registration on the basis of the relative number of shares of such Registrable Securities each such Stockholder has requested to be included in such registration, and (c) third, Registrable Securities, if any, any Third Party proposes to Sell. 6.6 UNDERWRITERS. If a requested registration pursuant to this Article VI involves an underwritten offering, the Company shall have the right to select the investment banker(s) that shall manage the offering. ARTICLE VII INCIDENTAL REGISTRATION 7.1 RIGHT TO INCLUDE REGISTRABLE SECURITIES. If the Company at any time proposes to register any Registrable Securities (the "PRIMARY REGISTRABLE SECURITIES") under the Securities Act, whether or not for sale for its own account (other than a registration on Form S-4 or Form S-8, or any successor or similar forms and other than pursuant to a registration under Section 6.1), it will each such time promptly give written notice to all Stockholders who hold of record any Registrable Securities of its intention to do so, of the registration form of the SEC that has been selected by the Company and of such Stockholders' rights under this Section 7.1 (the "SECTION 7.1 NOTICE"). The Company will use its best efforts to effect the registration of all Registrable Securities that the Company is requested in writing, within 15 business days after the Section 7.1 Notice is given (which request shall specify the Registrable Securities intended to be disposed of by such holder and the intended method of disposition thereof), to register by 18 the Stockholders thereof (the "STOCKHOLDERS' REGISTRABLE SECURITIES"); PROVIDED that if, at any time after giving written notice of its intention to register the Primary Registrable Securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of the Primary Registrable Securities, the Company may, at its election, give written notice of such determination to all such Stockholders who requested registration and, thereupon, (a) in the case of a determination by the Company not to register any of the Primary Registrable Securities, the Company shall be relieved of its obligation to register any Stockholders' Registrable Securities in connection with such abandoned registration (but not from its obligation to pay expenses in connection therewith), without prejudice, however, to the rights of Stockholders under Article VI and (b) in case of a determination by the Company to delay registration of the Primary Registrable Securities, the Company shall be permitted to delay the registration of any Stockholders' Registrable Securities for the same period as the delay in registering the Primary Registrable Securities. No registration effected under this Article VII shall relieve the Company of its obligations to effect registrations upon request under Article VI. 7.2 EXPENSES. The Company shall pay all Registration Expenses in connection with each registration requested pursuant to this Article VII; PROVIDED, HOWEVER, that each Stockholder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Stockholder's Registrable Securities pursuant to a registration statement requested pursuant to this Article VII. 7.3 PRIORITY IN INCIDENTAL REGISTRATIONS. If the managing underwriter for a registration pursuant to this Article VII that involves an underwritten offering shall advise the Company in writing that, in its opinion, the number of securities requested to be included in such registration exceeds the number (the "SECTION 7.3 SALE NUMBER") that can be sold in an orderly manner in such offering within a price range acceptable to the Company, the Company shall include in such offering (a) first, all the securities the Company proposes to register for its own account, (b) second, to the extent that the Registrable Securities to be included by the Company are less than the Section 7.3 Sale Number, all Registrable Securities requested to be included by all Stockholders and (c) 19 to the extent that the Registrable Securities to be included by the Company and all other Stockholders are less than the Section 7.3 Sale Number, all Registrable Securities requested to be included by Third Parties, PROVIDED that, if the number of such Registrable Securities exceeds the Section 7.3 Sale Number less the number of securities included pursuant to clause (a) then the number of such Registrable Securities included in such registration shall be allocated pro rata among all requesting Stockholders, on the basis of the relative number of shares of such Registrable Securities each such Stockholder has requested to be included in such registration. 7.4 UNDERWRITERS. If a requested registration pursuant to this Article VII involves an underwritten offering, the Company shall have the right to select the investment banker(s) that shall manage the offering. ARTICLE VIII REGISTRATION PROCEDURES 8.1 REGISTRATION PROCEDURES. If and whenever the Company is required to use its best efforts to effect or cause the registration of any Registrable Securities under the Securities Act as provided in this Agreement, the Company will, as soon as practicable: (a) prepare and file with the SEC (in any event within 60 days after the end of the period within which requests for registration may be given to the Company) the requisite registration statement to effect such registration and thereafter to use its best efforts to cause such registration statement to become and remain effective; PROVIDED that the Company may discontinue any registration of its securities that is being effected pursuant to Article VII at any time prior to the effective date of the registration statement relating thereto; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for such period (which shall not exceed 120 days after such registration statement becomes effective) as any seller of such Registrable Securities shall request and to comply with the provisions of the Securities Act with 20 respect to the Sale of all securities covered by such registration statement during such period; (c) furnish to each seller of Registrable Securities covered by such registration statement and each underwriter, if any, of the securities being Sold by such seller such number of conformed copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and summary prospectus), in conformity with the requirements of the Securities Act, and such other documents as such seller and underwriter may reasonably request in order to facilitate the Public Sale of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify all Registrable Securities covered by such registration statement under such other securities laws or "blue sky" laws of such jurisdictions as any sellers of Registrable Securities representing in the aggregate at least the Requisite Share Number or any managing underwriter shall reasonably request, and do any and all other acts and things that may be necessary or advisable to enable such seller and each managing underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities owned by such seller; PROVIDED that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subsection (d) be obligated to be so qualified, to subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction; (e) notify each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of any discovery by the Company that the prospectus, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and at the request of any such seller promptly prepare and furnish to such seller a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not 21 include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (f) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earning statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first day of the Company' first full calendar quarter after the effective date of the registration statement, which earning statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (g) use its best efforts to cause all Registrable Securities covered by such registration statement to be listed on the principal securities exchange on which similar equity securities issued by the Company are then listed or eligible for listing, if any, if the listing of such securities is then permitted under the rules of such exchange; (h) provide a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement; (i) in connection with any underwritten offering, enter into an underwriting agreement with the underwriter of such offering in the form customary for such underwriter for similar offerings, including such representations and warranties by the Company, provisions regarding the delivery of opinions of counsel for the Company and accountants' letters, provisions regarding indemnification and contribution, and such other terms and conditions as are at the time customarily contained in such underwriter's underwriting agreements for similar offerings (the sellers of Registrable Securities which are to be distributed by such underwriter(s) may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriter(s) shall also be made to and for the benefit of such sellers of Registrable Securities and such sellers of Registrable Securities shall not be required to make any representations or warranties to or agreements with the Company or the underwriter(s) other than repre- 22 sentations, warranties or agreements regarding such sellers and such sellers' intended methods of distribution); (j) upon receipt of such confidentiality agreements as the Company may reasonably request, make available for inspection by any seller of Registrable Securities covered by such registration statement and by any attorney, accountant or other agent retained by any such seller, all pertinent financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause all of the Company's and its subsidiaries' officers, directors and employees to supply all information reasonably requested by any such seller, attorney, accountant or agent in connection with such registration statement; and (k) permit any holder of Registrable Securities who, in the sole judgment, exercised in good faith, of such holder, might be deemed to be a controlling person of the Company, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to the Company in writing, that in the judgment of such holder, as aforesaid, should be included. 8.2 INFORMATION. The Company may require each seller of Registrable Securities covered by the registration statement to furnish to the Company such information regarding such seller and the distribution of its Registrable Securities as the Company may from time to time request in writing. 8.3 COOPERATION. Each holder of Registrable Securities agrees that upon receipt of any notice from the Company of the kind described in Section 8.1(e), such holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 8.1(e), and, if so directed by the Company, such holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such holder's possession, of the prospectus covering such Registrable Securities that was in effect prior to such amendment or supplement. In the event the Company shall give any such notice, the period set forth in Section 8.1(b) shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 23 8.1(e) to and including the date when each seller of Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 8.1(e). ARTICLE IX INDEMNIFICATION 9.1 INDEMNIFICATION BY THE COMPANY. In the event of any registration of any securities of the Company under the Securities Act pursuant to Articles VI or VII, the Company will, and hereby does, indemnify and hold harmless, to the extent permitted by law, the seller of any Registrable Securities covered by such registration statement, its directors and officers or general and limited partners (and the directors and officers thereof), each Person who participates as an underwriter, if any, in the offering or sale of such securities and each Person, if any, who controls such seller or any such underwriter within the meaning of the Securities Act, against any and all losses, claims, damages or liabilities, joint or several, and expenses to which such seller, or any such director or officer or general or limited partner or any such underwriter or controlling Person may become subject under the Securities Act, common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereof) arise out of or are based upon (a) any untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such securities were registered under the Securities Act or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (b) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, together with the documents incorporated by reference therein (as amended or supplemented if the Company shall have filed with the SEC any amendment thereof or supplement thereto), if used prior to the effective date of such registration statement, or contained in the prospectus, together with the documents incorporated by reference therein (as amended or supplemented if the Company shall have filed with the SEC any amendment thereof or supplement thereto), or any omission or alleged omission to state therein a material fact required to be stated 24 therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or (c) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such registration, and the Company will reimburse such seller and each such director, officer, general or limited partner, underwriter and controlling Person for any legal or any other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage or liability (or action or proceeding in respect thereof); PROVIDED that the Company shall not be liable to any such seller or any such director, officer, general or limited partner, underwriter or controlling Person in any such case to the extent that any such loss, claim, damage or liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement or in any such preliminary, final or summary prospectus, or amendment thereof or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by or on behalf of any such seller or any such director, officer, general or limited partner, underwriter or controlling Person, specifically stating that it is for use in the preparation thereof; and PROVIDED FURTHER that the Company will not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Securities, if any, or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, under the indemnity agreement in this Section 9.1 with respect to any preliminary, final or summary prospectus or the final prospectus as amended or supplemented as the case may be, to the extent that any such loss, claim, damage or liability of such underwriter or controlling Person results from the fact that such underwriter Sold Registrable Securities to a person to whom there was not sent or given, at or prior to the written confirmation of such Sale, a copy of the final prospectus or of the final prospectus as then amended or supplemented, whichever is most recent, if the Company has previously furnished copies thereof to such underwriter and such final prospectus, as then amended or supplemented, has corrected any such misstatement or omission. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such seller or any director, officer, general or limited partner, underwrit- 25 er or controlling Person and shall survive the transfer of the Registrable Securities by such seller. 9.2 INDEMNIFICATION BY THE SELLERS. The Company may require, as a condition to including any Registrable Securities in any registration statement filed in accordance with Articles VI or VII, that the Company shall have received an undertaking reasonably satisfactory to it from the prospective seller of such Registrable Securities and any underwriter, to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 9.1) the Company and its directors and officers and each Person controlling the Company within the meaning of the Securities Act and all other prospective sellers and their directors, officers, general and limited partners and respective controlling Persons with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, if, and only if, such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company or its representatives by or on behalf of such seller or underwriter specifically stating that it is for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of the prospective sellers or any of their respective directors, officers, general or limited partners or controlling Persons and shall survive the transfer of such securities by such seller. 9.3 NOTICES OF CLAIMS, ETC. As soon as possible after the commencement of any action or proceeding against an indemnified party hereunder with respect to which a claim for indemnification may be made pursuant to this Article IX, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; PROVIDED that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding paragraphs of this Article IX, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party there- 26 of, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party; PROVIDED that the indemnifying party shall not be entitled to so participate or so assume the defense if, in the indemnified party's reasonable judgment, a conflict of interest between the indemnified party and the indemnifying party exists in respect of such claim. After notice from the indemnifying party to such indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Article IX for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof; PROVIDED that the sellers and their respective officers, directors, general and limited partners and controlling Persons or the Company and its officers, directors and controlling Persons, as the case may be, shall have the right to employ one counsel to represent such indemnified parties if, in such indemnified parties' reasonable judgment, a conflict of interest between the indemnified parties exists in respect of such claim, and in that event the fees and expenses of such separate counsel shall be paid by the indemnifying party; and PROVIDED FURTHER that if, in the reasonable judgment of any of the indemnified parties, a conflict of interest exists between such indemnified parties and any other indemnified parties, such indemnified parties shall be entitled to additional counsel or counsels and the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels. No indemnifying party, without the consent of the indemnified party, will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action the defense of which has been assumed by an indemnifying party without the consent of such indemnifying party. 9.4 OTHER INDEMNIFICATION. Indemnification similar to that specified in the preceding paragraphs of this Article IX (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or 27 other qualification of securities under any State securities and "blue sky" laws. 9.5 CONTRIBUTION. If the indemnification provided for in this Article IX is unavailable or insufficient to hold harmless an indemnified party, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to in Sections 9.1 or 9.2 in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statements or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 9.5 were to be determined by pro rata allocation or by any other method of allocation of Registrable Securities which does not take account of the equitable considerations referred to in the first sentence of this Section 9.5; PROVIDED that the Company and each holder of Registrable Securities agree with each other and the underwriters of the Registrable Securities, if requested by such underwriters, that the underwriters' portion of such contribution shall not exceed the underwriting discount. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this Section 9.5 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim (which shall be limited as provided in the preceding sentence and in Section 9.3 if the indemnifying party has assumed the defense of any such action in accordance with the provisions thereof) which is the subject of this Section 9.5. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Promptly after receipt by an indemnified party under this Section 9.5 of notice of the commencement of any action against 28 such party in respect of which a claim for contribution may be made against an indemnifying party under this Section 9.5, such indemnified party shall notify the indemnifying party in writing of the commencement thereof if the notice specified in Section 9.3 has not been given with respect to such action; PROVIDED that the omission to notify the indemnifying party shall not relieve the indemnifying party from any liability which it may have to any indemnified party otherwise under this Section 9.5, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. 9.6 LIMITATION. Notwithstanding anything in this Article IX to the contrary, no indemnifying party (other than the Company) shall be required pursuant to this Article IX to contribute any amount in excess of the amount by which (a) in the case of a seller of Registrable Securities, the proceeds received by such indemnifying party from the sale of Registrable Securities in the offering to which the losses, claims, damages or liabilities of the indemnified parties relate, or (b) in the case of an underwriter, the total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public, exceeds, in any such case, the amount of any damages which such seller or underwriter has otherwise been required to pay the Company or any underwriter by reason of such untrue or alleged untrue statement or omission. ARTICLE X RULE 144 10.1 RULE 144. If the Company shall have filed a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act, the Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act (or, if the Company is not required to file such reports, it will, upon the request of any holder of Registrable Securities, make publicly available other information), and it will take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder, subject to the terms and provisions of this Agreement to sell shares of Registrable Securities without registration under the Securities Act within 29 the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with the requirements of this Article X. LEGEND 11.1 LEGEND. Each Stockholder and the Company shall take all such action necessary (including exchanging with the Company certificates representing shares of Stock issued prior to the date hereof) to cause each certificate representing outstanding shares of Stock to bear a legend containing the following words: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT." "IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN THE STOCKHOLDERS AND REGISTRATION RIGHTS AGREEMENT DATED AS OF __________________ BY THE COMPANY AND THE PARTIES THERETO, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE COMPANY." 11.2 TERMINATION OF REQUIREMENT. The requirement that the above securities legend be placed upon certificates or instruments evidencing shares of Stock shall cease and terminate upon the earliest of the following events: (a) when such securities are Sold in a Public Sale or (b) when such securities are Sold in any other transaction if the seller delivers to the Company an opinion of its counsel, which counsel and opinion shall be reasonably satisfactory to the Company, or a "no-action" letter from the staff of the SEC, in either case to the effect that such legend is no longer neces- 30 sary in order to protect the Company against a violation by it of the Securities Act upon any sale or other disposition of such securities without registration thereunder. Upon the consummation of any event requiring the removal of a legend hereunder, the Company, upon the surrender of certificates or instruments containing such legend, shall, at its own expense, deliver to the holder of any such securities as to which the requirement for such legend shall have ceased and terminated, one or more new certificates or instruments evidencing such securities not bearing such legend. ARTICLE XII REPRESENTATIONS AND WARRANTIES 12.1 REPRESENTATIONS AND WARRANTIES. Each party hereto represents and warrants to the other parties hereto as follows: (a) it has full power and authority to execute, deliver and perform its obligations under this Agreement; (b) this Agreement has been duly and validly authorized, executed and delivered by it, and constitutes a valid and binding obligation of it, enforceable against it in accordance with its terms except to the extent that enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally; (c) the execution, delivery and performance of this Agreement by it does not (i) violate, conflict with, or constitute a breach of or default under its organizational documents, if any, or any material agreement to which it is a party or by which it is bound, or (ii) violate any law, regulation, order, writ, judgment, injunction or decree applicable to it; (d) no consent or approval of, or filing with, any governmental or regulatory body is required to be obtained or made by it in connection with the transactions contemplated hereby; and 31 (e) it is not a party to any agreement which is inconsistent with the rights of any party hereunder or otherwise conflicts with the provisions hereof. ARTICLE XIII NON-COMPETE 13.1 LCI. So long as LCI is a Stockholder and for a period of one year thereafter, LCI agrees that, other than through the Company, LCI and its Affiliates shall not, directly or indirectly, engage in the development of or own, operate, lease, manage, control, invest in, act as consultant or advisor to or otherwise assist any Person that engages in the development or operation of gaming operations which (a) involve or are in any way associated with golf resorts located in Clark County, Nevada, or (b) are located in Las Vegas, Nevada and involve or are in any way associated with operations of a type similar to the Salle Privee Facilities located in Las Vegas, Nevada, without the consent of the Company; PROVIDED that LCI and its Affiliates may own and/or operate a casino and/or hotel project in Las Vegas, Nevada that is so involved or associated if they first provide to the Company detailed written descriptions of such proposed venture (including financial analysis and projections) and offer the Company the opportunity to invest equally with and on substantially the same terms as LCI and its Affiliates, and the Company (by way of the Board, excluding the B Directors) declines such opportunity or fails to take up such opportunity within a reasonable time period. 13.2 SOMMER ENTERPRISES. So long as Sommer Enterprises is a Stockholder and for a period of one year thereafter, Sommer Enterprises agrees that, other than through the Company, Sommer Enterprises and its Affiliates shall not, directly or indirectly, engage in the development of or own, operate, lease, manage, control, invest in, act as consultant or advisor to or otherwise assist any Person that engages in the development or operation of any casino and/or hotel project in Las Vegas, Nevada, other than the Mountain Spa Resort; PROVIDED that Sommer Enterprises and its Affiliates may own and/or operate a casino and/or hotel project in Las Vegas, Nevada if such opportunity has been offered to the Company and LCI or the members of the Board other than 32 the A Directors have caused the Company to decline to take up, or to fail to pursue, such opportunity. 13.3 REASONABLE TERMS. (a) LCI and Sommer Enterprises acknowledge and agree that the covenants set forth in this Article XIII are reasonable in geographical and temporal scope and in all other respects and that the Other Stockholders would not have entered into this Agreement but for the covenants contained in this Article XIII. (b) If, at the time of enforcement of this Article XIII, a court shall hold that the duration, scope, or area restrictions stated herein are unreasonable under the circumstances then existing, the parties agree that the maximum duration, scope, or area reasonable under such circumstances shall be substituted for the stated duration, scope, or area. (c) LCI and Sommer Enterprises recognize and affirm that in the event of a breach of any provision of this Article XIII money damages would be inadequate and the damaged party would have no adequate remedy at law. Accordingly, the Company and the Other Stockholders shall have the right, in addition to any other rights and remedies existing in their favor, to enforce its rights under this Article XIII not only by an action or actions for damages, but also by an action or actions for specific performance, injunction and/or equitable relief in order to enforce or prevent any violations (whether anticipatory, continuing or future) of the provisions of this Article XIII. ARTICLE XIV MISCELLANEOUS 14.1 DURATION OF AGREEMENT. The rights and obligations of a Stockholder under this Agreement shall terminate at such time as such Stockholder no longer is the beneficial owner of any Stock. 14.2 FURTHER ASSURANCES. At any time or from time to time after the date hereof, the parties agree to cooperate with each other and, at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as the other party may reasonably request in order to evi- 33 dence or effectuate the consummation of the transactions contemplated hereby and to otherwise carry out the intent of the parties hereunder. 14.3 AMENDMENT AND WAIVER. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement shall be effective against the Company or any Stockholder unless such modification, amendment or waiver is approved in writing by the Company and the Stockholders. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. 14.4 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 14.5 ENTIRE AGREEMENT. Except as otherwise expressly set forth herein, this Agreement and the documents contemplated hereby embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 14.6 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and each Stockholder and their respective successors, assigns, heirs and personal representatives, so long as they hold Stock. Except pursuant to a Sale of Stock in compliance with this Agreement (other than pursuant to a Public Sale), no Stockholder shall have the right to assign its rights and obligations under this Agreement without the consent of each of the other Stockholders. 34 14.7 REMEDIES. Each Stockholder shall be entitled to enforce its rights under this Agreement specifically to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that each party may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief in order to enforce or prevent any violation of the provisions of this Agreement. 14.8 NOTICES. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, mailed first class mail (postage prepaid) or sent by reputable overnight courier service (charges prepaid) or sent by facsimile transmission to: (a) in the case of a Stockholder, such address as indicated by the Company's records, or at such address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party; and (b) in the case of the Company, at: [Aladdin Gaming, Inc.] [Address] Attn: Telephone: Facsimile: Notices will be deemed to have been given hereunder when delivered personally, three days after deposit in the U.S. mail, one business day after deposit with a reputable overnight courier service and when receipt of facsimile transmission is acknowledged. 14.9 DESCRIPTIVE HEADINGS. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof. 14.10 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada without giving effect to the principles of conflicts of law. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State 35 of Nevada and of the United States of America, in each case located in Clark County, for any action, proceeding or investigation in any court or before any governmental authority ("LITIGATION") arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any Litigation relating thereto except in such courts), and further agrees that service of any process, summons, notice or document by U.S. registered mail to its respective address set forth in this Agreement shall be effective service of process for any Litigation brought against it in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any Litigation arising out of this Agreement or the transactions contemplated hereby in the courts of the State of Nevada or the United States of America, in each case located in Clark County, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Litigation brought in any such court has been brought in an inconvenient forum. 14.11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties contained herein or made in writing by any party in connection herewith shall survive the execution and delivery of this Agreement, regardless of any investigation made by or on behalf of any party. 14.12 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more of the counterparts have been signed by each party and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 36 IN WITNESS WHEREOF, this Agreement was executed and delivered as of the date first above written. [ALADDIN GAMING, INC.] By: -------------------------------- Name: Title: [STOCKHOLDERS] 37 EX-5.1 3 OPINION: SKADDEN ARPS (REGARDING LEGALITY) SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 919 Third Avenue New York, New York 10022 DIRECT DIAL 212-735-2640 DIRECT FAX 212-735-2000 June 8, 1998 Aladdin Gaming Enterprises, Inc. 831 Pilot Road Las Vegas, Nevada 89119 Ladies and Gentlemen: Re: Aladdin Gaming Enterprises, Inc. Registration Statement (333-49715) We have acted as special counsel to Aladdin Gaming Enterprises, Inc., a corporation organized under the laws of the State of Nevada (the "Company"), in connection with the registration under the Securities Act of 1933, as amended (the "Act"), of 2,215,000 Warrants (the "Warrants") to purchase shares of Class B Common Stock, no par value, of the Company (the "Warrant Shares"). The Warrants were issued pursuant to a Warrant Agreement (the "Warrant Agreement") dated as of February 26, 1998 between the Company and State Street Bank and Trust Company ("State Street"), as Warrant Agent for the benefit of the holders of the Warrants (in such capacity, the "Warrant Agent"). This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Act. In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of (i) the Registration Statement on Form S-1 (File No. 333-49715) as filed with the Securities and Exchange Commission (the "Commission") on April 9, 1998 under the Act and Amendment No. 1 thereto with which this opinion is being filed (such Registration Statement, as so amended, being hereinafter referred to as the ALADDIN GAMING ENTERPRISES, INC. June 8, 1998 Page 2 "Registration Statement"); (ii) the Warrant Agreement; (iii) the form of the Warrants, included as an exhibit to the Warrant Agreement and (iv) the Warrant Registration Rights Agreement dated February 26, 1998 among the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer Corp. and Scotia Capital Markets (USA) Inc. (the "Warrant Registration Rights Agreement"). We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such other records of the Company and such agreements, certificates or records of public officials, certificates of officers or representatives of the Company, respectively, and such other documents, certificates and records as we have deemed necessary or appropriate as a basis for the opinions set forth herein. The documents described in clauses (ii) and (iii) are referred to herein as the "Operative Documents." In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures (including endorsements), the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. In making our examination of executed documents (including the Operative Documents), we have assumed that the parties thereto (including the Company) had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and (except to the extent specifically set forth below) that such documents constitute valid and binding obligations of such parties. In providing the opinion set forth below, we have also assumed that the execution and delivery by the Company of the Operative Documents and the performance by the Company of its obligations thereunder do not and will not violate, conflict with, or constitute a default under (i) any agreement or instrument to which the Company or any of its properties is subject, (ii) any law, rule, or regulation to which the Company or its properties is subject (except that we do not make the assumption set forth in this clause (ii) with respect to those laws, rules and regulations of the State of New York and of the United States of America which, in our experience, are normally applicable to transactions of the type contemplated by the Operative ALADDIN GAMING ENTERPRISES, INC. June 8, 1998 Page 3 Documents (other than securities or anti-fraud laws of any jurisdiction), but without our having made any special investigation concerning any other laws, rules or regulations), (iii) any judicial or regulatory order or decree of any governmental authority or (iv) any consent, approval, license, authorization or validation of, or filing, recording or registration with any governmental authority. As to any facts material to the opinion expressed herein which were not independently established or verified, we have relied upon oral or written statements and representations of officers and other representatives of the Company and the Warrant Agent and others. Members of our firm are admitted to the bar in the State of New York, and we express no opinion as to the laws of any other jurisdiction, including, without limitation, the laws of the State of Nevada, other than the laws of the United States of America, to the extent referred to specifically herein. Based upon and subject to the limitations, qualifications, exceptions and assumptions set forth herein, we are of the opinion that the Warrants constitute valid and binding obligations of the Company, entitled to the benefits of the Warrant Agreement and enforceable against the Company in accordance with their terms, except that (A) the enforcement thereof may be subject to, or limited by, (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity) and (B) the rights to indemnification and contribution contained in the Warrant Registration Rights Agreement may be limited by state or federal securities laws or the public policy underlying such laws. We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement. We also consent to the reference to our firm in the Registration Statement and in the related Prospectus as the same appears under the caption "Legal Matters." In giving this consent, we do not ALADDIN GAMING ENTERPRISES, INC. June 8, 1998 Page 4 thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission. Very truly yours, /S/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP EX-5.2 4 OPINION: SCHRECK MORRIS SCHRECK MORRIS 1200 Bank of America Plaza 300 South Fourth Street Las Vegas, Nevada 89101 June 8, 1998 Aladdin Gaming Enterprises, Inc. 831 Pilot Road Las Vegas, Nevada 89119 Ladies and Gentlemen: We have acted as special Nevada counsel to Aladdin Gaming Enterprises, Inc., a Nevada corporation (the "Company") in connection with the registration under the Securities Act of 1933, as amended (the "Act"), of (i) an aggregate of 2,215,000 shares of the Company's Class B non-voting common stock, no par value per share (the "Warrant Shares") issuable upon the exercise of 2,215,000 warrants (the "Warrants") originally issued and sold on February 26, 1998 pursuant to an offering by Aladdin Gaming Holdings, LLC, a Nevada limited-liability company, Aladdin Capital Corp., a Nevada corporation, and the Company, and (ii) the Warrants to purchase the Warrant Shares, pursuant to the Company's Registration Statement on Form S-1 filed with the Securities and Exchange Commission (the "Commission") on April 9, 1998 (File No. 333-49715), and Amendment No. 1 thereto with which this opinion is being filed (such Registration Statement, as so amended, being hereinafter referred to as the "Registration Statement"). For the purpose of rendering this opinion, we have examined originals, or copies certified or otherwise identified to our satisfaction as being true copies of such records, documents, instruments and certificates as, in our judgment, are necessary or appropriate to enable us to render the opinions set forth below, including but not limited to the following: (i) the Registration Statement; (ii) that certain Warrant Agreement dated as of February 26, 1998 by and between the Company and State Street Bank and Trust Company, as warrant agent (the "Warrant Agreement"); (iii) the form of the Warrants included as an exhibit in the Warrant Agreement; Aladdin Gaming Enterprises, Inc. June 8, 1998 Page 2 (iv) the Company's Articles of Incorporation and Bylaws, as amended to date; and (v) certain resolutions of the Board of Directors of the Company authorizing the Company's execution, delivery and performance of its obligations under the Warrant Agreement. We have made such legal and factual examinations and inquiries as we have deemed necessary or appropriate for purposes of this opinion. We have been furnished with, and with your consent have relied upon, certificates and assurances of officers and other representatives of the Company and of public officials as we have deemed necessary for the purpose of rendering the opinions set forth herein. As to questions of fact material to our opinions, we have also relied upon the statements of fact and the representations and warranties as to factual matters contained in the documents we have examined, however, except as otherwise expressly indicated, we have not been requested to conduct, nor have we undertaken, any independent investigation to verify the content or veracity thereof or to determine the accuracy of any statement, and no inference as to our knowledge of any matters should be drawn from the fact of our representation of the Company. Without limiting the generality of the foregoing, in our examination of documents, we have assumed without independent verification, that (i) each natural person executing any such document hassufficient legal capacity to do so, (ii) all documents submitted to us as originals are authentic, the signatures on all documents that we examined are genuine, and all documents submitted to us as certified, conformed, photostatic or facsimile copies conform to the original document, and (iii) all corporate records made available to us by the Company and all public records we have reviewed are accurate and complete. Based upon the foregoing, and subject to the qualifications, exceptions and assumptions set forth herein, and having regard to legal considerations and other information that we deem relevant, we are of the opinion that: 1. The Warrant Shares have been duly authorized by the Company and, when and to the extent the Warrant Shares are issued and sold in the manner set forth in the Warrant Agreement and the Registration Statement upon exercise of the Warrants, the Warrant Shares will be validly issued, fully paid and non-assessable. 2. The Warrant Agreement and the Warrants issued pursuant thereto have been duly authorized, executed and delivered by the Company. We are qualified to practice law in the State of Nevada. The opinions set forth herein are expressly limited to the laws of the State of Nevada and we do not purport to be experts on, or to express any opinion herein concerning, or to assume any responsibility as to the applicability to or the effect on any of the matters covered herein of, the laws of any other jurisdiction. We express no Aladdin Gaming Enterprises, Inc. June 8, 1998 Page 3 opinion concerning, and we assume no responsibility as to laws or judicial decisions related to, or any orders, consents or other authorizations or approvals as may be required by, any federal law, including any federal securities law, or any state securities or Blue Sky laws. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and the reference to this firm therein and in the related Prospectus as the same appears under the caption "Legal Matters". In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission promulgated thereunder. Yours very truly, /s/ Schreck Morris SCHRECK MORRIS EX-8.1 5 OPINION OF SKADDEN - TAX Aladdin Gaming Enterprises, Inc. 831 Pilot Road Las Vegas, Nevada 89119 Dear Ladies and Gentlemen: You have requested our opinion regarding the discussion of the material United States federal income tax considerations under the heading "Certain United States Federal Income Tax Considerations" in the Prospectus (the "Prospectus") which will be included in the Registration Statement on Form S-1 (the "Registration Statement") filed by Aladdin Gaming Enterprises, Inc. (the "Issuer") on the date hereof with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"). The Prospectus relates to the 2,215,000 warrants to purchase Class B non-voting common stock, no par value, of the Issuer. This opinion is delivered in accordance with the requirements of Item 601(b)(8) of Regulation S-K under the Securities Act. We have reviewed the Prospectus and such other materials as we have deemed necessary or appropriate as a basis for our opinion described herein, and have considered the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations promulgated thereunder, pertinent judicial authorities, interpretive rulings of the Internal Revenue Service and such other authorities as we have considered relevant all as in effect on the date hereof. It should be noted that statutes, regulations, judicial decisions and administrative interpretations are subject to change at any time and, in some circumstances, with retroactive effect. A change in the authorities upon which our opinion is based could affect our conclusions. Based upon the foregoing, it is our opinion that the statements made under the heading "Certain United States Federal Income Tax Considerations" in the Prospectus, to the extent that they constitute matters of law or legal conclusions, are correct in all material respects. In accordance with the requirements of Item 601(b)(23) of Regulation S-K under the Securities Act, we hereby consent to the use of our name under the heading "LEGAL OPINIONS" in the Prospectus and to the filing of this opinion as an Exhibit to the Registration Statement. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the rules and regulations of the Commission promulgated thereunder. Very truly yours, 2 EX-10.3 6 EXHIBIT 10.3 GUARANTY OF PERFORMANCE & COMPLETION Noteholder Completion Guaranty GUARANTY OF PERFORMANCE AND COMPLETION THIS GUARANTY OF PERFORMANCE AND COMPLETION, dated as of February 26, 1998 is made by LONDON CLUBS INTERNATIONAL PLC, a company registered in England and Wales under company number 2862479 ("London Clubs"), THE TRUST UNDER ARTICLE SIXTH U/W/O SIGMUND SOMMER (the "Trust") and ALADDIN BAZAAR HOLDINGS, LLC, a Nevada limited liability company ("ABH"; ABH, the Trust and London Clubs are individually called a "Guarantor" and collectively called the "Guarantors"), in favor of State Street Bank and Trust Company (the "Discount Note Indenture Trustee"), for the benefit of the Noteholders (as defined below). WITNESSETH: WHEREAS, the Discount Note Indenture Trustee, Aladdin Gaming Holdings, LLC ("Holdings") and Aladdin Capital Corp. ("Capital," and together with Holdings, collectively, the "Note Issuers") have entered into an indenture (the "Indenture") dated as of even date herewith; and WHEREAS, certain Discount Notes will be issued pursuant to the Indenture; and WHEREAS, pursuant to that certain credit agreement, dated as of even date herewith (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among Aladdin Gaming, LLC, a Nevada limited liability company (the "Borrower"), the various lending institutions (individually a "Lender" and collectively the "Lenders") as are, or may from time to time become, parties thereto and The Bank of Nova Scotia ("Scotiabank") as the Administrative Agent for the Lenders, Merrill Lynch Capital Corporation ("Merrill Lynch") as the Syndication Agent for the Lenders, CIBC Oppenheimer Corp. as the Documentation Agent for the Lenders, and Scotiabank and Merrill Lynch as Arrangers, the Lenders have extended Commitments to make Loans to the Borrower and to issue Letters of Credit for the account of the Borrower; and WHEREAS, the proceeds from the issuance of the Discount Notes and the Loans are to be advanced to the Borrower pursuant to the terms of that certain Disbursement Agreement dated of even date herewith (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Disbursement Agreement") among the Borrower, Holdings, Scotiabank, as the Administrative Agent, the Discount Note Indenture Trustee and Scotiabank, as the Disbursement Agent and the initial Securities Intermediary and U.S. Bank National Association as the Servicing Agent; and WHEREAS, as a condition precedent to the effectiveness of the Credit Agreement, the Guarantors are required to execute and deliver a Guaranty of Performance and Completion dated as of even date herewith (the "Completion Guaranty") in favor of each of the Administrative Agent and the Lenders and certain subsidiaries of London Clubs (the "Subsidiary Guarantors") have agreed to guarantee fully and unconditionally the payment of London Clubs' obligations under the Completion Guaranty pursuant to a separate guaranty agreement of even date herewith (the "Subsidiary Bank Guaranty"; together with the Completion Guaranty, collectively, the "Bank Guaranty"); and WHEREAS, as a condition precedent to the effectiveness of the Indenture and the issuance of the Discount Notes, the Guarantors are required to execute and deliver this Guaranty of Performance and Completion and the Subsidiary Guarantors have agreed to guarantee fully and unconditionally the payment of London Clubs' obligations under this Guaranty of Performance and Completion pursuant to a separate guaranty agreement of even date herewith (the "Subsidiary Guaranty"; together with this Guaranty of Performance and Completion, this "Noteholder Completion Guaranty"); and WHEREAS, the Guarantors have duly authorized the execution, delivery and performance of this Guaranty of Performance and Completion and the Subsidiary Guarantors have duly authorized the execution, delivery and performance of the Subsidiary Guaranty; and WHEREAS, it is in the best interests of the Guarantors to execute this Guaranty of Performance and Completion and the Subsidiary Guarantors to execute the Subsidiary Guaranty inasmuch as the Guarantors and the Subsidiary Guarantors will derive substantial direct and indirect benefits from the issuance of the Discount Notes. NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and in order to induce the Discount Note Indenture Trustee to enter into the Indenture, the Guarantors agree, for the benefit of the Discount Note Indenture Trustee (for the benefit of the Noteholders), as follows: 1. Definitions. Capitalized terms not otherwise defined in this Noteholder Completion Guaranty shall have the meanings set forth in Appendix A hereto. As used herein, the following terms shall have the meanings set forth below. "Additional Amounts" is defined in Section 15(a)(iii). "Approved Plans and Specifications" shall mean "Plans and Specifications." "Bank Guaranty" is defined in the eighth recital. "Bankruptcy Code" shall mean Title 11 of the United States Code as amended from time to time. "Consolidated Intangibles" means, at a particular date, all assets of a Guarantor and its consolidated Subsidiaries, determined on a consolidated basis, that would, in conformity 2 with GAAP, as applicable, be classified as intangible assets, including, without limitation, unamortized debt discount and expense, unamortized organization and reorganization expense, costs in excess of the fair market value of acquired companies, patents, trade or service marks, franchises, trade names, goodwill and, from and after March 30, 1997, the amount of all write-ups in the book value of assets resulting from any revaluation thereof. "Consolidated Tangible Assets" means, at a particular date, the amount equal to (a) the amount which would be included as assets on the consolidated balance sheet of a Guarantor and its consolidated Subsidiaries as at such date in accordance with GAAP, minus (b) Consolidated Intangibles. "Construction Benchmark Schedule" means the schedule attached hereto as Schedule 7. "Credit Agreement" is defined in the sixth recital. "Dormant Subsidiary" means any Subsidiary of a Guarantor which has no operating assets or property and conducts no business. "Enforcement Costs" means all reasonable out-of-pocket costs and expenses of the Discount Note Indenture Trustee in connection with the enforcement of the rights and remedies of the Discount Note Indenture Trustee under this Noteholder Completion Guaranty and any amendment, waiver or consent relating hereto including, without limitation, reasonable attorneys' fees and costs and expenses, court costs and filing fees in addition to all other amounts due hereunder whether or not such Enforcement Costs are incurred in one or more proceedings. "Funding Cessation" means any time that funds are unavailable to the Borrower (from any source whatsoever) to fund draws under the Credit Agreement in an amount equal to 75% of the draw request in question or the Construction Consultant fails to deliver the On Schedule Certificate as contemplated by the Construction Consultant Engagement Agreement and the Disbursement Agreement. "GAAP" means the generally accepted accounting principles as in effect from time to time in the United Kingdom with respect to London Clubs and in the United States with respect to the other Guarantors, as the case may be. "Guaranteed Obligations" means the obligations of the Guarantors under Section 2. "Guarantor" is defined in the preamble. "Guaranty Deposit Account" is defined in Section 4(a). 3 "Indenture" is defined in the first recital. "Insolvency Proceeding" means any case or proceeding, voluntary or involuntary, under the Bankruptcy Code, or any similar existing or future law of any jurisdiction, foreign, state or federal, relating to bankruptcy, insolvency, reorganization or relief of debtors. "Leases" means, collectively, all agreements relating to the use, occupancy and possession of space with respect to the Main Project entered into by the Borrower and a tenant from time to time. "Material" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of a Guarantor and its Subsidiaries taken as a whole. "Material Subsidiary" means each of the Subsidiaries of London Clubs that are party to that certain Subsidiary Guaranty dated as of June 30, 1997 guaranteeing the obligations of London Clubs under the Note Agreements. Each Material Subsidiary of London Clubs as of the date hereof is listed on Schedule 1 hereof. "Minimum Aladdin Facilities" has the meaning ascribed to it in the Indenture. "Note Agreements" means the several identical Note Purchase Agreements dated as of June 30, 1997 among London Clubs and the purchasers named therein relating to London Clubs' $50,000,000 aggregate principal amount of 7.74% Guaranteed Senior Notes due 2004 and as the same may be modified by amendments that would not, in the aggregate, have the effect of making London Clubs' obligations thereunder materially more onerous (it being understood and agreed that any amendment, supplement or modification that increases the amount of the obligations of London Clubs thereunder shall be deemed material). "Noteholder Completion Guaranty" is defined in the ninth recital "Noteholders" means the holders of the Discount Notes. "NRS" is defined in Section 4(a). "Operating Deadline" means the date which is 28 months following the Effective Date, provided, that if a Force Majeure Event occurs, the Operating Deadline shall be extended for the amount of time such Force Majeure Event exists but in no event shall the Operating Deadline be extended past the date which is 40 months after the Effective Date. "Release Date" is defined in Section 3(a)(ii). 4 "Subsidiary Bank Guaranty" is defined in the eighth recital. "Subsidiary Guarantors" is defined in the eighth recital. "Subsidiary Guaranty" is defined in the ninth recital. "Taxes" is defined in Section 15(a). "Tax Refund" is defined in Section 15(c). "Trigger Days" means (i) an aggregate of 60 calendar days during any period in which the Lenders have disbursed more than $1 and up to and including $35.0 million of the Commitments to the Borrower; (ii) an aggregate of 90 calendar days during any period in which the Lenders have disbursed more than $35.0 million and up to and including $70.0 million of the Commitments to the Borrower; (iii) an aggregate of 120 calendar days during any period in which the Lenders have disbursed more than $70.0 million and up to and including $110.0 million of the Commitments to the Borrower; and (iv) an aggregate of 180 calendar days during any period in which the Lenders have disbursed more than $110.0 million of the Commitments to the Borrower. 2. Guaranty of Completion and Performance. The Guarantors, jointly and severally, absolutely, unconditionally and irrevocably, on the terms and subject to the conditions set forth herein, covenant and guarantee to the Discount Note Indenture Trustee (for the benefit of the Noteholders) and covenants and agrees to make any and all payments to or on behalf of the Borrower as may be necessary in order to permit and assure that: (i) the Borrower shall (A) prosecute the Work and the construction of the Main Project to Final Completion with due diligence and continuity, in an expeditious and first-class workmanlike manner, (B) cause the Work and the construction of the Main Project to be performed and the Main Project to be constructed, equipped and completed in compliance with the Plans and Specifications in all material respects and in compliance in all material respects with the provisions of the Reciprocal Easement Agreement, the Site Work Agreement, all Environmental Laws and all Legal Requirements, and (C) correct or cause to be corrected as soon as possible any material defect in the Main Project and the 5 Work (including, without limitation, any material defect in workmanship or quality of construction or materials) or any material departure or variation from the Final Plans and Specifications, the requirements of the Reciprocal Easement Agreement and/or the Site Work Agreement not made pursuant to Change Orders approved in writing by the Construction Consultant and the Administrative Agent in accordance with the Credit Agreement and the Disbursement Agreement; and (ii) the Borrower shall punctually pay, discharge and/or contribute, as appropriate, (A) any and all costs, expenses and liabilities incurred by the Borrower for or in connection with the Final Completion of the Work and the Main Project, (B) all claims and demands for labor, materials and services incurred by the Borrower for or in connection with the Final Completion of the Work and the Main Project which are or may become due and payable, or, if unpaid, are or may become Liens on the portion of the Site or any portion thereof owned by the Borrower, (C) all payments to be made for work to be performed by the Borrower under Leases or under the Reciprocal Easement Agreement or the Site Work Agreement for Tenant Improvements, (D) Impositions and premiums for insurance prior to the Final Completion of the Work, (E) all amounts which the Borrower may be required to pay from time to time in order to keep the Main Project Budget In Balance, and (F) all amounts needed to cause the Work to be performed within the Construction Benchmark Schedule; and (iii) the Borrower shall perform the Work and complete construction of the required Minimum Aladdin Facilities on schedule and in accordance with the Plans and Specifications Lien-free other than Permitted Liens and the portion of the Site owned by the Borrower shall be and remain free and clear of all Liens arising from the furnishing of materials, labor or services for or in connection with the performance of the Work and the Main Project; and (iv) the Borrower shall provide the expertise necessary to supervise performance of the Main Project and the Final Completion of Work at no cost to the Discount Note Indenture Trustee; and (v) in the event the Guarantors hereunder shall fail or refuse to pay or perform the Guaranteed Obligations under this Noteholder Completion Guaranty, the Discount Note Indenture Trustee (in addition to any other rights and remedies afforded by applicable law) may pay or perform or cause the payment and performance of the Guaranteed Obligations on behalf of the Guarantors hereunder in which case the Guarantors, upon demand by the Discount Note Indenture Trustee, shall pay any and all costs, expenses and liabilities for such costs and expenses in connection with the performance of the Final Completion of the Main Project, or cause any Lien in connection with the Final Completion thereof or any claim or demand for the payment of the cost of the Final Completion of the main Project to be bonded, 6 discharged, released or paid, and shall reimburse the Discount Note Indenture Trustee for all sums paid and all costs, expenses or liabilities incurred by the Discount Note Indenture Trustee in connection therewith; and (vi) the Guarantors shall pay the Enforcement Costs. 3. Restrictions on Exercise of Rights and Remedies by the Discount Note Indenture Trustee. (a) Except as expressly set forth in this Section 3(a), the Guarantors shall have no obligation to pay and/or perform any of the Guaranteed Obligations and the Discount Note Indenture Trustee covenants and agrees not to demand payment and/or performance of any of the Guaranteed Obligations or exercise any rights, remedies or options under this Noteholder Completion Guaranty or commence any enforcement proceedings hereunder during any period that the Bank Guaranty is in effect and the Guarantors have not been released in writing by the Lenders; provided, however, the Discount Note Indenture Trustee shall be permitted to demand payment and/or performance of the Guaranteed Obligations and exercise all rights, remedies and options and commence enforcement proceedings under this Noteholder Completion Guaranty: (i) at any time prior to the date on which any funds have been advanced or disbursed to the Borrower pursuant to the Credit Agreement and the Disbursement Agreement; (ii) at any time prior to Completion and, from and after the date (a "Release Date") on which all of the indebtedness evidenced and secured by the Loan Documents has been indefeasibly paid in full and the Lenders have released the Guarantors in writing from their obligations under the Bank Guaranty; (iii) at any time after the date on which all of the following events have occurred and are continuing: (A) an event of default under the Bank Guaranty has occurred and is continuing and such event of default has remained uncured for the number of applicable Trigger Days; (B) a Funding Cessation has occurred and is continuing for the aggregate number of applicable Trigger Days set forth in the definition of Trigger Days; provided, however, in no event shall aggregate Funding Cessations exceed 180 days in the aggregate (which shall be extended for the number of days during which a Force Majeure Event and/or an Insolvency Proceeding of the 7 Borrower which impairs the Lenders directly or indirectly from enforcing the Bank Guaranty has occurred and is continuing, which such extension shall terminate upon the filing by the Lenders of any action against the Guarantors under the Bank Guaranty to enforce the obligations of the Guarantors thereunder which are susceptible of performance notwithstanding such Insolvency Proceeding) in any consecutive 365 day period; and (C) the Work which has been substantially completed in accordance with the Plans and Specifications (as certified by the Construction Consultant) on the date in question has not progressed to the stage of completion set forth for such date (subject to any extensions based upon Force Majeure Events or an Insolvency Proceeding of the Borrower which impairs the Lenders directly or indirectly from enforcing the Bank Guaranty, which such extension shall terminate upon the filing by the Lenders of any action against the Guarantors under the Bank Guaranty to enforce the obligations of the Guarantors thereunder which are susceptible of performance notwithstanding such Insolvency Proceeding) in the Construction Benchmark Schedule. (b) Notwithstanding anything to the contrary in this Noteholder Completion Guaranty, performance in all material respects of the obligations of the Guarantors under Section 2 of the Bank Guaranty (as in effect on the date hereof, or as may be amended from time to time so long as in connection with each such amendment the Construction Consultant certifies to the Discount Note Indenture Trustee that, after giving effect to such amendment, (i) the Minimum Aladdin Facilities are still capable of being completed by the Operating Deadline and (ii) the Guarantors have consented to such amendment) shall be deemed to be performance of the Guaranteed Obligations hereunder and performance in all material respects of the Guaranteed Obligations of the Guarantors hereunder shall be deemed to be performance of the corresponding obligations under the Bank Guaranty. (c) As a material inducement to the Lenders to consent to the delivery of this Noteholder Completion Guaranty by the Guarantors, the Discount Note Indenture Trustee covenants and agrees that (i) the right of the Discount Note Indenture Trustee to demand payment and/or performance of the Guaranteed Obligations, to exercise any rights, remedies and options and/or to commence enforcement proceedings under this Noteholder Completion Guaranty shall be subject in all events to the delivery of a written notice to the Administrative Agent no later than 10 Business Days prior to the making of such demand for payment and/or performance, exercise of rights, remedies and options, or commencement of 8 enforcement proceedings, as applicable, (ii) the Lenders shall have all rights at law and equity including, without limitation, the right to seek an injunction or other extraordinary remedy to prevent or prohibit the making of any demand for payment and/or performance, exercise of rights, remedies and options, or commencement of enforcement proceedings by the Discount Note Indenture Trustee which is in contravention of Section 3(a), and (iii) this Noteholder Completion Guaranty shall not be amended, modified, and/or amended and restated without the prior written consent of the Administrative Agent in its sole discretion provided that the consent of the Administrative Agent shall not be required in connection with corrective amendments required to be made to this Noteholder Completion Guaranty as and when corresponding amendments are made to the Bank Guaranty. 4. Payment Provisions. Subject to Nevada Gaming Laws (once the Borrower has been licensed), all payments required to be made by the Guarantors pursuant to Section 2 hereof shall be deemed to be capital contributions to Holdings and shall be made subject to the following terms: (a) The Guarantors shall make cash payments in the amounts required under Section 2 hereof into an interest-bearing deposit account designated and controlled exclusively by the Discount Note Indenture Trustee (the "Guaranty Deposit Account") in which the Discount Note Indenture Trustee is hereby granted a security interest. The Guaranty Deposit Account is intended to be a "deposit account" for the purposes of Nevada Revised Statutes ("NRS") 40.430.4(g) and Section 9301(g) of the California Uniform Commercial Code. Such funds shall be held in the Guaranty Deposit Account as collateral for the Guaranteed Obligations of the Guarantors under this Noteholder Completion Guaranty and shall be applied to payment of the Guaranteed Obligations. (b) The cash payments into the Guaranty Deposit Account and the funds therein for the purpose of paying the Guaranteed Obligations under this Noteholder Completion Guaranty shall be free and clear of any third party claims thereto, including any claims by the Borrower as a third party beneficiary under this Noteholder Completion Guaranty. The Guarantors and the Discount Note Indenture Trustee specifically agree that the Borrower is not an intended third party beneficiary to this Noteholder Completion Guaranty and that neither the Borrower nor any other Person which is not party to this Noteholder Completion Guaranty (other than successors and assigns of the Discount Note Indenture Trustee) shall have any rights under this Noteholder Completion Guaranty. 5. Continuation of Guaranty. In the event that Holdings or its subsidiaries are in default under the Indenture or the Noteholders have exercised their acceleration rights thereunder, this Noteholder Completion Guaranty shall remain in full force and effect. 9 Subject to the provisions of Section 11 hereof, upon the indefeasible payment and performance of the Guaranteed Obligations by the Guarantors, this Noteholder Completion Guaranty shall terminate. 6. Proof of Damages. If the Guarantors shall at any time or from time to time fail to perform or comply with any of the Guaranteed Obligations contained herein, then in each such case (i) it shall be assumed conclusively without necessity of proof that such failure by the Guarantors was the sole and direct cause of the Discount Note Indenture Trustee failing to receive such payment when due (to the extent of the failure of the Guarantors to perform the Guaranteed Obligations contained herein) irrespective of any other contributing or intervening cause whatsoever, and (ii) the Guarantors further irrevocably waive to the fullest extent permitted by law any right or defense the Guarantors may have to cause the Discount Note Indenture Trustee to prove the cause or amount of such damages or to mitigate the same. 7. Rights of the Discount Note Indenture Trustee. To the extent permitted by the Nevada Gaming Laws, each Guarantor authorizes the Discount Note Indenture Trustee in its sole discretion to perform any or all of the following acts during such time as the Discount Note Indenture Trustee has the right to demand payment and performance of the Guaranteed Obligations, all without notice to the Guarantors (but with notice being given to the Administrative Agent as required by Section 3(c) of this Noteholder Completion Guaranty) and without affecting the payment and performance of the Guaranteed Obligations by the Guarantors: (a) From and after the time that the Discount Note Indenture Trustee is permitted to demand payment or performance of the Guaranteed Obligations under the Noteholder Completion Guaranty, the Discount Note Indenture Trustee may take and hold security for the Guaranteed Obligations and for the Note Issuer's obligations under the Indenture and the Discount Notes, accept additional or substituted security for any of the foregoing, and subordinate, exchange, enforce, waive, release, compromise, fail to perfect and sell or otherwise dispose of any such security. (b) The Discount Note Indenture Trustee may direct the order and manner of any sale of all or any part of any security now or later to be held for this Noteholder Completion Guaranty and may also bid at any such sale. (c) The Discount Note Indenture Trustee may substitute, add or release any one or more Guarantors or endorsers. (d) The Discount Note Indenture Trustee may release the Note Issuers of their liability for their obligations under the Indenture. 10 (e) The Discount Note Indenture Trustee may extend other credit to the Note Issuers, their Affiliates and any of the Guarantors or their respective Affiliates and may take and hold security for the credit so extended, all without affecting the Guarantors' liability under this Noteholder Completion Guaranty. (f) The Discount Note Indenture Trustee and the Noteholders may advance additional funds to the Note Issuers, the Guarantors and their respective Affiliates for any purpose. 8. Noteholder Completion Guaranty to be Absolute. The Guarantors expressly agree that for as long as the obligations of the Guarantors under the Bank Guaranty and the Guaranteed Obligations hereunder remain unperformed, the Guarantors shall not be released from the Guaranteed Obligations hereunder by or because of: (a) Any act or event which might otherwise discharge, reduce, limit or modify the Guaranteed Obligations; (b) Any waiver, extension, modification, forbearance, delay or other act or omission of the Discount Note Indenture Trustee, or any failure to proceed promptly or otherwise as against the Note Issuers, any Guarantor or any security; or (c) Any action, omission or circumstance which might increase the likelihood that the Guarantors may be called upon to perform under this Noteholder Completion Guaranty or which might affect the rights or remedies of the Guarantors as against the Note Issuers or any Guarantor; or (d) Any dealings occurring at any time between the Borrower, the Note Issuers, the Lenders, the Discount Note Indenture Trustee, the Noteholders or the Guarantors with respect to amendments to the Bank Guaranty, the Credit Agreement, the other Loan Documents, the Loans, the Indenture, the Discount Notes or otherwise, as the case may be. The Guarantors hereby expressly waive and surrender any defense to their liability under this Noteholder Completion Guaranty based upon any of the foregoing acts, omissions, agreements, waivers or matters. 9. Guarantors' Waivers. The Guarantors waive: (a) All statutes of limitations as a defense to any action or proceeding brought against the Guarantors by the Discount Note Indenture Trustee, to the fullest extent permitted by law; 11 (b) Any right they may have to require the Discount Note Indenture Trustee to proceed against the Note Issuers or to pursue any other remedy in their power to pursue; (c) Any defense based on any claim that the Guaranteed Obligations exceed or are more burdensome than those of the Note Issuers under the Indenture; (d) Any defense based on: (i) any legal disability of the Note Issuers, (ii) any discharge, modification, impairment or limitation of the liability of the Note Issuers under the Indenture from any cause, whether consented to by the Discount Note Indenture Trustee or arising by operation of law or from any Insolvency Proceeding, (iii) any rejection or disaffirmance of the Discount Notes or any security held for the Discount Notes in any Insolvency Proceeding and (iv) the Guarantors' rights under NRS 104.3605, the Guarantors specifically agreeing that this clause (iv) shall constitute a waiver of discharge under NRS 104.3605; (e) Any defense based on any action taken or omitted (other than gross negligence or willful misconduct) by the Discount Note Indenture Trustee in any Insolvency Proceeding involving the Note Issuers, including any election to have a claim allowed as being secured, partially secured or unsecured, any extension of credit by the Discount Note Indenture Trustee to the Note Issuers in any Insolvency Proceeding, and the taking and holding by the Discount Note Indenture Trustee of any security for any such extension of credit; (f) All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of acceptance of this Noteholder Completion Guaranty and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind; (g) Any defense based on or arising out of any defense that the Note Issuers may have to the payment or performance of their obligations under the Indenture or any portion of such obligations; and (h) Any defense or benefit based on NRS 40.430 and judicial decisions relating thereto and NRS 40.451 et seq. and judicial decisions relating thereto, the Guarantors agreeing that the waiver in this clause (h) is intended to take advantage of the two (2) waivers permitted by NRS 40.495 (1) and (2) to the maximum extent permitted. 10. Waivers of Subrogation and Other Rights. (a) Upon the occurrence of any event of default hereunder, the Discount Note Indenture Trustee in its sole discretion, without prior notice to or consent of the 12 Guarantors, may elect to: (i) foreclose either judicially or nonjudicially against any real or personal property security, if any, for the obligations under the Indenture, (ii) accept a transfer of any such security in lieu of foreclosure, (iii) make any accommodation with the Note Issuers or any Guarantor, or (iv) exercise any other remedy against the Note Issuers or any Guarantor or any security. No such action by the Discount Note Indenture Trustee shall release or limit the liability of the Guarantors, who shall remain liable under this Noteholder Completion Guaranty after the action, even if the effect of the action is to deprive the Guarantors of any subrogation rights, rights of indemnity, or other rights to collect reimbursement for any sums paid to the Discount Note Indenture Trustee, whether contractual or arising by operation of law or otherwise. The Guarantors expressly waive any defenses or benefits that may be derived from NRS Section 40.451, et seq. and judicial decisions relating thereto, or comparable provisions of Nevada law which are comparable to California Civil Procedure ss.ss. 580a, 580b, 580d, or 726 or comparable provisions of the laws of any other jurisdiction, and all other suretyship defenses they otherwise might or would have under Nevada law or other applicable law. The Guarantors expressly agree that under no circumstances shall they be deemed to have any right, title, interest or claim in or to any real or personal property, if any, to be held by the Discount Note Indenture Trustee or any third party after any foreclosure or transfer in lieu of foreclosure of any security for the Guaranteed Obligations or the obligations under the Indenture. (b) Regardless of whether the Guarantors may have made any payments to the Discount Note Indenture Trustee under this Noteholder Completion Guaranty, the Guarantors hereby waive: (i) all rights of subrogation, all rights of indemnity, and any other rights to collect reimbursement from the Note Issuers for any sums paid to the Discount Note Indenture Trustee, whether contractual or arising by operation of law (including the Bankruptcy Code) or otherwise, (ii) all rights to enforce any remedy that the Discount Note Indenture Trustee may have against the Note Issuers or any other Person, and (iii) all rights to participate in any security now or later to be held by the Discount Note Indenture Trustee for the obligations under the Indenture. The waivers given in this Section 10(b) shall be effective until the obligations under the Indenture have been indefeasibly paid and performed in full. (c) The Guarantors understand and acknowledge that if the Discount Note Indenture Trustee forecloses judicially or nonjudicially against any real property or personal security, if any, for the Guaranteed Obligations or the obligations under the Indenture, that foreclosure could impair or destroy any ability that the Guarantors may have to seek reimbursement, contribution or indemnification from the Borrower or the Note Issuers or others based on any right the Guarantors may have of subrogation, reimbursement, contribution or indemnification for any 13 amounts paid by the Guarantors under this Noteholder Completion Guaranty. The Guarantors further understand and acknowledge that in the absence of this Section 10, such potential impairment or destruction of the Guarantors' rights, if any, may entitle the Guarantors to assert a defense to this Noteholder Completion Guaranty. By executing this Noteholder Completion Guaranty, the Guarantors freely, irrevocably and unconditionally: (i) waive and relinquish that defense and agree that the Guarantors will be fully liable under this Noteholder Completion Guaranty even though the Discount Note Indenture Trustee may foreclose judicially or nonjudicially against any real property security, if any, for the obligations under the Indenture; (ii) agree that the Guarantors will not assert that defense in any action or proceeding which the Discount Note Indenture Trustee may commence to enforce this Noteholder Completion Guaranty; and (iii) acknowledge and agree that this waiver is a material part of the consideration which they are receiving for entering into the transactions contemplated hereby. 11. Revival and Reinstatement. If the Discount Note Indenture Trustee is required to pay, return or restore to any of the Guarantors any amounts previously paid with respect to the Guaranteed Obligations because of any Insolvency Proceeding of any of the Guarantors, any stop notice or any other reason, the Guaranteed Obligations shall be reinstated and revived and the rights of the Discount Note Indenture Trustee shall continue with regard to such amounts, as though they had never been paid. 12. Representations and Warranties. Each Guarantor hereby represents and warrants unto the Discount Note Indenture Trustee (for the benefit of the Noteholders) as follows: (a) The most recent audited consolidated balance sheet of London Clubs and ABH and its respective consolidated Subsidiaries (in the case of ABH, as of December 31, 1996 and in the case of London Clubs, as of March 30, 1997) and the related consolidated statements of earnings and stockholders' equity (or profit and loss in the case of London Clubs) and of cash flows for the fiscal year ended on such date, reported on by such Guarantor's independent public accountants, copies of which have heretofore been furnished to the Discount Note Indenture, are complete and correct and present fairly (or give a true and fair view of in the case of London Clubs) the consolidated financial condition of such Guarantor and its consolidated Subsidiaries as at such date, and the results of their operations (or consolidated profit and loss in the case of London Clubs) and their consolidated cash flows for the fiscal year then ended. The unaudited consolidated balance sheet of such Guarantor and its consolidated Subsidiaries as at September 30, 1997 and the related unaudited consolidated statements of earnings and of cash flows for the nine-month period (or, in the case of London Clubs, six month period) ended on such date, certified by a Authorized Representative of such Guarantor, are complete and correct and present fairly (or give a true and fair view of in the case of London Clubs) the consolidated financial condition of such 14 Guarantor and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the nine-month period (or, in the case of London Clubs, six-month period) then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP or UK GAAP, as applicable, applied consistently throughout the periods involved (except as approved by such accountants or Authorized Representative, as the case may be, and as disclosed therein). (b) Since December 31, 1996, in the case of ABH and since March 30, 1997 in the case of the Trust, there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect. (c) Each of such Guarantor and its Subsidiaries (a) is duly organized, and, to the extent applicable, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate or other power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) to the extent applicable, is duly qualified as a foreign corporation or company or trust and in good standing, under the laws of each jurisdiction where its owner ship, lease or operation of property or the conduct of its business requires such qualification and (d) by Opening Date, is in compliance with all material Legal Requirements except where failure to comply with any of the foregoing could not individually or in the aggregate reasonably be expected to have a Material Adverse Effect. (d) Each of such Guarantors has the corporate or other power and authority, and the legal right, to make, deliver and perform this Noteholder Completion Guaranty and to provide the undertakings hereunder and has taken all necessary corporate or other action to authorize the execution, delivery and performance of this Noteholder Completion Guaranty. No consent or authorization of, filing with or other act by or in respect of, any Governmental Instrumentality or any other Person is required to be obtained or made, as the case may be, by such Guarantor in connection with this Noteholder Completion Guaranty or with the execution, delivery, performance, validity or enforceability of this Noteholder Completion Guaranty by or against such Guarantor, except as has been obtained and remains in full force and effect on the date hereof, other than certain Nevada Gaming Laws approvals, as applicable. This Noteholder Completion Guaranty has been duly executed and delivered on behalf of such Guarantor. This Noteholder Completion Guaranty constitutes a legal, valid and binding obligation of such Guarantor enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by 15 general equitable principles (whether enforcement is sought by proceedings in equity or at law). (e) Each Subsidiary Guarantor has the corporate power and authority, and the legal right, to make, deliver and perform the Subsidiary Guaranty and to provide the undertakings thereunder and has taken all necessary corporate action to authorize the execution, delivery and performance of the Subsidiary Guaranty. No consent or authorization of, filing with or other act by or in respect of, any Governmental Instrumentality or any other Person is required to be obtained or made, as the case may be, by such Subsidiary Guarantor in connection with the Subsidiary Guaranty or with the execution, delivery, performance, validity or enforceability of the Subsidiary Guaranty by or against such Subsidiary Guarantor, except as has been obtained and remains in full force and effect on the date hereof, other than certain Nevada Gaming Laws approvals, as applicable. The Subsidiary Guaranty has been duly executed and delivered on behalf of each Subsidiary Guarantor. The Subsidiary Guaranty constitutes a legal, valid and binding obligation of each Subsidiary Guarantor enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). (f) The execution, delivery and performance of this Noteholder Completion Guaranty by the Guarantors and the execution, delivery and performance by the Subsidiary Guarantors of the Subsidiary Guaranty will not (i) violate any Legal Requirement or obligation of such Guarantor or Subsidiary Guarantor, (ii) result in, or require, the creation or imposition of any Lien on any of its properties or revenues pursuant to any such Legal Requirement or obligation or (iii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree or ruling of any court, arbitrator or Governmental Instrumentality applicable to such Guarantor or Subsidiary Guarantor. (g) Schedule 2 contains (except as noted therein) complete and correct lists of each of London Clubs' and ABH's Subsidiaries (other than Dormant Subsidiaries), showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by such Guarantor and each other Subsidiary of such Guarantor. All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 2 as being owned by such Guarantor and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by such Guarantor or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 2). Each Subsidiary identified in Schedule 2 is a corporation or other legal entity duly organized, 16 validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the business, assets, debt service capacity, property or financial condition, operations or prospects of such Subsidiary. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. No Subsidiary identified in Schedule 2 is a party to, or otherwise subject to any legal restriction or any agreement (other than this Noteholder Completion Guaranty, the agreements listed on Schedule 2, restrictions imposed by and approvals required under the Nevada gaming Laws and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to its Guarantor parent or any of such Guarantor's Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. (h) Except as disclosed in Schedule 3, there are no actions, suits or proceedings pending or, to the knowledge of any Guarantor, threatened against or affecting such Guarantor or any Subsidiary or any property of such Guarantor or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Instrumentality that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither any Guarantor nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Instrumentality or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Instrumentality, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (i) Except as disclosed in Schedule 3A, each Guarantor and its Subsidiaries have filed all material tax returns that are required to have been filed in any jurisdiction, and have paid all material taxes shown to be due and payable on such returns and all other material taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the non-payment of which could not reasonably be expected to have a Material Adverse Effect or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which such Guarantor or a Subsidiary, as the case 17 may be, has established adequate reserves in accordance with GAAP. Each Guarantor knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of each Guarantor and its Subsidiaries in respect of governmental or other taxes for all fiscal periods are adequate. (j) Each Guarantor and its Subsidiaries have adequate and appropriate insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance) to the extent this is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated, except where the failure to so maintain insurance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (k) Each of London Clubs, ABH and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in clause (a) hereof or purported to have been acquired by such Guarantor or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Noteholder Completion Guaranty. All leases that individually or in the aggregate are material are valid and subsisting and are in full force and effect in all material respects. (l) Except as disclosed in Schedule 4, (i) each Guarantor and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are material, without known conflict with the rights of others; (ii) to the best knowledge of each Guarantor, no product or such Guarantor infringes in any material respect on any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (iii) to the best knowledge of each Guarantor, there is no material violation by any Person of any right of such Guarantor or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by such Guarantor or any of its Subsidiaries. 18 (m) Except as described therein, Schedule 5 sets forth a complete and correct list of all outstanding Indebtedness of each of London Clubs and ABH and its Subsidiaries as of September 30, 1997, since which date there has been no material changes in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of such Guarantor or its Subsidiaries. Neither any such Guarantor nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of such Guarantor or such Subsidiary and no event or condition exists with respect to any Indebtedness of any such Guarantor or any Subsidiary in an aggregate principal amount in excess of $1,500,000 that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. Except as disclosed in Schedule 5, neither any such Guarantor nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 14(a), as applicable. (n) Neither any Guarantor nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, or the Federal Power Act, as amended. (o) Neither any Guarantor nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against such Guarantor or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. (p) Each Guarantor's ownership interest in the Borrower as of the date hereof is set forth on Schedule 6. (q) London Clubs has delivered to the Administrative Agent true, correct and complete copies of all material documents, instruments, opinions and certificates with respect to the Existing Senior Debt. 13. Affirmative Covenants. Until all of the Guaranteed Obligations have been indefeasibly paid and performed, each Guarantor (other than London Clubs) agrees as follows: (a) (i) ABH shall furnish to the Discount Note Indenture Trustee: 19 (A) as soon as available, but in any event within 120 days after the end of each fiscal year of ABH, a copy of the consolidated and consolidating balance sheet of ABH and its consolidated Subsidiaries as at the end of such year and the related consolidated and consolidating statements of earnings and stockholders' equity and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by independent certified public accountants of nationally recognized standing; and (B) as soon as available, but in any event not later than 60 days after the end of each of the first three quarterly periods of each fiscal year of ABH, (x) the unaudited consolidated and consolidating balance sheet of ABH and its consolidated Subsidiaries as at the end of such quarter and in comparative form the figures for the end of the previous fiscal year, (y) the unaudited consolidated and consolidating statement of earnings of ABH and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, and in comparative form the figures for the previous year and (z) the consolidated and consolidating statement of cash flows of ABH and its consolidated Subsidiaries for the portion of the fiscal year through the end of such quarter, and in comparative form the figures for the previous year, certified by an Authorized Representative of ABH as being fairly stated in all material respects when considered in relation to the consolidated and consolidating financial statements of ABH and its consolidated Subsidiaries (subject to normal year-end audit adjustments); all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). (ii) The Trust shall furnish the Discount Note Indenture Trustee all financial information that the Trust is providing to any other creditor in connection with the Main Project, the Mall Project, and/or the Music Project. (b) Each Guarantor shall furnish to the Discount Note Indenture Trustee, within thirty days after the same are sent, copies of all financial statements and reports which such Guarantor sends to its stockholders, and, within thirty days after the same are 20 filed, copies of all financial statements and reports which such Guarantor may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Instrumentality. Each Guarantor shall furnish to the Discount Note Indenture Trustee with reasonable promptness such additional financial and other information as the Discount Note Indenture Trustee may from time to time reasonably request. (c) ABH shall keep true and correct books of records and account in conformity with GAAP and all Legal Requirements and permit the Discount Note Indenture Trustee: (i) No Event of Default - if no event of default under this Noteholder Completion Guaranty or the Bank Guaranty then exists, at the expense of the Discount Note Indenture Trustee and upon reasonable prior notice to such Guarantor, to visit the principal executive office of such Guarantor and to discuss the affairs, finances and accounts of such Guarantor and its Subsidiaries with such Guarantor's officers, all at such reasonable times and as often as may be reasonably requested in writing; and (ii) Event of Default - if an event of default under this Noteholder Completion Guaranty or the Bank Guaranty then exists, at the expense of such Guarantor to visit and inspect any of the offices of properties of such Guarantor or any Subsidiary, to examine their respective books and records and to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants, all at such reasonable times and as often as may be requested. A Guarantor shall not be under any obligation under this Noteholder Completion Guaranty to provide information pursuant to the last sentence of Section 13(b) or pursuant to this Section 13(c) if disclosure of such information, on the written advice of such Guarantor's counsel provided to such Guarantor, would be prohibited by law or by decree of any Governmental Instrumentality or arbitral body or by the terms of any obligation of confidentiality contained in any agreement binding upon such Guarantor and not entered into in contemplation of this Section 13(c). (d) ABH shall promptly give notice to the Discount Note Indenture Trustee of: (i) any breach by ABH of any of the Guaranteed Obligations; (ii) any (a) default or event of default under any material obligation of ABH or any of its Subsidiaries or (b) litigation, investigation or proceeding which 21 may exist at any time between ABH or any of its Subsidiaries and any Governmental Instrumentality, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (iii) any material litigation or proceeding affecting ABH or any of its Subsidiaries; and (iv) any development or other event which could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this clause (d) shall be accompanied by a statement of an Authorized Representative of ABH setting forth details of the occurrence referred to therein and stating what action ABH or any of its Subsidiaries proposes to take with respect thereto. (e) ABH will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (f) Each Guarantor will and will cause each of its Subsidiaries to maintain, with institutions it reasonably believes to be financially sound insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or similar business and similarly situated. (g) Each Guarantor will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in reasonably good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent a Guarantor from discontinuing the operation and maintenance of or the liquidation of any Dormant Subsidiary and shall not prevent a Guarantor or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is 22 desirable in the conduct of its business and such Guarantor has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (h) Each Guarantor will and will cause each of its Subsidiaries to file all material tax returns required to be filed in any jurisdiction and to pay and discharge all material taxes, assessments, governmental charges, or levies shown to be due and payable on such returns and all other taxes imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of such Guarantor or any Subsidiary, provided that neither a Guarantor nor any Subsidiary need to pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by such Guarantor or such Subsidiary on a timely basis in good faith in appropriate proceedings and such Guarantor or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of such Guarantor or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. (i) Each Guarantor will at all times preserve and keep in full force and effect its corporate or other existence. ABH will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (other than Dormant Subsidiaries or unless merged into ABH or a Subsidiary) and all licenses, consents, certificates and authorizations of ABH and its Subsidiaries unless, in the good-faith judgment of ABH, the termination of or failure to preserve and keep in full force and effect such corporate existence, licenses, consents, certificates and authorizations could not, individually or in the aggregate, have a Material Adverse Effect. (j) Each Guarantor will, and will cause each of its Subsidiaries to, keep proper books of record and account in accordance with GAAP as applied in the jurisdiction of its incorporation as such Guarantor may deem appropriate from time to time. (k) Neither ABH nor any of its Subsidiaries will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by ABH and its Subsidiaries would be materially changed from the general nature of the business engaged in by ABH and its Subsidiaries as of the date hereof. 14. Negative Covenants. At all times prior to indefeasible payment and performance of the Guaranteed Obligations by the Guarantors hereunder: 23 (a) ABH will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset except: (i) any Lien arising by operation of law (except for real property taxes) which secures amounts not more than 45 days overdue or, if so overdue, are being contested on a timely basis in good faith and in appropriate proceedings; (ii) any Lien imposed on ABH or any of its Subsidiaries in relation to its purchase of goods, products or supplies in the ordinary course of business; (iii) any rights of set-off in the normal course of trading or of any bank or financial institution or combination of accounts arising in favor of such bank or financial institution as a result of the day-to-day operation of banking arrangements, including, without limitation, rights of set-off granted to such bank or financial institution in respect of the issuance of letters of credit, or as a result of any currency or interest rate hedging operations carried out in the ordinary course of business, in each case, provided that there is no agreement to confer a security interest; (iv) statutory Liens of landlords, Liens over goods or documents of title arising in the ordinary course of documentary credit transactions and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case, incurred in the ordinary course of business; (v) Liens for taxes, assessments or other governmental charges which are not yet due and payable; (vi) Liens incurred or deposits made in the ordinary course of business (A) in connection with workers' compensation, unemployment insurance and other types of social security or retirement benefits, or (B) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than capital leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; (vii) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of business of ABH and its 24 Subsidiaries, provided that such Liens do not, in the aggregate, materially detract from the value of such property; (viii) any Lien not otherwise permitted by clauses (i) through (vii) above, provided that on the date any Indebtedness secured by any such Lien, is created, incurred, assumed or guaranteed by ABH or any of its Subsidiaries, and immediately after giving effect thereto and to the concurrent retirement of any other Indebtedness, the sum of (A) the aggregate principal amount of all Indebtedness secured by Liens pursuant to this clause (viii) plus (B) all unsecured Indebtedness of ABH and its Subsidiaries that is senior in any respect in right of payment to the obligations of ABH hereunder, does not exceed 25% of the Consolidated Tangible Assets of ABH as of such date; and (ix) any Lien set forth on Schedule 3, in the case ABH. (b) ABH will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any secured or unsecured Indebtedness that is senior in any respect in right of payment to the Guaranteed Obligations of ABH hereunder (excluding any Indebtedness secured by Liens pursuant to clauses (i) through (vii) of Section 14(a) hereof but including any Indebtedness secured by Liens pursuant to clause (viii) of Section 14(a) hereof) if the aggregate amount of all such senior Indebtedness described in this clause (b) would exceed 25% of the Consolidated Tangible Assets of ABH as of such date. 15. Payments Free and Clear of Taxes, etc. Each Guarantor hereby agrees that: (a) All payments by such Guarantor hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by the Discount Note Indenture Trustee's net income or receipts (such non-excluded items being called "Taxes"). In the event that any withholding or deduction from any payment to be made by a Guarantor hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then such Guarantor will (i) pay directly to the relevant authority the full amount required to be so withheld or deducted; (ii) promptly forward to the Discount Note Indenture Trustee an official receipt or other documentation satisfactory to the Discount Note Indenture Trustee evidencing such payment to such authority; and 25 (iii) pay to the Discount Note Indenture Trustee such additional amount or amounts ("Additional Amounts") as are necessary to ensure that the net amount actually received will equal the full amount that would have been received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Borrower or the Discount Note Indenture Trustee with respect to any payment received hereunder, the Discount Note Indenture Trustee may pay such Taxes and the Guarantor will promptly pay such Additional Amounts (including any penalties, interest or expenses ) as are necessary in order that the net amount received after the payment of such Taxes (including any Taxes on such Additional Amounts) shall equal the amount that would have been received had no such Taxes been asserted. (b) If the Guarantor fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Discount Note Indenture Trustee the required receipts or other required documentary evidence, the Guarantor shall indemnify the Borrower, the Discount Note Indenture Trustee for any incremental Taxes, interest or penalties that may become payable by the Borrower, the Discount Note Indenture Trustee as a result of any such failure. (c) In the event that an Additional Amount is paid by a Guarantor for the account of the Discount Note Indenture Trustee and the Discount Note Indenture Trustee is entitled to a refund of the Tax (a "Tax Refund") to which such payment is attributable, then the Discount Note Indenture Trustee shall take all reasonable steps which are necessary to obtain such Tax Refund, including filings such forms, certificates, documents, applications or returns as may be required to obtain such Tax Refund. If the Discount Note Indenture Trustee subsequently receives such a Tax Refund, then the Discount Note Indenture Trustee shall reimburse such amount. (d) Without prejudice to the survival of any other agreement of the Guarantors hereunder, the agreements and obligations of the Guarantors contained in this Section 15 shall survive the payment in full of the obligations under the Indenture. 16. Judgment. Each Guarantor hereby agrees that: (a) If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder in United States Dollars into another currency, such Guarantor agrees, to the fullest extent permitted by law, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Discount Note Indenture Trustee could purchase United States Dollars with such other currency on the Business Day preceding that on which final judgment is given. 26 (b) The obligation of each Guarantor in respect of any sum due from it hereunder shall, notwithstanding any judgment in a currency other than United States Dollars, be discharged only to the extent that on the Business Day following receipt by the Discount Note Indenture Trustee of any sum adjudged to be so due in such other currency the Discount Note Indenture Trustee may, in accordance with normal banking procedures, purchase United States Dollars with such other currency; in the event that the United States Dollars so purchased are less that the sum originally due to the Discount Note Indenture Trustee in United States Dollars, the Guarantor, as a separate obligation and notwithstanding any such judgment, shall indemnify and hold harmless the Discount Note Indenture Trustee and such holder against such loss, and if the United States Dollars so purchased exceed the sum originally due to the Discount Note Indenture Trustee in United States Dollars, the Discount Note Indenture Trustee shall remit to such Guarantor such excess. 17. Breaches by Any Guarantor. If, at any time that the Discount Note Indenture Trustee has the right to demand payment and performance of the Guaranteed Obligations in accordance with Section 3(a) of this Noteholder Completion Guaranty and, prior to the indefeasible payment and performance thereof, any of the Guarantors breaches the Guaranteed Obligations (after the expiration of applicable grace, notice and/or cure periods), then, at the option of the Discount Note Indenture Trustee, an event of default shall exist under this Noteholder Completion Guaranty and the Discount Note Indenture Trustee, without any further notice to any of the Guarantors or any other Person, shall be entitled to exercise all rights and remedies available hereunder but only to the extent permitted under Section 3(a) hereof, and at law and equity. 18. Miscellaneous Provisions. (a) This Noteholder Completion Guaranty shall be binding upon the Guarantors and their permitted successors, transferees and assigns and shall inure to the benefit of and be enforceable by the Discount Note Indenture Trustee and its respective successors, transferees and assigns; provided, however, that the Guarantors may not assign any of their Guaranteed Obligations hereunder without the prior written consent of the Discount Note Indenture Trustee, and the Discount Note Indenture Trustee may not assign this Noteholder Completion Guaranty or any of its rights, remedies or options hereunder without the prior written consent of the Administrative Agent in its sole discretion. The Lenders shall be third party beneficiaries of this Section 18(a) and shall have all rights at law and equity to the enforcement hereof. (b) No amendment to or waiver of any provision of this Noteholder Completion Guaranty, nor consent to any departure by any Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Discount 27 Note Indenture Trustee and, with respect to amendments, consented to by the Administrative Agent in its sole discretion, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (c) All notices and other communications hereunder to the Guarantors shall be in writing (including telefacsimile) and mailed or telecopied or delivered to them, addressed to them at the address set forth below their signatures hereto or at such other addresses as shall be designated by such Guarantor in a written notice to the Discount Note Indenture Trustee at the address set forth below their signatures hereto complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed or telecopied, respectively, be effective when deposited in the mails or transmitted, addressed as aforesaid. All notices to the Administrative Agent under this Noteholder Completion Guaranty shall be addressed to The Bank of Nova Scotia, 580 California Street, San Francisco, California 94104, Attn.: Alan Pendergast, Facsimile No. (415) 397-0791 with a copy to Mayer, Brown & Platt, 1675 Broadway, New York, NY 10019, Attn: Douglas Wisner, Esq., Facsimile No. (212) 262-1910. A copy of all notices to ABH and the Trust shall be sent to Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, Attn.: Wallace L. Schwartz, Esq., Facsimile No. (212) 735-2000. A copy of all notices to London Clubs shall be sent to Ohrenstein & Brown, LLP, 230 Park Avenue, New York, New York 10169, Attn.: Peter J. Kiernan, Esq., Facsimile No. (212) 557-0910 and to Lionel, Sawyer & Collins, 300 South 4th Street, Suite 1700, Las Vegas, Nevada 89101, Attn.: Greg Giordano, Esq., Facsimile No. (702) 383-8845. (d) No failure on the part of the Discount Note Indenture Trustee to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. (e) Section captions used in this Noteholder Completion Guaranty are for convenience of reference only, and shall not affect the construction of this Noteholder Completion Guaranty. (f) Wherever possible each provision of this Noteholder Completion Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Noteholder Completion Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Noteholder Completion Guaranty. 28 (g) THIS NOTEHOLDER COMPLETION GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. THIS NOTEHOLDER COMPLETION GUARANTY AND THE INDENTURE CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF. (h) ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTEHOLDER COMPLETION GUARANTY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE DISCOUNT NOTE INDENTURE TRUSTEE OR THE GUARANTORS SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK IN THE CITY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PROPERTY MAY BE BROUGHT, AT THE OPTION OF THE DISCOUNT NOTE INDENTURE TRUSTEE, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PROPERTY, IF ANY, MAY BE FOUND. THE GUARANTORS HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE GUARANTORS FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITH OUT THE STATE OF NEW YORK. THE GUARANTORS HEREBY EXPRESSLY AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE GUARANTORS HAVE OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH 29 RESPECT TO THEMSELVES OR THEIR PROPERTY, THE GUARANTORS HEREBY IRREVOCABLY WAIVE SUCH IMMUNITY IN RESPECT OF THE GUARANTEED OBLIGATIONS UNDER THIS NOTEHOLDER COMPLETION GUARANTY AND THE INDENTURE. (i) THE GUARANTORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTEHOLDER COMPLETION GUARANTY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE DISCOUNT NOTE INDENTURE TRUSTEE OR THE GUARANTORS. THE GUARANTORS ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE DISCOUNT NOTE INDENTURE TRUSTEE TO ENTER INTO THE INDENTURE. (j) Limitation on Liability. Notwithstanding anything to the contrary in this Noteholder Completion Guaranty, it is understood that no claim shall be made by the Discount Note Indenture Trustee or any of its affiliates against the Guarantors or any of their affiliates, directors, employees, attorneys or agents for any special, indirect, consequential or punitive damages in respect of any breach or wrongful conduct (whether or not the claim therefor is based on contract, tort or duty imposed by law), in connection with, arising out of or in any way related to the transactions contemplated by this Noteholder Completion Guarantee or any act or omission or event occurring in connection therewith. (k) No Restriction on Rights and Remedies of Administrative Agent and Lenders. Notwithstanding anything to the contrary in this Noteholder Completion Guaranty, the Discount Note Indenture Trustee on its own behalf and on behalf of the Noteholders covenants and agrees that this Noteholder Completion Guaranty and the rights, remedies and options of the Discount Note Indenture Trustee hereunder in no way restrict the rights and remedies of the Administrative Agent and the Lenders under the Credit Agreement and the other Loan Documents including, without limitation, the right to commence and prosecute to completion enforcement of any or all of the Loan Documents. The Discount Note Indenture Trustee on its own behalf and on behalf of the Noteholders agrees that no Person shall have any right whatsoever to interpose a right of offset, defense, claim or counterclaim with respect to any enforcement of one or more of the Loan Documents based upon a claim that the Discount Note Indenture Trustee has the right to performance of the Guaranteed Obligations before such enforcement can 30 be commenced or prosecuted or judgment thereon can be executed by or on behalf of the Lenders. The Lenders shall be third party beneficiaries of this Section 18(k) and shall have all rights at law and equity to the enforcement hereof. 31 IN WITNESS WHEREOF, the Guarantors have caused this Noteholder Completion Guaranty to be duly executed and delivered by their officers thereunto duly authorized as of the date first above written. ALADDIN BAZAAR HOLDINGS, LLC By: ALADDIN MANAGEMENT CORPORATION By: /s/ Jack Sommer -------------------------------------- Title: Address: 280 Park Avenue New York, N.Y. 10017 Attention: Ron Dictrow Telecopy: 212-661-0844 THE TRUST UNDER ARTICLE SIXTH UNDER THE WILL OF SIGMUND SOMMER By: /s/ Viola Sommer -------------------------------------- Viola Sommer Title: Trustee By: /s/ Eugene Landsberg -------------------------------------- Eugene Landsberg Title: Trustee Address: 280 Park Avenue New York, N.Y. 10017 Attention: Ron Dictrow Telecopy: 212-661-0844 LONDON CLUBS INTERNATIONAL PLC By: /s/ G. Barry Hardy -------------------------------------- G. Barry Hardy Title: Director Address: 10 Brick Street London WI Y 8HQ England Attention: Linda M. Lillis Telecopy: 011-44-171-493-6981 STATE STREET BANK & TRUST COMPANY AS TRUSTEE By: /s/ Ruth A. Smith -------------------------------------- Title: Vice President Address: Two International Place Boston, M. A. 02110 Attention: Corporate Trust Department Telecopy: 617-664-5371 SCHEDULE 1 MATERIAL SUBSIDIARIES 34 SCHEDULE 2 SUBSIDIARIES (other than Dormant Subsidiaries) 35 SCHEDULE 3 LITIGATION 36 SCHEDULE 4 LICENSES, PERMITS, ETC. 37 SCHEDULE 5 EXISTING INDEBTEDNESS 38 SCHEDULE 6 OWNERSHIP OF BORROWER 39 SCHEDULE 7 CONSTRUCTION BENCHMARK SCHEDULE 40 APPENDIX A To Guaranty of Performance and Completion DEFINITIONS Defined Terms. The following terms (whether or not italicized) when used in the Guaranty of Performance and Completion, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "ABH" means Aladdin Bazaar Holdings, LLC, a Nevada limited-liability company. "Additional Contract Certificate" means an Additional Contract Certificate substantially in the form of Exhibit Y to the Credit Agreement. "Administrative Agent" is defined in the preamble of the Credit Agreement and includes each other Person as shall have subsequently been appointed as the successor Administrative Agent pursuant to Section 9.4 of the Credit Agreement. "Affected Lender" is defined in clause(a) of Section 4.11 of the Credit Agreement. "Affiliate" means, relative to any Person, any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding, however, any trustee under, or any committee with responsibility for administering, any Plan). With respect to any Lender, Approved Fund, or Issuer, a Person shall be deemed to be "controlled by" another Person if such other Person possesses, directly or indirectly, power to vote 51% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors, managing general partners or managers, as the case may be. With respect to all other Persons, a Person shall be deemed to be "controlled by" another Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors, managing general partners or managers, as the case may be; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Affiliate Transaction" is defined in Section 7.2.13 of the Credit Agreement. "Agent" means the Administrative Agent, the Syndication Agent and/or the Documentation Agent, as the context may require. A-1 "AHL" means Aladdin Holdings, LLC, a Delaware limited liability company. "AHL Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of AHL pursuant to clause (d) of Section 5.1.3 of the Credit Agreement, as originally in effect on the Closing Date, in substantially the form of Exhibit E-2 to the Credit Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Aladdin Bazaar" means Aladdin Bazaar, LLC, a Delaware limited liability company. "Aladdin Music" means Aladdin Music, LLC, a Nevada limited-liability company. "Aladdin Parties" means, collectively, the Borrower, Holdings, Capital, Enterprises, Sommer Enterprises, AHL, Aladdin Music, AMH, ABH and the Trust. "Alternate Base Rate" means, on any date and relative to all Base Rate Loans, a fluctuating rate of interest per annum (rounded upward, if necessary, to the next highest 1/16 of 1%) equal to the higher of (a) the Base Rate in effect on such day; and (b) the Federal Funds Rate in effect on such day plus 1/2 of 1%. Changes in the rate of interest on that portion of any Loans maintained as Base Rate Loans will take effect simultaneously with each change in the Alternate Base Rate. The Administrative Agent will give notice promptly to the Borrower and the Lenders of changes in the Alternate Base Rate. "AMH" means Aladdin Music Holdings, LLC, a Nevada limited-liability company. "AMH Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of AMH pursuant to clause (g) of Section 5.1.3 of the Credit Agreement, as originally in effect on the Closing Date, in substantially the form of Exhibit E-3 to the Credit Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Applicable Base Rate Margin" means, (w) relative to any Term B Loan and Term C Loan, the proceeds of which on any date are being held in the Bank Proceeds Account, 1.00% per annum, (x) relative to any Term B Loan, the proceeds of which on any date have been advanced to the Borrower from the Bank Proceeds Account, 2.50% per annum, (y) relative to any Term C Loan, the proceeds of which on any date have been advanced to the Borrower from the Bank Proceeds Account, 3.00% per annum and (z) relative to any Term A Loan, (1) on any date prior to the date which is six months after the Conversion Date, 2.00% per annum and (2) on A-2 any date from and after the date which is six months after the Conversion Date, the per annum percentage set forth below opposite the Total Debt to EBITDA Ratio set forth in the Current Compliance Certificate: Applicable Base Rate Total Debt to EBITDA Ratio Margin - ----------------------------------------- ---------------------- >= 4.0:1 1.75% >= 3.5:1 and < 4.0:1 1.50% >= 3.0:1 and < 3.5:1 1.00% >= 2.5:1 and < 3.0:1 0.75% < 2.5:1 0.50% "Applicable LIBO Rate Margin" means, (w) relative to any Term B Loan and Term C Loan, the proceeds of which on any date are being held in the Bank Proceeds Account, 2.00% per annum, (x) relative to any Term B Loan, the proceeds of which on any date have been advanced to the Borrower from the Bank Proceeds Account, 3.50% per annum, (y) relative to any Term C Loan, the proceeds of which on any date have been advanced to the Borrower from the Bank Proceeds Account, 4.00% per annum and (z) relative to any Term A Loan, (1) on any date prior to the date which is six months after the Conversion Date, 3.00% per annum and (2) on any date from and after the date which is six months after the Conversion Date, the per annum percentage set forth below opposite the Total Debt to EBITDA Ratio set forth in the Current Compliance Certificate: Applicable LIBO Rate Total Debt to EBITDA Ratio Margin - ----------------------------------------- ---------------------- >= 4.0:1 2.75% >= 3.5:1 and < 4.0:1 2.50% >= 3.0:1 and < 3.5:1 2.00% >= 2.5:1 and < 3.0:1 1.75% < 2.5:1 1.50% "Applicable Percentage" means the percentage of Direct Costs actually paid or payable by the Borrower to the Design/Builder pursuant to the Design/Build Contract or, if applicable, to a Contractor or Subcontractor pursuant to a Contract after taking into account the Retainage Amount. A-3 "Approved Equipment Funding Commitment" means, collectively, (x) the GECC Commitment and (y) any replacement of the GECC Commitment from an institutional or other lender approved by the Administrative Agent in its reasonable discretion if (1) such commitment is in form and substance reasonably satisfactory to the Administrative Agent and does not include any material conditions to funding that are not included in the GECC Commitment and (2) the lender providing such commitment executes an intercreditor agreement substantially similar to the GECC Intercreditor Agreement. "Approved Fund" means, relative to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Appurtenant Rights" means (x) all agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits at any time belonging or pertaining to the Site or the Improvements, including the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to the Site and (y) all permits, licenses and rights, whether or not of record, appurtenant to the Site. "Architect of Record" means ADP/FD of Nevada, Inc. "Architect's Agreement" means, collectively, the agreements pursuant to which architects, engineers and other design professionals have agreed with the Borrower to provide services in connection with the Main Project. "Architect's Closing Certificate" means a closing certificate in the form of Exhibit Q-3 to the Credit Agreement. "Arranger" means Scotiabank or Merrill Lynch. "Arrangers' Fee Letter" means the confidential letter agreement, dated December 4, 1997, among the Borrower, the Sponsors and the Arrangers. "Assignee Lender" is defined in Section 10.11.1 of the Credit Agreement. "Assignment of Contracts" means an assignment of any and all contracts, agreements, proposals, Permits (to the extent such Permits are assignable), approvals (to the extent such approvals are assignable), Plans and Specifications pertaining to the Hotel/Casino Component, whether now existing or subsequently entered into by the Borrower, including the Approved Equipment Funding Commitments and the rights of the Borrower thereunder, management contracts, the Contracts, development rights, consents (to the extent assignable), architectural, engineering and leasing documents and such other documents as may be designated by the Administrative Agent. Such Assignment of Contracts shall include appropriate continuation agreements by the Contractors and/or Subcontractors thereunder. A-4 "Assignment of Consulting Agreement" means, on any date, the Assignment of Consulting Agreement, as originally in effect on the Closing Date, between the Borrower, AHL and the Administrative Agent and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Assignment of Design/Build Contract" means, on any date, the Assignment of Design/Build Contract, as originally in effect on the Closing Date, between the Borrower and the Administrative Agent and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Assignment of Project Management Agreement" means, on any date, the Assignment of Project Management Agreement, as originally in effect on the Closing Date, between AHL and the Administrative Agent and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Assignment of Salle Privee Agreement" means, on any date, the Assignment of Salle Privee Agreement, as originally in effect on the Closing Date, between the Borrower and the Administrative Agent and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Authorized Representative" means, relative to any Person, those of its officers or managing members (in the case of a limited liability company) whose signatures and incumbency shall have been certified to the Administrative Agent and the Lenders in a certificate of such Person delivered to the Administrative Agent. "Available Funds" means, from time to time, the sum of (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 under the Credit Agreement 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 A-5 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 Disbursement 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. "Bank Credit Facility" means the Term A Loan Commitment, the Term B Loan Commitment and the Term C Loan Commitment. "Bank Proceeds Account" means the account established by the Borrower with the Disbursement Agent pursuant to the Borrower Collateral Account Agreement into which the proceeds of the Loans shall be deposited by the Administrative Agent from time to time. "Base Rate" means, at any time, the rate of interest then most recently established by the Administrative Agent in New York, New York as its base rate for U.S. dollars loaned in the United States. The Base Rate is not necessarily intended to be the lowest rate of interest determined by the Administrative Agent in connection with extensions of credit. "Base Rate Loan" means a Loan bearing interest at a fluctuating rate determined by reference to the Alternate Base Rate. "Board of Managers" means (x) for so long as the Borrower is a limited-liability company, the Board of Managers appointed pursuant to the Organizational Documents of the Borrower or (y) otherwise, the Board of Directors of the Borrower. "Borrower" is defined in the preamble of the Credit Agreement. "Borrower Collateral Account Agreement" means, on any date, the Borrower Collateral Account Agreement, as originally in effect on the Closing Date, among the Borrower, the Disbursement Agent and the Securities Intermediary and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Borrower Common Membership Interest" means a Common Share as defined in the Organizational Documents of the Borrower. "Borrower Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of the Borrower pursuant to clause (f) of Section 5.1.3 of the Credit Agreement, as originally in effect on the Closing Date, in substantially the form of Exhibit E-1 to the Credit Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. A-6 "Borrower Series A Preferred Membership Interests" means the Series A Preferred Shares as defined in the Organizational Documents of the Borrower. "Borrower's Closing Certificate" means a closing certificate in the form of Exhibit Q-1 to the Credit Agreement. "Borrower's Completion Certificate" means a certificate in the form of Exhibit S-1 to the Credit Agreement. "Borrower's Final Completion Certificate" means a certificate in the form of Exhibit U-1 to the Credit Agreement. "Borrower's Funds Account" is defined in the Borrower Collateral Account Agreement. "Borrowing" means the Loans of the same type and, in the case of LIBO Rate Loans, having the same Interest Period made by all Lenders required to make such Loans on the same Business Day and pursuant to the same Borrowing Request in accordance with Section 2.1 of the Credit Agreement. "Borrowing Request" means a Loan request and certificate duly executed by an Authorized Representative of the Borrower substantially in the form of Exhibit L-1 to the Credit Agreement. "Building Department" means the Clark County Building Department. "Business Day" means (a) any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in Las Vegas, Nevada or New York, New York; and (b) relative to the making, continuing, prepaying or repaying of any LIBO Rate Loans, any day described in clause (a) on which dealings in Dollars are carried on in the London interbank eurodollar market. "Capital" means Aladdin Capital Corp., a Nevada corporation. "Capital Expenditures" means, for any period, the aggregate amount of all expenditures (other than any residual purchase payments under the FF&E Leases) of the Borrower and the other Aladdin Parties for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as capital expenditures. A-7 "Capital Stock" means, relative to any Person, any and all shares, interests (including Membership Interests), participations or other equivalents (however designated, whether voting or non-voting) of such Person's capital, whether now outstanding or issued after the Effective Date. "Capitalized Lease Liability" means, relative to any Person, any monetary obligation of such Person under any leasing or similar arrangement which, in accordance with GAAP, would be classified as a capitalized lease, and, for purposes of this Agreement and each other Loan Document, the amount of such obligation shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a premium or a penalty. "Carpark" is defined in clause (b) of the fourth recital of the Credit Agreement. "Cash Contributions to Capital" means optional contributions (other than Cash Equity Contributions as defined in the Keep-Well Agreement), including to cure a Default that would otherwise exist under the Loan Documents, made by the Sponsors in cash to the Borrower, which contributions were (x) not made as a loan, (y) made in exchange for Borrower Series A Preferred Membership Interests and (z) made on terms and conditions satisfactory to the Administrative Agent as determined on good faith in its sole discretion. "Cash Equivalent Investment" means, at any time, (u) United States Dollars, (v) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (w) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (x) repurchase obligations with a term of not more than seven days for underlying securities of the types described in item (v) and (w) entered into with any financial institution meeting the qualifications specified in item (w), (y) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition and (z) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in items (w)-(y) of this definition. "Casino" is defined in clause (a) of the fourth recital of the Credit Agreement. "CERCLA" is defined in clause (a) of the definition of "Environmental Law". A-8 "CERCLIS" means the Comprehensive Environmental Response Compensation Liability Information System List. "Change in Control" means at any time, (a) the failure of the Trust or the beneficiaries or remaindermen of the Trust to (i) directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), all of (A) the Membership Interests of AHL not otherwise owned by GW Vegas, LLC on the Effective Date or (B) following the dissolution of the Trust and AHL, the Membership Interests of Sommer Enterprises not otherwise owned by Ronald B. Dictrow on the Effective Date or (ii) otherwise have the ability to elect the managers of (A) AHL or (B) following the dissolution of the Trust and AHL, Sommer Enterprises; (b) the failure of AHL or following the dissolution of the Trust and AHL, the beneficiaries or remaindermen of the Trust to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), 98.66% of the Membership Interests of Sommer Enterprises or otherwise have the ability to elect the managers of Sommer Enterprises; (c) the failure of Sommer Enterprises to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), 47.00% of the Membership Interests of Holdings (except that (v) on the Opening Date, the percentage interest of Sommer Enterprises in the Holdings Common Membership Interests may be increased by 0.5% provided that the percentage interest of LCNI therein is decreased by a corresponding amount (w) in the event of a default by London Clubs in payment of its share of amounts due under the Keep-Well Agreement, the percentage interest of Sommer Enterprises in the Holdings Common Membership Interests may be increased by 1, 1.5 or 2 times (depending on whether London Clubs is in default for 30 Business Days, 45 Business Days or 60 Business Days from the date of such default, respectively) multiplied by a dilution fraction (the "Dilution Fraction"), the numerator of which is the delinquent contribution and the denominator of which is $200,000,000 provided that the percentage interest of LCNI therein is decreased by a corresponding amount, (x) in the event of a default by AHL in its share of amounts due under the Keep-Well Agreement, the percentage interest of LCNI in the Holdings Common Membership Interests may be increased by 1, 1.5 or 2 times (depending on whether AHL is in default for 30 Business Days, 45 Business Days or 60 Business Days from the date of such default, respectively) multiplied by the Dilution Fraction provided that the percentage interest of Sommer Enterprises therein is decreased by a corresponding amount), (y) in the event of any vesting of any unvested Membership Interests in Holdings pursuant to an Employment Agreement, Sommer Enterprises may be diluted thereby and (z) upon the exercise of the Warrants, the dilutive effect of such exercise directly and indirectly on the Membership Interests in Holdings) or otherwise for A-9 Sommer Enterprises and LCNI to have the ability to elect the board of managers of Holdings or for either of them to have the ability individually or collectively to elect the board of managers of Holdings; (d) except for Capital Stock of Enterprises issued in connection with the exercise of Warrants, the failure of Sommer Enterprises to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), all of the Capital Stock of Enterprises or otherwise have the ability to elect the members of the Board of Directors of Enterprises; (e) the failure of Enterprises to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), at least 25% of the Membership Interests of Holdings (except for any adjustments upon the exercise of any Warrants) or individually or collectively with Sommer Enterprises and LCNI to have the ability to elect the managing member of Holdings; (f) the failure of Holdings to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), all of the Borrower Common Membership Interests or otherwise to have the ability to elect the managing member of the Borrower; (g) the failure of Holdings to directly own, free and clear of all Liens (other than Liens in favor of the Discount Note Indenture Trustee for the benefit of the Discount Noteholders), the Borrower Series A Preferred Membership Interests unless the failure to own the Borrower Series A Preferred Membership Interests results from the exercise by the Discount Note Indenture Trustee of the Lien in favor of the Discount Note Indenture Trustee for the benefit of the Discount Noteholders; (h) the failure of Holdings to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), all of the Capital Stock of Capital or otherwise have the ability to elect all of the members of the Board of Directors of Capital; (i) the failure of the Borrower to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), all of the Membership Interests of AMH or otherwise to have the ability to elect the managing member of AMH; (j) the failure of AMH to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), at least 49% of the Membership Interests of Aladdin Music or otherwise to have the ability to elect the managing member of Aladdin Music; A-10 (k) the failure of LCNI to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), at least 25.0% of the Holdings Common Membership Interests (except that (v) on the Opening Date, the percentage interest of LCNI in the Holdings Common Membership Interests may be decreased by 0.5% provided that the percentage interest of Sommer Enterprises therein is increased by a corresponding amount (w) in the event of a default by Sommer Enterprises in payment of its share of amounts due under the Keep-Well Agreement, the percentage interest of LCNI in the Holdings Common Membership Interests may be increased by 1, 1.5 or 2 times (depending on whether Sommer Enterprises is in default for 30 Business Days, 45 Business Days or 60 Business Days from the date of such default, respectively) multiplied by the Dilution Fraction, provided that the percentage interest of Sommer Enterprises therein is decreased by a corresponding amount, (x) in the event of a default by LCNI in payment of its share of amounts due under the Keep-Well Agreement, the percentage interest of Sommer Enterprises in the Holdings Common Membership Interests may be increased by 1, 1.5 or 2 times (depending on whether LCNI is in default for 30 Business Days, 45 Business Days or 60 Business Days from the date of such default, respectively) multiplied by the Dilution Fraction provided that the percentage interest of LCNI is decreased by a corresponding amount) and (y) in the event of any vesting of unvested membership interests in Holdings pursuant to an Employment Agreement, LCNI may be diluted thereby and (z) upon the exercise of the Warrants, the dilutive effect of such exercise directly and indirectly on the Membership Interest of Holdings) or otherwise for LCNI and Sommer Enterprises to have the ability to elect the board of managers of Holdings; (l) until such time as London Clubs has paid and performed, in all material respects, its obligations under the Completion Guaranty and the Keep-Well Agreement (or the Completion Guaranty and the Keep-Well Agreement have expired or terminated), the failure of London Clubs to directly own all of the Capital Stock of London Clubs Holdings or otherwise have the ability to elect all members of the Board of Directors of London Clubs Holdings; (m) the failure of London Clubs to own directly or indirectly all of the Capital Stock of LCNI or otherwise have the ability to elect all members of the Board of Directors of LCNI; or (n) any "Change of Control" under (and as defined in) the Discount Note Indenture. "Change Order" means, at any time, an adjustment made to the Guaranteed Maximum Price or the Design/Build Contract Time with respect to changes in the Work which increase or decrease the time of performance or the actual cost to the Design/Builder of the Work. "CIBC" is defined in the preamble of the Credit Agreement. A-11 "Clark County Code" is defined in clause (b) of Section 7.1.19 of the Credit Agreement. "Closing" is defined in Section 5.1 of the Credit Agreement. "Closing Date" means the Business Day, if any, prior to the Term B and Term C Loan Commitment Termination Date, on which the conditions in Article V of the Credit Agreement are satisfied. "Code" means the Internal Revenue Code of 1986, and the regulations thereunder, in each case as amended, reformed or otherwise modified from time to time. "Commitment" means, as the context may require, a Term A Loan Commitment, a Term B Loan Commitment, a Term C Loan Commitment or a Letter of Credit Commitment made by a Lender under the Credit Agreement. "Commitment Amount" means, as the context may require, the Term A Loan Commitment Amount, the Term B Loan Commitment Amount, the Term C Loan Commitment Amount or the Letter of Credit Commitment Amount. "Commitment Letter" means the Commitment Letter, dated December 4, 1997, between the Arrangers, the Borrower and the Sponsors as thereafter from time to time amended. "Commitment Termination Date" means, as the context may require, the Term A Loan Commitment Termination Date or the Term B Loan and Term C Loan Commitment Termination Date. "Commitment Termination Event" means (a) the occurrence of any Event of Default described in clauses (a) through (e) of Section 8.1.10 of the Credit Agreement; or (b) the occurrence and continuance of any other Event of Default and either (x) the declaration of all or any portion of the Loans to be immediately due and payable pursuant to Section 8.3 of the Credit Agreement or (y) the giving of notice by the Administrative Agent, acting at the direction of the Required Lenders, to the Borrower that the Commitments have been terminated. "Common Parking Area Use Agreement" means the Common Parking Area Use Agreement to be entered into between the Borrower and Aladdin Bazaar in form and substance satisfactory to the Administrative Agent determined in good faith in its sole discretion, and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. A-12 "Completion" means that each of the following has occurred: (a) the construction of the Hotel/Casino and any Tenant Improvements have been completed substantially in accordance with the Credit Agreement, the Plans and Specifications, the provisions of the Reciprocal Easement Agreement applicable to the Hotel/Casino and all of the other Operative Documents to the extent that the development, construction, use or operation of the Hotel/Casino are affected thereby, except for the Main Project Punchlist Items applicable to the Hotel/Casino, and in substantial compliance with all Legal Requirements pertaining to the construction of the Hotel/Casino so as to allow the Hotel/Casino to be utilized for its intended purpose; (b) reasonable and safe means of access and facilities necessary for the use and occupancy of the Hotel/Casino have been installed and are operational including corridors, elevators, stairways, heating, ventilation, air conditioning, sanitary, water and electrical facilities and all security systems and life safety systems required by the Plans and Specifications, the Reciprocal Easement Agreement, the other Operative Documents and all Legal Requirements and that the Borrower has made arrangements (from the Energy Project or an alternative source) to obtain reliable electrical and other utility services at appropriate levels required to start up, operate and maintain the Hotel/Casino in a safe, efficient and reliable manner; and (c) there are no outstanding claims or Liens by any Contractor or Subcontractor or any other Person against any portion of the Hotel/Casino Component except for Permitted Liens and Permitted Encumbrances. "Completion Certificate" means, collectively, the Borrower's Completion Certificate and the Construction Consultant's Completion Certificate in the form of Exhibits S-1 and S-2 to the Credit Agreement, respectively. "Completion Date" means the date on which Completion occurs but in no event shall the Completion Date extend beyond the Outside Completion Deadline, time being of the essence as to the Borrower. "Completion Guarantor" means, jointly and severally, each of London Clubs, ABH and the Trust. "Completion Guaranty" means, on any date, the Guaranty of Performance and Completion, as originally in effect on the Closing Date, by the Completion Guarantors in favor of the Lenders substantially in the form of Exhibit C to the Credit Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Complex" is defined in the fourth recital of the Credit Agreement and is more fully described in Exhibit N-2 to the Credit Agreement. A-13 "Compliance Certificate" means a certificate duly completed and executed by an Authorized Representative of the Borrower substantially in the form of Exhibit R to the Credit Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time, together with such changes thereto as the Administrative Agent may from time to time reasonably request for the purpose of monitoring the Borrower's compliance with the financial covenants contained in the Credit Agreement. "Consent" means a consent, substantially in the form of Exhibit I to the Credit Agreement, to the collateral assignment by the Borrower of the Main Project Documents. "Construction Benchmark Schedule" means the schedule for construction and completion of each Construction Component, the Main Project as a whole and the other work that the Borrower is required to perform pursuant to the Operative Documents in substantially the form of Exhibit X-1 to the Credit Agreement (as amended from time to time in accordance with the terms of the Credit Agreement) which (w) shall demonstrate that Substantial Completion will occur on or before the Outside Completion Deadline, (x) includes a statement from the Owner Representative and the Design/Builder that the Construction Benchmark Schedule is realistic and can be adhered to (subject to Force Majeure Events) in completing the Main Project in accordance with the Plans and Specifications, (y) shows on a monthly basis the anticipated progress of the Work and other activities pertaining to the construction of the Hotel/Casino Component, the Energy Project Component and Theater renovations, and (z) the Construction Consultant has reviewed and certified in the Construction Consultant's Closing Certificate that the statement from the Owner Representative in item (x) is reasonable and that it is appropriate for the Administrative Agent to rely thereon and on the other schedules and benchmarks set forth in the Construction Benchmark Schedule. "Construction Component" means the Hotel/Casino Component, the Energy Project Component or the Equipment Component. "Construction Consultant" means Rider Hunt (NV), L.L.C. or any other Person designated from time to time by the Administrative Agent to serve as the Construction Consultant under the Credit Agreement and the Disbursement Agreement. "Construction Consultant Engagement Agreement" means the Engagement Letter, dated as of January 28, 1998, by and among the Construction Consultant, the Borrower, the Administrative Agent, the Disbursement Agent and the Discount Note Indenture Trustee. "Construction Consultant's Closing Certificate" means a closing certificate in the form of Exhibit Q-2 to the Credit Agreement. "Construction Consultant's Completion Certificate" means a certificate in the form of Exhibit S-2 to the Credit Agreement. A-14 "Construction Consultant's Final Completion Certificate" means a certificate in the form of Exhibit U-2 to the Credit Agreement. "Construction Consultant's Report" means a report of the Construction Consultant delivered to the Disbursement Agent and the Administrative Agent pursuant to Section 3.1.10 of the Disbursement Agreement which shall include an analysis of the Plans and Specifications, the Main Project Budget, the Construction Benchmark Schedule, the Contracts, to the extent available, the construction and renovation of the Theater the construction of the Energy Project to be performed by the Energy Provider under the Energy Project Ground Lease and the Energy Project Development Agreement, and all other reports submitted to the Administrative Agent and stating, among other things, that (x) the Construction Consultant has reviewed the Main Project Documents, the Plans and Specifications, and other material information deemed necessary by the Construction Consultant for the purpose of evaluating whether the Main Project can be constructed and completed in the manner contemplated by the Operative Documents and (y) based on its review of such information, the Construction Consultant is of the opinion that the Main Project can be constructed in the manner contemplated by the Operative Documents and, in particular, that the Main Project can be constructed and completed in accordance with the Main Project Documents and the Plans and Specifications within the parameters set by the Construction Benchmark Schedule and the Main Project Budget. Such report shall contain an analysis reasonably satisfactory to the Administrative Agent demonstrating the adequacy of the Main Project Budget to complete the Main Project (and any improvements to be completed by the Borrower pursuant to the Reciprocal Easement Agreement) in accordance with the Construction Benchmark Schedule, confirmation that the Construction Benchmark Schedule is realistic, and verifying that the information delivered by the Borrower relating to the Complex and any improvements to be completed by the Borrower pursuant to the Reciprocal Easement Agreement are accurate. "Construction Expenses" means all Main Project Costs, excluding, however, Pre-Opening Expenses, Debt Service due and payable after the Conversion Date and Issuance Fees and Expenses. "Construction Note Disbursement Account" is defined in the Holdings Collateral Account Agreement. "Contingent Liability" means, relative to any Person, any agreement, undertaking or arrangement by which such Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the Indebtedness of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount of the debt, obligation or other liability guaranteed thereby. A-15 "Continuation/Conversion Notice" means a notice of continuation or conversion and certificate duly executed by an Authorized Representative of the Borrower substantially in the form of Exhibit M to the Credit Agreement. "Contract" means any contract entered into from time to time by the Borrower with any Contractor for performance of services or sale of goods or services in connection with the design, engineering, installation, construction, operation or maintenance of the Main Project, including all warranties and guarantees. "Contract Amendment Certificate" means a Contract Amendment Certificate substantially in the form of Exhibit Z to the Credit Agreement. "Contractor" means any architect, consultant, designer, contractor, subcontractor, supplier, laborer or any other Person engaged by the Borrower in connection with the design, engineering, installation and construction of the Main Project (excluding, however, the Design/Builder). "Controlled Group" means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Conversion Date" means the date on which either of the following first occurs: (a) the relevant Governmental Instrumentality issues a Main Project Certificate of Occupancy (which must include appropriate parking facilities) and operating permit for the Energy Project; or (b) the Administrative Agent and the Construction Consultant determine that Completion of the Main Project has occurred. "Credit Extension" means, as the context may require, (a) the making of a Loan by a Lender; or (b) the issuance of any Letter of Credit, or the extension of any Stated Expiry Date of any existing Letter of Credit, by an Issuer. "Credit Extension Request" means, as the context may require, any Borrowing Request or Letter of Credit Issuance Request. "Current Compliance Certificate" means the Compliance Certificate most recently delivered by the Borrower to the Administrative Agent pursuant to clause (d) of Section 7.1.1 of A-16 the Credit Agreement. Changes in the Applicable Base Rate Margin or Applicable LIBO Rate Margin resulting, after the Conversion Date, from a change in the Total Debt to EBITDA Ratio shall become effective upon delivery by the Borrower to the Administrative Agent of a new Compliance Certificate pursuant to clause (d) of Section 7.1.1 of the Credit Agreement. If the Borrower shall fail to deliver a Compliance Certificate within the number of days after the end of any Fiscal Quarter as required pursuant to clause (d) of Section 7.1.1 of the Credit Agreement (without giving effect to any grace period), the Applicable Base Rate Margin or Applicable LIBO Rate Margin, as the case may be, from and including the first day after the date on which such Compliance Certificate was required to be delivered to but not including the date the Borrower delivers to the Administrative Agent a Compliance Certificate shall conclusively equal the highest Applicable Base Rate Margin or Applicable LIBO Rate Margin, as the case may be, set forth in the definition of such term. "Debt Service" means all principal repayments or interest and other amounts payable or accrued from time to time under any Loan Document or the Approved Equipment Funding Commitments. "Deed of Trust" means, on any date, the Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing in the form of Exhibit B to the Credit Agreement, as originally in effect on the date on which it is recorded, made by the Borrower, as trustor, to the trustee named therein, for the benefit of the Administrative Agent and the Lenders, as beneficiaries covering the Site and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Defaulting Lender" means any Lender with respect to which a Lender Default is in effect. "Desert Passage" is defined in clause (b) of the fourth recital of the Credit Agreement. "Design/Build Contract" means, on any date, the Design/Build Contract, as originally in effect on the Closing Date, between the Borrower and the Design/Builder and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Design/Build Contract Time" is defined in Section 14.1 of the Design/Build Contract. "Design/Builder" means Fluor Daniel, Inc., a California corporation. A-17 "Design/Builder Consent and Acknowledgment" means the Consent and Acknowledgment by the Design/Builder in favor of the Lenders and the Administrative Agent dated as of the Closing Date. "Design/Build Final Completion" means "Final Completion" as defined in Section 31.9 of the General Conditions annexed to the Design/Build Contract as Attachment D. "Development Agreement" means, on any date, the Aladdin Hotel & Casino Agreement, dated March 18, 1997, among Holdings, Aladdin Management Corporation and the County of Clark, as assigned by Holdings and Aladdin Management Corporation to the Borrower, and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Direct Costs" means all Main Project Costs expended or incurred by the Borrower for labor, services, materials, tools, utilities, equipment, fixtures and furnishings in connection with the construction of the Main Project all as set forth on the Main Project Budget. "Disbursement Agent" means Scotiabank, in its capacity as the disbursement agent under the Disbursement Agreement and its successors in such capacity. "Disbursement Agreement" means, on any date, the Disbursement Agreement, as originally in effect on the Closing Date, among the Borrower, Holdings, the Administrative Agent, the Discount Note Indenture Trustee, the Disbursement Agent, the Servicing Agent and the Securities Intermediary and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Disclosure Schedule" means the Disclosure Schedule attached to the Credit Agreement as Schedule I, as it may be amended, supplemented, amended and restated or otherwise modified from time to time by the Borrower with the written consent of the Administrative Agent and the Required Lenders. "Discount Note" means the 13 1/2% Series A and B Senior Discount Notes due 2010 of Holdings and Capital issued on the Closing Date for gross proceeds of $115,000,000. "Discount Note Indenture" means, on any date, the Indenture relating to the Discount Notes, as originally in effect on the Effective Date, among Holdings, Capital and the Discount Note Indenture Trustee and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Discount Note Indenture Trustee" means State Street Bank and Trust Company, in its capacity as the indenture trustee for the Discount Noteholders under the Discount Note Indenture. A-18 "Discount Note Offering Circular" means the offering memorandum, dated February 14, 1998, with respect to the units, consisting of the Discount Notes offered by Holdings and Capital and the Warrants offered by Enterprises. "Discount Note Purchase Agreement" means the Purchase Agreement with respect to the Discount Notes and Warrants, dated as of February 18, 1998, among Holdings, Capital, Enterprises, AHL, the Trust and Merrill Lynch and First Boston (as representatives of the several initial purchasers). "Discount Noteholder" means the duly registered holder of a Discount Note. "Documentation Agent" is defined in the preamble of the Credit Agreement. "Dollar" and the symbol "$" mean lawful money of the United States. "Downgraded Lender" is defined in clause (b) of Section 4.11 of the Credit Agreement. "EBITDA" means, for the Borrower only, for any applicable period, the sum (without duplication) of (a) Net Income for such period, plus (b) the amount deducted by the Borrower, in determining Net Income for such period, representing (i) Interest Expense of the Borrower; plus (ii) the amount deducted, in determining Net Income, of all federal, state and local income taxes (whether paid in cash or deferred) of the Borrower or, if the Borrower is treated as a pass-through entity or is not treated as a separate entity for United States federal income tax purposes, the amount of Restricted Payments made by the Borrower in accordance with clause (c) of Section 7.2.6 of the Credit Agreement, subject to the terms of the Credit Agreement; plus (iii) depreciation of assets of the Borrower; plus A-19 (iv) amortization; plus (v) the amount of Cash Equity Contributions (as defined in the Keep-Well Agreement); plus (vi) the amount of Cash Contributions to Capital; provided, however, that in computing EBITDA for purposes of determining the "Total Debt to EBITDA Ratio" in clause (h)(i)(B) of Section 7.2.6 of the Credit Agreement or the amount of "Excess Cash Flow", the "Applicable Base Rate Margin" or the "Applicable LIBO Rate Margin", subclauses (b)(v) and (b)(vi) shall be excluded from such computation; provided further, however, that in computing EBITDA for any period commencing on the Conversion Date and ending as of the close of any Fiscal Quarter on or prior to the first anniversary of the Conversion Date, EBITDA for such period shall equal the product of (x) the sum of the amounts determined pursuant to clauses (a) and (b) for such period multiplied by (y) a fraction, the numerator of which is equal to 365 and the denominator of which is equal to the number of days that have elapsed in such period. "Effective Date" means the date the Credit Agreement becomes effective pursuant to Section 10.8 thereof. "Employment Agreement" means, collectively, (u) the Amended Employment and Consulting Agreement among Holdings, the Borrower and Richard J. Goeglein effective January 1, 1997, (v) the Amended Employment Agreement among Holdings, the Borrower and James H. McKennon effective April 15, 1997, (w) the Amended Employment Agreement among Holdings, the Borrower and Cornelius T. Klerk effective July 1, 1997, (x) the Amended Employment Agreement among Holdings, the Borrower and Lee A. Galati effective July 1, 1997, (y) the Amended Employment Agreement among Holdings, the Borrower and Jose A. Rueda effective July 1, 1997 and (z) the Amended Consulting Agreement between GAI, LLC, Holdings and the Borrower effective January 1, 1997. "Energy Project" is defined in clause (e) of the fourth recital of the Credit Agreement. "Energy Project Commitment" means the commitment (as set forth in the letter agreement, dated October 21, 1997, between the Energy Project Provider and AHL) of the Energy Project Provider to enter into the Energy Project Ground Lease, the Energy Project Development Agreement and the Energy Project Service Agreement. A-20 "Energy Project Completion" means that (a) the construction of the Energy Project has been completed substantially in accordance with the Energy Project Ground Lease and the provisions of the Reciprocal Easement Agreement applicable to the Energy Project except for any punchlist items applicable to the Energy Project and in substantial compliance with all Legal Requirements pertaining to the construction of the Energy Project so as to allow the Energy Project to be utilized for its intended purposes; (b) reasonable and safe means of access and facilities necessary for the use and operation of the Energy Project have been installed and are operational; (c) the Borrower has certified to the Administrative Agent that (1) arrangements have been made to obtain reliable electric and other utility services at the appropriate levels required for the operation of the Hotel/Casino and, to the extent applicable, other parts of the Complex that are subject to the Energy Service Agreement, (2) all other conditions precedent in the Energy Project Ground Lease relating to construction, installation, start-up and test activities have been satisfied in all material respects, and (3) there are no outstanding claims or Liens by any contractor or subcontractor or any other Person against any portion of the Energy Project Component except for Permitted Liens and Permitted Encumbrances. "Energy Project Component" means the portion of the Complex described in Exhibit N-9 to the Credit Agreement. "Energy Project Development Agreement" means, on any date, the Development Agreement, as originally in effect on the Closing Date, between the Borrower and the Energy Project Provider and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Energy Project Easements" means the easements appurtenant, easements in gross, license agreements and other right running for the benefit of the Energy Project Provider and/or appurtenant to the Energy Project Ground Lease, including those certain easements and licenses described in each Title Policy. "Energy Project Ground Lease" means, on any date, the Ground Lease, as originally in effect on the Effective Date, between the Borrower and the Energy Project Provider and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Energy Project Guarantor" means Unicom Corporation, an Illinois corporation. A-21 "Energy Project Guaranty" means the Guaranty, dated as of December 3, 1997, executed by the Energy Project Guarantor to and for the benefit of the Borrower and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Energy Project Provider" means Northwind Aladdin, LLC, a Nevada limited-liability company. "Energy Project Service Agreement" means, on any date, the Energy Services Agreement, as originally in effect on the Effective Date, between the Borrower and the Energy Project Provider and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Enterprises" means Aladdin Gaming Enterprises, Inc., a Nevada corporation. "Enterprises Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of Enterprises pursuant to clause (e) of Section 5.1.3 of the Credit Agreement, as originally in effect on the Closing Date, in substantially the form of Exhibit E-4 to the Credit Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Environmental Claim" means any and all obligations, liabilities, losses, administrative, regulatory or judicial actions, suits, demands, decrees, claims, liens, judgments, warning notices, notices of noncompliance or violation, investigations, proceedings, removal or remedial actions or orders, or damages (foreseeable and unforeseeable, including consequential and punitive damages), penalties, fees, out-of-pocket costs, expenses, disbursements, attorneys' or consultants' fees, relating in any way to any Environmental Law or any Permit issued under any such Environmental Law including (x) any and all Claims by Governmental Instrumentalities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (y) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Substances or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Consultant" means ERM-Northeast, Inc., or any other Person designated from time to time by the Administrative Agent in its sole discretion to serve as the Environmental Consultant. "Environmental Indemnity" means, on any date, the Environmental Indemnity Agreement, as originally in effect on the Effective Date, from the Borrower, the Trust and London Clubs for the benefit of the Administrative Agent on behalf of the Lenders in the form of Exhibit K to the Credit Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. A-22 "Environmental Law" means any of: (a) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.) ("CERCLA"); (b) the Federal Water Pollution Control Act (33 U.S.C. Section 1251, et seq.) ("Clean Water Act" or "CWA"); (c) the Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.) ("RCRA"); (d) the Atomic Energy Act of 1954 (42 U.S.C. Section 2011, et seq.); (e) the Clean Air Act (42 U.S.C. Section 7401, et seq.); (f) the Emergency Planning and Community Right to Know Act (42 U.S.C. Section 11001, et seq.); (g) the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136, et seq.) ("FIFRA"); (h) the Oil Pollution Act of 1990 (P.L. 101-380, 104 Stat. 486); (i) the Safe Drinking Water Act (42 U.S.C. Sections 300f, et seq.) ("SDWA"); (j) the Surface Mining Control and Reclamation Act of 1974 (30 U.S.C. Sections 1201, et seq.); (k) the Toxic Substances Control Act (15 U.S.C. Section 2601, et seq.) ("TSCA"); (l) the Hazardous Materials Transportation Act (49 U.S.C. Section 1801, et seq.) ("HMTA"); (m) the Uranium Mill Tailings Radiation Control Act of 1978 (42 U.S.C. Section 7901, et seq.) ("UMTRCA"); (n) the Occupational Safety and Health Act (29 U.S.C. Section 651, et seq.) ("OSHA"); (o) the Nevada Hazardous Materials law (NRS Chapter 459); A-23 (p) the Nevada Solid Waste/Disposal of Garbage or Sewage law (NRS 444.440 to 444.650, inclusive); (q) the Nevada Water Controls/Pollution law (NRS Chapter 445A); (r) the Nevada Air Pollution law (NRS Chapter 445B); (s) the Nevada Cleanup of Discharged Petroleum law (NRS 590.700 to 590.920, inclusive); (t) the Nevada Control of Asbestos law (NRS 618.750 to 618.850); (u) the Nevada Appropriation of Public Waters law (NRS 533.324 to 533.4385, inclusive); (v) the Nevada Artificial Water Body Development Permit law (NRS 502.390); (w) the Nevada Protection of Endangered Species, Endangered Wildlife Permit (NRS 503.585) and Endangered Flora Permit law (NRS 527.270); and (x) all other Federal, state and local Legal Requirements which govern Hazardous Substances, and the regulations adopted and publications promulgated pursuant to all such foregoing laws; in each case as amended by an amendment thereto or succeeded by a successor law, statute or regulation thereto. "Environmental Matter" means any: (a) release, emission, entry or introduction into the air including the air within buildings and other natural or man-made structures above ground; (b) discharge, release or entry into water including into any river, watercourse, lake or pond (whether natural or artificial or above ground or which joins or flows into any such water outlet above ground) or reservoir, or the surface of the riverbed or of other land supporting such waters, ground waters, sewer or the sea; (c) deposit, disposal, keeping, treatment, importation, exportation, production, transportation, handling, processing, carrying, manufacture, collection, sorting or presence of any Hazardous Substance (including, in the case of waste, any substance which constitutes a scrap material or an effluent or other unwanted surplus substance arising from the application of any process or activity (including making it reusable or A-24 reclaiming substances from it) and any substance or article which is required to be disposed of as being broken, worn out, contaminated or otherwise spoiled); (d) nuisance, noise, defective premises, health and safety at work, industrial illness, industrial injury due to environmental factors, environmental health problems (including asbestosis or any other illness or injury caused by exposure to asbestos) or genetically modified organisms; (e) conservation, preservation or protection of the natural or man-made environment or any living organisms supported by the natural or man-made environment; or (f) other matter howsoever directly affecting the environment or any aspect of it. "Equipment Component" means the equipment, fixtures and other items described in Exhibit N-10 to the Credit Agreement. "Equity Interest" means, relative to any Person, Capital Stock and all warrants, options or other rights to acquire Capital Stock (excluding, however, any debt security that is convertible into, or exchangeable for, Capital Stock) of such Person. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections thereto. "ERISA Plan" means any employee benefit plan (x) maintained by the Borrower or any member of the Controlled Group, or to which the Borrower or any member of the Controlled Group contributes or is obligated to contribute, for its employees and (y) covered by Title IV of ERISA or to which Section 412 of the Code applies. "Event of Default" is defined in Section 8.1 of the Credit Agreement. "Event of Loss" means, relative to any property or asset (tangible or intangible, real or personal), (x) any loss, destruction or damage of such property or asset, (y) any actual condemnation, seizure or taking by exercise of the power of eminent domain or otherwise of all or a part of such property or asset, or confiscation of all or a part of such property or asset or the requisition of the use of all or a part of such property or asset or (z) any settlement in lieu of item (y). "Excess Cash Flow" means, for any Fiscal Quarter, the excess (if any), of (a) EBITDA for such Fiscal Quarter A-25 over (b) the sum (during such Fiscal Quarter) of (i) Interest Expense of the Borrower actually paid in cash by the Borrower; plus (ii) scheduled payments, to the extent actually made, of the principal amount of the Loans pursuant to Section 3.1.1 of the Credit Agreement and scheduled payments, to the extent actually made, with respect to the FF&E Financing; plus (iii) the amount of all federal, state and local income taxes (whether paid in cash or deferred) of the Borrower paid in cash by the Borrower or, if the Borrower is treated as a pass-through entity or is not treated as a separate entity for United States federal income tax purposes, the amount of Restricted Payments made in cash by the Borrower in accordance with clause (c) of Section 7.2.6 of the Credit Agreement, subject to the terms thereof; plus (iv) the amount of all Restricted Payments on the Borrower Series A Preferred Membership Interests made in accordance with clause (d) of Section 7.2.6 of the Credit Agreement; plus (v) Capital Expenditures actually made or reserved by the Borrower. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Indebtedness" means Indebtedness of the Borrower in existence on the Effective Date (after giving effect to payment of Indebtedness that is being discharged and retired on the Closing Date, including all Indebtedness to be Paid) and identified in item (b) of Section 7.2.2 ("Existing Indebtedness") of the Disclosure Schedule. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to A-26 (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "Fee Letter" means, the Arrangers' Fee Letter or the Scotiabank Fee Letter. "FF&E" means all furnishings, fixtures and equipment other than the Specified Equipment and the Gaming Equipment. "FF&E Financing" means the incurrence of Indebtedness, the proceeds of which are utilized solely to finance or refinance the acquisitions of (or the incurrence of Capitalized Lease Liabilities by the Borrower with respect to) the Gaming Equipment and the Specified Equipment. "FF&E Lease" means one or more leases entered into by the Borrower giving rise to synthetic lease liabilities to one or more lessors (the "FF&E Lessors") covering a portion of the FF&E, the Specified Equipment and/or the Gaming Equipment. "FF&E Lease Document" means the FF&E Lease and any other document executed and delivered by the Borrower and the FF&E Lessors in connection therewith, as the same may be amended, supplemented, amended and restated, replaced or otherwise modified from time to time in accordance with the terms of the Credit Agreement. "FF&E Lessor" is defined in the definition of "FF&E Lease". "FF&E Reserve" is defined in Section 7.1.3 of the Credit Agreement. "Final Completion" means that (r) Design/Build Final Completion shall have occurred, (s) Energy Project Completion shall have occurred, (t) Theater Renovation Completion shall have occurred, (u) all other construction work with respect to the Main Project shall have been substantially completed in accordance with the Main Project Document applicable thereto so as to allow such improvements to be utilized for their intended purposes and in substantial compliance with all Legal Requirements applicable thereto, (v) each of the Hotel Casino, the Energy Project and the Theater shall have received a permanent Main Project Certificate of Occupancy from the Building Department and the Energy Project shall have received all Permits required by the Governmental Instrumentality having or asserting jurisdiction over the operation of the Energy Project (and a copy of each such certificate shall have been delivered to the Administrative Agent), (w) a Notice of Completion shall have been posted with respect to A-27 Hotel/Casino, the Energy Project and the Theater, as required, and recorded in the Office of the County, (x) the Borrower shall have delivered to the Administrative Agent its Final Completion Certificate certifying to the extent set forth therein that all Main Project Punchlist Items have been completed, (y) the Construction Consultant shall have delivered to the Administrative Agent its Final Completion Certificate in which it verifies the statements in items (r), (s), (t), (u), (v), and (w) and certifies that it is appropriate for the Administrative Agent to rely on the Final Completion Certificate of the Borrower delivered to the Administrative Agent pursuant to item (x) and (z) the Mall Project Parcel and the Music Project Parcel shall be separate legal parcels in accordance with Section 7.1.19 of the Credit Agreement. "Final Completion Certificate" means a Borrower's Final Completion Certificate or a Construction Consultant's Final Completion Certificate in the form of Exhibit U-1 or Exhibit U-2 to the Credit Agreement. "Final Completion Date" means the date on which Final Completion occurs. "Final Plans and Specifications" means, relative to any particular portion of the Work or other improvement, Plans and Specifications for such portion which (x) have received final approval from all Governmental Instrumentalities required to approve such Plans and Specifications prior to completion of the Work or improvements and (y) contain sufficient specificity to permit the completion of such portion of the Work or other improvements. "Fiscal Quarter" or "FQ" means a calendar quarter ending on the last day of March, June, September or December; references to a FQ with a following number (e.g., FQ1) refer to the number of Fiscal Quarters then to have elapsed in whole or in part since the Conversion Date. "Fiscal Year" means any period of twelve consecutive calendar months ending on December 31; references to a Fiscal Year with a number corresponding to any calendar year (e.g., the "1998 Fiscal Year") refer to the Fiscal Year ending on December 31 of such calendar year. "Fleet Commitment" means, on any date, the Commitment Letter, as originally in effect on the Effective Date, between Fleet National Bank and Aladdin Bazaar and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms thereof. "Fluor" means Fluor Corporation, a California corporation. "Fluor Guaranty" means, on any date, the Fluor Guaranty, as originally in effect on the Effective Date, by Fluor in favor of the Borrower and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. A-28 "Force Majeure Event" means any event which is defined as "Force Majeure" in the Design/Build Contract and/or that causes a delay in the construction of the Main Project and is outside the Borrower's control but only to the extent (a) such event does not arise out of (w) the negligence, willful misconduct or inefficiencies of the Borrower, (x) late performance by the Design/Builder or the Architect of Record, (y) any cause or circumstance resulting in delays, stoppage or any other interference with the construction of the Main Project caused by the insolvency, bankruptcy or any lack of funds by the Borrower, any other Project Party, the Energy Provider, the Energy Project Guarantor and/or the Architect of Record or (z) delays, stoppage or other interference with the construction of the Main Project caused by the insolvency, bankruptcy or any lack of funds by Aladdin Bazaar, Aladdin Music and/or the construction contractors and project architects with respect to the Mall Project, the Music Project and/or the Energy Project; and (b) such event consists of an act of God (such as tornado, flood, hurricane, etc.), fires and other casualties; strikes, lockouts or other labor disturbances (except to the extent taking place at the Site only); riots, insurrections or civil commotions; embargos, shortages or unavailability of materials, supplies, labor, equipment and systems that first arise after the Effective Date, but only to the extent caused by another act, event or condition covered by this clause (b); sabotage; vandalism; the requirements of law, statutes, regulations and other Legal Requirements enacted after the Effective Date (unless the Borrower should, in the exercise of due diligence and prudent judgment, have anticipated such enactment); orders or judgments; or any similar types of events; provided, however, that (x) the Borrower has sought to mitigate the impact of the delay, (y) any delay resulting from the foregoing shall not exceed 365 days and (z) the period during which a Force Majeure Event exists shall commence on the date that the Borrower has given the Administrative Agent written notice describing in reasonable detail the event which constitutes a Force Majeure Event and the Administrative Agent has confirmed the existence of such Force Majeure Event on the date of such notice and shall end on the date that such Force Majeure Event no longer exists, whether or not notice is given to the Administrative Agent, as determined by the Construction Consultant. "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "GAAP" is defined in Section 1.4 of the Credit Agreement. "GAI, LLC" means GAI, LLC, a Nevada limited-liability company. "Gaming Equipment" means the gaming equipment and gaming devices which are regulated gaming devices under any Nevada Gaming Law (such as slot machines, cashless A-29 wagering systems and associated equipment) together with all improvements and/or additions thereto financed by the $20,000,000 term loan facility under the GECC Commitment. "Gaming License" means any and all duly issued and valid licenses, approvals, registrations, findings of suitability and authorizations relating to gaming at the Hotel/Casino under the Nevada Gaming Laws or required by the Nevada Gaming Authorities or necessary for the operation of gaming at the Hotel/Casino. "GECC" means General Electric Capital Corporation. "GECC Commitment" means the commitment of GECC to enter into a $60,000,000 synthetic lease facility and a $20,000,000 term loan facility pursuant to that certain commitment letter, dated as of January 23, 1998, between the Borrower and GECC. "GECC Intercreditor Agreement" means the Intercreditor Agreement to be entered into between GECC and the Administrative Agent, initially in the form approved by the Administrative Agent determined in good faith in its sole discretion, and as from time to time thereafter amended, supplemented, amended and restated or otherwise modified. "Governmental Instrumentality" means any national, state or local government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi governmental, judicial, public or statutory instrumentality, authority, body, agency, bureau or entity (including the Nevada Gaming Authorities, any zoning authority, the Federal Deposit Insurance Corporation, the Comptroller of the Currency or the F.R.S. Board, any central bank or any comparable authority) or any arbitrator with authority to bind a party at law. "Ground Lease" means, collectively, the Mall Project Ground Lease, the Music Project Ground Lease and the Energy Project Ground Lease. "Guaranteed Maximum Price" means the total costs payable by the Borrower to the Design/Builder for the Work, which costs shall not exceed $267,000,000, except as adjusted in accordance with the Credit Agreement and the Design/Build Contract. "Guaranty Deposit Account" is defined in the Borrower Collateral Account Agreement. "Hazardous Substances" means (statutory acronyms and abbreviations having the meaning given them in the definition of "Environmental Laws") substances defined as "hazardous substances," "pollutants" or "contaminants" in Section 101 of the CERCLA; those substances defined as "hazardous waste," "hazardous materials" or "regulated substances" by the RCRA; those substances designated as a "hazardous substance" pursuant to Section 311 of the CWA; those substances defined as "hazardous materials" in Section 103 of the HMTA; those substances regulated as a hazardous chemical substance or mixture or as an imminently hazardous chemical substance or mixture pursuant to Sections 6 or 7 of the TSCA; those A-30 substances defined as "contaminants" by Section 1401 of the SDWA, if present in excess of permissible levels; those substances regulated by the Oil Pollution Act; those substances defined as a pesticide pursuant to Section 2(u) of the FIFRA; those substances defined as a source, special nuclear or by-product material by Section 11 of the AEA; those substances defined as "residual radioactive material" by Section 101 of the UMTRCA; those substances defined as "toxic materials" or "harmful physical agents" pursuant to Section 6 of the OSHA); those substances defined as hazardous wastes in 40 C.F.R. Part 261.3; those substances defined as hazardous waste constituents in 40 C.F.R. Part 260.10, specifically including Appendices VII and VIII of Subpart D of 40 C.F.R. Part 261; those substances designated as hazardous substances in 40 C.F.R. Parts 116.4 and 302.4; those substances defined as hazardous substances or hazardous materials in 49 C.F.R. Part 171.8; those substances regulated as hazardous materials, hazardous substances or toxic substances in 40 C.F.R. Part 1910; those substances defined as hazardous materials, hazardous substances or toxic substances in any other Environmental Laws; and those substances defined as hazardous materials, hazardous substances or toxic substances in the regulations adopted and publications promulgated pursuant to said laws, whether or not such regulations or publications are specifically referenced herein. "Hedging Liability" means, relative to any Person, any liability of such Person under any currency exchange agreement, interest rate swap agreement, interest rate cap agreement or interest rate collar agreement, or any other agreement designed to protect such Person against fluctuations in interest rates or currency exchange rates including the Rate Protection Agreement. "herein", "hereof", "hereto", "hereunder" and similar terms contained in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular Section, paragraph or provision of this Agreement or such other Loan Document. "Holdings" means Aladdin Gaming Holdings, LLC, a Nevada limited-liability company. "Holdings Collateral Account Agreement" means, on any date, the Holdings Collateral Account Agreement, as originally in effect on the Closing Date, between Holdings, the Securities Intermediary and the Disbursement Agent, for the benefit of the Discount Note Indenture Trustee, and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Holdings Common Membership Interest" means a Common Share as defined in the Organizational Documents of Holdings. "Holdings Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of Holdings pursuant to clause (a) of Section 5.1.3 of the Credit Agreement, as originally in effect on the Closing Date, in substantially the form of Exhibit E-5 to the Credit Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. A-31 "Holdings Series A Preferred Membership Interests" means the Series A Preferred Shares as defined in the Organizational Documents of Holdings and issued to LCNI or Sommer Enterprises pursuant thereto in consideration for any payments to the Borrower required by London Clubs, the Trust or AHL pursuant to the Keep-Well Agreement, the Completion Guaranty or the Noteholder Completion Guaranty, as the case may be, when such payments are Cash Equity Contributions (as defined in the Keep-Well Agreement). "Holdings Series B Preferred Membership Interests" means the Series B Preferred Shares as defined in the Organizational Documents of Holdings and issued to LCNI or Sommer Enterprises pursuant thereto in consideration for any payments to the Borrower required by London Clubs, the Trust or AHL pursuant to the Keep-Well Agreement when such payments are Cash Equity Contributions (as defined in the Keep-Well Agreement). "Hotel" is defined in clause (a) of the fourth recital of the Credit Agreement. "Hotel/Casino" is defined in clause (a) of the fourth recital of the Credit Agreement. "Hotel/Casino Component" means the portion of the Complex described in Exhibit N-8 to the Credit Agreement. "Hotel/Casino Component Funding Source" means the Land Equity, the London Clubs Contribution, the proceeds of the Borrower Series A Preferred Membership Interests, the Loans, the Approved Equipment Funding Commitments, the amounts payable to the Borrower by Aladdin Bazaar pursuant to Section 4.5 of the Site Work Agreement, together with any amounts payable under the Completion Guaranty from time to time. "Impermissible Qualification" means, relative to the opinion or certification of any independent public accountant as to any financial statement of the Borrower, any other Aladdin Party, LCNI, London Clubs Holdings or London Clubs, any qualification or exception to such opinion or certification (a) which is of a "going concern" or similar nature; (b) which relates to the limited scope of examination of matters relevant to such financial statement; or (c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause the Borrower to be in default of any of its obligations under Section 7.2.4 of the Credit Agreement. "Imposition" means any real estate tax, payment in lieu of taxes or other assessment levied, assessed or imposed against the portion of the Site owned by the Borrower, and any water A-32 rates, sewer rentals or other governmental, municipal or public dues, charges or impositions, of every nature and to whomever assessed, that may now or hereafter be levied or assessed upon the portion of the Site owned by the Borrower, or upon the rents, issues, income, proceeds or profits thereof, whether the Imposition is levied directly or indirectly against such portion of the Site owned by the Borrower or as excise taxes or income taxes. "Improvement" means any building, structure or other improvements to be located or constructed on the Main Project Parcel. "In Balance" will be deemed to exist when (x) the Unallocated Contingency Balance equals or exceeds the Required Minimum Contingency, (y) after giving effect to the requested Credit Extension, the Available Funds allocated to each Line Item Category equals or exceeds for such Line Item Category the aggregate of (1) the costs required to complete such Line Item Category, (2) the Retainage Amount to be paid to Persons who have supplied labor or materials in connection with such Line Item Category and (3) the amount required to pay interest and all other amounts due under the Credit Agreement and the Approval Equipment Funding Commitments at the maximum rate of interest set forth in the Main Project Budget through the Conversion Date and (z) the Guaranteed Maximum Price remains in effect. "including" and "include" means including, without limiting the generality of any description preceding such term, and, for purposes of this Agreement and each other Loan Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned. "Indebtedness" means, relative to any Person, without duplication: (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations, contingent or otherwise, relative to the face amount of all letters of credit (or reimbursement agreements in respect thereof), whether or not drawn, and banker's acceptances issued for the account of such Person; (c) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities; (d) all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) net liabilities of such Person under all Hedging Liabilities; A-33 (f) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services, and indebtedness (excluding, however, prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; and (g) all Contingent Liabilities of such Person in respect of any of the foregoing. For all purposes of this Agreement, (x) the Indebtedness of any Person shall include the proportion of Indebtedness of any partnership in which such Person is a general partner or joint venturer with liability for the entire indebtedness of the joint venture and (y) the amount of any Indebtedness outstanding as of any date shall be (1) the accredited value thereof, in the case of Indebtedness issued with original issue discount and (2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indebtedness to be Paid" means the Indebtedness identified in Item 5.1.10 on the Disclosure Schedule. "Indemnified Liability" is defined in Section 10.4 of the Credit Agreement. "Indemnified Party" is defined in Section 10.4 of the Credit Agreement. "Independent Consultant" means the Construction Consultant, the Insurance Consultant, the Environmental Consultant or their successors engaged pursuant to the Credit Agreement. "Indirect Cost" means any Main Project Cost which is not a Direct Cost, including appraisal fees, the Term A Loan Commitment Fee, the Term B and Term C Loan Commitment Fee, the fees set forth in the Fee Letters, interest on the Loans prior to the Conversion Date, brokers' commissions, fees of the Independent Consultants, insurance during construction, surety bond premiums, cost of surveys, Impositions during construction, title examination and title insurance premiums, recording expenses in connection with the Deed of Trust and other Security Documents and fees and disbursements of the attorneys for the Administrative Agent. "Instrument" means any contract, agreement, indenture, mortgage, deed of trust, document or writing (whether by formal agreement, letter or otherwise) under which any obligation is evidenced, assumed or undertaken, or any Lien (or right or interest therein) is granted or perfected. "Insurance Consultant" means Sedgwick of Tennessee, Inc. or its successor appointed pursuant to Section 9.8 of the Credit Agreement. A-34 "Insurance Requirement" means any provisions of any insurance policy covering or applicable to the Borrower, the Main Project or any portion thereof, all requirements of the issuer of any such policy and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any body exercising similar functions) applicable to or affecting the Main Project or any portion thereof, any use or condition thereof or the Borrower. "Interest Coverage Ratio" means, at the close of any Fiscal Quarter, the ratio computed for the period consisting of such Fiscal Quarter (or such shorter portion of any Fiscal Quarter after the occurrence therein of the Conversion Date and each of the three immediately prior Fiscal Quarters (or such lesser number of Fiscal Quarters to have closed since the Conversion Date) of: (a) EBITDA for such period to (b) Interest Expense of the Borrower for such period; provided, however, that in computing the Interest Coverage Ratio for any such period ending on or prior to the first anniversary of the Conversion Date, the amount determined pursuant to clause (b) shall equal the product of (x) the Interest Expense for such period multiplied by (y) a fraction, the numerator of which is equal to 365 and the denominator of which is equal to the number of days that have elapsed in such period. "Interest Expense" means, for any period, the aggregate cash interest expense (net of cash interest income) of the Borrower (including, to the extent the Borrower has any Contingent Liability in respect of such interest expense, the interest expense of other Persons) for such period, as determined in accordance with GAAP, including the portion of any payments made in respect of Capitalized Lease Liabilities allocable to interest expense, but excluding, however, deferred financing costs and other non-cash interest expense. "Interest Payment Account" means the account established by the Borrower with the Disbursement Agent pursuant to the Borrower Collateral Account Agreement into which the proceeds of the Loans shall be deposited by the Administrative Agent from time to time. "Interest Period" means, relative to any LIBO Rate Loan, the period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.3 or Section 2.4 of the Credit Agreement and shall end on (but exclude) the day which numerically corresponds to such date one, two, three, six or, if then generally available from all Lenders, twelve months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), as the Borrower may select in its relevant notice pursuant to Section 2.3 or Section 2.4 of the Credit Agreement; provided, however, that A-35 (a) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates, (a) in the case of Term A Loans made or maintained as LIBO Rate Loans, occurring on more than eight different dates, (b) in the case of Term B Loans made or maintained as LIBO Rate Loans, occurring on more than four different dates, and (c) in the case of Term C Loans made or maintained as LIBO Rate Loans, occurring on more than four different dates; (b) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (c) no Interest Period for any Loan may end later than the Stated Maturity Date for such Loan. "Investment" means, relative to any Person, (a) any loan or advance made by such Person to any other Person (including Affiliates) (excluding, however, commission, travel, petty cash and similar advances to officers and employees made in the ordinary course of business); (b) any Contingent Liability of such Person incurred in connection with loans or advances described in clause (a); (c) any ownership or similar interest held by such Person in any other Person; and (d) any other item that is or would be classified as an investment on a balance sheet of such Person prepared in accordance with GAAP. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of such Investment. If Holdings or any Subsidiary of Holdings sells, assigns, transfers or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of Holdings such that, after giving effect thereto, such Person is no longer a Subsidiary of Holdings, Holdings or such Subsidiary shall be deemed to have made an Investment on the date of such sale, assignment, transfer or other disposition equal to the fair A-36 market value of the Equity Interests of such Subsidiary not sold, assigned, transferred or otherwise disposed of in an amount determined as provided in clause (d) of Section 7.2.6 of the Credit Agreement. "Issuance Fee or Expense" means any fee or expense incurred by the Borrower in connection with the raising of debt or equity to finance the Main Project which is paid on or before the Closing Date as more fully set forth on Schedule IX to the Credit Agreement. "Issuer" means Scotiabank in its capacity as issuer of the Letters of Credit. At the request of Scotiabank, another Lender or an Affiliate of Scotiabank may issue one or more Letters of Credit under the Credit Agreement. "Keep-Well Agreement" means, on any date, the Keep-Well Agreement, as originally in effect on the Closing Date, by the Sponsors and ABH in favor of the Lenders substantially in the form of Exhibit D to the Credit Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Knowledge" of any Obligor means, at any time and relative to any matter, knowledge which the Authorized Representatives of such Obligor would have after inquiring of the current employees of such Obligor and its Subsidiaries who would reasonably be expected to have knowledge regarding such matter, whether or not such Authorized Representatives actually made inquiry of such employees. "Land Equity" is defined in clause (a) of the fifth recital of the Credit Agreement. "LCNI" means London Clubs Nevada Inc., a Nevada corporation. "LCNI Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of LCNI pursuant to clause (b) of Section 5.1.3 of the Credit Agreement, as originally in effect on the Closing Date, in substantially the form of Exhibit E-6 to the Credit Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Legal Requirement" means, relative to any Person or property, all laws (including Nevada Gaming Laws, if applicable), statutes, codes, regulations, rules, acts, ordinances, permits, licenses, authorizations, directions and requirements of all Governmental Instrumentalities, departments, commissions, boards, courts, authorities, agencies, officials and officers, and any deed restrictions or other requirements of record, applicable to such Person or such property, or any portion thereof or interest therein or any use or condition of such property or any portion thereof or interest therein (including those relating to zoning, planning, subdivision, building, safety, health, use, environmental quality and other similar matters). A-37 "Lender" is defined in the preamble of the Credit Agreement and, in addition, shall include any commercial bank or other financial institution that becomes a Lender pursuant to Section 10.11.1 of the Credit Agreement. "Lender Assignment Agreement" means a lender assignment agreement substantially in the form of Exhibit H to the Credit Agreement. "Lender Default" means (x) the refusal (which has not been retracted) of a Lender to make available its portion of any Borrowing or to fund its portion of any unreimbursed payment under Section 2.6.1 of the Credit Agreement or (y) a Lender having notified the Administrative Agent or the Borrower that it does not intend to comply with its obligations under Section 2.3 or under Section 2.6.1 of the Credit Agreement, in either case, as a result of the appointment of a receiver or conservator with respect to such Lender at the direction or request of any regulatory agency or authority. "Lender's Environmental Liability" means any and all losses, liabilities, obligations, penalties, claims, litigation, demands, defenses, costs, judgments, suits, proceedings, damages (including consequential damages), disbursements or expenses of any kind or nature whatsoever (including reasonable attorneys' fees at trial and appellate levels and consultants' and experts' fees and disbursements and expenses incurred in investigating, defending against or prosecuting any litigation, claim or proceeding) which may at any time be imposed upon, incurred by or asserted or awarded against any Lender or any of such Lender's parent and subsidiary corporations, and their Affiliates, shareholders, directors, officers, employees, and agents in connection with or arising from: (a) any Hazardous Substances on, in, under or affecting all or any portion of any property of the Borrower, any of the Borrower's Subsidiaries or Aladdin Bazaar, the groundwater thereunder, or any surrounding areas thereof to the extent caused by Releases from the Borrower, any of the Borrower's Subsidiaries, any other Aladdin Party or Aladdin Bazaar or any of their respective properties; (b) any misrepresentation, inaccuracy or breach of any warranty, contained or referred to in Section 6.12 of the Credit Agreement; (c) any violation or claim of violation by the Borrower, any of the Borrower's Subsidiaries, any other Aladdin Party or Aladdin Bazaar of any Environmental Laws; or (d) the imposition of any Lien for damages caused by or the recovery of any costs for the cleanup, release or threatened release of Hazardous Substances by the Borrower, any of the Borrower's Subsidiaries, any other Aladdin Party or Aladdin Bazaar, or in connection with any property owned or formerly owned by the Borrower, any of the Borrower's Subsidiaries, any other Aladdin Party or Aladdin Bazaar, as the case may be. A-38 "Lender's Tax" is defined in Section 4.6 of the Credit Agreement. "Letter of Credit" is defined in Section 2.1.2 of the Credit Agreement. "Letter of Credit Commitment" means, (x) relative to an Issuer, such Issuer's obligation to issue Letters of Credit pursuant to Section 2.1.2 of the Credit Agreement and (y) relative to each Lender (other than the Issuer) that has a Term A Loan Commitment, the obligation of such Lender to participate in Letters of Credit pursuant to Section 2.6.1 of the Credit Agreement. "Letter of Credit Commitment Amount" means, on any date, a maximum amount of $20,000,000, as such amount may be permanently reduced from time to time pursuant to Section 2.2 of the Credit Agreement. "Letter of Credit Disbursement" is defined in Section 2.6.2 of the Credit Agreement. "Letter of Credit Disbursement Date" is defined in Section 2.6.2 of the Credit Agreement. "Letter of Credit Issuance Request" means a Letter of Credit request and certificate duly executed by an Authorized Representative of the Borrower substantially in the form of Exhibit L-2 to the Credit Agreement. "Letter of Credit Outstandings" means, on any date, an amount equal to the sum of (a) the then aggregate amount which is undrawn and available under all issued and outstanding Letters of Credit, plus (b) the then aggregate amount of all unpaid and outstanding Letter of Credit Reimbursement Obligations. "Letter of Credit Reimbursement Obligation" is defined in Section 2.6.3 of the Credit Agreement. "Letter of Credit Stated Expiry Date" is defined in Section 2.6 of the Credit Agreement. "LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans, the rate of interest equal to the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the rate per annum at which Dollar deposits in immediately available funds are offered to the Administrative Agent in the London, England interbank market as at or about 11:00 a.m. London, England time two Business Days prior to the beginning of such Interest Period for delivery on the first day of such Interest Period, and in an amount approximately equal to the amount of the LIBO Rate Loans and for a period approximately equal to such Interest Period. A-39 "LIBO Rate Loan" means a Loan bearing interest, at all times during an Interest Period applicable to such Loan, at a fixed rate of interest determined by reference to the LIBO Rate (Reserve Adjusted). "LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: LIBO Rate = LIBO Rate (Reserve Adjusted) -------------------------------- 1.00 - LIBOR Reserve Percentage The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans will be determined by the Administrative Agent on the basis of the LIBOR Reserve Percentage in effect, and the applicable rates furnished to and received by the Administrative Agent from the Lenders, two Business Days before the first day of such Interest Period. "LIBOR Reserve Percentage" means, relative to any Interest Period for LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of or including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. "Lien" means, relative to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest therein). "Line Item" means each of the individual line items set forth in the Main Project Budget. "Line Item Category" means each of the following line item categories of the Main Project Budget: (a) Construction Costs; (b) Indirect Costs; (c) Indirect Fees; A-40 (d) General FF&E; (e) Gaming Equipment; (f) Owner FF&E; (g) Theming; (h) Project Contingency; (i) Mall Project Reimbursement; (j) Capitalized Interest; (k) Fees/Other Expenses; (l) Retirement of Existing Debt; (m) Retirement of Partnership Debt; (n) Pre-Opening Expenses; (o) Working Capital; (p) Investment in Aladdin Music; and (i) Land/Infrastructure Contract. "Loan" means a Term A Loan, a Term B Loan or a Term C Loan of any type. "Loan Document" means, collectively, the Credit 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 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 Privee Agreement, the Assignment of Project Management Agreement, the Borrower Collateral Account Agreement, the Holding 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 the Credit Agreement and such other agreements, whether or not specifically mentioned herein or therein. A-41 "London Clubs" means London Clubs International, plc, a company registered in England and Wales. "London Clubs Contribution" means the $50,000,000 cash contribution by London Clubs indirectly through London Clubs Holding and LCNI in consideration for Common Membership Interests in Holdings. "London Clubs Holdings" means London Clubs Holdings, Ltd., a company registered in England and Wales. "London Clubs Parties" means, collectively, London Clubs and LCNI. "London Clubs Purchase Agreement" means the Amended and Restated Purchase Agreement, dated the Effective Date, among London Clubs, LCNI, AHL, Sommer Enterprises, the Trust, Holdings and the Borrower as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Loss Proceeds" is defined in Section 7.1.20 of the Credit Agreement. "Loss Proceeds Account" is defined in the Borrower Collateral Account Agreement. "Main Project" is defined in clause (a) of the fourth recital of the Credit Agreement. "Main Project Budget" means a budget in substantially the form of Exhibit X-2 to the Credit Agreement (as amended from time to time in accordance with Section 7.2.18 of the Credit Agreement) which shall include (w) a breakdown of all Direct Costs and Indirect Costs by Line Item Categories as set forth on the Trade Detail Report, together with a schedule of costs by trades and Main Project Costs (including Main Project Costs incurred prior to, as well as after, the Effective Date, the Pre-Opening Expenses, the Issuance Fees or Expenses, Debt Service and initial working capital required to operate the Main Project on and after the Opening Date) which (1) are to be paid from the Hotel/Casino Component Funding Sources and (2) are to be constructed and paid for by the Borrower pursuant to the Site Work Agreement for improvements to the Mall Project, (x) a schedule setting forth the FF&E which is to be purchased from the proceeds of the Loans (which FF&E shall not include any Gaming Equipment and/or Specified Equipment), (y) a drawdown schedule for Advances necessary to achieve Final Completion and such other information relative to such Main Project Costs and the funding thereof as the Administrative Agent may reasonably require and (z) a balanced statement of sources and uses of proceeds (and any other funds necessary to complete the Main Project), broken down by Construction Component and Line Item. The Main Project Costs shall not exceed $724,000,000. A-42 "Main Project Budget/Schedule Amendment Certificate" means a Main Project Budget/Schedule Amendment Certificate substantially in the form of Exhibit X-3 to the Credit Agreement. "Main Project Certificate of Occupancy" means a permanent or temporary certificate of occupancy, in either case, for the portion of the Main Project specified in such certificate of occupancy issued by the Building Department pursuant to applicable Legal Requirements which permanent or temporary certificate of occupancy shall permit such portion of the Main Project to be used for its intended purposes, shall be in full force and effect and, in the case of a temporary certificate of occupancy, if such temporary certificate of occupancy shall provide for an expiration date, any Main Project Punchlist Items which must be completed in order for such temporary certificate of occupancy to be renewed or extended shall be completed no later than 15 days prior to the applicable expiration date. "Main Project Costs" means all costs incurred or to be incurred in accordance with the Main Project Budget in connection with the development, design, engineering, procurement, installation, construction, Final Completion and opening of the Main Project, including: (a) all costs incurred under the Design/Build Contract and the Contracts; (b) interest accruing under the Credit Agreement, the other Loan Documents and the Approved Equipment Funding Commitments prior to the Conversion Date; (c) reasonable financing and closing costs related to the Main Project until the Conversion Date, including insurance costs (including, with respect to directors and officers insurance, costs relating to such insurance extending beyond the Conversion Date), guarantee fees, legal fees and costs and expenses, financial advisory fees and expenses, technical fees and expenses (including fees and expenses of the Construction Consultant, the Environmental Consultant and the Insurance Consultant), commitment fees, management fees, agency fees (including fees and expenses of the Disbursement Agent and the Administrative Agent), interest, taxes (including value-added tax and Restricted Payments made in accordance with clause (c) of Section 7.2.6 of the Credit Agreement) and other out-of-pocket expenses payable by the Borrower under all documents related to the financing and construction of the Main Project until the Conversion Date; (d) the costs of acquiring Permits for the Main Project prior to the Final Completion Date (including Permits required for the operation of the Main Project subsequent to the Final Completion Date); (e) costs incurred in settling insurance claims in connection with Events of Loss and collecting Loss Proceeds; A-43 (f) amounts due under the Energy Project Service Agreement prior to the Conversion Date; and (g) without duplication, working capital costs. "Main Project Document" means, collectively, the Design/Build Contract, the Fluor Guaranty, the Contracts, the Energy Project Service Agreement, the Energy Project Ground Lease, the Mall Project Ground Lease, the Music Project Ground Lease, the Theater Lease (if entered into), the Reciprocal Easement Agreement, the Common Parking Area Use Agreement, the Site Work Agreement, the Project Management Agreement, the Development Agreement or any other document or agreement entered into on, prior to or after the Effective Date, relating to the development, construction, maintenance or operation of the Main Project (other than the Loan Documents and the Discount Note Trust Indenture), as the same may be amended from time to time in accordance with the terms and conditions of the Credit Agreement and thereof. "Main Project Easement" means any easement appurtenant, easement in gross, license agreement or other right running for the benefit of the Borrower or appurtenant to the Main Project Parcel, including those easements and licenses described in the Reciprocal Easement Agreement and each Title Policy. "Main Project Intended Use" means each intended use of the Main Project, as more particularly set forth on Exhibit O to the Credit Agreement. "Main Project Parcel" means the portion of the Site described on Exhibit N-3 to the Credit Agreement together with the Main Project Easements. "Main Project Punchlist Completion Certificate" means the Main Project Punchlist Completion Certificate substantially in the form of Exhibit V to the Credit Agreement. "Main Project Punchlist Item" means any minor or insubstantial detail of construction or mechanical adjustment, the non-completion of which, when all such items are taken together, will not interfere in any material respect with the use or occupancy of any portion of the Main Project for its intended purposes or the ability of the owner of the Main Project or the Energy Project Provider, as applicable, to perform work that is necessary or desirable to prepare such portion of the Main Project for such use or occupancy; provided, however, that, in all events, "Main Project Punchlist Items" shall include the items set forth in the punchlist to be delivered by the Borrower in connection with Substantial Completion (as defined in the Design/Build Contract) and all items that are listed on the "punchlists" furnished by the Building Department, the Nevada Department of Transportation or the Clark County Department of Public Works in connection with, or after, the issuance of a temporary Main Project Certificate of Occupancy for the portion of the Main Project covered thereby as those that must be completed in order for the Building Department to issue a permanent Main Project Certificate of Occupancy. A-44 "Main Project Security" means all real and personal property which is subject or is intended to become subject to the security interests or liens granted by any of the Operative Documents. "Major Contractor" means a Contractor who is party to a Material Main Project Document. "Mall Project" is defined in clause (b) of the fourth recital of the Credit Agreement. "Mall Project Completion Assignment" means, on any date, the Mall Project Completion Assignment, as originally in effect on the Closing Date, from Holdings in favor of the Lenders substantially in the form of Exhibit G to the Credit Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Mall Project Easement" means any easement appurtenant, easement in gross, license agreement or other right running for the benefit of Aladdin Bazaar or appurtenant to the Mall Project Parcel, including those certain easements and licenses described in the Reciprocal Easement Agreement and each Title Policy. "Mall Project Ground Lease" means, on any date, the Lease, as originally in effect on the Effective Date, between the Borrower and Aladdin Bazaar and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Mall Project Parcel" means the portion of the Site described on Exhibit N-4 to the Credit Agreement, together with the Mall Project Easements. "Mall Project Parcel Creation Date" means the date on which the Mall Project Parcel is created in accordance with clause (b) of Section 7.1.19 of the Credit Agreement. "Mandatory Prepayment" is defined in clause (c) of Section 3.1.1 of the Credit Agreement. "Material Adverse Effect" means (x) a material adverse effect on the financial condition, business, property, prospects of the Borrower or on its ability to perform in all material respects its obligations under any Operative Document to which it is a party, (y) a material adverse effect on the financial condition, business, property, prospects and ability of any other Project Party to perform in all material respects its obligations under any Operative Document to which it is a party or (z) a material impairment of the validity or enforceability of, or a material impairment of the rights, remedies or benefits available to the Administrative Agent, the Issuer or the Lenders under the Credit Agreement or any other Operative Document; provided, however, that whenever the term "Material Adverse Effect" is used in a representation or warranty made by the Borrower, A-45 such representation or warranty as it relates to clause (y) above shall be deemed to have been made to the Borrower's Knowledge. "Material Main Project Document" means the Mall Project Ground Lease, the Music Project Ground Lease, the Reciprocal Easement Agreement, the Site Work Agreement, the Common Parking Area Use Agreement, the Energy Project Ground Lease, the Energy Project Service Agreement, the Theater Lease, the Design/Build Contract, the Fluor Guaranty, the Project Management Agreement, the Development Agreement any other material agreement, certificate, document or Instrument delivered in connection with or by the Borrower and any other Person to any Material Main Project document and such other agreements, whether or not specifically mentioned herein or therein and, without duplication, any Main Project Document with a total contract amount in excess of $2,500,000. "Membership Interest" means, relative to any Person which is a limited liability company, a membership interest or a limited liability company interest, as the case may be, of such Person. "Merrill Lynch" is defined in the preamble of the Credit Agreement. "Minimum Fixed Charge Coverage Ratio" means, as of the close of any Fiscal Quarter, commencing with the close of the Fiscal Quarter in which the Conversion Date occurs, the ratio computed for the period consisting of such Fiscal Quarter (or such shorter period of any Fiscal Quarter after the occurrence therein of the Conversion Date and each of the three immediately prior Fiscal Quarters (or such lesser number of Fiscal Quarters to have closed since the Conversion Date) of: (a) EBITDA (for all such Fiscal Quarters or such shorter period, as the case may be and determined for any period ending on or prior to the first anniversary of the Conversion Date, consistently with the proviso to the definition of "EBITDA"); to (b) the sum (for all such Fiscal Quarters or such shorter period, as the case may be) of (i) Interest Expense; plus (ii) scheduled principal repayments of the Loans pursuant to clauses (b) and (c) of Section 3.1.1 of the Credit Agreement after giving effect to any reductions in such scheduled principal repayments attributable to any optional or A-46 mandatory prepayments of the Loans and scheduled payments made with respect to the FF&E Financing; plus (iii) the amount of all federal, state and local income taxes (whether paid in cash or deferred) of the Borrower paid by the Borrower or, if the Borrower is treated as a pass-through entity or is not treated as a separate entity for United States federal income tax purposes, the amount of Restricted Payments made by the Borrower in accordance with clause (c) of Section 7.2.6 of the Credit Agreement, subject to the terms thereof, in each case, in cash during such Fiscal Quarters; plus (iv) Restricted Payments of the types described in clause (d) of Section 7.2.6 of the Credit Agreement made in cash during such Fiscal Quarters; plus (v) Capital Expenditures of the Borrower actually made or reserved during all such Fiscal Quarters pursuant to Section 7.2.7 of the Credit Agreement; provided, however, that in computing the Minimum Fixed Charge Coverage Ratio for any such period ending on or prior to the first anniversary of the Conversion Date, the amount determined pursuant to clause (b) shall equal the product of (x) the sum of the amounts determined pursuant to clause (b) for such period multiplied by (y) a fraction, the numerator of which is equal to 365 and the denominator of which is equal to the number of days that have elapsed in such period. "Moody's" means Moody's Investors Service, Inc., a Delaware corporation, or any successor thereto. "Music Investment Prepayment" is defined in clause (d) of Section 3.1.1 of the Credit Agreement. "Music Project" is defined in clause (c) of the fourth recital of the Credit Agreement. "Music Project Easement" means any easement appurtenant, easement in gross, license agreement or other right running for the benefit of Aladdin Music or appurtenant to the Music Project Parcel, including those certain easements and licenses described in the Reciprocal Easement Agreement and each Title Policy. A-47 "Music Project Ground Lease" means, on any date, the Lease, as originally in effect on the Effective Date, between the Borrower and Aladdin Music and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Music Project Parcel" means the portion of the Site described on Exhibit N-5 to the Credit Agreement, together with the Music Project Easements. "Music Project Parcel Creation Date" means the date on which the Music Project Parcel is created in accordance with clause (c) of Section 7.1.19 of the Credit Agreement. "Net Distribution Amount" means, for any period, the amount of fees paid to AMH under any keep-well agreement relating to the Music Project and then paid as distributions in cash to the Borrower by AMH to the extent permitted thereunder. "Net Income" means, for any period, the aggregate of all amounts (including extraordinary losses) which, in accordance with GAAP, would be included in determining net income on the financial statements of the Borrower for such period (excluding, however, (x) all amounts in respect of any extraordinary gains and any non-cash income and (y) net income of any Subsidiary, other than any Net Distribution Amount paid in cash to the Borrower during such period). "Net Worth" means the net worth of the Borrower determined in accordance with GAAP. "Nevada Gaming Authority" means the Nevada Gaming Commission, the Nevada State Gaming Control Board or the Clark County Liquor and Gaming Licensing Board. "Nevada Gaming Law" means the Nevada Gaming Control Act, as codified in Chapter 463 of the NRS, as amended from time to time, and the regulations of the Nevada Gaming Commission promulgated thereunder, as amended from time to time, and Clark County Code Sections 8.04.010 to 8.04.310 and 8.20.010 to 8.20.580, as amended from time to time. "Non-Defaulting Lender" means and includes each Lender other than a "Defaulting Lender". "Note" means a Term A Note, a Term B Note, a Term C Note or a Registered Note. "Note Construction Disbursement Account" is defined in the Holdings Collateral Account Agreement. "Noteholder Completion Guaranty" means, on any date, the Noteholder Completion Guaranty, as originally in effect on the Effective Date, by the Completion Guarantors in favor of the Discount Note Indenture Trustee (for the benefit of the Discount Noteholders) as thereafter A-48 from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "NRS" means Nevada Revised Statutes. "Obligations" means (x) all loans, advances, debts, liabilities and obligations, howsoever arising, owed by the Borrower under the Credit Agreement to any Lender of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, pursuant to the terms of the Disbursement Agreement, any of the Loan Documents or any of the other Operative Documents, including all interest, fees, charges, expenses, attorneys' fees, consultants' fees and accountants' fees chargeable to the Borrower in connection with such Person's dealings with the Borrower and payable by the Borrower under the Credit Agreement or thereunder; (y) any and all sums advanced by the Lenders in order to preserve the Main Project Security or preserve any Secured Parties' security interest in the Main Project Security, including all protective advances; and (z) in the event of any proceeding for the collection or enforcement of, or any "working out" of, the Obligations after an Event of Default shall have occurred and be continuing, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Main Project Security, or of any exercise by any Secured Party of its rights under the Operative Documents, together with reasonable attorneys' fees and court costs. "Obligor" means, as the context may require, the Borrower, each other Aladdin Party, LCNI, London Clubs Holdings, London Clubs, each Sponsor, each Completion Guarantor and each other Person (other than the Agents, the Issuer or any Lender) to the extent such Person is obligated under the Credit Agreement or any other Operative Document. "Ongoing Investment" is any Investment listed in Item 7.2.5(a) on the Disclosure Schedule. "On Schedule Certificate" means a certificate in the form of Exhibit AA to the Credit Agreement. "Opening Condition" means, collectively, the following: (a) Substantial Completion shall have occurred; (b) the Hotel/Casino shall have received a Main Project Certificate of Occupancy from the Building Department (and a copy of such certificate shall have been delivered to the Administrative Agent); (c) each remaining Main Project Punchlist Item with respect to the Hotel/Casino and the completion thereof shall be such that it will not interfere with or disrupt the A-49 operation of the Main Project for its intended purposes or detract from the aesthetic appearance of the Main Project other than to a de minimis extent, as reasonably determined by the Owner Representative and confirmed by the Construction Consultant; (d) the failure to complete each remaining Main Project Punchlist Item would not interfere with or disrupt the operation of the Main Project for its intended purposes or detract from the aesthetic appearance of the Main Project other than to a de minimis extent, as reasonably determined by the Owner Representative and confirmed by the Construction Consultant; and (e) the Borrower shall have available a fully trained staff to operate the Hotel/Casino in accordance with first-class industry standards for a hotel/casino operation of similar size and location. "Opening Date" means the date on which all of the Opening Conditions are satisfied. "Operating" means the first time that (t) all Gaming Licenses have been granted and are not then revoked or suspended, (u) all Liens (other than Permitted Liens) related to the development, construction, and equipping of the Main Project have been paid or, if payment is not yet due or if such payment is contested in good faith by Borrower, either (1) sufficient funds remain in the Construction Note Disbursement Account to discharge such Liens or (2) such Liens have been bonded, (v) the Construction Consultant, the Design/Builder and the Architect of Record shall have delivered one or more certificates to the Administrative Agent each certifying that the Main Project is Complete in all material respects in accordance with the Plans and Specifications and all applicable Legal Requirements, (w) the Main Project is in a condition (including installation of FF&E) to receive invitees in the ordinary course of business, (x) gaming and other operations in accordance with applicable Legal Requirements are open to the general public and are being conducted at the Hotel/Casino, (y) a Main Project Certificate of Occupancy has been issued for the Main Project by the Building Department and (z) a notice of completion of the Main Project has been duly recorded. "Operating Costs" means all actual cash costs incurred by the Borrower and related to the operation of the Main Project or any portion thereof in the ordinary course of business, including costs incurred for labor, consumables, utility services and all other operation-related costs; provided, however, that (x) Operating Costs shall not include non-cash charges (including depreciation and amortization) and (y) Debt Service shall constitute Operating Costs from and after the Conversion Date but not prior to such date. "Operative Document" means any Loan Document or Main Project Document. "Organizational Document" means, relative to any Obligor, as applicable, its certificate or articles of incorporation, by-laws, certificate of partnership, partnership agreement, certificate of formation, articles of organization, operating agreement, limited liability company or A-50 operating agreement and all shareholder agreements, voting trusts and similar arrangements applicable to any of such Obligor's partnership interests, limited liability company interests or authorized shares of capital stock. "Outside Completion Deadline" means the date which is 28 months following the Effective Date, time being of the essence; provided, however, if a Force Majeure Event occurs, then the Borrower shall be permitted to extend the Completion Date for up to one year subject to the satisfaction by the Borrower of the conditions to such extension as set forth in the definition of "Force Majeure Event". "Owner Representative" means Tishman Construction Corporation of Nevada. "Participant" is defined in Section 10.11.2 of the Credit Agreement. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (excluding, however, a multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. "Percentage" means, relative to any Lender, the applicable percentage relating to Term A Loans, Term B Loans or Term C Loans, as the case may be, as set forth opposite its signature to the Credit Agreement under the applicable column heading or as set forth in a Lender Assignment Agreement under the applicable column heading, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 10.11.1 of the Credit Agreement. A Lender shall not have any Commitment to make Term A Loans, Term B Loans or Term C Loans, as the case may be, if its percentage under the applicable column heading is zero percent (0%). "Permit" means any material building, construction, land use, environmental or other permit, license, franchise, approval, consent and authorization (including central bank and planning board approvals from applicable Governmental Instrumentalities and approvals required under the Nevada Gaming Law) required for or in connection with the construction, ownership, use, occupation and operation of the Main Project and the transactions provided for in the Credit Agreement and the other Operative Documents. A-51 "Permitted Encumbrance" means any encumbrance against all or a portion of the Site as set forth in Exhibit BB to the Credit Agreement. "Permitted Exception" means any exception to title to all or a portion of the Site as set forth in Exhibit CC to the Credit Agreement. "Permitted Lien" means any of the following types of Liens (excluding, however, any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA, any such Lien relating to or imposed in connection with any Environmental Claim and any such Lien expressly prohibited by any applicable terms of any of the Operative Documents or the Discount Note Indenture): (a) Liens in favor of the Borrower; (b) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business or in the construction of the Main Project; provided, however, that the Borrower has obtained a title insurance endorsement insuring against losses arising therewith or, if such Lien arises after completion of the Main Project, the Borrower has bonded such Lien within a reasonable time after becoming aware of the existence of such Lien; (c) Liens securing the Obligations under the Operative Documents; (d) Liens existing on the Effective Date and set forth in Item 7.2.3 of the Disclosure Schedule; (e) (x) Liens for Impositions or (y) statutory Liens of landlords, and carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business or in the construction of the Main Project, in the case of each of items (x) and (y), with respect to amounts that either (1) are not yet delinquent or (2) are being diligently contested in good faith by appropriate proceedings, provided, however, that, in each case, any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (f) easements, rights-of-way, avigational servitude, restrictions, minor defects or irregularities in title and other similar charges or encumbrances which do not interfere in any material respect with the ordinary conduct of business of the Borrower; (g) Liens created by the Reciprocal Easement Agreement; (h) Liens created by the Disbursement Agreement; A-52 (i) licenses of patents, trademarks and other intellectual property rights granted by the Borrower in the ordinary course of business; (j) any judgment attachment or judgment Lien not constituting an Event of Default; (k) subject to the terms of the GECC Intercreditor Agreement, Liens to secure all obligations under the FF&E Financing; provided, however, that (x) the principal amount of such Indebtedness does not exceed the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct expenses paid or charged in connection with, such purchase) of the FF&E purchased or leased with the proceeds thereof and (y) the aggregate principal amount of such Indebtedness including any Permitted Refinancing Indebtedness incurred to refinance or replace any Indebtedness secured by such Lien does not exceed $80,000,000 (including obligations characterized as operating leases or other off-balance sheet financing arrangements) outstanding at any time; (l) Liens securing obligations arising under the Contribution Agreement and between the parties thereto so long as such Liens cannot be enforced by the holder thereof until all Obligations have been paid in cash in full, all Letters of Credit have been terminated or expired and all Commitments have terminated provided, however, that to the extent any distributions on any relevant Capital Stock or Membership Interests, as the case may be, are permitted to be made to the shareholders or members, as the case may be, in respect thereof under the Loan Documents, such holder shall be permitted to enforce such Liens (including by causing the redirection of any such distribution to such holder); (m) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (excluding, however, obligations for the payment of borrowed money), incurred in the ordinary course of business so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Main Project Security on account thereof, (x) for amounts not yet overdue or (y) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of 5 days) are being contested in good faith by appropriate proceedings, so long as (1) such reserves or other appropriate provisions, if any, as shall be required by generally accepted accounting principles shall have been made for any such contested amounts, and (2) in the case of a Lien with respect to any portion of the Main Project Security, such contest proceedings conclusively operate to stay the sale of any portion of the Main Project Security on account of such Lien; A-53 (n) Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time due and payable or which is being contested in good faith by appropriate governmental proceedings promptly instituted and diligently contested, so long as (x) such reserve or other appropriate provision, if any, as shall be required in conformity with generally accepted accounting principles shall have been made therefor through an allocation in the Trade Detail Report and (y) in case of any charge or claim which has or may become a Lien against any of the Main Project Security, such contest proceedings conclusively operate to stay the sale of any portion of the Main Project Security to satisfy such charge or claim; (o) Liens created by the Common Parking Area Use Agreement; and (p) Liens created pursuant to Permitted Refinancing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien and is permitted under Section 7.2.2 of the Credit Agreement and which has been incurred in accordance with such Section; provided, however, that such Liens do not extend to cover any property or assets of the Borrower not already securing the Indebtedness so refinanced. "Permitted Refinancing Indebtedness" means any Indebtedness of the Borrower issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Borrower; provided, however, that (u) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount plus accrued interest on the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith), (v) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, (w) such Indebtedness is incurred by the Borrower as the Obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, (x) the security, if any, for the Permitted Refinancing Indebtedness shall be the same as that for the Indebtedness being refinanced (except to the extent that less security is granted to holders of such refinancing Indebtedness), (y) the holders of the Permitted Refinancing Indebtedness are not afforded covenants, defaults, rights or remedies more burdensome to the obligor or obligors than those contained in the Indebtedness being refinanced and (z) the Permitted Refinancing Indebtedness is subordinated to the same degree, if any, as the Indebtedness being refinanced. "Person" means any natural person, corporation, limited liability company, partnership, joint venture, joint stock company, firm, association, trust or unincorporated organization, government, governmental agency, Governmental Instrumentality, court or any other legal entity, whether acting in an individual, fiduciary or other capacity. "Plan" means any Pension Plan or Welfare Plan. A-54 "Planet Hollywood" means Planet Hollywood International, Inc. "Plans and Specifications" means all plans, specifications, design documents, schematic drawings and related items for the design, architecture and construction of the Main Project that are listed on Schedule VII to the Credit Agreement, as the same may be (x) finalized in a manner that reflects a natural evolution of their status on the date of the Credit Agreement and in a manner consistent with the standards set forth in Section 7.2.17 of the Credit Agreement and (y) amended in accordance with Section 7.2.17 of the Credit Agreement. "Pledge Agreement" means, as the context may require, the Holdings Pledge Agreement, the LCNI Pledge Agreement, the Sommer Enterprises Pledge Agreement, the AHL Pledge Agreement, the Enterprises Pledge Agreement, the Borrower Pledge Agreement or the AMH Pledge Agreement. "Pledged Entity" means, at any time, each Person in respect of which the Lenders have been granted, at such time, a security interest in and to, or a pledge of, any of the issued and outstanding interests or shares of Capital Stock of such Person. "Preferred Stock" means any Equity Interest with preferential right of payment of dividends or distributions, as applicable, or upon liquidation, dissolution or winding up. "Pre-Opening Expense" means any expense of the type listed in Schedule VIII to the Credit Agreement. "Pre-Opening Revenues" means all operating revenues received by the Borrower with respect to the Main Project prior to the Opening Date. "Process Agent" is defined in Section 10.14 of the Credit Agreement. "Project Management Agreement" means, on any date, the Project Management Agreement, as originally in effect on the Effective Date, between AHL and the Owner Representative and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Project Party" means the Borrower, AHL, Sommer Enterprises, Capital, Holdings, London Clubs, LCNI, the Design/Builder or Fluor. "Quarterly Payment Date" means the last Business Day of each March, June, September and December. "Rate Protection Agreement" means any interest rate swap, cap, collar or similar agreement entered into by the Borrower in respect of the Loans pursuant to the terms of the Credit Agreement under which the counterparty to such agreement is (or, at the time such Rate A-55 Protection Agreement was entered into, was) a Lender or an Affiliate of a Lender reasonably acceptable to the Administrative Agent. "Real Property" means, relative to any Person, such Person's present and future right, title and interest (including any leasehold estate) in (a) any plots, pieces or parcels of land; (b) any improvements, buildings, structures and fixtures now or hereafter located or erected thereon or attached thereto of every nature whatsoever; (c) any other interests in property constituting appurtenances to the Site, or which hereafter shall in any way belong, relate or be appurtenant thereto; and (d) all other rights and privileges thereunto belonging or appertaining and all extensions, additions, improvements, betterments, renewals, substitutions and replacements to or of any of the rights and interests described in clause (c). "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; A-56 in each case, which is documented by the Borrower in a Realized Savings Certificate substantially in the form of Exhibit W to the Credit Agreement, duly executed and completed with all exhibits and attachments thereto. "Reciprocal Easement Agreement" means, on any date, the Construction, Operation and Reciprocal Easement Agreement, as originally in effect on the Effective Date, by and among the Borrower, Aladdin Bazaar and AMH and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Register" is defined in clause (b) of Section 2.8 of the Credit Agreement. "Registered Note" is defined in Section 2.8 of the Credit Agreement, in the form of Exhibit A-4 to the Credit Agreement (as such promissory note may be amended, endorsed or otherwise modified from time to time). "Release" means a "release", as such term is defined in CERCLA. "Remaining Costs" means, without duplication, the sum of (w) the costs required to achieve Final Completion plus (x) the Retainage Amounts to be paid to Persons who have supplied labor or materials in connection with such line item, plus (y) the amount required to pay fees and interest at the maximum rate of interest set forth in the Loan Documents (after giving effect to the Rate Protection Agreement) through the date which is six months after the Conversion Date plus (z) the Required Minimum Contingency. "Required Lenders" means, at any time, (a) Non-Defaulting Lenders holding at least 66 2/3% of the sum of the aggregate outstanding principal amount of the Loans then held by such Lenders plus the participation interests of such Lenders in the Letter of Credit Outstandings, or (b) if no Loans or Letter of Credit are then outstanding, Lenders having at least 66 2/3% of the Commitments; provided, however, that (x) amendments affecting only one class of Lenders (with a class for each of the Term A Lenders, the Term B Lenders and the Term C Lenders) will require the approval of the Non-Defaulting Lenders holding 66 2/3% or more of the principal amount of the Loans, Letters of Credit or, if applicable, Commitments for such class and (y) the consent of all of the Non-Defaulting Lenders in the same class and of all Non-Defaulting Lenders in all classes shall be required with respect to the matters set forth in Section 10.1 of the Credit Agreement. "Required Minimum Contingency" means (w) during the first month after the Effective Date, no less than $24,000,000, (x) during the second month after the Effective Date, no less than A-57 $23,000,000, (y) during the third month after the Effective Date, no less than $22,000,000 and (z) thereafter the product of (1) $25,000,000 reduced by (2) the $25,000,000 multiplied by the percentage completed in respect of such Line Item Category on the date that the Advance is made. "Required Scope Change Approval" means, relative to each proposed Scope Change, the consent of the Administrative Agent. "Restricted Payment" is defined in clause (b) of Section 7.2.6 of the Credit Agreement. "Retainage Amount" means, at any given time, amounts which have accrued and are owing under the terms of the Design/Build Contract, a Contract or a Subcontract, as the case may be, for work or services already provided but which at such time (and in accordance with the terms of the Design/Build Contract, the Contract or Subcontract, as the case may be) are being withheld from payment to the Design/Builder, a Contractor or a Subcontractor, as the case may be, until certain subsequent events (e.g., completion benchmarks) have been achieved under the Design/Build Contract or relevant Contract or Subcontract. "Reviewing Accountant" means Arthur Andersen LLP or any nationally recognized firm of independent public accountants subsequently selected by the Borrower with the consent of the Administrative Agent from time to time (which shall not be unreasonably withheld or delayed), as auditors of the Borrower. "S&P" means Standard & Poor's Ratings Group, Inc., a New York corporation, or any successor thereto. "Salle Privee Agreement" means, on any date, the Salle Privee Agreement, as originally in effect on the Effective Date, between the Borrower, LCNI and London Clubs and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Scheduled Amortization" is defined in clause (b) of Section 3.1.1 of the Credit Agreement. "Scope Change" means any change in the "Services" or "Work". "Scotiabank" is defined in the preamble of the Credit Agreement. "Scotiabank Fee Letter" means the confidential letter agreement, dated December 4, 1997, among the Borrower, the Sponsors and Scotiabank. "SEC" means the Securities and Exchange Commission. A-58 "Secured Party" means the Lenders, the Issuer, the Agents, each counterparty to a Rate Protection Agreement that is (or at the time such Rate Protection Agreement was entered into, was) a Lender or an Affiliate thereof reasonably acceptable to the Administrative Agent and, in each case, each of their respective successors, transferees and assigns. "Security Agreement" means, on any date, the Security Agreement executed and delivered by an Authorized Representative of the Borrower pursuant to Section 5.1.5 of the Credit Agreement, as originally in effect on the Closing Date, in substantially the form of Exhibit F to the Credit Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Services" is defined in Section 1.7 of the Design/Build Contract. "Servicing and Collateral Account Agreement" means, on any date, the Servicing and Collateral Account Agreement, as originally in effect on the Closing Date, among the Disbursement Agent, the Borrower and the Servicing Agent and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Shoulder Space" means the property and space described in Exhibit N-6 to the Credit Agreement. "Site" is defined in the fourth recital of the Credit Agreement and is more fully described in Exhibit N-1 to the Credit Agreement. "Site Easement" means any easement appurtenant, easement in gross, license agreement and other right running for the benefit of the Borrower, the Main Project, the Mall Project and the owner of the Mall Project, the Music Project and the owner of the Music Project, the Energy Project and the lessee of the Energy Project or appurtenant to the Site, including those certain easements and licenses described in the Title Policy. "Site Work Agreement" means, on any date, the Site Work Development and Construction Agreement, as originally in effect on the Effective Date, among the Borrower, AHL and Aladdin Bazaar and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms of the Credit Agreement. "Solvency Certificate" means a solvency certificate to be executed and delivered by the chief financial or accounting Authorized Representative of the Borrower substantially in the form of Exhibit P to the Credit Agreement. "Solvent" means, relative to any Person and its Subsidiaries on a particular date, that on such date (w) the fair value of the property of such Person and its Subsidiaries on a consolidated basis is greater than the total amount of liabilities, including contingent liabilities, of such Person A-59 and its Subsidiaries on a consolidated basis, (x) the present fair salable value of the assets of such Person and its Subsidiaries on a consolidated basis is not less than the amount that will be required to pay the probable liability of such Person and its Subsidiaries on a consolidated basis on its debts as they become absolute and matured, (y) such Person does not intend to, and does not believe that it or its Subsidiaries will, incur debts or liabilities beyond the ability of such Person and its Subsidiaries to pay as such debts and liabilities mature and (z) such Person and its Subsidiaries on a consolidated basis are not engaged in a business or transaction, and such Person and its Subsidiaries on a consolidated basis are not about to engage in business or a transaction, for which the property of such Person and its Subsidiaries on a consolidated basis would constitute an unreasonably small capital. "Sommer Enterprises" means Sommer Enterprises, LLC, a Nevada limited-liability company. "Sommer Enterprises Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of Sommer Enterprises pursuant to clause (c) of Section 5.1.3 of the Credit Agreement, as originally in effect on the Closing Date, in substantially the form of Exhibit E-7 to the Credit Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Specified Equipment" means the portion of the new FF&E together with all improvements and/or additions thereto covered by an FF&E Lease and financed by a portion of the FF&E Financing. "Sponsor" means AHL or London Clubs. "Stated Amount" of each Letter of Credit means the total amount available to be drawn under such Letter of Credit upon the issuance thereof. "Stated Maturity Date" means (a) with respect to all Term A Loans, the date which is the seventh anniversary of the Closing Date; (b) with respect to all Term B Loans, the date which is 8.5 years after the Closing Date; and (c) with respect to all Term C Loans, the tenth anniversary of the Closing Date. "Subcontract" means a contract between the Design/Builder and a Subcontractor which has been entered into in accordance with the Design/Build Contract. "Subcontractor" is defined in the Design/Build Contract. A-60 "Subsidiary" means, relative to any Person, any corporation, partnership or other business entity of which more than 50% of the outstanding capital stock (or other ownership interest) having ordinary voting power to elect the board of directors, managers or other voting members of the governing body of such Person (irrespective of whether at the time Capital Stock (or other ownership interest) of any other class or classes of such Person shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. Except as otherwise indicated herein, references to Subsidiaries refer to Subsidiaries of the Borrower. "Substantial Completion" means that (x) the conditions set forth in the definition of "Completion" have occurred, (y) "Substantial Completion" (as such is defined in Section 31.8 of the General Conditions annexed to the Design/Build Contract as Attachment D) has occurred and (z) a Main Project Certificate of Occupancy has been issued and is outstanding for the Hotel/Casino. "Survey" means, collectively, the surveys required by Section 3.1.24 of the Disbursement Agreement. "Syndication Agent" is defined in the preamble of the Credit Agreement. "Tax" means any federal, state, local, foreign or other tax, levy, impost, fee, assessment or other government charge, including income, estimated income, business, occupation, franchise, property, payroll, personal property, sales, transfer, use, employment, commercial rent, occupancy, franchise or withholding taxes, and any premium, including interest, penalties and additions in connection therewith. "Tax Amount" means, relative to any period, without duplication, the increase in the cumulative United States federal, state and local income tax liability of the holders of Equity Interests in the Borrower (or if the holder is a pass-though entity for United States income tax purposes, the direct or indirect holders of its equity interests subject to United States, state and local income tax) in respect of such interests for such period, plus any additional amounts payable to such holders for taxes arising from ownership of such Equity Interests. "Tenant Improvement" means (x) the portion of the construction to be performed by or on behalf of the Borrower in the interior of the Main Project pursuant to a lease to adapt the same for the initial use and occupancy by the tenant under such lease or (y) if a tenant under a Lease undertakes to complete the work to the portion of the Main Project covered by such Lease, any allowances or payments advanced to such Person by the Borrower. "Term A Lender" means any Lender which has made a Term A Loan Commitment or holds a Term A Loan. A-61 "Term A Loan" is defined in Section 2.1.1 of the Credit Agreement. "Term A Loan Commitment" means the aggregate principal amount of Term A Loans which the Term A Lenders are obligated to make pursuant to Section 2.1.1 of the Credit Agreement. The Term A Loan Commitment shall not exceed $136,000,000. "Term A Loan Commitment Amount" means, on any date, relative to any Term A Lender, the portion of the Term A Loan Commitment of such Term A Lender reduced by the principal amount of any Term A Loans made by such Term A Lender as of such date. The portion of the Term A Loan Commitment of each Term A Lender is set forth below such Term A Lender's signature to the Credit Agreement or in a Lender Assignment Agreement. "Term A Loan Commitment Fee" is defined in Section 3.3.1 of the Credit Agreement. "Term A Loan Commitment Termination Date" means the earlier of (a) the Term B and Term C Loan Commitment Termination Date (if the Term B Loans and Term C Loans have not been made on or prior to such date); (b) the Conversion Date; and (c) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (a) or (b), the Term A Loan Commitments shall terminate automatically and without any further action. "Term A Note" means, on any date, a promissory note of the Borrower payable to any Term A Lender, in the form of Exhibit A-1 to the Credit Agreement (as such promissory note may thereafter from time to time be amended, supplemented, amended and restated, endorsed or otherwise modified), evidencing the aggregate Indebtedness of the Borrower to such Term A Lender resulting from outstanding Term A Loans, and also means all other promissory notes accepted from time to time in substitution or replacement therefor or renewal thereof. "Term B and Term C Loan Commitment Fee" is defined in Section 3.3.1 of the Credit Agreement. "Term B and Term C Loan Commitment Termination Date" means the earlier of (a) February 27, 1998; and (b) the date on which any Commitment Termination Event occurs. A-62 Upon the occurrence of any event described in clause (a) or (b), the Term B Loan Commitments and the Term C Loan Commitments shall terminate automatically and without any further action. "Term B Lender" means any Lender which has made a Term B Loan Commitment or holds a Term B Loan. "Term B Loan" is defined in clause (a) of Section 2.1.3 of the Credit Agreement. "Term B Loan Commitment" means the aggregate principal amount of Term B Loans which the Term B Lenders are obligated to make pursuant to clause (b) of Section 2.1.3 of the Credit Agreement. The Term B Loan Commitment shall not exceed $114,000,000. "Term B Loan Commitment Amount" means, on any date, relative to any Term B Lender, the portion of the Term B Loan Commitment of such Term B Lender reduced by the principal amount of any Term B Loans made by such Term B Lender as of such date. The portion of the Term B Loan Commitment of each Term B Lender is set forth below such Term B Lender's signature to the Credit Agreement or in a Lender Assignment Agreement. "Term B Note" means, on any date, a promissory note of the Borrower payable to any Term B Lender, in the form of Exhibit A-2 to the Credit Agreement (as such promissory note may thereafter from time to time be amended, supplemented, amended and restated, endorsed or otherwise modified), evidencing the aggregate Indebtedness of the Borrower to such Term B Lender resulting from outstanding Term B Loans, and also means all other promissory notes accepted from time to time in substitution or replacement therefor or renewal thereof. "Term C Lender" means any Lender which has made a Term C Loan Commitment or holds a Term C Loan. "Term C Loan" is defined in clause (b) of Section 2.1.3 of the Credit Agreement. "Term C Loan Commitment" means the aggregate principal amount of Term C Loans which the Term C Lenders are obligated to make pursuant to clause (c) of Section 2.1.3 of the Credit Agreement. The Term C Loan Commitment shall not exceed $160,000,000. "Term C Loan Commitment Amount" means, on any date, relative to any Term C Lender, the portion of the Term C Loan Commitment of such Term C Lender reduced by the principal amount of any Term C Loans made by such Term C Lender as of such date. The portion of the Term C Loan Commitment of each Term C Lender is set forth below such Term C Lender's signature to the Credit Agreement or in a Lender Assignment Agreement. "Term C Note" means, on any date, a promissory note of the Borrower payable to any Term C Lender, in the form of Exhibit A-3 to the Credit Agreement (as such promissory note may thereafter from time to time be amended, supplemented, amended and restated, endorsed or A-63 otherwise modified), evidencing the aggregate Indebtedness of the Borrower to such Term C Lender resulting from outstanding Term C Loans, and also means all other promissory notes accepted from time to time in substitution or replacement therefor or renewal thereof. "Theater" is defined in clause (d) of the fourth recital of the Credit Agreement. "Theater Lease" means, on any date, the Lease, to be entered into between the Borrower and Aladdin Music covering the Theater Space as the same may be amended, supplemented, amended and restated, replaced or otherwise modified from time to time in accordance with the terms of the Credit Agreement. "Theater Renovation Completion" means that each of the following has occurred: (a) the renovation of the Theater has been completed substantially in accordance with the Credit Agreement, the Plans and Specifications, the provisions of the Reciprocal Easement Agreement applicable to the Theater and all of the other Operative Documents to the extent that the development, renovation, use or operation of the Theater are affected thereby, except for the Main Project Punchlist Items applicable to the Theater and in substantial compliance with all Legal Requirements pertaining to the renovation of the Theater so as to allow the Theater to be utilized for its intended purpose; (b) reasonable and safe means of access and facilities necessary for the use and occupancy of the Theater have been installed and are operational including corridors, elevators, stairways, heating, ventilation, air conditioning, sanitary, water and electrical facilities and all security systems and life safety systems required by the Plans and Specifications, the Reciprocal Easement Agreement, the other Operative Documents and all Legal Requirements; and (c) there are no outstanding claims or Liens by any Contractor or Subcontractor or any other Person against any portion of the Hotel/Casino Component except for Permitted Liens and Permitted Encumbrances. "Theater Space" means the property and the space described in Exhibit N-7 to the Credit Agreement. "Title Insurer" means, collectively, Stewart Title Guaranty Company and Lawyers Title Insurance Corporation. "Title Policy" means each lenders A.L.T.A. policy of title insurance issued by the Title Insurer as of the Effective Date, as provided in Section 3.1.25 of the Disbursement Agreement, including all amendments thereto, endorsements thereof and substitutions or replacements therefor. A-64 "Total Debt" means, on any date, the outstanding principal amount of all Indebtedness of the Borrower of the type described in clauses (a), (b) and (c) of such definition and (without duplication) any Contingent Liability in respect of any of the foregoing of any other Person. "Total Debt to EBITDA Ratio" means, as of the close of any Fiscal Quarter, commencing with the close of the Fiscal Quarter in which the Conversion Date occurs, the ratio of (a) Total Debt outstanding on the last day of such Fiscal Quarter to (b) EBITDA computed for the period consisting of such Fiscal Quarter (or such shorter portion of any Fiscal Quarter after the occurrence therein of the Conversion Date) and each of the three immediately preceding Fiscal Quarters (or such lesser number of Fiscal Quarters to have closed since the Conversion Date) and determined for any period ending on or prior to the first anniversary of the Conversion Date, consistently with the proviso to the definition of the term "EBITDA". "Trade Detail Report" means a Trade Detail Report in the form of Exhibit DD to the Credit Agreement. "Trademark Security Agreement" means, on any date, the Trademark Security Agreement executed and delivered by an Authorized Representative of the Borrower pursuant to Section 5.1.6 of the Credit Agreement, as originally in effect on the Closing Date, in substantially the form of Exhibit B to the Security Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Transaction" means the transactions contemplated by the Discount Note Indenture and the Operative Documents. "Trust" means the Trust under Article Sixth u/w/o Sigmund Sommer. "Trust Estate" is defined in the Deed of Trust. "type" means, relative to any Loan, the portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan. "UCC" means the Uniform Commercial Code of the jurisdiction the law of which governs the document with respect to the term used. "Unallocated Contingency Balance" means (w) during the first month after the Effective Date, the greater of (1) $24,000,000 or (2) the Unallocated Contingency Calculation, (x) during the second month after the Effective Date, the greater of $23,000,000 or (2) the Unallocated A-65 Contingency Calculation, (y) during the third month after the Effective Date, the greater of $22,000,000 or (2) the Unallocated Contingency Calculation, and (z) thereafter, from time to time, the Unallocated Contingency Calculation. "Unallocated Contingency Calculation" means an amount equal to (x) $25,000,000 minus (y) the product of (1) $25,000,000 multiplied by (2) the percentage of construction completed on the date that the Advance is to be made, as determined by the Construction Consultant. "United States" or "U.S." means the United States of America, its fifty states and the District of Columbia. "Unsuitable Lender" is defined in clause (c) of Section 4.11 of the Credit Agreement. "Voting Stock" means, with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. "Warrant" means the warrants issued by Enterprises on February 18, 1998 which, if exercised, will in the aggregate for all such warrants entitle the holders thereof to acquire an aggregate of not more than 2,215,000 shares of the Capital Stock of Enterprises representing an indirect interest in not more than 10% of the Holdings Common Membership Interests, plus, warrants for up to 1,107,500 shares of the Capital Stock of Enterprises which may be issued in connection with the Mall Project credit enhancement on terms substantially the same as the Warrants issued by Enterprises on February 18, 1998. "Weighted Average Life to Maturity" means, relative to any Indebtedness at any date, the number of years (calculated to the nearest one-twelfth) obtained as the quotient of (x) the sum of the product of (1) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, multiplied by (2) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment divided by (y) the then outstanding principal amount or liquidation preference, as applicable, of such Indebtedness. "Welfare Plan" means a "welfare plan", as such term is defined in Section 3(1) of ERISA. "wholly-owned" means, with respect to any direct or indirect Subsidiary, any Subsidiary all of the outstanding common stock (or similar equity interest) of which (other than any director's qualifying shares or investments by foreign nationals mandated by applicable laws) is owned directly or indirectly by the Borrower. "Work" is defined in Section 1.7 of the Design/Build Contract. A-66 EX-10.4 7 EXHIBIT 10.4 DISBURSEMENT AGREEMENT - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- DISBURSEMENT AGREEMENT among ALADDIN GAMING, LLC, as the Borrower, THE BANK OF NOVA SCOTIA, as the Administrative Agent, STATE STREET BANK AND TRUST COMPANY as the Discount Note Indenture Trustee, ALADDIN GAMING HOLDINGS, LLC, as Holdings, THE BANK OF NOVA SCOTIA, as the Disbursement Agent, THE BANK OF NOVA SCOTIA, as the Securities Intermediary and U.S. BANK NATIONAL ASSOCIATION, as the Servicing Agent - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- DISBURSEMENT AGREEMENT THIS DISBURSEMENT AGREEMENT (the "Disbursement Agreement"), dated as of February 26, 1998, is entered into by and among ALADDIN GAMING, LLC, a Nevada limited liability company (the "Borrower"), THE BANK OF NOVA SCOTIA, a Canadian chartered bank, as the initial Administrative Agent, STATE STREET BANK AND TRUST COMPANY, as the initial Discount Note Indenture Trustee (the "Discount Note Indenture Trustee"), ALADDIN GAMING HOLDINGS, LLC, a Nevada limited liability company ("Holdings"), THE BANK OF NOVA SCOTIA, a Canadian chartered bank, as the initial Disbursement Agent (the "Disbursement Agent"), THE BANK OF NOVA SCOTIA, a Canadian chartered bank, as the initial Securities Intermediary (the "Securities Intermediary") and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States of America, as the initial Servicing Agent (the "Servicing Agent"). RECITALS A. The Project. The Borrower proposes to develop, construct and operate the Aladdin Hotel and Casino (the "Main Project"), a large-scale theme hotel, casino, retail, meeting and entertainment complex and to refurbish or cause the refurbishment of the Theater with related heating, ventilation and air conditioning and power station facilities to be developed at the Site as more particularly described in Exhibit A hereto. B. Design/Build Contract. The Borrower and the Design/Builder are parties to the Design/Build Contract pursuant to which the Design/Builder, subject to certain conditions, limitations and exclusions, will construct the Main Project on a guaranteed maximum price basis. The Design/Builder's obligations under the Design/Build Contract are guaranteed by Fluor as and to the extent provided in the Fluor Guaranty. 1 C. Credit Agreement. Concurrently herewith, the Borrower, the Agents and the Lenders have entered into the Credit Agreement pursuant to which the Lenders have agreed, subject to the terms thereof and hereof, to provide the Bank Credit Facility to the Borrower in an aggregate amount not to exceed $410,000,000 to finance the Main Project Costs, as more particularly described therein. The Completion Guarantors, jointly and severally pursuant to the Completion Guaranty, have guaranteed the completion of the Main Project under the Credit Agreement. D. Discount Note Indenture. Concurrently herewith, Holdings, Capital and the Discount Note Indenture Trustee have entered into the Discount Note Indenture pursuant to which Holdings and Capital will issue the Discount Notes. The net proceeds of the Discount Notes will be applied by the Borrower to the development, construction, equipping and opening of the Main Project in an aggregate amount of approximately $111,000,000. E. Energy Project Provider. Concurrently herewith, the Borrower and the Energy Project Provider have entered into the Energy Project Ground Lease and the Energy Project Development Agreement pursuant to which the Energy Project Provider has agreed, subject to the terms thereof, to construct, test and operate the Energy Project. Pursuant to the Energy Project Ground Lease and the Energy Project Service Agreement, the Energy Project Provider will pay for and construct the Energy Project and, upon completion thereof, will operate and maintain it to provide electricity, chilled water and hot water to the Main Project. In addition, if certain conditions are met, the Energy Project Provider may enter into an energy services agreement to supply similar services to the Mall Project and the Music Project. F. Theater Lease. The Borrower is negotiating with Aladdin Music to enter into the Theater Lease which Theater Lease will provide for the renovation of the decor, light and sound systems, and other facilities of the existing Theater and, upon completion of such renovations, Aladdin Music will operate and maintain the Theater in accordance with the Theater Lease. 2 G. GECC Commitment. Concurrently herewith, the Borrower and GECC have entered into the GECC Commitment pursuant to which GECC has agreed, subject to the terms thereof, to enter into the synthetic lease facility and term loan covering the Gaming Equipment and the Specified Equipment. H. Purpose. The parties are entering into this Disbursement Agreement in order to set forth, among other things, (a) the conditions precedent to the Initial Advance and conditions precedent to Advances and (b) the mechanics for and allocation of the Borrower's requests for Advances. AGREEMENT NOW, THEREFORE, in consideration of the Borrower depositing the London Clubs Contribution into the Borrower's Funds Account, the Lenders entering into the Credit Agreement and the other Loan Documents, the Discount Note Indenture Trustee entering into the Discount Note Indenture, the Disbursement Agent and the Administrative Agent entering into this Agreement, the Securities Intermediary entering into the Borrower Collateral Account Agreement, Holdings entering into this Agreement and the Holdings Collateral Account Agreement and depositing the proceeds from the sale of the Discount Notes into the Construction Note Disbursement Account, and the Servicing Agent entering into the Servicing and Collateral Account Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: ARTICLE 1. - DEFINITIONS; RULES OF INTERPRETATION a. Definitions. Capitalized terms used in this Disbursement Agreement and its exhibits shall have the meanings given in Appendix A hereto. To the extent such terms are defined by reference to the Loan Documents, such terms shall continue to have their original definitions notwithstanding any termination, expiration or amendment of such agreements. As used herein, the following terms (whether or not italicized) shall have the meanings set forth below (such meanings to be equally applicable to the singular and plural forms thereof): 3 "Accounts" means the Bank Proceeds Account, the Term B Sub-Account, the Term C Sub-Account, the Borrower's Funds Account, the Collection Account, the Disbursement Account, the Construction Note Disbursement Account, the Guaranty Deposit Account, the Interest Payment Account, the Loss Proceeds Account, the Servicing Agent's Accounts and any other accounts established pursuant to the Borrower Collateral Account Agreement. "Accounts Collateral" is defined in Section 5.1.1. "Advance" means (y) with respect to the Bank Credit Facility, an advance of the Bank Credit Facility, and (z) with respect to amounts on deposit in the Accounts, a release of funds from such Account, in each case, made pursuant to Article 2 of this Disbursement Agreement and the Credit Agreement under which all or any part of such Advance is requested. "Advance Request" means an advance request and certificate in the form of Exhibit F. "Advance Confirmation Notice" is defined in Section 2.4.3(a). "Advance Date" means the date on which an Advance is required to be deposited in the Collection Account pursuant to Section 2.4.4(a). "Anticipated Earnings" means, at any time, relative to the Borrower's Funds Account, the Bank Proceeds Account, the Construction Note Disbursement Account, the Guaranty Deposit Account, the Loss Proceeds Account, the Interest Payment Account, the Term B Sub-Account, the Term C Sub-Account, the Servicing Agent's Disbursement Account and the Cash Management Account, respectively, the amount of investment income which the Borrower reasonably determines (with the reasonable concurrence of the Administrative Agent, the Construction Consultant and the Disbursement Agent) will be paid on the deposits in each such Account through the Opening Date, taking into account the current and future anticipated rates of return on Cash Equivalent Investments in such Accounts and the anticipated times and amounts of 4 draws from each such Account for the payment of Main Project Costs. "Borrower's Insurance Broker's Closing Certificate" means a certificate in the form of Exhibit B-2. "Cash Management Account" is defined in the Servicing and Collateral Account Agreement. "Claims" is defined in Section 7.15.2. "Collection Account" is defined in the Scotiabank Collateral Account Agreement. "Confidential Information" is defined in Section 7.17. "Construction Consultant's Certificate" means a certificate in the form of Exhibit C. "Credit Agreement" means on any date, the Credit Agreement, as originally in effect on the Closing Date among the Borrower, Scotiabank, individually and as an Arranger and the Administrative Agent, Merrill Lynch, individually and as an Arranger and the Syndication Agent, CIBC Oppenheimer Corp., as the Documentation Agent, and the various financial institutions, as the Lenders, and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Disbursement Account" is defined in the Scotiabank Collateral Account Agreement. "Facility" or "Facilities" means, as the context may require, the Bank Credit Facility and the Discount Note Indenture. "Facility Agreements" means, collectively, the Credit Agreement and the Discount Note Indenture. "Final Advance Request" is defined in Section 2.4.2(a). 5 "Final Notice of Advance Request" is defined in Section 2.4.2(b). "Indemnitee" is defined in Section 7.15.2. "Initial Advance" means the first Advance of the Term B Loan and the Term C Loan in accordance with the Disbursement Agreement and the Credit Agreement. "Insurance Consultant's Closing Certificate" means a certificate in the form of Exhibit B-1. "Issue Date" is defined in the Discount Note Indenture. "Loss Proceeds Account" is defined in the Borrower Collateral Account Agreement. "Minimum Aladdin Facilities" means, with respect to the Hotel/Casino, at least 2,465 operating slot machines, 91 operating gaming tables, an operating keno lounge, 1,870 restaurant seats, 1,750 usable parking spaces, 2,210 hotel rooms fit to receive guests and all banking, coin, security and other ancillary equipment and facilities necessary to operate the Hotel/Casino on a 24 hour per day, seven days a week basis. "Notice of Advance Request" means a certificate in the form of Exhibit G. "Overnight Funds" is defined in the Servicing and Collateral Account Agreement. "Phase I Report" is defined in Section 3.1.36. "Preliminary Advance Request" is defined in Section 2.4.1(a). "Preliminary Notice of Advance Request" is defined in Section 2.4.1(b). "Rating Agency" means either of Moody's or S&P. 6 "Required Completion Amount" is defined in Section 2.9 (a). "Scotiabank Collateral Account Agreement" means that certain Scotiabank Collateral Account Agreement of even date herewith among the Borrower, the Disbursement Agent and The Bank of Nova Scotia, as depository. "Securities Intermediary" is defined in the preamble. "Servicing Agent" means U.S. Bank National Association and its successors and assigns. "Servicing Agent's Accounts" means the Servicing Agent's Disbursement Account, the Cash Management Account, the Servicing Agent's Payroll Account and any other accounts established pursuant to the Servicing and Collateral Account Agreement. "Servicing Agent's Disbursement Account" is defined in the Servicing and Collateral Account Agreement. "Servicing Agent's Payroll Account" is defined in the Servicing and Collateral Account Agreement. "Six Month Certificate" means a certificate in the form of Exhibit H. "Stop Funding Notice" is defined in Section 2.4.3(c). "Stop Funding Request" is defined in Section 2.4.4(c). "Term B Sub-Account" is defined in the Borrower Collateral Account Agreement. "Term C Sub-Account" is defined in the Borrower Collateral Account Agreement. 7 b. Cross-References. Unless otherwise specified, references in this Disbursement Agreement to any Article or Section are references to such Article or Section of this Disbursement Agreement and, unless in any Article, Section or definition to any item, paragraph or clause are references to such item, paragraph or clause of such Article, Section or definition. c. Conflict with a Facility Agreement. This Disbursement Agreement and each of the Facility Agreements are being drafted concurrently and each are intended to cover the respective matters specifically set forth therein. In the case of any express conflict between the terms of this Disbursement Agreement and the terms of any Facility Agreement, the terms of this Disbursement Agreement shall control. ARTICLE 2. - FUNDING a. Representations Regarding Main Project Status. The parties hereto acknowledge that construction of the Main Project has commenced prior to the date hereof and that, in connection therewith, the Borrower has entered into certain Contracts, the Design/Builder has engaged certain Subcontractors, and the Borrower has incurred and paid for certain Main Project Costs. In order to account for such construction activity for purposes of the funding procedures and mechanics set forth herein, the Borrower has certified and made certain representations in the Borrower's Closing Date Certificate as to various facts pertaining to the status of the Main Project, including, without limitation, the work performed, the Contracts entered into and the Main Project Costs incurred to date. The Construction Consultant has confirmed such certifications and representations of the Borrower to the extent set forth in the Construction Consultant's Closing Certificate. b. Advances; Availability; Amount of Advances. i. Generally. Each of the Lenders shall make or cause to be made Advances under the Bank Credit Facility to the Borrower in accordance with and pursuant to the terms of the Credit Agreement and the applicable provisions of this Disbursement Agreement. The Initial 8 Purchasers shall purchase the Units consisting of the Discount Notes and the Warrants with net proceeds in the amount of approximately $111,000,000. Enterprises shall contribute the net proceeds from the sale of the Warrants to Holdings in exchange for equity interests in Holdings. Holdings, in turn, shall use the proceeds from the sale of the Notes, the aforementioned contribution to Holdings from Enterprises and a portion of the Equity Contribution of LCNI to purchase from the Borrower the Series A Membership Interests from the Borrower for the aggregate purchase price of $115,000,000. ii. Availability. Subject to the satisfaction of all conditions precedent listed in Article 3 and the other terms and provisions of this Disbursement Agreement, and, if applicable, the Credit Agreement, the Disbursement Agent shall make or cause to be made Advances from the Accounts (other than the Construction Note Disbursement Account) and the Servicing Agent shall make or cause to be made Advances from the Servicing Agent's Accounts, in each case pursuant to Section 2.3. Advances shall be made no more frequently than once in any 30-day period; provided, however, that the Advances and transfers of funds contemplated in Section 2.7 shall be disregarded for purposes of this sentence. iii. GECC Commitment. (1) The parties hereto acknowledge that financing of the costs of acquisition and installation of the Gaming Equipment and the Specified Equipment will be made available to the Borrower through the GECC Commitment, subject to Section 2.2.3(b), and that advances of funds under the GECC Commitment will not be made pursuant to this Disbursement Agreement but, instead, will be made pursuant to separate agreements entered into between the Borrower and GECC. In order to account for such funding commitments for purposes of tracking the progress and status of the Main Project hereunder, including the amount of Available Funds from time to time, (i) GECC has agreed, pursuant to the GECC Commitment, among other things, to notify the Disbursement Agent from time to time of the amounts drawn and amounts available to be drawn under the GECC Commitment, (ii) the Borrower has represented that the Main Project Budget, the Construction Benchmark Schedule and the Plans and Specifications 9 include and reflect the work to be performed in connection with the Equipment Component, (iii) the Advance Requests to be submitted by the Borrower hereunder require the Borrower, among other things, to certify as to the Main Project Costs incurred and work from time to time performed in connection with the Equipment Component, and (iv) the Construction Consultant has confirmed and will confirm the Borrower's certifications and representations to the extent set forth in the Construction Consultant's Closing Certificate and in the other certificates to be submitted by the Construction Consultant hereunder from time to time. (2) The parties further acknowledge that the GECC Commitment requires that the Main Project be no more than six months from satisfying the Opening Conditions before any advances may be made thereunder. At such time as the Borrower believes that the Main Project is within six months of satisfying the Opening Conditions, the Borrower shall request that the Construction Consultant issue the Six Month Certificate. Should the Construction Consultant concur with the Borrower's determination (which concurrence shall not be unreasonably withheld or delayed), the Borrower shall cause the Construction Consultant to issue promptly the Six Month Certificate. iv. Advances for Direct Costs. No Advance will be made for any Direct Costs unless the work and materials and the amount of the Direct Costs thereof are set forth in the Main Project Budget as Line Items (or portions thereof) to be funded from the Borrower's Funds Account, the Construction Note Disbursement Account, the Bank Proceeds Account or, if applicable, the Bank Credit Facility. Advances for Direct Costs with respect to the trade or any portion of construction covered by any of the Line Items (or portions thereof) in the Project Budget to be funded from such Accounts or, if applicable, the Bank Credit Facility shall not exceed the amount calculated as follows: (1) the total Direct Costs as set forth as a Line Item in the Main Project Budget to perform and complete the trade or portion of construction covered by such Line Item shall be multiplied by the stage of completion of such trade or portion of construction (expressed as a percentage) as determined by the 10 Construction Consultant; provided, however, if the value of the work in place with respect to such Line Item is less than the foregoing result, the value of work in place with respect to such Line Item shall be substituted for the foregoing result; (2) the result of (a) shall be multiplied by the Applicable Percentage; provided, however, if the Design/Builder has delivered a clean, unconditional and irrevocable letter of credit from an issuer reasonably satisfactory to the Administrative Agent naming the Administrative Agent as the beneficiary thereunder in the face amount of the Applicable Percentage together with the Design/Builder's certification that no Retainage Amount is being withheld from any Subcontractor which is to receive payment from the Advance for which request has been made, the result of (a) shall be multiplied by 100%; and (3) the amounts previously advanced for such Direct Costs as set forth in such Line Item shall be subtracted from the result in (b). The balance, if any, shall be the maximum amount to be included in an Advance to or on behalf of the Borrower for payment of such Direct Costs included in such Advance Request. The Advance shall be funded from the Borrower's Funds Account, the Bank Proceeds Account, the Construction Note Disbursement Account and the Bank Credit Facility, as applicable, in accordance with Section 2.5 of this Disbursement Agreement. v. Advances for Indirect Costs. To the extent that any Advance Request shall include Indirect Costs, the Disbursement Agent will, upon satisfaction of the applicable conditions set forth in this Disbursement Agreement and the Credit Agreement, include the full amount of such Indirect Costs in an Advance if (a) such Indirect Costs are set forth in the Main Project Budget as a portion of the Main Project Costs to be funded from the Borrower's Funds Account, the Construction Note Disbursement Account, the Bank Proceeds Account or, if applicable, the Bank Credit Facility and (b) the Disbursement Agent has received satisfactory evidence that such Indirect Costs are then due and payable. 11 vi. Advances for Unincorporated Materials. To the extent that any Advance Request shall include any amount in respect of materials not yet incorporated into the Main Project, the Disbursement Agent will, upon satisfaction of the applicable conditions set forth in this Disbursement Agreement and the Credit Agreement, include such amount in an Advance only if (x) such amount is not greater than $10,000,000 per Contract and the aggregate amount advanced pursuant to this Section 2.2.6 as to which materials have not been so incorporated into the Main Project is not greater than $25,000,000 and (y) the following provisions are satisfied, as applicable: (1) with respect to building materials, components or systems which have been completed and are not otherwise subject to subsection (b) of this Section 2.2.6, (i) such materials, components or systems are stored in a secure area and are protected from theft, vandalism and weather conditions to the reasonable satisfaction of the Administrative Agent and the Construction Consultant, (ii) the Administrative Agent and the Construction Consultant shall have received satisfactory evidence that such materials, components or systems are adequately insured for the benefit of the Lenders, (iii) the Borrower has provided the Administrative Agent and the Construction Consultant with a detailed inventory of such stored materials, components and systems and the Construction Consultant has verified that such inventory items are stored as herein required and (iv) the Borrower shall have granted the Lenders a perfected and continuing first security interest in such stored materials, components and systems prior to or simultaneously with the making of any such Advance; and (2) with respect to progress payments to a supplier of components or systems to be used in the Main Project, (i) the Borrower shall have provided the Administrative Agent and the Construction Consultant with a copy of the purchase order or Contract covering such component or system (and all amendments thereto or modifications thereof) which shall not require any deposit in excess of 25% (unless otherwise approved by the Administrative Agent) of the purchase price thereof, (ii) as collateral security, the Borrower shall have assigned such purchase orders or contracts, as the case may be, to 12 the Lenders, (iii) the Borrower shall have provided evidence satisfactory to the Administrative Agent and the Construction Consultant that such components or systems are adequately insured for the benefit of the Lenders and (iv) if susceptible of being subjected to a security interest, the Borrower shall have granted the Lenders a perfected and continuing first security interest in such components or systems prior to or simultaneously with the making of any such Advance. (3) No portion of any Advance which is funded from the Bank Proceeds Account or from a Term A Loan shall be used as a down payment for the Gaming Equipment or the Specified Equipment which is to be leased under an FF&E Lease or financed by the credit facilities contemplated by the Approved Equipment Funding Commitments. vii. Advances for the Investment in Aladdin Music. Notwithstanding anything to the contrary in this Disbursement Agreement or any of the other Loan Documents, no Advance shall be made for the Line Item in the Main Project Budget entitled "Investment in Aladdin Music, LLC" until such time as the Administrative Agent has approved in its sole discretion the financing and capitalization of the Music Project and the renovations to be made to the Theater pursuant to the Theater Lease. If the Borrower does not enter into the Theater Lease, (x) there shall be no Advance for any investment in Aladdin Music, (y) the amount set forth in the Main Project Budget as the "Investment in Aladdin Music, LLC" shall be applied by the Borrower to pay for the costs of renovation of the Theater (based upon a renovation budget approved by the Administrative Agent in its sole discretion), and (z) the Term A Loan Commitment shall be reduced dollar-for-dollar by the amount remaining in such Line Item after the costs of the renovation of the Theater have been paid. viii. Advances for Interest. The principal amount of the Bank Credit Facility includes amounts payable as interest thereon. Such interest shall be advanced by the Disbursement Agent for payment in accordance with this Disbursement Agreement and the other Loan Documents. The Disbursement Agent will not be obligated 13 to make any Advance for interest from and after the Conversion Date. c. Accounts. i. Borrower's Funds Account. On or prior to the Closing Date, there shall be established the Borrower's Funds Account pursuant to the Borrower Collateral Account Agreement. The Borrower's Funds Account shall be subject to the sole dominion and control of the Disbursement Agent. There shall be deposited into the Borrower's Funds Account (t) the London Clubs Contribution, (u) all amounts received by the Borrower from Holdings in exchange for the issuance of Borrower Series A Preferred Membership Interests, (v) all reimbursements received by the Borrower from Aladdin Bazaar for construction performed by the Borrower on or about the Mall Project pursuant to the Site Work Agreement, (w) all amounts received as liquidated damages under the Design/Build Contract, (x) all amounts received under the Fluor Guaranty, (y) all Pre-Opening Revenues and (z) all other funds or amounts received by the Borrower and not otherwise provided for in this Disbursement Agreement. Subject to the provisions of Section 5.1 and the Borrower Collateral Account Agreement, amounts on deposit in the Borrower's Funds Account shall be (x) (1) transferred first to the Collection Account and in turn thereafter transferred to the Disbursement Account and then to the Servicing Agent's Disbursement Account to pay Main Project Costs in accordance with Section 2.4.4, (2) transferred first to the Collection Account and in turn thereafter transferred to the Disbursement Account and then to the Cash Management Account to pay Main Project Costs in accordance with Section 2.3.4 and/or (3) applied to repayment or prepayment of the Obligations in accordance with the applicable provisions of the Credit Agreement and (y) on the Final Completion Date applied as provided in Section 2.8. The deposit of funds into the Borrower's Funds Account shall not create, vest in, or give the Borrower any rights to such funds and the Borrower shall have no right to draw, obtain the release of or otherwise use such funds until (x) the requirements of Section 2.4.4 have been satisfied and (y) the conditions set forth in Sections 3.1 and 3.2 have been satisfied or waived in writing in accordance with the terms hereof. 14 All amounts deposited into the Borrower's Funds Account may be invested by the Securities Intermediary in Permitted Investments in accordance with Section 5.3 and the Borrower Collateral Account Agreement. Any interest which is paid on such deposited amounts shall be deposited into the Borrower's Funds Account until applied as provided in this Disbursement Agreement. ii. Collection Account. On or prior to the Closing Date, there shall be established the Collection Account pursuant to the Scotiabank Collateral Account Agreement. The Collection Account shall be subject to the sole dominion and control of the Disbursement Agent. There shall be deposited into the Collection Account (x) all Term A Loans (except for any Term A Loan which is being advanced as the Required Completion Amount (as defined in clause (a) of Section 2.8) in which case such Term A Loan shall be deposited into the Bank Proceeds Account) advanced from time to time by the Lenders (and/or withdrawn from the Bank Proceeds Account) and (y) all funds withdrawn by the Disbursement Agent from the Borrower's Funds Account, the Loss Proceeds Account, the Guaranty Deposit Account, and the Interest Payment Account, in each case pursuant to Section 2.4.4. Subject to the provisions of Section 5.1 and the Borrower Collateral Account Agreement, amounts on deposit in the Collection Account shall be (x) transferred first to the Disbursement Account and then to the Servicing Agent's Disbursement Account to pay for Main Project Costs in accordance with Section 2.4.4 and/or (y) transferred to the Disbursement Account and then to the Cash Management Account to pay for or reimburse the Borrower for the payment of Main Project Costs in accordance with Section 2.3.4. On the Final Completion Date, funds remaining in the Collection Account shall be applied as provided in Section 2.8. The deposit of funds into the Collection Account shall not create, vest in, or give the Borrower any rights to such funds and the Borrower shall have no right to draw, obtain the release of or otherwise use such funds until (x) the requirements of Section 2.4.4 have been satisfied and (y) the conditions set forth in Sections 3.1 and 3.2 have been satisfied or waived in writing in accordance with the terms hereof. In the event that any funds deposited into the Collection Account are, for any reason, (x) not withdrawn therefrom 15 pursuant to Section 2.4.4 on the day on which they are deposited, or (y) are returned thereto from the Disbursement Account, such funds shall, on the next day, be withdrawn from the Collection Account and (1) in the case of funds advanced by the Lenders or withdrawn from the Bank Proceeds Account, the Loss Proceeds Account, the Guaranty Deposit Account or the Interest Payment Account, deposited into the Account from which such funds were withdrawn and (2) in the case of funds advanced by the Disbursement Agent from the Borrower's Funds Account, returned to the Borrower's Funds Account. No amounts deposited into the Collection Account may be invested. iii. Disbursement Account. On or prior to the Closing Date, there shall be established the Disbursement Account pursuant to the Scotiabank Collateral Account Agreement. The Disbursement Account shall be subject to the sole dominion and control of the Disbursement Agent. On each Advance Date, funds shall be withdrawn from the Collection Account and deposited into the Disbursement Account in accordance with Section 2.4.4. Subject to the provisions of Section 5.1 and the Borrower Collateral Account Agreement, amounts on deposit in the Disbursement Account shall be (x) transferred to Servicing Agent's Disbursement Account to pay for Main Project Costs in accordance with Section 2.6 and/or (y) transferred to the Cash Management Account to pay for or reimburse the Borrower for the payment of Main Project Costs in accordance with Section 2.3.4. On the Final Completion Date, funds remaining in the Disbursement Account shall be applied as provided in Section 2.8. The deposit of funds into the Disbursement Account shall not create, vest in, or give the Borrower any rights to such funds and the Borrower shall have no right to draw, obtain the release of or otherwise use such funds until (x) the requirements of Section 2.4.4 have been satisfied and (y) the conditions set forth in Sections 3.1 and 3.2 have been satisfied or waived in writing in accordance with the terms thereof. In the event that any funds deposited into the Disbursement Account are, for any reason, not withdrawn therefrom pursuant to Section 2.6 on the day on which they are deposited, such funds shall, on the next day, be withdrawn from the Disbursement Account and returned to the Collection Account. No amounts deposited into the Disbursement Account may be invested. 16 iv. Cash Management Account. On or prior to the Closing Date, there shall be established the Cash Management Account pursuant to the Servicing and Collateral Account Agreement. On the Closing Date $750,000 shall be transferred from the Borrower's Funds Account to the Cash Management Account (such amount may be increased to $5,000,000 when Advances of the Term B Loan and Term C Loan commence). The Borrower shall be permitted from time to time to replace amounts drawn from the Cash Management Account net of interest earned by including a request to such effect in an Advance Request (which request shall include proof of payment of all amounts withdrawn from the Cash Management Account); provided, however, prior to the time that the Cash Management Account is funded from the Bank Proceeds Account or Term A Loan the amount to be replaced may include the face amount of checks which have been issued by the Borrower in accordance with this Section 2.3.4 but which have not yet been presented for payment. Subject to the provisions of Section 5.1 and the Servicing and Collateral Account Agreement, the Borrower shall be permitted from time to time to draw checks on and otherwise withdraw amounts on deposit in the Cash Management Account to pay due and payable Main Project Costs allocated to the Main Project in accordance with the terms hereof; provided, however, if the Cash Management Account is funded from the Bank Proceeds Account or Term A Loans, the Borrower shall only pay for Main Project Costs therefrom which are to be paid from the Loans or the Bank Proceeds Account as set forth in the Main Project Budget and in accordance with the Credit Agreement. Except as set forth in the immediately preceding sentence, the deposit of funds into the Cash Management Account shall not create, vest in, or give the Borrower any rights to such funds and the Borrower shall have no right to draw, obtain the release of or otherwise use such funds until (x) the requirements of Section 2.4.4 have been satisfied and (y) the conditions set forth in Sections 3.1 and 3.2, as the case may be, have been satisfied or waived in writing in accordance with the terms thereof. On the Final Completion Date, funds remaining in the Cash Management Account shall be applied as provided in Section 2.8. All amounts deposited into the Cash Management Account may be invested in Overnight Funds and in money market investments of U.S. 17 Bank National Association in accordance with Section 2.3.12 and the Servicing and Collateral Account Agreement. v. Interest Payment Account. On or prior to the Closing Date, there shall be established the Interest Payment Account pursuant to the Borrower Collateral Account Agreement. The Interest Payment Account shall be subject to the sole dominion and control of the Disbursement Agent. On each Advance Date until the Conversion Date, funds shall be withdrawn from the Disbursement Account and deposited into the Interest Payment Account to the extent necessary to pay interest on, and other amounts payable with respect to, the Bank Credit Facility as set forth in Advance Requests delivered to the Disbursement Agent and in accordance with Section 2.7. On the date that interest and any other amount with respect to the Bank Credit Facility becomes due and payable, such amount shall be transferred from the Interest Payment Account to the Collection Account and thereafter to the Disbursement Account for distribution to the Lenders and/or the Agents entitled to such payment. On the Final Completion Date, funds remaining in the Interest Payment Account shall be applied as provided in Section 2.8. The deposit of funds into the Interest Payment Account shall not create, vest in, or give the Borrower any rights to such funds and the Borrower shall have no right to draw, obtain the release of or otherwise use such funds. All amounts deposited into the Interest Payment Account may be invested by the Securities Intermediary in Permitted Investments in accordance with Section 5.3 and the Borrower Collateral Account Agreement. Any interest which is paid on such deposited amounts shall be deposited into the Interest Payment Account until applied as provided in this Disbursement Agreement. vi. Bank Proceeds Account; Term B Sub-Account; Term C Sub-Account. (a) On or prior to the Closing Date, there shall be established the Bank Proceeds Account pursuant to the Borrower Collateral Account Agreement. The Bank Proceeds Account shall be subject to the sole dominion and control of the Disbursement Agent. There shall be deposited into the Bank Proceeds Account (x) the 18 Term B Loans (which in turn shall be transferred to the Term B Sub-Account), the Term C Loans (which in turn shall be transferred to the Term C Sub-Account) and any Term A Loan which is not to be transferred to the Collection Account and/or the Disbursement Account on the same day such Term A Loan is made to the Borrower and (y) all amounts which are transferred to the Disbursement Account on the day deposited but are later returned to the Collection Account. There shall also be deposited into the Bank Proceeds Account the amounts set forth in Section 2.8(d). Subject to the provisions of Section 5.1 and the Borrower Collateral Account Agreement, amounts on deposit in the Bank Proceeds Account shall, from time to time, be transferred to the Collection Account in accordance with Section 2.5 and thereafter to the Disbursement Account for application to pay Main Project Costs in accordance with Section 2.4.4 and, on the Final Completion Date, be applied as provided in Section 2.8. The deposit of funds into the Bank Proceeds Account shall not create, vest in or give the Borrower any rights to such funds and the Borrower shall have no right to draw, obtain the release of or otherwise use such funds until (x) the requirements of Section 2.4.4 have been satisfied and (y) the conditions set forth in Sections 3.1 and 3.2 have been satisfied or waived in writing in accordance with the terms hereof. All amounts deposited into the Bank Proceeds Account may be invested by the Securities Intermediary in Permitted Investments in accordance with Section 5.3 and the Borrower Collateral Account Agreement. Any interest which is paid on such deposited amounts shall be deposited into the Bank Proceeds Account until applied as provided in this Disbursement Agreement. (b) On or prior to the Closing Date, there shall be established as part of the Bank Proceeds Account the Term B Sub-Account and the Term C Sub-Account pursuant to the Borrower Collateral Account Agreement. The Term B Sub-Account and the Term C Sub-Account shall be subject to the sole dominion and control of the Disbursement Agent. There shall be deposited into the Term B Sub-Account and the Term C Sub-Account the Term B Loans and the Term C Loans, respectively. Subject to the provisions of Section 5.1 and the Borrower Collateral Account Agreement, amounts on deposit in the Term B Sub-Account and the Term C Sub-Account shall, from time to 19 time, be transferred pari passu to the Collection Account in accordance with Section 2.5 and thereafter to the Disbursement Account for application to pay Main Project Costs in accordance with Section 2.4.4 and, on the Final Completion Date, be applied as provided in Section 2.8. The deposit of funds into the Term B Sub-Account and the Term C Sub-Account shall not create, vest in or give the Borrower any rights to such funds and the Borrower shall have no right to draw, obtain the release of or otherwise use such funds until (x) the requirements of Section 2.4.4 have been satisfied and (y) the conditions set forth in Sections 3.1 and 3.2 have been satisfied or waived in writing in accordance with the terms hereof. All amounts deposited into the Term B Sub-Account and the Term C Sub-Account may be invested by the Securities Intermediary in Permitted Investments in accordance with Section 5.3 and the Borrower Collateral Account Agreement. Any interest which is paid on such deposited amounts shall be deposited into the Term B Sub-Account or the Term C Sub-Account, as applicable, until applied as provided in this Disbursement Agreement. vii. Construction Note Disbursement Account. On or prior to the Closing Date, there shall be established the Construction Note Disbursement Account pursuant to the Holdings Collateral Account Agreement. The Construction Note Disbursement Account shall be subject to the sole dominion and control of the Disbursement Agent for the benefit of the Discount Note Indenture Trustee. Holdings shall deposit the proceeds from the sale of the Discount Notes into the Construction Note Disbursement Account. Subject to the provisions of Section 5.1 and the Holdings Collateral Account Agreement, amounts on deposit in the Construction Note Disbursement Account shall, from time to time, be transferred to the Borrower's Funds Account in repayment of an advance in the amount of $37,000,000 together with interest thereon made by the Borrower to Holdings on the Closing Date. Thereafter such amounts shall be transferred to the Collection Account and thereafter (x) to the Disbursement Account and then to the Servicing Agent's Disbursement Account to pay for Main Project Costs in accordance with Section 2.4.4 and/or (y) to the Cash Management Account to pay for or reimburse the Borrower for the payment of Main Project Costs in accor- 20 dance with Section 2.3.4. On the Final Completion Date, any funds remaining in the Construction Note Disbursement Account shall be transferred to the Borrower's Funds Account and applied as provided in Section 2.8. The deposit of funds into the Construction Note Disbursement Account shall not create, vest in or give the Borrower any rights to such funds and the Borrower shall have no right to draw, obtain the release of or otherwise use such funds until (x) the requirements of Section 2.4.4 have been satisfied and (y) the conditions set forth in Sections 3.1 and 3.2 have been satisfied or waived in writing in accordance with the terms hereof. All amounts deposited into the Construction Note Disbursement Account may be invested by the Securities Intermediary in Permitted Investments in accordance with Section 5.3 and the Holdings Collateral Account Agreement. Any interest which is paid on such deposited amounts shall be deposited into the Construction Note Disbursement Account until applied as provided in this Disbursement Agreement. viii. Loss Proceeds Account. On or prior to the Closing Date, there shall be established the Loss Proceeds Account pursuant to the Borrower Collateral Account Agreement. The Loss Proceeds Account shall be subject to the sole dominion and control of the Disbursement Agent. There shall be deposited into the Loss Proceeds Account the Loss Proceeds. Subject to the provisions of Section 5.1 and the Borrower Collateral Account Agreement, amounts on deposit in the Loss Proceeds Account shall, from time to time, be transferred to the Collection Account and thereafter (x) to the Disbursement Account and then to the Servicing Agent's Disbursement Account to pay for Main Project Costs in accordance with Section 2.4.4 and/or (y) to the Cash Management Account to pay for or reimburse the Borrower for the payment of Main Project Costs in accordance with Section 2.3.4. On the Final Completion Date any funds remaining in the Loss Proceeds Account shall be applied as provided in Section 2.8. The deposit of funds into the Loss Proceeds Account shall not create, vest in or give the Borrower any rights to such funds and the Borrower shall have no right to draw, obtain the release of or otherwise use such funds until (x) the requirements of Section 2.4.4 have been satisfied and (y) the conditions set forth in Sections 3.1 and 3.2 have been satisfied or 21 waived in writing in accordance with the terms hereof. All amounts deposited into the Loss Proceeds Account may be invested by the Securities Intermediary in Permitted Investments in accordance with Section 5.3 and the Borrower Collateral Account Agreement. Any interest which is paid on such deposited amounts shall be deposited into the Loss Proceeds Account until applied as provided in this Disbursement Agreement. ix. Guaranty Deposit Account. On or prior to the Closing Date, there shall be established the Guaranty Deposit Account pursuant to the Borrower Collateral Account Agreement. The Guaranty Deposit Account shall be subject to the sole dominion and control of the Disbursement Agent. There shall be deposited into the Guaranty Deposit Account amounts advanced by or on behalf of the Completion Guarantors pursuant to the Completion Guaranty. Subject to the provisions of Section 5.1 and the Borrower Collateral Account Agreement, amounts on deposit in the Guaranty Deposit Account shall, from time to time, be transferred to the Collection Account and thereafter (x) to the Disbursement Account to pay Main Project Costs in accordance with Section 2.4.4 and/or (y) to the Cash Management Account to pay for or reimburse the Borrower for the payment of Main Project Costs in accordance with Section 2.3.4. On the Final Completion Date any funds remaining in the Guaranty Deposit Account shall be applied as provided in Section 2.8. The deposit of funds into the Guaranty Deposit Account shall not create, vest in or give the Borrower any rights to such funds and the Borrower shall have no right to draw, obtain the release of or otherwise use such funds until (x) the requirements of Section 2.4.4 have been satisfied and (y) the conditions set forth in Sections 3.1 and 3.2 have been satisfied or waived in writing in accordance with the terms hereof. All amounts deposited into the Guaranty Deposit Account may be invested by the Securities Intermediary in Permitted Investments in accordance with Section 5.3 and the Borrower Collateral Account Agreement. Any interest which is paid on such deposited amounts shall be deposited into the Guaranty Deposit Account until applied as provided in this Disbursement Agreement. x. Servicing Agent's Disbursement Account. On or prior to the Closing Date, there shall be established 22 the Servicing Agent's Disbursement Account pursuant to the Servicing and Collateral Account Agreement. The Servicing Agent's Disbursement Account shall be subject to the sole dominion and control of the Disbursement Agent. On each Advance Date, funds shall be withdrawn from the Disbursement Account and deposited into the Servicing Agent's Disbursement Account in accordance with Section 2.4.4. Amounts on deposit in the Servicing Agent's Disbursement Account shall be paid to the appropriate Person in accordance with the Servicing and Collateral Account Agreement. Funds on deposit in the Servicing Agent's Disbursement Account which have not been withdrawn as of the close of business on each Business Day during the term of the Servicing and Collateral Account Agreement may be invested in Overnight Investments in accordance with Section 5.3 and the Servicing and Collateral Account Agreement. On the Final Completion Date any funds remaining in the Servicing Agent's Disbursement Account shall be applied as provided in Section 2.8. The deposit of funds into the Servicing Agent's Disbursement Account shall not create, vest in, or give the Borrower any rights to such funds and the Borrower shall have no right to draw, obtain the release of or otherwise use such funds until (x) the requirements of Section 2.4.4 have been satisfied and (y) the conditions set forth in Sections 3.1 and 3.2 have been satisfied or waived in writing in accordance with the terms hereof. In the event that any funds deposited into the Servicing Agent's Disbursement Account are, for any reason, not withdrawn therefrom on the day on which they are deposited, such funds shall, at the close of business on such day, be transferred to the Servicing Agent's Disbursement Investment Account and applied in accordance with Section 2.3.11. xi. Servicing Agent's Payroll Account. On or prior to the Closing Date, there shall be established the Servicing Agent's Payroll Account pursuant to the Servicing and Collateral Account Agreement. The Servicing Agent's Payroll Account shall be subject to the sole dominion and control of the Disbursement Agent. On each Advance Date, funds for payroll payments shall be withdrawn from the Disbursement Account and deposited into the Servicing Agent's Payroll Account in accordance with Section 2.4.4. Amounts on deposit in the Servicing 23 Agent's Payroll Account shall be paid to the appropriate Person in accordance with the Servicing and Collateral Account Agreement. On the Final Completion Date any funds remaining in the Servicing Agent's Payroll Account shall be applied as provided in Section 2.8. The deposit of funds into the Servicing Agent's Payroll Account shall not create, vest in, or give the Borrower any rights to such funds and the Borrower shall have no right to draw, obtain the release of or otherwise use such funds until (x) the requirements of Section 2.4.4 have been satisfied and (y) the conditions set forth in Sections 3.1 and 3.2 have been satisfied or waived in writing in accordance with the terms hereof. In the event that any funds deposited into the Servicing Agent's Payroll Account are, for any reason, not withdrawn therefrom on the day on which they are deposited, such funds shall, as of the close of business on such day, be transferred to the Servicing Agent's Disbursement Account and applied in accordance with Section 2.3.11. d. Mechanics for Obtaining Advances. i. Preliminary Notices from the Borrower. (1) Subject to Section 2.2.2, from time to time the Borrower shall have the right to deliver to the Administrative Agent, the Discount Note Indenture Trustee (subject to the proviso in the first sentence of Section 2.4.1(b)), the Disbursement Agent, the Servicing Agent and the Construction Consultant a preliminary Advance Request (each, a "Preliminary Advance Request") requesting that an Advance be made on or after the fifteenth (15th) Business Day after delivery of such Preliminary Advance Request. (2) Concurrently with the delivery by the Borrower of each Preliminary Advance Request pursuant to subsection (a) above, the Borrower shall deliver to each of the Administrative Agent, the Discount Note Indenture 24 Trustee, the Disbursement Agent, the Servicing Agent and the Construction Consultant a preliminary Notice of Advance Request (each, a "Preliminary Notice of Advance Request"); provided, however, from and after the time that all amounts in the Construction Note Disbursement Account have been advanced, the Discount Note Indenture Trustee shall no longer be entitled to receive a Preliminary Advance Request and the only delivery thereof by the Borrower shall be to the Administrative Agent, the Disbursement Agent, the Servicing Agent and the Construction Consultant. Such Preliminary Notice of Advance Request shall reference the requested Advance Date set forth in the Preliminary Advance Request and shall contain the other information required thereby. (3) Each Preliminary Advance Request delivered by the Borrower pursuant to subsection (a) above shall request Advances in order (i) to pay interest on, and other amounts (other than Scheduled Amortization and Mandatory Prepayments) due with respect to, the Bank Credit Facility which will become due and payable on or after the requested Advance Date and prior to the next succeeding Advance Date, until the earlier of (x) the Conversion Date or (y) such time as the Main Project is generating cash flow over the amount required for Operating Costs and Main Project Costs, and/or (ii) to pay other Main Project Costs estimated to become due and payable on or prior to the requested Advance Date. The Borrower shall not be permitted to obtain Advances for the purpose of paying interest due and payable with respect to the Bank Credit Facility at any time after the Conversion Date. Each such Preliminary Advance Request shall set forth the payee, broken down by Contractor, Subcontractor and Line Item. Promptly after delivery of each preliminary Advance Request, the Borrower, the Disbursement Agent and the Construction Consultant shall review such Advance Request and attachments thereto to determine whether all required documentation has been provided. The Borrower and the Construction Consultant also shall review the work referenced in such Preliminary Advance Request, including work estimated to be completed through the applicable Advance Date as such work is being performed. ii. Final Notices from the Borrower. (1) The Borrower shall have the right, with respect to each Preliminary Advance Request delivered in accordance with Section 2.4.1(a) above, to deliver to the Administrative Agent, the Discount Note Indenture Trustee (subject to the proviso in the first sentence of Section 2.4.2(b)), the Disbursement Agent, 25 the Servicing Agent and the Construction Consultant a final Advance Request (each a "Final Advance Request") containing all exhibits, attachments and certificates required thereby (other than the Construction Consultant's Certificate), all appropriately completed and duly executed. Each Final Advance Request shall be delivered no later than nine (9) Business Days prior to the requested Advance Date (it being understood that the Borrower may, in the Final Advance Request, request an Advance Date that is later than the date originally requested pursuant to the Preliminary Advance Request). (2) Concurrently with the delivery by the Borrower of each Final Advance Request pursuant to subsection (a) above, the Borrower shall deliver to each of the Discount Note Indenture Trustee, the Construction Consultant, the Administrative Agent, the Disbursement Agent and the Servicing Agent (x) the commitment from each Title Insurer evidencing such Title Insurer's unconditional agreement to issue an endorsement to the Title Policies on the Advance Date which conforms to the requirements of Section 3.2.9 and (y) a final Notice of Advance Request (each, a "Final Notice of Advance Request") appropriately completed and duly executed; provided, however, the Discount Note Indenture Trustee shall be entitled to receive a Final Notice of Advance Request only if it has received a Preliminary Advance Request pursuant to Section 2.4.1(b) above. Each Final Notice of Advance Request shall state that pursuant to an Advance Request being concurrently delivered to the Disbursement Agent, the Borrower is requesting that an Advance be made on the Advance Date set forth in such Final Advance Request. (3) Within four (4) days after its receipt of each Final Advance Request pursuant to subsection (a) above, the Construction Consultant shall deliver directly to the Disbursement Agent (with a copy to the Borrower) and the Discount Note Indenture Trustee if the Discount Note Indenture Trustee has received a Preliminary Advance Request pursuant to Section 2.4.1(b) above its Construction Consultant's Certificate with respect to such Advance Request, either approving or disapproving the Advance Request; provided that if the Construction Consultant disapproves one or more particular payments or 26 disbursements to any Contractor or Subcontractor requested by the Advance Request, but the Advance Request otherwise complies with the requirements hereof, then the Construction Consultant shall approve the Advance Request and all payments and disbursements requested therein other than the particular payments or disbursements so disapproved. iii. Advance Notices from Disbursement Agent. (1) Promptly after delivery of each Final Advance Request and related Final Notice of Advance Request by the Borrower pursuant to Section 2.4.2(a) and (b) above, the Disbursement Agent shall review the same in order to reconcile the information set forth in the Advance Request with the information set forth in the related Notice of Advance Request and determine whether all required documentation has been provided and whether all applicable conditions precedent pursuant to this Disbursement Agreement have been satisfied. In particular, and without limiting the generality of the foregoing, the Disbursement Agent shall independently verify, using information in its possession and obtained from the Construction Consultant, (i) the Borrower's calculation of Available Funds, including Anticipated Earnings, set forth in the Advance Request, (ii) that after giving effect to the requested Advance, the Available Funds equal or exceed the Remaining Costs, (iii) that the Unallocated Contingency Balance equals or exceeds the Required Minimum Contingency, (iv) that the allocation of the requested Advance among the various funding sources complies with the provisions of Section 2.5, and (v) that the Borrower's calculation of interest and other amounts to become due and payable on the Bank Credit Facility from and after the requested Advance Date and prior to the immediately succeeding Advance Date is accurate. Subject to the other subsections of this Section 2.4, at such time as the Disbursement Agent has received the Construction Consultant's Certificate as required by Section 2.4.2(c) and otherwise determines that the applicable conditions precedent set forth in Article 3 with respect to a requested Advance have been satisfied, but no less than three (3) Business Days prior to the requested Advance Date, the Disbursement Agent shall acknowledge receipt of the Notice of Advance Request and deliver the same to the Borrower and the Servicing Agent 27 (as so received and acknowledged, an "Advance Confirmation Notice") and shall instruct the Construction Consultant to provide the Discount Note Indenture Trustee (to the extent that the circumstances factually permit the Construction Consultant to do so in good faith) with an On Schedule Certificate. (2) In the event that, pursuant to Section 2.4.2(c), the Construction Consultant approves only a portion of the payments or disbursements requested by the Advance Request or, if based on its review of the Advance Request and accompanying Notice of Advance Request, the Disbursement Agent finds any minor or purely mathematical errors or inaccuracies in the Advance Request or the Notice of Advance Request (including any inaccuracy in the allocations made pursuant to Section 2.5 hereof), but the Advance Request and Notice of Advance Request otherwise conform to the requirements of this Disbursement Agreement, the Disbursement Agent shall (i) notify the Borrower, the Administrative Agent, the Discount Note Indenture Trustee (but only so long as amounts are on deposit in the Construction Note Disbursement Account) and the Servicing Agent thereof, (ii) revise (to the extent it is able to do so) or request the Borrower to revise such certificates to remove the request for the disapproved payment and/or rectify any errors or inaccuracies, (iii) deliver or request the Borrower to deliver the revised Notice of Advance Request to the Administrative Agent, the Servicing Agent and the Discount Note Indenture Trustee (but only so long as amounts are on deposit in the Construction Note Disbursement Account), and (iv) approve the requested Advance and issue the Advance Confirmation Notice after making the required revisions (or receiving from the Borrower the revised certificates) on the basis of the certificates as so revised. In the event that the Disbursement Agent revises the Advance Request and Notice of Advance Request, the effect of which is to increase the amount to be disbursed from the Bank Proceeds Account or, if applicable, to be advanced as a Term A Loan under the Bank Credit Facility, the amounts of such increase shall first be made from the Bank Proceeds Account (to the extent of proceeds therein) and thereafter as a Term A Loan, subject to the terms of the Credit Agreement. In the event that the Disbursement Agent revises the Advance Request and Notice of Advance Request, the effect of which is to 28 decrease the amounts to be disbursed from the Bank Proceeds Account and/or advanced as a Term A Loan, the amounts of such decrease shall first reduce the amount of such Advance to be made as a Term A Loan requested under such Facility and then reduce the amount of such Advance to be disbursed from the Bank Proceeds Account. All references to a particular requested Advance, Advance Request or Notice of Advance Request in the ensuing provisions of this Article 2 shall, to the extent the context so requires, refer to the same as revised or modified pursuant to the preceding sentence. (3) In the event that the Disbursement Agent (x) on or prior to the third Business Day prior to the requested Advance Date determines pursuant to Section 2.4.3(a) that the conditions precedent to an Advance have not been satisfied or (y) prior to the time that such Advance has been made receives notice from the Administrative Agent that an Event of Default has occurred and is continuing under the Credit Agreement, then the Disbursement Agent shall notify the Borrower, the Administrative Agent, the Discount Note Indenture Trustee (but only so long as amounts are on deposit in the Construction Note Disbursement Account) and the Servicing Agent thereof as soon as reasonably possible but in no event later than one (1) Business Day after such determination or receipt, as the case may be (each such notification referred to herein as, a "Stop Funding Notice"). The Stop Funding Notice shall specify the conditions precedent which the Disbursement Agent has determined have not been satisfied and/or shall attach a copy of any notice of default received by the Disbursement Agent. Upon such written notice from the Disbursement Agent, (u) none of the Lenders or the Discount Note Indenture Trustee shall have any obligation to advance their respective Facilities' portion of the requested Advance other than, with respect to the Lenders, for an Advance to pay interest on the Bank Credit Facility (but only if so directed by the Administrative Agent) or, if applicable, to reimburse the Issuer for draws under one or more Letters of Credit, (v) the Disbursement Agent shall not withdraw any funds from the Borrower's Funds Account, the Bank Proceeds Account, the Construction Note Disbursement Account, the Loss Proceeds Account and/or the Guaranty Deposit Account to satisfy such requested Advance other than for an Advance to pay interest or any other amount due with respect to 29 the Bank Credit Facility or, if applicable, to reimburse the Issuer for draws under one or more Letters of Credit, (w) the Disbursement Agent shall not withdraw, transfer or release to the Borrower any funds then on deposit in the Collection Account or the Disbursement Account, (x) the Servicing Agent shall not release to any Person any portion of the Advance then on deposit in the Servicing Agent's Disbursement Account which is covered by the Stop Funding Notice, (y) the Borrower shall not withdraw, transfer or release any funds then on deposit in the Cash Management Account to pay for any Main Project Cost which would have been paid from the Advance covered by such Stop Funding Notice and (z) any Advance Confirmation Notice issued prior to the issuance of a Stop Funding Notice (if the Advance to which such Advance Confirmation Notice relates has not been made) shall become null and void and of no force or effect with respect to such Advance other than the portion thereof which is advanced to pay interest on the Bank Credit Facility or, if applicable, to reimburse the Issuer for draws under one or more Letters of Credit; provided that the nullification of any such Advance Confirmation Notice shall not affect the obligations of the Borrower for broken funding costs under the Bank Credit Facility. (4) At such time, if ever, as (x) the Disbursement Agent (1) determines that the condition precedent to the requested Advance which had not been satisfied has become satisfied or (2) receives notice from the Administrative Agent that such Event of Default no longer exists, as the case may be, or (y) the Administrative Agent informs the Disbursement Agent that the event or events giving rise to the Stop Funding Notice have been waived, the Disbursement Agent shall deliver an Advance Confirmation Notice to the Borrower and the Administrative Agent. iv. Provision for Advances. (1) In the case of an Advance Confirmation Notice issued pursuant to Section 2.4.3(a) above, on the requested Advance Date, before 11:00 a.m. New York, New York time, the Lenders shall deposit or cause to be deposited in the Bank Proceeds Account, in immediately available funds, their respective portion of the requested Advance, as determined pursuant to Section 2.5.1 30 and set forth in the related Advance Confirmation Notice; provided, however, that to the extent that all or a portion of such Advance is to be transferred to the Disbursement Account by the Disbursement Agent on such Advance Date, such portion of such Advance shall be deposited into the Collection Account. Upon confirming that all such funds required to be deposited in the Collection Account pursuant to the preceding sentence have been deposited, the Disbursement Agent immediately shall withdraw from the Borrower's Funds Account, the Construction Note Disbursement Account, the Loss Proceeds Account and the Guaranty Deposit Account the portion of the Advance to be funded from each such Account as determined pursuant to Section 2.5 and set forth in the related Advance Confirmation Notice and deposit such funds in the Collection Account. Once all such funds have been deposited in the Collection Account, the Disbursement Agent promptly (subject to Section 2.4.3(b)) shall withdraw such funds and deposit them in the Disbursement Account. All funds so deposited in the Disbursement Account shall thereafter be applied as provided in Section 2.7. With respect to the Initial Advance, the proceeds of the Term B Loan shall be deposited into the Term B Sub-Account and the proceeds of the Term C Loan shall be deposited into the Term C Sub-Account and held therein until Advanced in accordance with the terms of this Disbursement Agreement. (2) Subject to Section 2.4.3(b), after an Advance Confirmation Notice has been given, the failure of any Lender to make any Advance under the Bank Credit Facility shall not relieve any other Lender of its obligation to make any Advance under the Bank Credit Facility, but no Lender shall be responsible for the failure of any other Lender to make any Advance. Neither the Disbursement Agent nor the Administrative Agent shall be responsible for any Lender's failure to make any required Advance. The Disbursement Agent shall not transfer funds to the Disbursement Account or allow for the release to the Borrower of any amounts properly advanced until all Advances requested by the relevant Advance Request have been deposited in the Collection Account unless the Lenders who have made the Advances request such release. The withholding of such Advances by the Disbursement Agent shall not release the Lender which failed to make 31 the Advance under the Bank Credit Facility from liability to the other Lenders and the Borrower. (3) The Disbursement Agent shall have no liability to the Borrower arising from any Stop Funding Notice issued pursuant to Section 2.4.3(b) at the request of the Administrative Agent (a "Stop Funding Request"), whether or not the Administrative Agent was entitled to make any such Stop Funding Request; provided, however, that nothing herein shall release from liability the Administrative Agent for issuing the Stop Funding Request if such issuance constituted an act of gross negligence or willful misconduct on the part of the Administrative Agent. v. Change in Facts Certified. The Borrower shall notify the Disbursement Agent prior to the making of any Advances in the event that any of the matters to which the Borrower certified in the corresponding Advance Request is no longer true and correct in all material respects as of the applicable Advance Date. The acceptance by the Borrower of the proceeds of any Advance shall constitute a recertification by the Borrower, as of the applicable Advance Date, of all matters certified to in the related Advance Request. vi. References to Dates. In the event that any day or date referred to in the foregoing provisions of this Section 2.4 occurs on a day that is not a Business Day, the reference shall be deemed to be to the next succeeding Business Day. e. Allocation of Advances. i. Allocations Among Hotel/Casino Component and Equipment Component. All Main Project Costs allocated pursuant to the Main Project Budget to the Hotel/Casino Component shall be paid only from Hotel/Casino Component Funding Sources (other than the Approved Equipment Funding Commitments) and all Main Project Costs allocated pursuant to the Main Project Budget to the Equipment Component shall be paid only from the GECC Commitment. The Advance Request shall specify which costs are to be reimbursed by Aladdin Bazaar pursuant to the Site Work Agreement. In furtherance of the foregoing 32 principle, all Advances to be satisfied from the Hotel/Casino Component Funding Sources shall be made in the following order of priority: (1) First, from funds on deposit from time to time in the Borrower's Funds Account until exhausted; (2) Second, from funds on deposit from time to time in the Construction Note Disbursement Account (which funds shall be transferred by the Disbursement Agent to the Borrower's Funds Account after the purchase by Holdings of Borrower Series A Preferred Membership Interests) and, if applicable, thereafter, first from the Guaranty Deposit Account and then from the Loss Proceeds Account until exhausted; (3) Third, from the Bank Proceeds Account pari passu from the funds from time to time in the Term B Sub-Account and the Term C Sub-Account; and (4) Then, from the Term A Loan to the extent available to be drawn under the Bank Credit Facility. Notwithstanding anything to the contrary in this Disbursement Agreement (x) in no event shall any Advance of funds in the Term B Sub-Account, the Term C Sub-Account or from the Term A Loan be made (other than to reimburse the Issuer for draws under one or more Letters of Credit) until all amounts in the Construction Note Disbursement Account have been transferred to the Borrower's Funds Account and applied in accordance with this Disbursement Agreement and (y) all amounts deposited into the Borrower's Funds Account and the Loss Deposit Account pursuant to clause (a) of Section 3 of the Environmental Indemnity shall be used to pay for the Indemnified Obligations (as such term is defined in the Environmental Indemnity) in accordance with the Environmental Indemnity. ii. Post-Advance Reallocations. In the event that at any time the Disbursement Agent determines that the allocations made in any previous Advance Requests pursuant to the foregoing provisions of this Section 2.5 were erroneous or inaccurate, the parties shall cooperate 33 to rectify such misallocations by allocating future Advances in a manner that accounts for the previous misallocation or by using such other methods reasonably determined by the Disbursement Agent. f. Disbursements. i. No later than 2:00 p.m. New York, New York time on the requested Advance Date, or such later date as may occur pursuant to Section 2.4.4, if the Disbursement Agent has received funds from each Lender required to make an Advance pursuant to the relevant Advance Request and transferred the funds as required for such Advance from the Collection Account to the Disbursement Account, the Disbursement Agent shall transfer all funds (or where applicable, the funds as to which the request described in the penultimate sentence of Section 2.4.4(b) has been made) in the Disbursement Account as follows: (1) to the extent set forth in the Advance Request, by disbursement to the Interest Payment Account and the Cash Management Account; and (2) with respect to amounts requested by the Advance Request to be paid to the Design/Builder and/or any Contractors and/or Subcontractors, by disbursement of such amount from the Disbursement Account at the election of the Administrative Agent, (i) directly to the payee entitled thereto (by check or by wire transfer) or (ii) to the Servicing Agent's Disbursement Account for further distribution by the Servicing Agent in accordance with the Servicing and Collateral Account Agreement. ii. All disbursements made pursuant to Section 2.6.1 shall satisfy, in and of themselves, the obligations of the Disbursement Agent, the Administrative Agent and each Lender hereunder and under the Credit Agreement and shall be secured by the Loan Documents to the same extent as if made directly to the Borrower, regardless of the disposition thereof by the payees of such disbursements. g. Payments of Interest and Other Amounts Under the Loan Documents; Obligatory Advances for Letters of Credit. Until the Conversion Date, the Borrower shall 34 include in each Advance Request delivered pursuant to Sections 2.4.1(a) and 2.4.2(a) a request that an Advance be made to pay the interest and all other amounts (other than Scheduled Amortization and Mandatory Prepayments) that will become due and payable under or with respect to the Bank Credit Facility on or after the requested Advance Date under such Advance Request and prior to the immediately succeeding Advance Date. Each such Advance Request shall specify the amount and the date on which such interest or other amount will become due and payable. If the Borrower fails to set forth such information in any Advance Request or fails to deliver timely any Advance Request, then, with respect to the Bank Credit Facility, the Administrative Agent may deliver such information and a request for payment to the Disbursement Agent upon receipt of which the Disbursement Agent shall revise the Advance Request and related Notice of Advance Request to provide for such payment. The Borrower acknowledges that failure of any notice referenced in this Section to be delivered to the Disbursement Agent shall not in any way exonerate or diminish the Borrower's obligation to make all payments under the Bank Credit Facility as and when due. Subject to the provisions of Section 5.1 and the Borrower Collateral Account Agreement, the Disbursement Agent shall apply amounts on deposit in the Interest Payment Account to the payment of interest on the Bank Credit Facility on the date that the Disbursement Agent is advised such amounts will become due and payable. The Borrower shall not be permitted to obtain Advances for the purpose of paying interest or other Debt Service at any time after the Conversion Date. (1) Notwithstanding anything to the contrary in this Disbursement Agreement (i) upon any draw of all or a portion of any Letter of Credit issued by one or more of the Lenders and (ii) payment made with respect to maturing LIBO Rate contracts, at the option of the Lenders, such draw or payment, as the case may be, shall be deemed to be a request by the Borrower to make an Advance hereunder. Any such Advance shall be made in accordance with the allocations in Section 2.5 and the applicable provisions of the Credit Agreement. 35 h. Completion Date Procedures. (1) No less than ten (10) Business Days prior to the anticipated Conversion Date, the Borrower shall deliver to the Construction Consultant, the Disbursement Agent and the Administrative Agent the Borrower's Completion Certificate with all attachments thereto. The Borrower's Completion Certificate shall indicate the anticipated Conversion Date and set forth all the other information required thereby, including the aggregate amount of Main Project Costs anticipated to become due and payable after the Conversion Date in order to achieve Final Completion (the "Required Completion Amount"). The Borrower's Completion Certificate shall set forth each Hotel/Casino Component Funding Source's portion of the Required Completion Amount calculated in accordance with Section 2.5. (2) The Disbursement Agent, the Administrative Agent and the Construction Consultant shall review the Borrower's Completion Certificate. In the event that the Disbursement Agent, the Administrative Agent or the Construction Consultant discovers any mathematical or other minor errors in the Borrower's Completion Certificate they shall request the Borrower to revise and resubmit the certificate. Within five (5) days after its receipt of the Borrower's Completion Certificate, the Construction Consultant shall deliver to the Disbursement Agent, the Administrative Agent and the Borrower the Construction Consultant's Completion Certificate. (3) Upon receipt by the Disbursement Agent of the Construction Consultant's Completion Certificate confirming, to the extent required thereby, the certifications set forth in the Borrower's Completion Certificate, but no later than three (3) days prior to the Conversion Date, the Disbursement Agent shall, subject to its approval of the Borrower's Completion Certificate, countersign the Borrower's Completion Certificate and forward the same to the Administrative Agent. (4) On the Conversion Date, not later than 2:00 p.m. New York, New York time, the Lenders shall deposit or cause to be deposited in the Bank Proceeds Account the Bank Credit Facility's portion of the 36 Required Completion Amount calculated in accordance with Section 2.8 and set forth in the Borrower's Completion Certificate. Thereafter, the Disbursement Agent shall withdraw any remaining funds on deposit in the Bank Proceeds Account and deliver such funds to the Administrative Agent to be applied in accordance with the Credit Agreement. i. No Approval of Work. The making of any Advance shall not be deemed an approval or acceptance by the Disbursement Agent, the Administrative Agent, the Discount Note Indenture Trustee or any Lender of any work, labor, supplies, materials or equipment furnished or supplied with respect to the Main Project. j. Security. The Obligations shall be secured by the Main Project Security in accordance with the Loan Documents. Further, all funds advanced by the Lenders to complete the Main Project or to protect the rights and interests of the Secured Parties under the Loan Documents are to be added to the total indebtedness secured by the Deed of Trust. All sums so advanced shall be secured by the Deed of Trust with the same priority of lien as the security for any other obligations secured thereunder. ARTICLE 3. - CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND SUBSEQUENT ADVANCES a. Conditions Precedent to the Initial Advance. The Lenders shall have no obligation hereunder or under the Credit Agreement to make the Initial Advance until the prior satisfaction of each of the conditions precedent hereinafter set forth in this Section 3.1. Subject to Section 3.3, by executing this Disbursement Agreement (or, in the case of the Lenders, by becoming a party to the Credit Agreement) each of the Administrative Agent and the Lenders shall be deemed to have confirmed that it has become satisfied that each of the following conditions precedent to the Initial Advance has been satisfied. i. Satisfaction of Conditions in the Credit Agreement. All conditions in Section 5.1 of the Credit Agreement shall be satisfied by the Borrower or otherwise 37 waived in writing by the Administrative Agent in its sole discretion. ii. Authority of the Borrower. Delivery to the Administrative Agent of (x) a certified copy of the Organizational Documents of the Borrower, certified by an Authorized Representative of the Borrower and (y) a 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 Closing Date, authorizing the Advances herein provided for (subject to satisfaction of the conditions set forth in Article 3), and the execution, delivery and performance of this Disbursement Agreement and the other Operative Documents and any instruments or agreements required hereunder or thereunder to which each such Person is a party. iii. Incumbency of the Borrower. Delivery to the Administrative Agent of a certificate from the Borrower, signed by an Authorized Representative of the Borrower and dated as of the Closing Date, as to the incumbency of the Person or Persons authorized to execute and deliver this Disbursement Agreement and the other Operative Documents and any instruments or agreements required hereunder or thereunder to which each such Person is a party. iv. Other Parties. With respect to each of the Aladdin Parties (other than the Borrower), the London Clubs Parties, Aladdin Bazaar, ABH and the Energy Project Provider, delivery to the Administrative Agent of (w) a certified copy of the Organizational Documents of such Person, (x) if required by the Administrative Agent, a certificate issued by the Secretary of State of Nevada or, if other than the State of Nevada, the state (or country) of formation of such Person certifying that such Person is in good standing and is qualified to do business in Nevada and (if applicable) its state (or country) of formation, (y) a fully executed certificate as to the incumbency of the Persons authorized to execute and deliver the Operative Documents and any other instruments or agreements contemplated hereby to which such Person is a party, and (z) a copy of one or more resolutions for each of the foregoing Persons, certified by the appropriate officer or manager of such Person as being in full 38 force and effect as of the Closing Date, authorizing the execution, delivery and performance of the Operative Documents and any other instruments and agreements with respect thereto to which such Person is a party. v. Corporate Proceedings. All corporate, limited liability company, partnership and legal proceedings and all instruments in connection with the transactions contemplated by this Disbursement Agreement and the Loan Documents shall be reasonably satisfactory in form and substance to the Administrative Agent and the Administrative Agent shall have received all information, legal and technical opinions and copies of all documents, including records of corporate, limited liability company or partnership proceedings and copies of any approval by any Governmental Instrumentality required in connection with any transaction herein contemplated, which the Administrative Agent may reasonably have requested in connection herewith, such documents to be reasonably satisfactory in form and substance to the Administrative Agent and where appropriate to be certified by the requisite corporate, limited liability company or partnership officers or Governmental Instrumentalities. vi. Insurance. (1) Policies. Insurance complying with the requirements of Exhibit E shall be in place and in full force and effect. (2) The Borrower's Insurance Certificates. Delivery to the Administrative Agent of (i) the Borrower's Insurance Broker's Closing Certificate, in substantially the form of Exhibit B-2 attached hereto and otherwise in form and substance satisfactory to the Administrative Agent, from the Borrower's insurance broker(s), dated as of the Closing Date and identifying underwriters, type of insurance, insurance limits and policy terms, listing the special provisions required as set forth in Exhibit E, describing the insurance obtained and stating that such insurance is in full force and effect and that all premiums then due thereon have been paid and that, in the Borrower's insurance broker's opinion, such insurance complies with Exhibit E, and (ii) certified copies of all policies evidencing such insurance 39 naming the Administrative Agent as loss payee and, with respect to liability insurance, the Administrative Agent and the Lenders as additional insureds and otherwise in form and substance satisfactory to the Administrative Agent. (3) Design/Builder's Insurance Certificates. Delivery to the Administrative Agent of (x) the Borrower's Insurance Broker's Closing Certificate, in form and substance satisfactory to the Administrative Agent, with respect to insurance under the Design/Build Contract, dated as of the Closing Date and identifying underwriters, type of insurance, insurance limits and policy terms, listing the special provisions required to be maintained by the Design/Builder as set forth in the Design/Build Contract, describing the insurance obtained and stating that such insurance is in full force and effect and that all premiums then due thereon have been paid and that such insurance complies with the Design/Build Contract and (y) certified copies of all policies evidencing such insurance naming the Administrative Agent as loss payee and the Administrative Agent and the Lenders as additional insureds and otherwise in form and substance satisfactory to the Administrative Agent. (4) Insurance Consultant Report. Delivery to the Administrative Agent of the Insurance Consultant's Closing Certificate with the Insurance Consultant's report, in form and substance satisfactory to the Administrative Agent, attached thereto. (5) Energy Project Provider's Insurance Certificates. Delivery to the Administrative Agent of (x) a certificate of the Energy Project Provider, in form and substance satisfactory to the Administrative Agent, with respect to insurance under the Energy Project Ground Lease, dated as of the Closing Date and identifying underwriters, type of insurance, insurance limits and policy terms, listing the special provisions required to be maintained by the Energy Project Provider as set forth in the Energy Project Ground Lease, describing the insurance obtained and stating that such insurance is in full force and effect and that all premiums then due thereon have been paid and that such insurance complies with the Energy Project Ground Lease and (y) certified copies of all policies evidencing such insurance naming the Energy 40 Project Provider as loss payee and the Administrative Agent and the Lenders as additional insureds and otherwise in form and substance satisfactory to the Administrative Agent. vii. Zoning. The Administrative Agent shall have received a certificate from the applicable Governmental Instrumentality with respect to the zoning of the Site, together with an opinion from counsel satisfactory to the Administrative Agent that the Hotel/Casino, the Mall Project, the Music Project, and the Energy Project are zoned in a classification which will permit the construction and use thereof for all purposes intended. The Borrower shall deliver to the Lenders evidence reasonably satisfactory to the Lenders that the Hotel/Casino, the Mall Project, the Music Project, and the Energy Project upon completion thereof will comply with all applicable zoning, subdivision, land use, environmental, condominium and building statutes, codes, ordinances, regulations, variances and special regulations. viii. Operation and Management Plan. The Borrower shall deliver an operational and management plan for the Hotel/Casino which shall be in form and content reasonably satisfactory to the Administrative Agent. Such plan shall specify all payments to be made to the Aladdin Parties and/or the London Clubs Parties, and Affiliates thereof, all of which shall be reasonably satisfactory to the Administrative Agent and all of which shall be subject and subordinate in all respects to all payments to be made under the Loan Documents and the GECC Commitment and which may be terminated by the Administrative Agent without premium or penalty after a default exists under the Loan Documents subject, however, in the case of the Salle Privee Agreement, to the terms of the Assignment of Salle Privee Agreement and the right of the Borrower to make the Restricted Payments as set forth in clauses (e) and (f) of Section 7.2.6 of the Credit Agreement. ix. Borrower's Closing Certificate. Delivery to the Administrative Agent of the Borrower's Closing Certificate signed by an Authorized Representative of the Borrower. 41 x. Construction Consultant's Certificates and Report. Delivery to the Administrative Agent of the Construction Consultant's Closing Certificate with the Construction Consultant's Report in form and substance satisfactory to the Administrative Agent, attached thereto. xi. Certificates and Report from the Architect of Record. Delivery to the Administrative Agent of the Architect of Record's Closing Certificate in form and substance satisfactory to the Administrative Agent. xii. Restrictions on Discount Noteholders. The restrictions on, and the subordination of the interests of, the Discount Noteholders as set forth in the Discount Note Indenture shall continue to be in full force and effect and binding on the Discount Noteholders. xiii. Fees. All amounts required to be paid to or deposited with the Disbursement Agent, the Administrative Agent, the Servicing Agent or the Independent Consultants and all taxes, fees and other costs payable in connection with the execution, delivery, recordation and filing of the documents and instruments referred to in this Section 3.1 and in Section 5.1 of the Credit Agreement, shall have been paid or deposited, as the case may be, in full. The Borrower shall have paid all fees, expenses and other charges then due and payable by it under this Disbursement Agreement or the other Loan Documents or under any agreements between the Borrower and any of the Independent Consultants. xiv. Main Project Budget. Delivery to the Administrative Agent and the Construction Consultant of the Main Project Budget, which Main Project Budget shall be satisfactory to the Construction Consultant, as and to the extent certified to in the Construction Consultant's Closing Certificate. xv. Construction Benchmark Schedule. Delivery to the Administrative Agent, the providers of the Approved Equipment Funding Commitments and the Construction Consultant of the Construction Benchmark Schedule, as certified in the Construction Consultant's Closing Certificate. 42 xvi. Events of Default. No Default or Event of Default shall have occurred and be continuing. xvii. Permits. (1) All Permits listed in Exhibit D as required to have been obtained by the Borrower or any other Person by the Closing Date shall have been issued and be in full force and effect and not subject to current legal proceedings or to any unsatisfied conditions (that are required to be satisfied by the Closing Date) that could reasonably be expected to allow material modification or revocation, and all applicable appeal periods with respect thereto shall have expired; and (2) With respect to any of the Permits described in Exhibit E as not yet required to be obtained by the Closing Date, (x) each such Permit (except approval by the applicable Governmental Instrumentalities of the creation of the Mall Project Parcel and the Music Project Parcel as separate legal parcels under Nevada subdivision law and Gaming Licenses) is of a type that is routinely granted on application and (y) no facts or circumstances exist which indicate that any such Permit will not be timely obtainable without material difficulty, expense or delay by the Borrower or the applicable Person, respectively, prior to the time that it becomes required. xviii. Third Party Consents. Delivery to the Administrative Agent of any required Consents from (u) the Design/Builder, (v) Fluor, (w) each Major Contractor that is party to a Contract with the Borrower, (x) the Energy Project Provider, (y) the Architect of Record, and (z) each other party (other than the Borrower) to the Material Main Project Documents, each in form and substance satisfactory to the Administrative Agent. xix. Representations and Warranties. Both before and after giving effect to the Initial Advance the following statements shall be true and correct: (1) the accuracy of the representations and warranties contained in Article VI of the Credit Agreement (excluding, however, those contained in 43 Section 6.7 of the Credit Agreement) and each other Operative Document as if made on the date of the Advance (except those that relate to a different date) unless the failure of the foregoing to be the case would not have a Material Adverse Effect on the Borrower or, to the Knowledge of the Borrower, the Project Parties; (2) except as disclosed by the Borrower to the Agents and the Lenders pursuant to Section 6.7 of the Credit Agreement there exists (a) no material litigation which could reasonably be expected to have a Material Adverse Effect on the Borrower or any other Project Party or which purports to affect the legality, validity or enforceability of this Disbursement Agreement or any other Operative Document; and (b) no material development shall have occurred in any litigation disclosed pursuant to Section 6.7 of the Credit Agreement which could reasonably be expected to have a Material Adverse Effect on the Borrower or the Project Parties; (3) the absence of any material adverse change in (x) the financial condition, business, property or prospects of the Borrower or on its ability to perform in all material respects its obligations under any Operative Document to which it is a party or (y) the financial condition, business, property or prospects of any other Project Party affecting its ability to perform in all material respects its obligations under any Operative Document to which it is a party or (z) a material impairment of the validity of enforceability of, or a material impairment of the rights, remedies or benefits available to the Administrative Agent, the Issuer or the Lenders under this Disbursement Agreement or any other Operative Document; and (4) the absence of any default or an event of default with respect to the Operative Documents which would be reasonably likely to cause a Material Adverse Effect on the Borrower or, to the Borrower's Knowledge, the Project Parties. 44 xx. Service of Process. Delivery to the Administrative Agent of a letter from the Process Agent consenting to its appointment by the Aladdin Parties and the London Clubs Parties, and each other party (other than the Borrower) to a Material Main Project Document (other than the Design/Builder and Fluor), in each case in form and substance acceptable to the Administrative Agent, as each such Person's agent to receive service of process in New York, New York. xxi. Utility Availability. The Construction Consultant shall have become satisfied, as certified in the Construction Consultant's Closing Certificate, that arrangements, which are reflected accurately in the Main Project Budget, shall have been or will be made under the Design/Build Contract or otherwise on commercially reasonable terms for the provision of all services, materials and utilities necessary for the construction, operation and maintenance of the Main Project as contemplated by the Operative Documents and the Plans and Specifications. xxii. Establishing of Accounts. Each of the Accounts shall have been established pursuant hereto and the Borrower Collateral Account Agreement and the Holdings Collateral Account Agreement, and all amounts which are required to be deposited in such Accounts shall have been deposited therein. xxiii. Funding of London Clubs Contribution; Proceeds of the Discount Notes. Delivery to each of the Administrative Agent and the Disbursement Agent of evidence reasonably satisfactory to each such Person that: (1) the London Clubs Cash Contribution has been (1) deposited in the Borrower's Funds Account and/or (2) applied to payment of Main Project Costs, as certified by the Construction Consultant in the Construction Consultant's Closing Certificate; (2) the Discount Notes have been issued and that proceeds thereof in an amount equal to $115,000,000 have been (1) deposited in the Construction Note Disbursement Account and/or (2) applied to payment of Main Project Costs as certified by the Construction 45 Consultant in the Construction Consultant's Closing Certificate; and (3) Land Equity in the amount of $67,000,000 has been contributed to the Borrower (the valuations of which shall take into account the subsequent releases of the Music Project Parcel and the reductions of certain indebtedness), as such amount is increased by cash payments for Main Project Costs, made by or on behalf of the Borrower in the amount of no less than $7,000,000, as certified by the Construction Consultant in the Construction Consultant's Closing Certificate. xxiv. A.L.T.A. Surveys. The Administrative Agent shall have received an A.L.T.A. survey of the Site and, if available, the Site Easements, satisfactory in form and substance to the Title Insurer and the Administrative Agent, reasonably current and certified to each such Person by a licensed surveyor satisfactory to each such Person, showing (u) as to the Site, the exact location and dimensions thereof, including the location of all means of access thereto and all easements relating thereto and showing the perimeter within which all foundations are or are to be located; (v) as to the Site Easements, the exact location and dimensions thereof to the extent capable of being described, including the location of all means of access thereto, and all improvements or other encroachments in or on the Site Easements; (w) the existing utility facilities servicing the Main Project (including water, electricity, gas, telephone, sanitary sewer and storm water distribution and detention facilities); (x) that there are no gaps, gores, projections, protrusions or other survey defects other than the Permitted Exceptions; (y) whether the Site or any portion thereof is located in a special earthquake or flood hazard zone; and (z) that there are no other matters that could reasonably be expected to be disclosed by a survey constituting a defect in title other than the Permitted Exceptions. xxv. Title Policies. The Borrower shall have delivered to the Administrative Agent the Title Policies in the amount of $410,000,000. Each such Title Policy shall (w) include such endorsements as are reasonably required by the Administrative Agent, (x) be reinsured by such reinsurance as is satisfactory to the Administrative 46 Agent, (y) be issued by the Title Insurer in form and substance satisfactory to the Administrative Agent, and (z) insure that: (1) the Borrower has a good, fee simple title to the Site and the Site Easements, free and clear of Liens (except the Permitted Liens), encumbrances (except the Permitted Encumbrances) and other exceptions to title (except the Permitted Exceptions); (2) the Energy Project Provider has a good, leasehold interest to the portion of the Site covered by the Energy Project Ground Lease, free and clear of Liens (except the Permitted Liens), encumbrances (except the Permitted Encumbrances) and other exceptions to title (except the Permitted Exceptions); (3) Aladdin Bazaar has a good, leasehold interest to the portion of the Site covered by the Mall Project Ground Lease, free and clear of Liens (except the Permitted Liens), encumbrances (except the Permitted Encumbrances) and other exceptions (except the Permitted Exceptions); (4) Aladdin Music has a good, leasehold interest to the portion of the Site covered by the Aladdin Ground Lease, free and clear of Liens (except the Permitted Liens), encumbrances (except the Permitted Encumbrances) and other exceptions to title (except the Permitted Exceptions); (5) the Deed of Trust is a valid first Lien on the Trust Estate entitled to the priority described therein, free and clear of all Liens (except the Permitted Liens), encumbrances (except the Permitted Encumbrances) and exceptions (except the Permitted Exceptions); (6) the Lenders have the right to foreclose against the portion of the Site which is not subject to the Mall Project Ground Lease and the Music Project Ground Lease and that no forfeiture or right of reversion exists due to covenants, restrictions or encroachments; and (7) the Main Project and the Energy Project conform with all applicable zoning laws. 47 xxvi. Searches. The Borrower shall deliver such UCC, bankruptcy, judgment, federal tax lien, building code violation and other searches of public records as the Administrative Agent may reasonably require with respect to the Aladdin Parties, the London Clubs Parties, the Site and the Main Project. xxvii. Plans and Specifications. The Borrower shall have delivered the Plans and Specifications to the Construction Consultant for each Construction Component and the Main Project as a whole in form and substance satisfactory to the Construction Consultant, as certified to in the Construction Consultant's Closing Certificate. The improvements to be constructed which constitute the Hotel/Casino shall be no less than the Minimum Aladdin Facilities. Subject to (a) finalizing the Plans and Specifications in a manner that reflects a natural evolution from the Plans and Specifications as of the Closing Date in a manner consistent with Section 7.1.16 of the Credit Agreement and (b) submission of the finalized Plans and Specifications to the proper Governmental Instrumentality for approval, such Plans and Specifications shall constitute Final Plans and Specifications. Following the review and approval of the Plans and Specifications, no material modifications may be made thereto without the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld or delayed if, after giving effect thereto, (x) such modifications do not (1) affect the obligation of the Borrower to construct Improvements which are not less than the Minimum Aladdin Facilities, (2) affect the obligation of the Borrower to Complete such Improvements (which shall not be less than the Minimum Aladdin Facilities) on or before the Outside Completion Deadline or (3) require any adjustment to the Guaranteed Maximum Price or the Design/Build Contract Time, (y) the Construction Consultant has delivered its certificate to the Discount Note Indenture Trustee which confirms the statements set forth in clause (x), and (z) the Completion Guarantors have consented in writing to such modifications. xxviii. Corporation and Capital Structure; Management. The organizational structure, capital structure and ownership of the Aladdin Parties, the London 48 Clubs Parties, the Design/Builder, Fluor, the Energy Project Provider and the Mall Project shall be satisfactory to the Administrative Agent. The management structure of the Aladdin Parties and the London Clubs Parties shall be satisfactory to the Administrative Agent, and the Administrative Agent shall have received copies of, and shall be satisfied with the form and substance of, any and all employment agreements with senior management of the Borrower. xxix. Real Estate Appraisal. The Administrative Agent shall have received an appraisal of the Main Project from an independent real estate appraiser satisfactory to the Administrative Agent, in form, scope and substance satisfactory to the Administrative Agent and satisfying the requirements of any applicable laws and regulations. xxx. Environmental Reports. The Administrative Agent shall have received reports and other information, in form, scope and substance satisfactory to the Administrative Agent, regarding Environmental Matters relating to the Borrower and the Site, which reports shall include (x) a Phase I environmental assessment for the Site (the "Phase I Report") which (1) conforms to the ASTM Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, E 1527 and (2) was updated no more than one month prior to the Closing Date by the Environmental Consultant or another environmental consulting firm or firms reasonably satisfactory to the Administrative Agent and (y) a current compliance audit setting forth an assessment of the Borrower and the Site, current and past compliance with the Environmental Laws and an estimate of the cost of rectifying any non-compliance with current Environmental Laws identified therein and the cost of compliance with reasonably anticipated future Environmental Laws identified therein. xxxi. Liens. The Borrower shall have delivered or caused to be delivered to the Administrative Agent: (1) Unconditional Releases. Duly executed acknowledgments of payments and unconditional releases of mechanics' and materialmen's liens in form 49 and substance reasonably satisfactory to the Administrative Agent (in consultation with the Construction Consultant) from the Design/Builder and each Contractor and Subcontractor for all work, services and materials, including equipment and fixtures of all kinds, done, performed or furnished for the construction of the Main Project through the Closing Date with a value or contract price in excess of $50,000, except for such work, services and materials the payment for which is being disputed in good faith, by appropriate means and with appropriate reserves by the Borrower; and (2) Conditional Releases. Duly executed acknowledgments of payments and releases of mechanics' and materialmen's Liens in form and substance reasonably satisfactory to the Administrative Agent (in consultation with the Construction Consultant) from the Design/Builder and each Contractor and Subcontractor for all work, services and materials, including equipment and fixtures of all kinds, done, performed or furnished for the construction of the Main Project through the Closing Date with a value or contract price in excess of $50,000, except for work, services or materials the payment for which is being disputed in good faith, by appropriate means and with appropriate reserves by the Borrower or which will be discharged after giving effect to such Advance. xxxii. In Balance Requirement. The Unallocated Contingency Balance shall equal or exceed the Required Minimum Contingency and the Available Funds shall equal or exceed the Remaining Costs as determined by the Administrative Agent and the Construction Consultant. xxxiii. No Restrictions. No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain the Lenders, the Administrative Agent, the Disbursement Agent and/or the Discount Note Indenture Trustee from entering into this Disbursement Agreement or any other documents to which any of them is a party with respect to the transactions contemplated by this Disbursement Agreement. 50 xxxiv. Discount Notes; Preferred Shareholders. The form and content of the Discount Note Indenture and rights of the Discount Noteholders and the Series A Preferred Membership Interests thereunder shall be satisfactory to the Administrative Agent in its sole discretion. xxxv. Violation of Certain Regulations. The entering into of this Disbursement Agreement shall not violate any law, including Regulation G, Regulation T, Regulation U or Regulation X of the Board of Governors of the FRS Board. xxxvi. Financial Covenants. Each of the Completion Guarantors under the Completion Guaranty and the Sponsors under the Keep-Well Agreement shall be in compliance with all of the financial covenants applicable to it thereunder, if any. xxxvii. Initial Advance Prior to February 27, 1998. The Initial Advance shall have occurred on or before February 27, 1998, time being of the essence as to the Borrower. If the Initial Advance does not occur by February 27, 1998, as aforesaid, the Lenders shall have the right to terminate the Credit Agreement, this Disbursement Agreement and all of the other Loan Documents without any obligation to return or refund any amount paid to the Lenders under the Loan Documents and/or the Commitment Letter. xxxviii. Other Documents. The Administrative Agent shall have received such other documents and evidence as it may reasonably request in connection with the transactions contemplated hereby. xxxix. Satisfactory Form and Substance. All documents executed or submitted pursuant hereto by or on behalf of the Borrower, any of the other Aladdin Parties, any of the London Clubs Parties and any of the Project Parties shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel and the Administrative Agent and its counsel shall have received all information, approvals, opinions, documents or instruments as the Administrative Agent or its counsel may reasonably request. 51 xl. Credit Agreement. The Administrative Agent shall have received, with counterparts for each Lender, the Credit Agreement duly executed by the parties thereto, which shall be in full force and effect. b. Conditions Precedent to Advances from the Accounts. The obligation of the Disbursement Agent to approve Advances (other than, so long as no Default or Event of Default shall have occurred and be continuing, from the Cash Management Account for which no approval of the Disbursement Agent is required) and make disbursements from the Account from time to time is subject to the prior satisfaction of each of the following conditions precedent: i. Credit Agreement Conditions to Advances. All conditions to the making of any Advances as set forth in Section 5.2 of the Credit Agreement shall be satisfied or otherwise waived in writing by the Administrative Agent in its sole discretion. ii. Operative Documents. Each Operative Document and, prior to the time that an Advance is made from the Bank Proceeds Account or a Letter of Credit is issued pursuant to the Credit Agreement, the Noteholder Completion Guaranty shall be in full force and effect, without amendment since the respective date of its execution and delivery, and in a form which was approved by the Administrative Agent, except (x) as otherwise permitted pursuant to the Credit Agreement and (y) to the extent the Borrower has entered into a replacement Operative Document as permitted by the Credit Agreement or if pursuant thereto the Borrower is not required to enter into a replacement Operative Document, and each certificate delivered by the Borrower with respect to any such document shall be true and correct in all material respects, as certified by the Borrower in the relevant Advance Request. The Disbursement Agent shall be entitled to rely on a certification by the Borrower in determining that this condition has been satisfied unless the Disbursement Agent shall have actual knowledge that the Borrower's certification is inaccurate. iii. Representations and Warranties. Both before and after giving effect to any Advance, the following statements shall be true and correct: 52 (1) the accuracy of the representations and warranties contained in Article VI of the Credit Agreement (excluding, however, those contained in Section 6.7 of the Credit Agreement), each other Operative Document and, during such time as the Discount Note Indenture Trustee is entitled to receive a Preliminary Notice of Advance Request pursuant to Section 2.4.1(a) or Final Notice of Advance Request pursuant to Section 2.4.2.(b), the Noteholder Completion Guaranty as if made on the date of the Advance (except those that relate to a different date) unless the failure of the foregoing to be the case would not have a Material Adverse Effect on the Borrower or, to the Knowledge of the Borrower, the Project Parties; (2) except as disclosed by the Borrower to the Agents and the Lenders pursuant to Section 6.7 of the Credit Agreement there exists (a) no material litigation which could reasonably be expected to have a Material Adverse Effect or which purports to affect the legality, validity or enforceability of this Disbursement Agreement, any other Operative Document or, during such time as the Discount Note Indenture Trustee is entitled to receive a Preliminary Notice of Advance Request pursuant to Section 2.4.1(a) or Final Notice of Advance Request pursuant to Section 2.4.2.(b), the Noteholder Completion Guaranty; and (b) no material development shall have occurred in any litigation disclosed pursuant to Section 6.7 of the Credit Agreement which could reasonably be expected to have a Material Adverse Effect on the Borrower or the Project Parties; (3) the absence of any material adverse change in (i) the financial condition, business, property or prospects of the Borrower or on its ability to perform in all material respects its obligations under any Operative Document to which it is a party or (ii) the financial condition, business, property or prospects of any other Project Party affecting its ability to perform in all material respects its obligations under any Operative 53 Document to which it is a party or, during such time as the Discount Note Indenture Trustee is entitled to receive a Preliminary Notice of Advance Request pursuant to Section 2.4.1(a) or Final Notice of Advance Request pursuant to Section 2.4.2.(b), the Noteholder Completion Guaranty or (iii) a material impairment of the validity of enforceability of, or a material impairment of the rights, remedies or benefits available to the Administrative Agent, the Issuer or the Lenders under this Disbursement Agreement, any other Operative Document or, during such time as the Discount Note Indenture Trustee is entitled to receive a Preliminary Notice of Advance Request pursuant to Section 2.4.1(a) or Final Notice of Advance Request pursuant to Section 2.4.2.(b), the Discount Note Indenture Trustee under the Noteholder Completion Guaranty; (4) the absence of any default or an event of default with respect to the Operative Documents or, during such time as the Discount Note Indenture Trustee is entitled to receive a Preliminary Notice of Advance Request pursuant to Section 2.4.1(a) or Final Notice of Advance Request pursuant to Section 2.4.2.(b), the Noteholder Completion Guaranty which would be reasonably likely to cause a Material Adverse Effect. The Disbursement Agent shall be entitled to rely on a certification by the Borrower in the relevant Advance Request in determining that this condition has been satisfied unless the Disbursement Agent shall have actual knowledge that the Borrower's certification is inaccurate. iv. Events of Default. No Default or Event of Default shall have occurred and be continuing or, after giving effect to such Advance, could reasonably be expected to result, as certified by the Borrower in the relevant Advance Request, and no default or event which, with the giving of notice and/or passage of time, would constitute a default shall have occurred and be continuing (x) under the Operative Documents (other than the Theater Lease) or, during such time as the Discount Note Indenture Trustee is entitled to receive a Preliminary Notice of Advance Request pursuant to Section 2.4.1(a) or Final Notice of Advance Request pursuant to Section 54 2.4.2.(b), the Noteholder Completion Guaranty, (y) by the Borrower under the Theater Lease, if in effect or (z) by Aladdin Music under the Theater Lease, if in effect, prior to the completion of the renovations required to be made by Aladdin Music under the Theater Lease unless such renovations are being completed by or on behalf of the Borrower in accordance with the Credit Agreement, this Disbursement Agreement and the Completion Guaranty. The Disbursement Agent shall be entitled to rely on a certification by the Borrower in determining that this condition has been satisfied unless the Disbursement Agent shall (x) have received notice from the Administrative Agent that a Default an Event of Default has occurred or (y) otherwise shall have acquired actual knowledge that the Borrower's certification is inaccurate. Prior to the time that an Advance is made from the Bank Proceeds Account or a Letter of Credit is issued pursuant to the Credit Agreement, the Disbursement Agent shall not waive this condition without the written consent of the Discount Note Indenture Trustee. v. Notice of Advance Request. The Administrative Agent, and the Disbursement Agent and the Discount Note Indenture Trustee (but only so long as amounts are on deposit in the Construction Note Disbursement Amount) shall have received a Preliminary Notice of Advance Request in accordance with Section 2.4.1(b) and a Final Notice of Advance Request in accordance with Section 2.4.2(b) with respect to the requested Advance. vi. Advance Request and Certificate. The Borrower shall have delivered to the Administrative Agent, the Disbursement Agent, the Servicing Agent and the Discount Note Indenture Trustee (but only so long as amounts are on deposit in the Construction Note Disbursement Amount) and the Construction Consultant a Preliminary Advance Request for the requested Advance in accordance with Section 2.4.1 and a Final Advance Request for the requested Advance in accordance with Section 2.4.2, in each case, with all attachments, exhibits and certificates required by Section 2.4.1 or 2.4.2, as the case may be. Such Advance Request shall request an Advance in an amount sufficient to pay all amounts due and payable for work performed on the Main Project through the last day of the period covered by such Advance Request. The 55 Disbursement Agent shall have reviewed and evaluated the same as provided in Section 2.4.3 and, subject to Section 2.4.3(b)(ii), shall not have become aware of any material error, inaccuracy, misstatement or omission of fact in an Advance Request or an attachment, exhibit or certificate attached thereto or information provided by the Borrower upon the request of the Disbursement Agent. vii. Construction Consultant's Certificate. The Administrative Agent, the Disbursement Agent and the Discount Note Indenture Trustee (but only so long as amounts are on deposit in the Construction Note Disbursement Amount) shall have received the Construction Consultant's Certificate with respect to the requested Advance as and when required by Section 2.4.2(c), substantially in the form of Exhibit C, approving (subject to the proviso in Section 2.4.2(c)) the corresponding Advance Request. viii. Liens. The Borrower shall have delivered or caused to be delivered to the Administrative Agent and the Disbursement Agent: (1) Unconditional Releases. Duly executed acknowledgments of payments and unconditional releases of mechanics' and materialmen's liens in form and substance reasonably satisfactory to the Administrative Agent and the Disbursement Agent (in consultation with the Construction Consultant) from the Design/Builder and each Contractor and Subcontractor for all work, services and materials, including equipment and fixtures of all kinds, done, performed or furnished for the construction of the Main Project through the date on which the Initial Advance is to be made or, if applicable, through the last day covered by the immediately preceding Advance Request with a value or contract price in excess of $50,000, except for such work, services and materials the payment for which is being disputed in good faith, by appropriate means and with appropriate reserves by the Borrower; and (2) Conditional Releases. Duly executed acknowledgments of payments and releases of mechanics' and materialmen's liens in form and substance reasonably satisfactory to the Administrative Agent and the 56 Disbursement Agent (in consultation with the Construction Consultant) from the Design/Builder and each Contractor and Subcontractor for all work, services and materials, including equipment and fixtures of all kinds, done, performed or furnished for the construction of the Main Project with a value or price in excess of $50,000 through the date on which the Initial Advance is to be made or, if applicable, through the last day covered by the immediately preceding Advance Request, conditioned only upon receiving payment from the proceeds of the requested Advance, except for work, services or materials the payment for which is being disputed in good faith, by appropriate means and with appropriate reserves by the Borrower. ix. Title Policy Endorsement. The Disbursement Agent shall have received an endorsement to the Title Policies in the form of a 122 CLTA Endorsement insuring the continuing first priority of the Lien of the Deed of Trust as security for the requested Advance on the date such Advance is made and insuring that (i) as of the date of the Initial Advance or, if applicable, since the previous Advance (if a subsequent Advance), there has been no change in the condition of title unless permitted by the Loan Documents, and (ii) there are no intervening Liens or encumbrances (including inchoate mechanic's liens) which may then or thereafter take priority over the respective Lien of the Deed of Trust (other than the Permitted Encumbrances and such intervening Liens or encumbrances securing amounts the payment of which is being disputed in good faith by the Borrower, so long as the Disbursement Agent has received confirmation from the Administrative Agent that the Title Insurers have delivered to the Administrative Agent an endorsement to the Title Policies assuring against loss to the Lenders due to the priority of such Lien or encumbrance). If additional Term B Loans or Term C Loans are being made pursuant to Section 2.3.4 of the Credit Agreement, the Administrative Agent shall have received satisfactory assurances from the Title Insurers that the lien of the Deed of Trust shall continue to be insured by the Title Policies as a first priority lien against the portion of the Site owned by the Borrower at such time, and the Title Policies shall be re-issued or re-dated as of the date the additional Loans are made pursuant to said Section 2.3.4, of the Credit Agreement with a liability limit 57 equal to $415,000,000, subject only to Permitted Encumbrances and Permitted Exceptions. The Title Policies, as re-issued or re-dated, shall expressly insure against all mechanics' liens and shall not contain any bankruptcy, fraudulent conveyance or other creditors' rights exclusion from coverage. x. Permits. The Borrower shall have certified (and, as set forth in the Construction Consultant's certificate related to the requested Advance, the Construction Consultant shall not have become aware of any inaccuracies in the Borrower's certification) that: (1) all Permits described in Exhibit D as required to have been obtained by the Borrower or any other Person by the date of such Advance shall have been issued and be in full force and effect and not subject to current legal proceedings or to any unsatisfied conditions (that are required to be satisfied by the date of the requested Advance) that could reasonably be expected to allow material modification or revocation, and all applicable appeal periods with respect thereto shall have expired; (2) with respect to any of the Permits described in Exhibit D as not yet required to be obtained, (i) each such Permit is of a type that is routinely granted on application (except approval by the applicable Governmental Instrumentalities of the creation of the Mall Project Parcel and the Music Project Parcel as separate legal parcels under Nevada subdivision law and Gaming Licenses) and (ii) no facts or circumstances exist which indicate that any such Permit will not be timely obtainable without material difficulty, expense or delay by the Borrower or the applicable Person, respectively, prior to the time that it becomes required; and (3) with respect to the approval by the applicable Governmental Instrumentalities of the creation of the Mall Project Parcel and the Music Project is separate legal parcels under Nevada subdivision law, (i) the status of such approval and (ii) no facts or circumstances exist which indicate that any such approval will not be timely obtainable without material difficulty, expense or delay. 58 xi. Additional Documents. With respect to any Operative Documents entered into or obtained, transferred or required (whether because of the status of the construction or operation of the Main Project or otherwise) since the date of the most recent Advance (if a subsequent Advance) there shall be redelivery of such matters as are described in Section 3.1.1, Section 3.1.4 (to the extent such Operative Document is, is in substitution of or is a replacement for another Operative Document) and, if requested by the Administrative Agent or the Disbursement Agent, Section 5.1.2 of the Credit Agreement, in each case to the extent not previously addressed. If such delivery or redelivery has not been made, the portion of the Advance covering any payment to be made pursuant to such Operative Documents shall not be advanced by the Disbursement Agent until the conditions set forth herein have been satisfied. If the Theater Lease has not been previously approved by the Administrative Agent, the Borrower shall not enter into any such Instrument until so approved by the Administrative Agent. xii. Plans and Specifications. The Administrative Agent and the Construction Consultant shall have received copies of all Plans and Specifications for each Construction Component and the Main Project as a whole which, as of the date of the requested Advance Date, constitute Final Plans and Specifications subject, until such time as all Plans and Specifications have been prepared and completed by the Architect of Record, to (a) finalizing the Plans and Specifications in a manner that reflects a natural evolution from the Plans and Specifications as in effect on the requested Advance Date in a manner consistent with the standards set forth in Section 7.1.22 of the Credit Agreement and (b) submission of the finalized Plans and Specifications to the proper Governmental Instrumentality for approval. The Disbursement Agent may rely upon the certification of the Borrower set forth in the Advance Request in order to establish satisfaction of this condition unless the Disbursement Agent shall have actual knowledge that the Borrower's certification is inaccurate. xiii. Compliance with Section 2.5. All Advances to be satisfied from the Hotel/Casino Component 59 Funding Sources shall have been funded in the order of priority set forth in Section 2.5.1. xiv. Proceeds. All amounts which are required to be deposited into the Bank Proceeds Account, the Borrower's Funds Account, the Construction Note Disbursement Account, the Guaranty Deposit Account, the Loss Proceeds Account have been deposited therein. xv. Fees and Expenses. The Borrower shall have paid or arranged for payment out of the requested Advance of all fees, expenses and other charges then due and payable by it under this Disbursement Agreement and the other Loan Documents or under any agreements between the Borrower and any of the Independent Consultants. The Disbursement Agent shall be entitled to rely upon a certification of the Borrower in the relevant Advance Request in determining that this condition has been satisfied unless the Disbursement Agent shall have actual knowledge that the Borrower's certification is inaccurate. xvi. Insurance. Insurance complying in all material respects with the requirements of Exhibit E shall be in place and in full force and effect. The Disbursement Agent shall be entitled to rely upon a certification of the Borrower in the relevant Advance Request in determining that this condition has been satisfied unless the Disbursement Agent shall have actual knowledge that the Borrower's certification is inaccurate. xvii. Main Project Security. All of the Loan Documents shall continue to be in full force and effect and all actions necessary or desirable (including all filings) in the reasonable opinion of the Administrative Agent to perfect the same as a valid security interest over the Main Project Security thereunder having the exclusive first priority contemplated therefor by this Disbursement Agreement and the other Loan Documents shall have been taken or made. All property, rights and assets required for the Main Project shall be free and clear of all encumbrances except for the Permitted Encumbrances, the Permitted Exceptions and the Permitted Liens. The Disbursement Agent shall be entitled to rely upon a certification of the Borrower in the relevant Advance 60 Request in determining that this condition has been satisfied unless the Disbursement Agent shall have actual knowledge that the Borrower's certification is inaccurate. During such time as there are proceeds from the Discount Notes in the Construction Note Disbursement Account, the Holdings Collateral Agreement and the pledge agreement in favor of the Discount Notes Indenture Trustee covering the Series A Preferred Interests shall continue to be in full force and effect. xviii. In Balance Requirement. The Main Project Budget shall be In Balance. xix. No Restriction. No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain the Disbursement Agent and/or any of the Lenders from making the Advance to be made by it on the requested Advance Date. The Disbursement Agent shall be entitled to rely upon a certification of the Borrower in the relevant Advance Request in determining that this condition has been satisfied unless the Disbursement Agent shall have actual knowledge that the Borrower's certification is inaccurate. xx. Violation of Certain Regulations. The making of the requested Advance shall not violate any law, including Regulation G, Regulation T, Regulation U or Regulation X of the Board of Governors of the F.R.S. Board. The Disbursement Agent shall be entitled to rely upon a certification of the Borrower in the relevant Advance Request in determining that this condition has been satisfied unless the Disbursement Agent shall have actual knowledge that the Borrower's certification is inaccurate. xxi. Financial Covenants. Each of the Completion Guarantors under the Completion Guaranty and the Sponsors under the Keep-Well Agreement shall be in compliance with all of the financial covenants applicable to it thereunder, if any. xxii. Restrictions on Discount Noteholders. The restrictions on, and the subordination of the interests of, the Discount Noteholders as set forth in the 61 Discount Note Indenture shall continue to be in full force and effect and binding on the Discount Noteholders. xxiii. Financial Statements. Delivery to the Administrative Agent of the financial statements which are required by the Credit Agreement, together with a certificate from the Person certifying such financial statements and stating that no Material Adverse Change in the assets, liabilities, operations, financial condition or prospects of each such Person has occurred since the dates of the respective financial statements provided to the Administrative Agent, except as otherwise provided in such certificate. xxiv. Foundation Surveys. As the foundations for the Hotel/Casino, the Energy Project and the Shoulder Space are completed from time to time, the Borrower shall provide a survey thereof satisfactory in form and substance to the Title Insurer and the Administrative Agent certified to each such Person by a licensed surveyor reasonably satisfactory to each such Person. xxv. Delivery of On-Schedule Certificate. The Construction Consultant shall have delivered an On-Schedule Certificate to the parties (which the Construction Consultant shall deliver to the parties each month whether or not an Advance is being made). c. No Waiver or Estoppel. i. The making of any Advance hereunder shall not preclude the Administrative Agent from later asserting (and enforcing any remedies it may have in connection therewith) that any representation, warranty or certification made or deemed made by the Borrower in connection with such Advance was not true and accurate when made. No course of dealing or waiver by the Administrative Agent or any Secured Party in connection with any condition precedent to any Advance under this Disbursement Agreement or any other Loan Document shall impair any right, power or remedy of the Administrative Agent or any Secured Party with respect to any other condition precedent, or be construed to be a waiver thereof; nor shall the action of the Administrative Agent or any Secured Party in respect of any Advance affect or impair any 62 right, power or remedy of the Administrative Agent or any Secured Party in respect of any other Advance. ii. Unless otherwise notified to the Borrower by the Administrative Agent or a Secured Party and without prejudice to the generality of Section 3.3.1, the right of the Administrative Agent or any Secured Party to require compliance with any condition under this Disbursement Agreement or any other Loan Document which may be waived by the Administrative Agent or such Secured Party in respect of any Advance is expressly preserved for the purpose of any subsequent Advance. ARTICLE 4. - THE DISBURSEMENT AGENT ----------------------------------- a. Appointment and Acceptance. Subject to and on the terms and conditions of this Disbursement Agreement, the Discount Note Indenture Trustee, the Lenders and the Administrative Agent hereby jointly and irrevocably appoint and authorize the Disbursement Agent to act as their disbursement agent hereunder. The Disbursement Agent accepts such appointment and agrees to exercise commercially reasonable efforts and utilize commercially prudent practices in the performance of its duties hereunder consistent with those of similar institutions holding collateral, administering construction loans and disbursing disbursement control funds. b. Duties and Liabilities of the Disbursement Agent Generally. i. Commencing upon the execution and delivery hereof, the Disbursement Agent shall have the right to meet at the Site or elsewhere in Las Vegas, Nevada periodically at reasonable times (however, no less frequently than monthly), upon three (3) Business Days' notice, with representatives of the Borrower, the Construction Consultant, the Design/Builder, the Architect of Record and such other employees, consultants or agents as the Disbursement Agent shall reasonably request to be present for such meetings. The Disbursement Agent may perform such inspections and tests of the Main Project as it deems reasonably appropriate in the performance of its duties hereunder. In addition, the Disbursement Agent shall have the right at reasonable times upon prior 63 notice to review all information (including Contracts) supporting the amendments to the Main Project Budget, amendments to any Contracts, the Advance Requests and any certificates in support of any of the foregoing, to inspect materials stored on or about the Site then owned by the Borrower, to review the insurance required pursuant to the terms of this Disbursement Agreement and the other Loan Documents, to confirm receipt of endorsements from the Title Insurer insuring the continuing first priority of the Lien of the Deed of Trust as security for each Advance, and to examine the Plans and Specifications and all shop drawings relating to the Main Project. The Disbursement Agent is authorized to contact the Design/Builder, any Contractor or any Subcontractor for purposes of confirming receipt of progress payments. The Disbursement Agent shall be entitled to examine, copy and make extracts of the books, records, accounting data and other documents of the Borrower, including, without limitation, bills of sale, statements, receipts, conditional and unconditional Lien releases, contracts or agreements, which relate to any materials, fixtures or articles incorporated into the Main Project. From time to time, at the request of the Disbursement Agent, the Borrower shall make available to the Disbursement Agent a Construction Benchmark Schedule. The Borrower agrees to cooperate with the Disbursement Agent in assisting the Disbursement Agent to perform its duties hereunder and to take such further steps as the Disbursement Agent reasonably may request in order to facilitate the Disbursement Agent's performance of its obligations hereunder. ii. In case an Event of Default known to it (or as to which it has received notice from the Administrative Agent) has occurred (which has not been cured or waived), the Disbursement Agent shall provide prompt notice to the Administrative Agent and the Discount Note Trustee of the same (if notice of such Event of Default was not given by the Administrative Agent to the Disbursement Agent) and otherwise shall exercise such of the rights and powers vested in it by this Disbursement Agreement and the documents constituting or executed in connection with this Disbursement Agreement, and use the same degree of care and skill in their exercise, as a prudent Person would exercise or use under the circumstances in the reasonable administration of its own affairs. If the Disbursement Agent shall not have received instructions from the Administrative Agent within 64 five (5) days after the mailing by the Disbursement Agent of a notice of an Event of Default to the Administrative Agent, the Disbursement Agent, until instructed otherwise by the Administrative Agent, may, but shall be under no duty to, take or refrain from taking such action with respect to such Event of Default, as it shall deem advisable in the best interests of the Secured Parties. Notwithstanding the foregoing, during the existence of an Event of Default, if it has not been instructed otherwise, the Disbursement Agent shall not in any such event deposit any amounts into the Collection Account, the Disbursement Account, the Servicing Agent's Disbursement Account or the Cash Management Account or release any funds to the Borrower. iii. None of the provisions of this Disbursement Agreement shall require the Disbursement Agent to expend or risk its own funds or otherwise to incur any personal financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. iv. Notwithstanding anything to the contrary in this Disbursement Agreement, if the Person acting as Disbursement Agent also serves as a collateral agent, the Administrative Agent, financial advisor, investment advisor, securities intermediary, Lender under the other Loan Documents or otherwise, and except if such functions shall be performed by the same group, agency, branch or division of such Person, the Disbursement Agent shall not be deemed to have any knowledge of any fact known to such Person in its capacity as the collateral agent or the Administrative Agent by reason of the fact that the Disbursement Agent and the collateral agent or the Administrative Agent, as the case may be, are the same Person. Except as aforesaid, no knowledge of the collateral agent or the Administrative Agent shall be attributed to the Disbursement Agent. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon the Disbursement Agent in its capacity as the Administrative Agent or as a Lender. With respect to its participation in the extensions of credit under the Credit Agreement, the Disbursement Agent shall have the same rights and powers 65 hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder. The Disbursement Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with the Borrower, any of the other Aladdin Parties and/or the London Clubs Parties or any of their respective Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from the Borrower, any of the other Aladdin Parties and/or the London Clubs Parties for services in connection with this Disbursement Agreement and otherwise without having to account for the same to the Lenders. Each party hereto acknowledges that, as of the Closing Date, Scotiabank is, in addition to acting as the Disbursement Agent hereunder, also acting as the Administrative Agent and is a Lender. c. Particular Duties and Liabilities of the Disbursement Agent. i. Reliance Generally. The Disbursement Agent may, from time to time, in the event that any matter arises as to which specific instructions are not provided herein, request directions from the Administrative Agent with respect to such matters and may refuse to act until so instructed and shall be fully protected in acting or refusing to act in accordance with such instructions. The Disbursement Agent may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval or other paper or document believed by it on reasonable grounds to be genuine and to have been signed or presented by the proper party or parties. ii. Court Orders. The Disbursement Agent is authorized, in its exclusive discretion, to obey and comply with all writs, orders, judgments or decrees issued by any court or administrative agency affecting any money, documents or things held by the Disbursement Agent. The Disbursement Agent shall not be liable to any of the parties hereto or their successors or assigns by reason of the Disbursement Agent's compliance with such writs, orders, judgments or decrees, notwithstanding such 66 writ, order, judgment or decree is later reversed, modified, set aside or vacated. iii. Requests, etc., of the Borrower. Any request, direction, order or demand of the Borrower mentioned herein shall be sufficiently evidenced (unless other evidence in respect thereof be herein specifically prescribed) by an instrument signed by one of its Authorized Representatives, and any resolution of the Borrower may be evidenced to the Disbursement Agent by a copy thereof certified by an Authorized Representative of the manager of the Borrower. iv. Reliance on Opinions of Counsel. The Disbursement Agent may consult with counsel and any opinion of counsel shall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith and in accordance with such opinion of counsel. v. Action through Agents or Attorneys. The Disbursement Agent may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys appointed with due care, but the Disbursement Agent shall be responsible for any willful misconduct or gross negligence on the part of any agent so appointed. vi. Marshaling of Assets. The Disbursement Agent need not marshal in any particular order any particular part or piece of the Main Project Security held by the Disbursement Agent in its capacity as Disbursement Agent hereunder, or any of the funds or assets that the Disbursement Agent may be entitled to receive or have claim upon. vii. Disagreements. (1) In the event of any disagreement between the Administrative Agent and the Borrower or any other Person or Persons whether or not named herein, and if adverse claims or demands are made in connection with or for any of the investments or amounts held pursuant to this Disbursement Agreement, the Disbursement Agent shall be entitled at its option to refuse to comply with any such claim or demand so long as such disagreement shall 67 continue, and, in so doing, the Disbursement Agent shall not be or become liable for damages or interest to the Administrative Agent or the Borrower or any other Person or Persons for the Disbursement Agent's failure or refusal to comply with such conflicting or adverse claims or demands. The Disbursement Agent shall be entitled to continue so to refrain and refuse so to act until: (a) the rights of the adverse claimants have been fully adjudicated in the court assuming and having jurisdiction of the claimants and the investments and amounts held pursuant to this Disbursement Agreement; or (b) all differences shall have been adjusted by agreement, and the Disbursement Agent shall have been notified thereof in writing by all Persons deemed by the Disbursement Agent, in its sole discretion, to have an interest therein. (2) In addition, the Disbursement Agent, in its sole discretion, upon giving thirty (30) days' prior written notice to the Administrative Agent, may file a suit in interpleader for the purpose of having the respective rights of all claimants adjudicated, and may deposit with the court all of the investments and amounts held pursuant to this Disbursement Agreement. The Borrower agrees to pay all costs and reasonable counsel fees incurred by the Disbursement Agent in such action, said costs and fees to be included in the judgment in any such action. d. Segregation of Funds and Property Interest. Except as otherwise expressly provided in the Loan Documents, monies and other property received by the Disbursement Agent shall, until used or applied as herein provided, be held for the purposes for which they were received, and shall be segregated from other funds except to the extent required herein or by law. The Disbursement Agent shall note in its records that all funds and other assets in (x) the Borrower's Funds Account, the Bank Proceeds Account, the Loss Proceeds Account, the Guaranty Deposit Account, the Interest Payment Account, the Term B Sub-Account, the Term C Sub-Account, the Collection Account, the Disbursement Account and the Servicing Agent's Account has been pledged to the Secured Parties and that the Disbursement Agent is holding such 68 items as agent for the Secured Parties and (y) the Construction Note Disbursement Account has been pledged to the Discount Note Indenture Trustee and that the Disbursement Agent is holding such items as agent for the Discount Note Indenture Trustee. All such funds and assets shall not be within the bankruptcy "estate" (as such term is used in 11 U.S.C. Section 541) of the Disbursement Agent. The Disbursement Agent shall not be under any liability for interest on any monies received by it hereunder, except as otherwise specified in this Disbursement Agreement. Except for the compensation and reimbursements set forth in Section 4.5 and as otherwise set forth in Section 7.4 and Section 7.15, the Disbursement Agent qua the Disbursement Agent hereby expressly waives any right of set-off or similar right it may have against or in relation to the Accounts, and any monies, Permitted Investments or other amounts on deposit therein. e. Compensation and Reimbursement of the Disbursement Agent. The Borrower covenants and agrees to pay or reimburse the Disbursement Agent upon its request for all reasonable expenses, disbursements and advances incurred or made by the Disbursement Agent in accordance with any of the provisions of this Disbursement Agreement or the other Loan Documents or the documents constituting or executed in connection with the Main Project Security (including the reasonable compensation and the reasonable expenses and disbursements of its counsel and of all persons not regularly in its employ). The obligations of the Borrower under this Section 4.5 to compensate the Disbursement Agent and to pay or reimburse the Disbursement Agent for reasonable expenses, disbursements and advances shall constitute additional indebtedness (and shall be deemed permitted indebtedness under the Loan Documents) hereunder and shall survive the satisfaction and discharge of this Disbursement Agreement. f. Qualification of the Disbursement Agent. The Disbursement Agent hereunder shall at all times be a corporation which (a) is authorized to perform its duties as Disbursement Agent hereunder, (b) is subject to supervision or examination by one or more applicable Governmental Instrumentalities, (c) shall have a combined capital and surplus of at least $500,000,000, (d) shall have a long-term credit rating of not less than A- or A3, 69 respectively, by S&P or Moody's; and provided, that any such Person with a long-term credit rating of A- or A3 shall not cease to be eligible to act as Disbursement Agent upon a downward change in either such rating of no more than one category or grade of such minimum rating, as the case may be, and (e) with respect to any replacement of the Person acting as Disbursement Agent on the Closing Date, shall be acceptable to each of the Administrative Agent and, until all amounts in the Construction Note Disbursement Account have been fully advanced, the Discount Note Indenture Trustee. In case at any time the Disbursement Agent shall cease to be eligible in accordance with the provisions of this Section 4.6, the Disbursement Agent shall resign immediately in the manner and with the effect specified in Section 4.7. g. Resignation and Removal of the Disbursement Agent. The Administrative Agent and, prior to the advance of all amounts in the Construction Note Disbursement Account, the Discount Note Indenture Trustee, acting jointly, shall have the right should they reasonably determine that the Disbursement Agent has breached or failed to perform its obligations hereunder or has engaged in wilful misconduct or gross negligence, upon the expiration of 30 days following delivery of written notice of substitution to the Disbursement Agent and the Borrower, to cause the Disbursement Agent to be relieved of its duties hereunder and to select a substitute disbursement agent to serve hereunder. The Disbursement Agent may resign at any time upon 30 days' written notice to all parties hereto. Such resignation shall take effect upon receipt by the Disbursement Agent of an instrument of acceptance executed by a successor disbursement agent meeting the qualifications set forth in Section 4.6 and consented to by the other parties hereto. Upon selection of such substitute disbursement agent, the Administrative Agent, the Discount Note Indenture Trustee, if applicable, the Borrower and the substitute disbursement agent shall enter into an agreement substantially identical to this Disbursement Agreement and, thereafter, the Disbursement Agent shall be relieved of its duties and obligations to perform hereunder, except that the Disbursement Agent shall transfer to the substitute disbursement agent upon request therefor originals of all books, records, and other documents in the 70 Disbursement Agent's possession relating to this Disbursement Agreement. h. Merger or Consolidation of the Disbursement Agent. Any corporation into which the Disbursement Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Disbursement Agent shall be a party, or any corporation succeeding to the corporate trust business of the Disbursement Agent, shall, if eligible hereunder, be the successor of the Disbursement Agent hereunder, provided, that such corporation shall be eligible under the provisions of Section 4.6 without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto except where an instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding. i. Statements; Information. (1) The Disbursement Agent shall provide to the Administrative Agent, the Borrower and, until all amounts in the Construction Note Disbursement Account have been fully advanced, the Discount Note Indenture Trustee, a monthly statement of all deposits to, and disbursements from, each Account and interest and earnings credited to each Account established and maintained hereunder by the Disbursement Agent. (2) The Disbursement Agent shall, at the expense of the Borrower (i) as promptly as is reasonably practicable after receipt of any reasonable written request by the Borrower or the Administrative Agent, but not more frequently than monthly, provide the Borrower or the Administrative Agent, as the case may be, with such information as the Borrower or the Administrative Agent may reasonably request regarding all categories, amounts, maturities and issuers of investments made by the Disbursement Agent pursuant to this Disbursement Agreement and regarding amounts available in the Accounts, and (ii) upon the reasonable written request of the Borrower, arrange with the Borrower for a mutually convenient time for an Authorized Representative of the Reviewing Accountant to visit the offices of the Disbursement Agent to examine and take copies of records relating to and 71 instruments evidencing the investments made by the Disbursement Agent pursuant to this Disbursement Agreement. j. Limitation of Liability. The Disbursement Agent's responsibility and liability under this Disbursement Agreement shall be limited as follows: (w) the Disbursement Agent does not represent, warrant or guarantee to the Administrative Agent, the Lenders, the Discount Note Indenture Trustee, the Discount Noteholders or any other Person the performance by the Borrower, the Design/Builder, the Architect of Record or any other Person of their respective obligations under the Operative Documents and shall have no duty to inquire whether a Default or an Event of Default has occurred and is continuing; (x) the Disbursement Agent shall have no responsibility to the Borrower, Holdings, the Administrative Agent, the Lenders, the Discount Note Indenture Trustee or the Discount Noteholders as a consequence of performance by the Disbursement Agent hereunder except for any gross negligence or willful misconduct of the Disbursement Agent; (y) the Borrower shall remain solely responsible for all aspects of its business and conduct in connection with the Main Project, including, but not limited to, the quality and suitability of the Plans and Specifications, the supervision of the construction, the qualifications, financial condition and performance of all architects, engineers, Contractors, Subcontractors, suppliers, consultants and property managers, the accuracy of all Advance Requests and the proper application of all Advances; and (z) the Disbursement Agent is not obligated to supervise, inspect or inform the Borrower of any aspect of the construction of the Main Project or any other matter referred to above. Each of the Administrative Agent and the Lenders has made its own independent investigation of the financial condition and affairs of the Borrower, the other Aladdin Parties and the London Clubs Parties in connection with the making of the extensions of credit contemplated by the Loan Documents and has made and shall continue to make its own appraisal of the creditworthiness of the Borrower, the other Aladdin Parties and the London Clubs Parties. Except as specifically set forth herein, the Disbursement Agent shall not have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of the Administrative Agent or the Lenders or to provide the Administrative Agent or the Lenders with any credit or other information with respect 72 thereto. The Disbursement Agent shall not have, by reason of this Disbursement Agreement, a fiduciary relationship in respect of any Person; and nothing in this Disbursement Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Disbursement Agent any obligations in respect of this Disbursement Agreement except as expressly set forth herein. The Disbursement Agent shall have no duties or obligations hereunder except as expressly set forth herein, shall be responsible only for the performance of such duties and obligations and shall not be required to take any action otherwise than in accordance with the terms hereof. The provisions of this Article 4 are solely for the benefit of the Disbursement Agent, the Administrative Agent, the Lenders and the Discount Note Indenture Trustee (but only so long as amounts are on deposit in the Construction Note Disbursement Account), and neither the Borrower, the other Aladdin Parties, the London Clubs Parties nor any other Person shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Disbursement Agreement, the Disbursement Agent does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower, the other Aladdin Parties, the London Clubs Parties or any other Person. Neither the Disbursement Agent nor any of its officers, directors, employees or agents shall be in any manner liable or responsible for any loss or damage arising by reason of any act or omission to act by it or them hereunder or in connection with any of the transactions contemplated hereby, including, but not limited to, any loss that may occur by reason of forgery, false representations, the exercise of its discretion, or any other reason, except as a result of their gross negligence or willful misconduct. ARTICLE 5. - SECURITY INTEREST; PERMITTED INVESTMENTS; RELEASE -------------------------------------------------------------- a. Security Interest in Accounts; Safekeeping of Collateral. i. Pursuant to the Borrower Collateral Account Agreement, the Scotiabank Collateral Account Agreement, and the Servicing and Collateral Account Agreement 73 the Borrower has irrevocably granted a first priority security interest in, and pledged, assigned and set over to the Disbursement Agent all of its right, title and interest in and to, the Accounts (other than the Construction Note Disbursement Account), all funds, cash, Permitted Investments and other items from time to time acquired by the Disbursement Agent with funds in the Accounts (other than the Construction Note Disbursement Account), as well as any earnings, proceeds or income therefrom and any claims, present or future, of the Borrower against any Person liable upon or for payment thereof (collectively, the "Accounts Collateral"), as security for the Obligations. ii. The Borrower shall have no right to withdraw, or to cause the withdrawal of, funds held in the Accounts or to direct the investment of such funds or the liquidation of any such investments, in each case other than as expressly provided herein and in the Borrower Collateral Account Agreement, the Scotiabank Collateral Account Agreement and the Servicing and Collateral Account Agreement. The Borrower shall not make, attempt to make, or consent to the making of any withdrawal or transfer from any of the Accounts, except in strict compliance with this Disbursement Agreement, the Credit Agreement, the Borrower Collateral Account Agreement, the Scotiabank Collateral Account Agreement and the Servicing and Collateral Account Agreement. Amounts deposited in the Accounts shall be applied exclusively as provided in this Disbursement Agreement, the other Loan Documents, the Borrower Collateral Account Agreement, the Servicing and Collateral Account Agreement, the Scotiabank Collateral Account Agreement and the Holdings Collateral Account Agreement, as applicable. No amount held in any Account maintained hereunder shall be disbursed except in accordance with the provisions hereof and the Borrower Collateral Account Agreement, the Servicing and Collateral Account Agreement, the Scotiabank Collateral Account Agreement and the Holdings Collateral Account Agreement, as applicable. iii. The Disbursement Agent is hereby irrevocably authorized by the Borrower to apply, or cause to be applied, amounts in any Account (other than the Construction Note Disbursement Account) hereunder upon the occurrence and during the continuance of an Event of Default to the payment of interest, principal, fees, costs, 74 charges or other amounts due or payable to the Secured Parties as may be elected in accordance with the Credit Agreement. iv. To the extent it is within its power, the Disbursement Agent, the Servicing Agent and the Securities Intermediary, as applicable, at all times shall cause to be maintained all of the Accounts Collateral and the Construction Note Disbursement Account free and clear of all Liens, security interests, safekeeping or other charges, demands and claims of any nature whatsoever now or hereafter existing, in favor of anyone other than the Disbursement Agent, as agent for the Administrative, the Lenders and the Discount Note Indenture Trustee. v. The Disbursement Agent shall take any other steps from time to time requested by the Administrative Agent or the Discount Note Indenture Trustee to confirm and maintain the priority of the Disbursement Agent's security interests in the Accounts Collateral and the Construction Notes Disbursement Account. vi. Notwithstanding any other provision hereof, the parties hereto acknowledge and agree that all funds or other property in the Construction Note Disbursement Account (including any Permitted Investments held therein) shall be managed and transferred in accordance with Section 2.3(g) and the Holdings Collateral Account Agreement and that only the Discount Note Indenture Trustee shall have the right to direct the Disbursement Agent with respect thereto. After the occurrence of an Event of Default (used herein for this purpose only as such term is defined in the Discount Note Indenture) all funds or other property in the Construction Note Disbursement Account shall be applied as specified in Section 15 of the Holdings Collateral Account Agreement. vii. Notwithstanding any other provision hereof, the parties hereto acknowledge and agree that all funds or other property in the Accounts (other than the Construction Note Disbursement Account), including any Permitted Investments held therein shall be managed and transferred in accordance with the relevant provisions of Section 2.3 and, as applicable, the Borrower Collateral Account Agreement, the Scotiabank Collateral Account Agreement or the Servicing and Collateral Account Agreement and that only the Administrative Agent shall have 75 the right to direct the Disbursement Agent with respect thereto. After the occurrence of an Event of Default (x) all funds or other property in the Accounts (other than the Construction Note Disbursement Account) shall be applied as specified in Section 15 of the Borrower Collateral Account Agreement, the Scotiabank Collateral Account Agreement or the Servicing and Collateral Account Agreement, as applicable, (y) all funds or other property in the Construction Note Disbursement Account shall be applied as specified in Section 15 of the Holdings Collateral Account Agreement and (z) the Disbursement Agent shall not make any Advance which is funded from proceeds of the Construction Note Disbursement Account unless otherwise directed in writing by the Discount Noteholder Trustee. b. Attorney-in-Fact. The Borrower hereby irrevocably appoints the Disbursement Agent as its attorney-in-fact effective as of the date hereof but only during the continuance of an Event of Default with full power of substitution to do any act which the Borrower is obligated hereby to do, to exercise such rights as the Borrower might exercise with respect to the Accounts Collateral and to execute and file in the Borrower's name any financing statements and amendments thereto required or advisable to protect the Disbursement Agent's rights and security interests. Such appointment and power of attorney shall be irrevocable and coupled with an interest. c. Permitted Investments. Amounts held in the Cash Management Account may only be invested in Overnight Funds and in money market investments of U.S. Bank National Association and the Servicing Agent's Disbursement Account may only be invested in Overnight Funds. Amounts held in the Borrower's Funds Account, the Bank Proceeds Account, the Loss Proceeds Account, the Guaranty Deposit Account, the Interest Payment Account, the Term B Sub-Account, the Term C Sub-Account and the Construction Note Disbursement Account may be invested by the Securities Intermediary in Permitted Investments at the expense and risk of the Borrower (x) as directed in writing by the Borrower so long as the Administrative Agent has not notified the Securities Intermediary that an Event of Default has occurred and is continuing and (y) after the Administrative Agent has notified the Securities Intermediary that an Event of Default has occurred and is continuing, as directed by (1) with respect to the 76 Borrower's Funds Account, the Bank Proceeds Account, the Loss Proceeds Account, the Guaranty Deposit Account, the Term B Sub-Account, the Term C Sub-Account and the Interest Payment Account, the Disbursement Agent upon instructions from the Administrative Agent, and (2) with respect to the Construction Note Disbursement Account, the Disbursement Agent upon instructions from the Discount Note Indenture Trustee. Notwithstanding the foregoing, in the event that (x) the Borrower fails to so direct the Securities Intermediary or (z) an Event of Default exists and the Disbursement Agent fails to direct the Securities Intermediary, all such amounts shall be invested in overnight deposit accounts, provided, however, that the Securities Intermediary's obligation to invest such amounts is conditioned upon receipt by the Securities Intermediary of a valid Form W9 of the Internal Revenue Service (or other applicable documentation) which has been fully executed by the Borrower. The right to direct the manner of investment includes, but is not limited to, the right (i) to sell any Permitted Investment or hold it until maturity, and (ii) upon any sale at maturity of any Permitted Investment, to direct the Securities Intermediary to reinvest the proceeds thereof, plus any interest received thereon, in Permitted Investments or hold such proceeds and interest for application pursuant to this Disbursement Agreement. Notwithstanding the foregoing, the Securities Intermediary is hereby authorized to reduce to cash any Permitted Investment (without regard to maturity) in order to make any application required by Section 2.4.4. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, INCLUDING, WITHOUT LIMITATION, THE DEFINITION OF THE TERM "PERMITTED INVESTMENTS," IT IS UNDERSTOOD AND AGREED BY THE PARTIES HERETO THAT SO LONG AS THE BANK OF NOVA SCOTIA SHALL BE THE SECURITIES INTERMEDIARY, THE ONLY "PERMITTED INVESTMENTS" THAT MAY BE MADE ARE OVERNIGHT DEPOSITS AND TIME DEPOSITS WITH SCOTIABANK AND COMMERCIAL PAPER ISSUED BY SCOTIABANK PROVIDED SUCH INVESTMENTS ARE ON COMMERCIALLY COMPETITIVE TERMS WHICH SHALL BE DEEMED TO BE THE CASE UNLESS OTHERWISE ADVISED BY THE BORROWER IN WRITING. THIS RESTRICTION SHALL TERMINATE UPON THE APPOINTMENT OF A SUCCESSOR SECURITIES INTERMEDIARY PURSUANT TO THE PROVISIONS OF THIS AGREEMENT, THE BORROWER 77 COLLATERAL ACCOUNT AGREEMENT, THE SCOTIABANK COLLATERAL ACCOUNT AGREEMENT AND THE HOLDINGS COLLATERAL ACCOUNT AGREEMENT. ARTICLE 6. - EVENTS OF DEFAULT ------------------------------ a. Events of Default. The occurrence of an "Event of Default" under and as defined in the Credit Agreement shall constitute an Event of Default under this Agreement. b. Remedies. Upon the occurrence and during the continuation of an Event of Default, the Administrative Agent, the Lenders and the Disbursement Agent may, without further notice of default, presentment or demand for payment, protest or notice of non-payment or dishonor, or other notices or demands of any kind, all such notices and demands being waived (to the extent permitted by applicable law), exercise any or all rights and remedies under the Loan Documents and at law or in equity (in any combination or order that the Lenders may elect) including, without limitation, at the direction of the Administrative Agent, the Disbursement Agent may, without an Advance Request having been made therefor, (x) make any or all Advances directly to the Design/Builder, any Contractor or any other Person in payment of Main Project Costs, (y) apply any or all Advances to satisfy any conditions set forth in the Disbursement Agreement and/or the Loan Documents which have not been satisfied and/or (z) expend all or any portion of the amounts in the accounts or, if applicable, the proceeds of the Loans in connection with the Lenders' rights under the Completion Guaranty to complete or cause the completion of the Main Project and/or pay or discharge any Liens on the Site which are the responsibility of the Borrower to discharge or any other amounts which constitute Guaranteed Obligations under the Completion Guaranty or liabilities for which the Lenders are indemnified under the Environmental Indemnity. In furtherance thereof, the Borrower hereby irrevocably authorizes the Disbursement Agent and the Administrative Agent to make such payments and applications and, by delivering the Completion Guaranty, the Completion Guarantors have irrevocably authorized the Disbursement Agent and the Administrative Agent to make such applications and payments in accordance with the 78 Completion Guaranty and no further authorization from the Borrower and/or any of the Completion Guarantors shall be necessary to permit such Advances, and all such Advances shall be deemed to have been made pursuant to this Disbursement Agreement and to have been received by or to have been made for the account of the Borrower, and shall be secured by the Deed of Trust as if made directly to the Borrower. ARTICLE 7. - MISCELLANEOUS -------------------------- a. Addresses. Any communications between the parties hereto or notices provided herein to be given shall be given to the following addresses: If to the Borrower prior to the Conversion Date: Aladdin Gaming, LLC 831 Pilot Road Las Vegas, NV 89119 Attn: Mr. Jack Sommer Telephone No.: (702) 736-7114 Facsimile No.: (702) 736-7107 If to the Borrower after the Conversion Date: Aladdin Gaming, LLC Project Development - Bunker Building 3667 Las Vegas Boulevard South Las Vegas, NV 89109 Attn: Mr. Jack Sommer Telephone No.: (702) 870-1234 Facsimile No.: (702) 870-8733 If to the Administrative Agent: The Bank of Nova Scotia 580 California Street, 21st Floor San Francisco, CA 94104 Attn: Alan W. Pendergast 79 Telephone No.: (415) 986-1100 Facsimile No.: (415) 397-0791 If to the Discount Notes Indenture Trustee: State Street Bank 2 International Place Boston, MA 02110 Attn: Paul Allen Telephone No.: (617) 664-5526 Facsimile No.: (617) 664-5371 If to the Disbursement Agent: The Bank of Nova Scotia 580 California Street, 21st Floor San Francisco, CA 94104 Attn: Alan W. Pendergast Telephone No.: (415) 986-1100 Facsimile No.: (415) 397-0791 with a copy to: The Bank of Nova Scotia Loan Administration 600 Peachtree Street, NE Atlanta, GA 30308 Attn: Marianne Velker Telephone No.: (404) 877-1525 Facsimile No.: (404) 888-8998 If to the Construction Consultant: Rider Hunt (NV) L.L.C 2330 Paseo Del Prado Suite C301 Las Vegas, NV 39102 Telephone No.: (702) 227-8818 Facsimile No.: (702) 227-8858 80 If to the Securities Intermediary: The Bank of Nova Scotia 580 California Street, 21st Floor San Francisco, CA 94104 Attn: Alan W. Pendergast Telephone No.: (415) 986-1100 Facsimile No.: (415) 397-0791 If to the Servicing Agent: U.S. Bank National Association 2300 West Sahara Avenue Suite 120/Box 20 Las Vegas, NV 89102 Attn: Terry Gentry Telephone No.: (702) 386-3903 Facsimile No.: (702) 386-3916 with a copy to: U.S. Bank National Association 107 South Main Street Suite 303 Salt Lake City, Utah 84111 Attn: Kim Galbraith Telephone No.: (801) 534-6083 Facsimile No.: (801) 534-6208 All notices and other communications provided to any party hereto under this Disbursement Agreement shall be in writing and addressed, delivered or transmitted to such party at its address or facsimile number set forth above or at such other address or facsimile number as may be designated by such party in a notice to the other parties. All such notices and communications shall be deemed to have been properly given (x) if hand delivered, with receipt acknowledged by the recipient; (y) if mailed, upon the fifth Business Day after the date on which it is deposited in registered or certified mail, postage prepaid, return receipt requested, or (z) if sent by Federal Express or other nationally-recognized express courier service with instructions to deliver on the following Business Day, on the next Business Day after delivery to such express courier service. Notices and other communications may be given by facsimile but shall be deemed to be received upon confirmation of receipt thereof by the intended recipient thereof with the original of such notice or communication to be given in the 81 manner provided in the second sentence of this Section. The Administrative Agent agrees to provide the Discount Note Indenture Trustee with a copy of each written notice of Default or Event of Default which is delivered to the Borrower pursuant to the Credit Agreement. b. Further Assurances. The Borrower shall deliver to the Administrative Agent and the Disbursement Agent each of the instruments, agreements, certificates, opinions and documents as any such Person may reasonably request to perfect and maintain the Liens granted under the Loan Documents. The Borrower shall fully cooperate with the Administrative Agent and the Disbursement Agent and perform all additional acts reasonably requested by any such Person to effect the purposes of the Loan Documents. c. Delay and Waiver. No delay or omission to exercise any right, power or remedy accruing upon the occurrence of any Default or Event of Default or any other breach or default of the Borrower under this Disbursement Agreement shall impair any such right, power or remedy of the Administrative Agent, the Lenders, the Disbursement Agent or any other Secured Party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default thereafter occurring, nor shall any waiver of any single Default, Event of Default or other breach or default be deemed a waiver of any other Default, Event of Default or other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any of the Administrative Agent, the Lenders, the Disbursement Agent or any other Secured Party, of any Default, Event of Default or other breach or default under this Disbursement Agreement or any other Loan Document, or any waiver on the part of the Administrative Agent, the Lenders, the Disbursement Agent or any other Secured Party of any provision or condition of this Disbursement Agreement or any other Operative Document must be in writing and shall be closing only to the extent in such writing specifically set forth. All remedies, either under this Disbursement Agreement or any other Loan Document or by law or otherwise afforded to the Administrative Agent, the Lenders, the Disbursement Agent or any other Secured Party, shall be cumulative and not alternative. 82 d. Additional Security; Right to Set-Off. Any deposits or other sums at any time credited or due from any Secured Party and any securities or other property of the Borrower in the possession of any Secured Party may at all times be treated as collateral security for the payment of the Obligations, and the Borrower hereby pledges to the Disbursement Agent for the benefit of the Secured Parties and grants the Disbursement Agent a security interest in and to all such deposits, sums, securities or other property on deposit or in the possession of such Secured Party, as the case may be. Regardless of the adequacy of any other collateral, any Secured Party may execute or realize on the Secured Parties' security interest in any such deposits or other sums credited by or due from any such Person to the Borrower and may apply any such deposits or other sums to or set them off against the Borrower's obligations to the Secured Parties under this Disbursement Agreement and the other Loan Documents at any time after the occurrence and during the continuance of any Event of Default. e. Entire Agreement. This Disbursement Agreement and any agreement, document or instrument attached hereto or referred to herein integrate all the terms and conditions mentioned herein or incidental hereto and supersede all oral negotiations and prior writings in respect to the subject matter hereof, all of which negotiations and writings are deemed void and of no force and effect. f. Governing Law. This Disbursement Agreement shall be governed by the laws of the State of New York of the United States of America and shall for all purposes be governed by and construed in accordance with the laws of such state without regard to the conflict of law rules thereof, provided, however, that to the extent any terms of this Disbursement Agreement are incorporated in and made part of any other Loan Document, any such term so incorporated shall for all purposes be governed by and construed in accordance with the law governing the Loan Document into which such term is so incorporated. g. Severability. In case any one or more of the provisions contained in this Disbursement Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the 83 remaining provisions shall not in any way be affected or impaired thereby, and the parties hereto shall enter into good-faith negotiations to replace the invalid, illegal or unenforceable provision. h. Headings. Paragraph headings have been inserted in this Disbursement Agreement as a matter of convenience for reference only and it is agreed that such paragraph headings are not a part of this Disbursement Agreement and shall not be used in the interpretation of any provision of this Disbursement Agreement. i. Limitation on Liability. No claim shall be made by the Borrower or Holdings against the Administrative Agent, the Lenders, the Disbursement Agent, the Servicing Agent, the Securities Intermediary or any other Secured Party or any of their respective Affiliates, directors, employees, attorneys or agents for any special, indirect, consequential or punitive damages (whether or not the claim therefor is based on contract, tort or duty imposed by law), in connection with, arising out of or in any way related to the transactions contemplated by this Disbursement Agreement or the other Operative Documents or any act or omission or event occurring in connection therewith other than for gross negligence or wilful misconduct on the part of such Person; and each of the Borrower and Holdings hereby waives, releases and agrees not to sue upon any such claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. j. Waiver of Jury Trial. EACH OF THE PARTIES TO THIS DISBURSEMENT AGREEMENT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS DISBURSEMENT AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF PARTIES HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES HERETO TO ENTER INTO THIS DISBURSEMENT AGREEMENT. k. Consent to Jurisdiction. Any legal action or proceeding by or against any of the parties to this Disbursement Agreement or with respect to or arising out of this Disbursement Agreement shall be brought in or 84 removed to the courts of the State of New York, in and for the County of New York, or of the United States of America for the Southern District of New York. By execution and delivery of this Disbursement Agreement, the Borrower accepts, for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts for legal proceedings arising out of or in connection with this Disbursement Agreement and irrevocably consents to the appointment of the CT Corporation System as its agent to receive service of process in New York, New York. Nothing herein shall affect the right to serve process in any other manner permitted by law or any right to bring legal action or proceedings in any other competent jurisdiction, including judicial or non-judicial foreclosure of real property interests which are part of the Main Project Security. The Borrower further agrees that the aforesaid courts of the State of New York and of the United States of America for the Southern District of New York shall have exclusive jurisdiction with respect to any claim or counterclaim of the Borrower based upon the assertion that the rate of interest, if any, charged by or under this Disbursement Agreement, or under the other Loan Documents, is usurious. The Borrower hereby waives any right to stay or dismiss any action or proceeding under or in connection with any or all of the Main Project, this Disbursement Agreement or any other Operative Document brought before the foregoing courts on the basis of forum nonconveniens. l. Successors and Assigns. The provisions of this Disbursement Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding the foregoing, the Borrower shall not assign or otherwise transfer any of its rights under this Disbursement Agreement. m. Reinstatement. This Disbursement Agreement shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Borrower's obligations hereunder or under the other Loan Documents, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by the Secured Parties. In the event that any payment or any part thereof is so rescinded, reduced, restored or returned, such obligations shall be reinstated and deemed reduced only by such 85 amount paid and not so rescinded, reduced, restored or returned. n. No Partnership; etc. The Secured Parties and the Borrower intend that the relationship between them shall be solely that of creditor and debtor. Nothing contained in this Disbursement Agreement or in any of the other Loan Documents shall be deemed or construed to create a partnership, tenancy-in-common, joint tenancy, joint venture or co-ownership by or between the Secured Parties and the Borrower or any other Person. The Secured Parties shall not be in any way responsible or liable for the debts, losses, obligations or duties of the Borrower or any other Person with respect to the Main Project or otherwise. All obligations to pay real property or other taxes, assessments, insurance premiums, and all other fees and charges arising from the ownership, operation or occupancy of the Main Project and to perform all obligations under the agreements and contracts relating to the Main Project shall be the sole responsibility of the Borrower. o. Costs and Expenses. i. The Borrower shall (subject to the limitations set forth herein and, with respect to the Administrative Agent, in the Loan Documents) pay, without duplication, the reasonable legal, engineering and other professional and consulting fees and costs of consultants and advisors to the Administrative Agent, the Disbursement Agent and the reasonable travel expenses and other out-of-pocket costs incurred by each of them in connection with the preparation, negotiation, execution and delivery, and, where appropriate, registration and recording of the Operative Documents (and all matters incidental thereto), the syndication of the Bank Credit Facility, the administration of the transactions contemplated by the Operative Documents (including, without limitation, the administration of this Disbursement Agreement, the other Operative Documents and the Loan Documents) and the preservation or enforcement of any of their respective rights or in connection with any amendments, waivers or consents required under the Loan Documents or the Operative Documents. The Administrative Agent will reasonably consult with the Borrower on a regular basis with respect to on-going costs of such Persons' consultants and advisors. 86 ii. The Borrower shall indemnify, defend and hold harmless the Discount Note Indenture Trustee, the Discount Noteholders, the Independent Consultants, the Disbursement Agent, the Administrative Agent, the Lenders, the Servicing Agent, the Securities Intermediary and their respective shareholders, partners, officers, directors, employees, representatives, attorneys and agents (collectively, the "Indemnitees") from and against and reimburse the Indemnitees for any and all present and future claims, expenses, obligations, liabilities, losses, damages, injuries (to person, property, or natural resources), penalties, stamp or other similar taxes, actions, suits, judgments, reasonable costs and expenses (including reasonable attorney's fees) of whatever kind or nature, whether or not well founded, meritorious or unmeritorious, demanded, asserted or claimed against any such Indemnitee including any liability resulting from any delay or omission to pay any such tax (collectively, "Claims") by reason of their participation in the transactions contemplated by the Operative Documents, including without limitation any and all Claims arising in connection with the release or presence of any Hazardous Substances at the Main Project, whether foreseeable or unforeseeable, including all costs of removal and disposal of such Hazardous Substances, all reasonable costs required to be incurred in (a) determining whether the Main Project is in compliance and (b) causing the Main Project to be in compliance with all applicable Legal Requirements, all reasonable costs associated with claims for damages to persons or property, and reasonable attorneys' and consultants' fees and court costs. iii. The indemnity obligation of the Borrower pursuant to this Section 7.15 shall not apply with respect to an Indemnitee to the extent arising as a result of the gross negligence or willful misconduct of such Indemnitee, but shall continue to apply to other Indemnitees. iv. To the extent that the undertaking in the preceding paragraphs of this Section 7.15 may be unenforceable because it is violative of any law or public policy, the Borrower will contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of such undertakings. 87 v. The provisions of this Section 7.15 shall survive foreclosure or other exercise of rights and remedies under the Loan Documents (or transfer of the Main Project or a portion thereof in lieu of such foreclosure or other exercise of remedies, as the case may be) and satisfaction or discharge of the Borrower's obligations hereunder, and shall be in addition to any other rights and remedies of any Indemnitee. vi. Any amounts payable by the Borrower pursuant to this Section 7.15 shall be payable within the later to occur of (i) ten (10) Business Days after the Borrower receives an invoice for such amounts from any applicable Indemnitee or (ii) five (5) Business Days prior to the date on which such Indemnitee reasonably expects to pay such costs on account of which the Borrower's indemnity hereunder is payable and, if not paid by such applicable date, shall bear interest at the post maturity rate under Section 3.2.2 of the Credit Agreement from and after such applicable date until paid in full. vii. In case any action, suit or proceeding shall be brought against any Indemnitee, such Indemnitee shall notify the Borrower of the commencement thereof. The Borrower shall be entitled, at its expense, acting through counsel reasonably acceptable to such Indemnitee, to participate in and, to the extent that the Borrower desires, to assume and control the defense thereof. Upon assumption by the Borrower of the defense of any such action, suit or proceeding, the Indemnitee shall have the right to participate in such action, suit or proceeding and to retain its own counsel but the Borrower shall not be liable for any legal fees and expenses of other counsel or the fees and disbursements of other providers of professional services subsequently incurred by such Indemnitee in connection with the defense thereof unless (x) the Borrower has agreed to pay such fees and expenses or (y) the Borrower shall have failed to employ counsel reasonably satisfactory to the Indemnitee in a timely manner. Notwithstanding the foregoing, the Borrower shall not be entitled to assume and control the defenses of any such action, suit or proceedings if and to the extent that, in the reasonable opinion of such Indemnitee and its counsel (which counsel shall be reasonably acceptable to the Borrower), such action, suit or 88 proceeding involves the potential imposition of criminal liability upon such Indemnitee or a conflict of interest between such Indemnitee and the Borrower or between such Indemnitee and another Indemnitee (unless such conflict of interest is waived in writing by the affected Indemnitees), and in such event (other than with respect to disputes between such Indemnitee and another Indemnitee) the Borrower shall pay the reasonable expenses of such Indemnitee in such defense. viii. The Borrower shall report to such Indemnitee on the status of such action, suit or proceeding as material developments shall occur and from time to time as requested by such Indemnitee. The Borrower shall deliver to such Indemnitee a copy of each document filed or served on any party in such action, suit or proceeding, and each material document which the Borrower possesses relating to such action, suit or proceeding. ix. The Borrower shall not consent to the terms of any compromise or settlement of any action defended by the Borrower in accordance with the foregoing without the prior consent of the Indemnitee, unless such compromise or settlement (x) includes an unconditional release of the Indemnitee from all liability arising out of such action or claim and (y) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of the Indemnitee. x. Any Indemnitee against whom any Claim is made shall be entitled, after consultation with the Borrower and upon consultation with legal counsel wherein such Indemnitee is advised that such Claim is reasonably meritorious, to compromise or settle any such Claim if such Indemnitee determines in its reasonable discretion that failure to compromise or settle such Claim is reasonably likely to have a material adverse effect on such Indemnitee, the Borrower, the Main Project or such Indemnitee's interest in the Main Project. Any such compromise or settlement shall be binding upon the Borrower for purposes of this Section 7.15. xi. Upon payment of any Claim by the Borrower pursuant to this Section 7.15 or other similar indemnity provisions contained herein to or on behalf of an Indemnitee, the Borrower, without any further action, shall be subrogated to any and all claims that such 89 Indemnitee may have relating thereto, and such Indemnitee shall at the request and expense of the Borrower cooperate with the Borrower and give at the request and expense of the Borrower such further assurances as are necessary or advisable to enable the Borrower vigorously to pursue such claims. p. Counterparts. This Disbursement Agreement may be executed in one or more duplicate counterparts which, when signed by all of the parties listed below, shall constitute a single binding agreement. q. Confidentiality. Each of the Lenders and the Administrative Agent agrees not to disclose to any third party any Confidential Information (as defined below), except that any of the Lenders or the Administrative Agent may disclose such information (v) in connection with any litigation between such Lender or the Administrative Agent and the Aladdin Parties and the London Clubs Parties or any of them, (w) upon the order, request or demand of any Governmental Instrumentality or if otherwise required by applicable law, (x) in connection with the exercise of any right or remedy hereunder or under any Loan Document after the occurrence of a Default or Event of Default, (y) to those of its employees, accountants, attorneys, agents and other advisors, directors, officers, shareholders, partners, members and other principals who are working on, or are consulted in connection with, the transactions contemplated by the Loan Documents or (z) in the case of the Administrative Agent or any Lender, to any actual or potential participant, assignee, lender, agent or servicer that agrees to be bound by the provisions of this Section 7.17. "Confidential Information" shall mean any information relating to the business of the Borrower, the other Aladdin Parties and/or the London Clubs Parties which is delivered by the Borrower, the other Aladdin Parties and/or the London Clubs Parties to any Lender, the Securities Intermediary, the Servicing Agent or the Administrative Agent or relating to the Bank Credit Facility, the Advances, or the Loan Documents; provided that "Confidential Information" shall not include information (x) that is or becomes generally available to the public, other than as a result of the disclosure by any Lender or the Administrative Agent in breach of this provision, (y) that is or becomes available to any Lender or the Administrative Agent from 90 any source other than the Aladdin Parties and the London Clubs Parties or unless the Person supplying such information shall have advised the Lender or the Administrative Agent that such source is subject to a confidentiality agreement that covers the information in question or (z) that is already in the possession of any Lender or the Administrative Agent on the date hereof and that is not otherwise "Confidential Information" as defined herein. In the event that any Lender or the Administrative Agent is required or demanded by legal process (e.g., depositions, interrogatories, requests for information or documents, subpoena, civil investigation demand or similar process) to disclose any of the Confidential Information, such Lender or the Administrative Agent shall give prompt written notice to the Borrower of such request or demand so that the Borrower may, should it elect to do so, within ten (10) Business Days of receipt of such notice, seek a protective order or other appropriate remedy to challenge or contest such request (and give such Lender or the Administrative Agent notice thereof), and, during the pendency of any such action by the Borrower, such Lender or the Administrative Agent shall not, to the extent permitted by applicable law, disclose such Confidential Information. r. Termination. This Disbursement Agreement shall, subject to Section 7.13, terminate and be of no further force or effect upon completion of the transfer and release of funds contemplated by Section 2.8. The provisions of Section 7.15 shall survive the termination of this Disbursement Agreement. 91 IN WITNESS WHEREOF, the parties have caused this Disbursement Agreement to be duly executed by their officers thereunto duly authorized as of the day and year first above written. BORROWER: ALADDIN GAMING, LLC, a Nevada limited-liability company By:/s/ Richard Goeglein -------------------------------- Name: Richard Goeglein --------------------------- Title: President and CEO ------------------------ HOLDINGS: ALADDIN GAMING HOLDINGS, LLC, a Nevada limited-liability company By:/s/ Richard Goeglein --------------------------------- Name: Richard Geoglein -------------------------- Title: CEO and President -------------------------- ADMINISTRATIVE AGENT: -------------------- THE BANK OF NOVA SCOTIA, a Canadian chartered bank By:/s/ Alan Pendergast --------------------------------- Name: Alan Pendergast ------------------------------ Title: Relationship Manager ----------------------------- DISCOUNT NOTE INDENTURE TRUSTEE: ------------------------------- STATE STREET BANK AND TRUST COMPANY By:/s/ Ruth A. Smith --------------------------------- Name: Ruth A. Smith -------------------------- Title: Vice President -------------------------- 92 DISBURSEMENT AGENT: ------------------ THE BANK OF NOVA SCOTIA, a Canadian chartered bank By:/s/ Alan Pendergast -------------------------------- Name: Alan Pendergast -------------------------- Title: Relationship Manager ----------------------- SECURITIES INTERMEDIARY ----------------------- THE BANK OF NOVA SCOTIA, a Canadian chartered bank By:/s/ Alan Pendergast -------------------------------- Name: Alan Pendergast -------------------------- Title: Relationship Manager ----------------------- SERVICING AGENT --------------- U. S. BANK NATIONAL ASSOCIATION, a national banking association By:/s/ Terry A. Gentry --------------------------------- Name: Terry A. Gentry --------------------------- Title: Assistant Vice --------------------------- President -------------------------- 93 TABLE OF CONTENTS
Page ARTICLE 1- DEFINITIONS; RULES OF INTERPRETATION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 1.2. Cross-References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.3. Conflict with a Facility Agreement. . . . . . . . . . . . . . . . . . . . . . .6 ARTICLE 2 - FUNDING 2.1. Representations Regarding Main Project Status . . . . . . . . . . . . . . . . .6 2.2. Advances; Availability; Amount of Advances. . . . . . . . . . . . . . . . . . .6 2.3. Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.4. Mechanics for Obtaining Advances. . . . . . . . . . . . . . . . . . . . . . . 16 2.5. Allocation of Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.6. Disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.7. Payments of Interest and Other Amounts Under the Loan Documents; Obligatory Advances for Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.8. Completion Date Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.9. No Approval of Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.10. Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE 3 - CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND SUBSEQUENT ADVANCES 3.1. Conditions Precedent to the Initial Advance . . . . . . . . . . . . . . . . . 25 3.2. Conditions Precedent to Advances from the Accounts. . . . . . . . . . . . . . 34 3.3. No Waiver or Estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE 4 - THE DISBURSEMENT AGENT ---------------------------------- 4.1. Appointment and Acceptance. . . . . . . . . . . . . . . . . . . . . . . . . . 42 4.2. Duties and Liabilities of the Disbursement Agent Generally. . . . . . . . . . 42 4.3. Particular Duties and Liabilities of the Disbursement Agent . . . . . . . . . 44 4.4. Segregation of Funds and Property Interest. . . . . . . . . . . . . . . . . . 45 4.5. Compensation and Reimbursement of the Disbursement Agent. . . . . . . . . . . 46 4.6. Qualification of the Disbursement Agent . . . . . . . . . . . . . . . . . . . 46
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4.7. Resignation and Removal of the Disbursement Agent . . . . . . . . . . . . . . 46 4.8. Merger or Consolidation of the Disbursement Agent . . . . . . . . . . . . . . 47 4.9. Statements; Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 4.10. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE 5 - SECURITY INTEREST; PERMITTED INVESTMENTS; RELEASE 5.1. Security Interest in Accounts; Safekeeping of Collateral. . . . . . . . . . . 49 5.2. Attorney-in-Fact. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 5.3. Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE 6 - EVENTS OF DEFAULT 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 6.2. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 ARTICLE 7- MISCELLANEOUS ------------------------ 7.1. Addresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 7.2. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 7.3. Delay and Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 7.4. Additional Security; Right to Set-Off . . . . . . . . . . . . . . . . . . . . 55 7.5. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.7. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.8. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.9. Limitation on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.10. Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.11. Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 7.12. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 7.13. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 7.14. No Partnership; etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 7.15. Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 7.16. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.17. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.18. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ii EXHIBITS Exhibit A Description of the Project Exhibit B-1 Insurance Consultant's Closing Certificate Exhibit B-2 Borrower's Insurance Broker's Closing Certificate Exhibit C Construction Consultant's Certificate Exhibit D Schedule of Permits Exhibit E Insurance Requirements Exhibit F Form of Advance Request Exhibit G Form of Notice of Advance Request Exhibit H Form of Six Month Certificate Appendix A Definitions iii EX-10.5 8 EXHIBIT 10.5 INTEREST PLEDGE L.L.C. INTEREST PLEDGE AND SECURITY AGREEMENT --------------------------------------------- THIS L.L.C. INTEREST PLEDGE AND SECURITY AGREEMENT (the "L.L.C. Interest Pledge Agreement"), dated as of February 26, 1998, is executed by ALADDIN GAMING HOLDINGS, L.L.C., a Nevada limited-liability company ("Shareholder"), in favor of STATE STREET BANK AND TRUST COMPANY, as trustee ("Trustee") for the holders of those certain $221,500,000 at maturity 13.5% Senior Discount Notes due 2010 ("Noteholders"), pursuant to that certain Indenture dated as of February 26, 1998 (the "Indenture") by and among Trustee, Shareholder, and Aladdin Capital Corp., a Nevada corporation ("Capital"). RECITALS -------- Shareholder owns 100% of the Series A Preferred Membership Interests (the "Series A Preferred Interests") of Aladdin Gaming, L.L.C., a Nevada limited-liability company ("Aladdin Gaming"). The Noteholders are willing to purchase $221,500,000 at maturity 13.5% Senior Discount Notes due 2010 (the "Notes") for the purposes of, among other things, providing funds to finance the cost of developing, constructing, equipping and opening the Aladdin Hotel and Casino in Las Vegas, Nevada. Shareholder will derive substantial benefit from the purchase of the Notes by the Noteholders. It is a condition precedent to purchasing the Notes that Shareholder pledge 100% of its interest in the Series A Preferred Interests to Trustee, for the benefit of the Noteholders, as security for the Notes. AGREEMENT --------- NOW, THEREFORE, in consideration of the above recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Shareholder hereby agrees with Trustee as follows: Definitions and Interpretation. When used in this L.L.C. Interest Pledge Agreement, the following terms shall have the following respective meanings: "Borrowers" shall mean Aladdin Gaming Holdings, L.L.C., a Nevada limited-liability company and Aladdin Capital Corp., a Nevada corporation, as joint and several obligors under the Indenture. "Collateral" shall have the meaning given to that term in Paragraph 2 hereof. "Obligations" shall mean and include all obligations, howsoever arising, owed by Borrowers to the Noteholders of every kind and description, pursuant to the terms of the Indenture (whether or not evidenced by any note or instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising pursuant to the terms of the Notes and the Indenture, including without limitation all interest, fees, charges, expenses, attorneys' fees and accountants' fees chargeable to Shareholder or Borrowers and payable by Shareholder or Borrowers hereunder and thereunder. "L.L.C. Interest" shall mean the Series A Preferred Interests of Aladdin Gaming. "UCC" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Nevada. Unless otherwise defined herein, all other capitalized terms used herein and defined in the Indenture shall have the respective meanings given to those terms in the Indenture, and all terms defined in the UCC shall have the respective meanings given to those terms in the UCC. To the extent the meanings given herein are inconsistent with those given in the UCC, the meanings given herein shall govern. Shareholder has previously received a copy of the Indenture. 2. Pledge. As security for the Obligations, Shareholder hereby pledges and assigns to Trustee, for the benefit of the Noteholders and grants to Trustee, for the benefit of the Noteholders, a security interest in all right, title and interests of Shareholder in and to the L.L.C. Interest, whether now owned or hereafter acquired (collectively, the "Shareholder's L.L.C. Interest"), including without limitation the Shareholder's L.L.C. Interest described in Exhibit "A" hereto, and all proceeds thereof, including, without limitation, distributions and other property received and receivable by Shareholder in connection with the Shareholder's L.L.C. Interest (the Shareholder's L.L.C. Interest and such proceeds to be referred to herein collectively as the "Collateral"). 3. Representations and Warranties. Shareholder represents and warrants to Trustee, for the benefit of the Noteholders, that: (a) the execution, delivery and performance by Shareholder of this L.L.C. Interest Pledge Agreement are within the power of Shareholder and have been duly authorized by all necessary actions on the part of Shareholder; (b) this L.L.C. Interest Pledge Agreement has been duly executed and delivered by Shareholder and constitutes a legal, valid and binding obligation of Shareholder, enforceable against it in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors' rights generally and general principles of equity; (c) the execution, delivery and performance of this L.L.C. Interest Pledge Agreement do not (i) violate any requirement of law, regulation or statute, (ii) violate any provision of, or result in the breach or the acceleration of or entitle any Person to accelerate (whether after the giving of notice or lapse of time or both) any obligation under, any indenture, mortgage, lien, lease, agreement, license, instrument, guaranty, or other document to which Shareholder is a party or by which Shareholder or its property is bound, or (iii) result in the creation or imposition of any lien upon any property, asset or revenue of Shareholder (except such liens as may be created in favor of Trustee, for the benefit of the Noteholders, pursuant to this L.L.C. Interest Pledge Agreement); (d) no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority or other Person (including, without limitation, the shareholders of any Person) is required in connection with the execution, delivery and performance of this L.L.C. Interest Pledge Agreement, except such consents, approvals, orders, authorizations, registrations, declarations and filings that are so required and which have been obtained and are in full force and effect; (e) Shareholder is the beneficial owner of the Collateral (or, in the case of after-acquired Collateral, at the time Shareholder acquires rights in the Collateral, will be the beneficial) and no other Person has (or, in the case of after-acquired Collateral, at the time Shareholder acquires rights therein, will have) any right, title, claim or interest (by way of lien or otherwise) in, against or to the Collateral, other than "Permitted Liens" (as such term is defined in the Indenture); (f) all of the Collateral which are preferred membership interests are and such future Collateral will be validly issued, fully paid and nonassessable securities of Aladdin Gaming; (g) the Collateral includes all of the issued and outstanding membership interests of Series A Preferred Interests of Aladdin Gaming; (h) upon transfer to Trustee of all Collateral consisting of securities, Trustee (on behalf of the Noteholders) will have a first priority perfected security interest in such Collateral, and (or in the case of all other after-acquired Collateral, at the time Shareholder acquires rights therein, will have) a first priority perfected security interest in all other Collateral, other than Permitted Liens; (i) all information heretofore, herein or hereafter supplied in writing to Trustee, taken as a whole, by or on behalf of Shareholder with respect to the Collateral does not contain any untrue statements of a material fact and does not omit and will not omit to state any material fact necessary to make any information so supplied, in light of the circumstances under which they were supplied, not misleading; and (j) Shareholder's principal place of business is 3667 Las Vegas Blvd. South, Las Vegas, Clark County, Nevada. 4. Covenants. Shareholder hereby agrees: (a) to perform all acts that may be necessary to maintain, preserve, protect and perfect the Collateral, the lien granted to Trustee hereunder and the first priority of such lien, subject only to Permitted Liens; (b) to cause its Restricted Subsidiaries to perform, upon request of the Trustee, all acts that may be necessary to maintain, preserve, protect and perfect the Collateral, the lien granted to Trustee hereunder and the first priority of such lien, subject only to Permitted Liens (c) to promptly deliver to Trustee all originals of certificates and other documents, instruments and agreements evidencing the Collateral which are now held or hereafter received by Shareholder, together with any blank assignment documents executed by Shareholder as Trustee may request; (d) to procure, execute and deliver from time to time any endorsements, assignments, financing statements and other documents, instruments and agreements and take other actions deemed necessary, as Trustee may request, to perfect, maintain and protect its lien hereunder and the priority thereof; (e) to appear in and defend any action or proceeding which may affect its title to or Trustee's interest in the Collateral; (f) to keep the Collateral free of all liens except those created hereunder and the Permitted Liens; (g) not to vote to enable, or take any other action to permit, Aladdin Gaming to issue any L.L.C. Interest except as expressly permitted by the Indenture; (h) to pay, and to save Trustee and the Noteholders harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamps, excise, sales or other similar taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this L.L.C. Interest Pledge Agreement; and (i) not to, without the written consent of the Trustee pursuant to or otherwise expressly permitted by the Indenture, sell, dispose of or transfer (directly or indirectly) or covenant to sell, dispose of or transfer (directly or indirectly) the Collateral. 5. Dividends and Voting Rights Prior to Default. Until an Event of Default (as defined in the Indenture) shall have occurred and be continuing and Trustee shall have given notice to Shareholder of Trustee's intent to exercise its rights pursuant to Subparagraph 6(b) below, Shareholder shall be permitted (a) to receive all distributions made in connection with Shareholder's L.L.C. Interest (other than distributions paid in additional L.L.C. Interest unless such additional L.L.C. Interest is pledged to Trustee, for the benefit of the Noteholders, pursuant to this L.L.C. Interest Pledge Agreement which are expressly permitted by the Indenture and (b) to exercise all voting and limited-liability company rights with respect to the L.L.C. Interest; provided, however, that no vote shall be cast or limited-liability company right exercised or other action taken which, in Trustee's reasonable judgment, would impair the Collateral or be inconsistent with or result in any violation of any provision of the Indenture. 6. Future Documents. The Shareholder shall deliver to the Trustee copies of all documents delivered to the Disbursement Agent pursuant to this agreement, and shall do or cause to be done all such acts and things as may be necessary or proper, or as may be required by the provisions herein, to assure and confirm to the Trustee and the Disbursement Agent that the security interest in the Collateral is available for the security of the Indenture and the Notes secured thereby. 7. Recording and Opinions. The Shareholder shall furnish to the Trustee simultaneously with the execution and delivery of the Indenture an Opinion of Counsel either (a) stating that in the opinion of such counsel all action has been taken with respect to the recording, registering and filing of the Indenture, financing statements or other instruments necessary to make effective the liens intended to be created by this agreement, and reciting with respect to the security interests in the Collateral, the details of such action, or (b) stating that, in the opinion of such counsel, no such action is necessary to make such liens effective. The Shareholder shall furnish to the Disbursement Agent and the Trustee on February 1 in each year beginning with February 1, 1998, an Opinion of Counsel, dated as of such date, either (a)(i) stating that, in the opinion of such counsel, action has been taken with respect to the recording, registering, filing, re-recording, re-registering and refiling of all supplemental indentures, financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the liens and reciting with respect to the security interests in the Collateral, the details of such section or referring to prior Opinions of Counsel in which such details are given, (ii) stating that, based on relevant laws as in effect on the date of such Opinion of Counsel, all financing statements and continuation statements have been executed and filed that are necessary as of such date and during the succeeding twelve (12) months fully to preserve and protect, to the extent such preservation and protection are possible by filing, the rights of the Noteholders, the Disbursement Agent and the Trustee under the Indenture and this agreement with respect to the security interests in the Collateral, or (b) stating that, in the opinion of such counsel, no such action is necessary to maintain such liens and assignments. 8. Authorization of Action to be taken by the Trustee. Subject to Sections 7.01 and 7.02 of the Indenture, the Trustee may, in its sole discretion and without the consent of the Noteholders, on behalf of the Noteholders, take and direct the Disbursement Agent to take, all actions it deems necessary or appropriate in order to (a) enforce any of the terms of this agreement or (b) collect and receive any and all amounts payable in respect of the Obligations of the Shareholder under the Indenture. The Trustee shall have power to institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Collateral by any acts that may be unlawful or in violation of this agreement or the Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Noteholders in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest granted herein or be prejudicial to the interest of the Noteholders or the Trustee. 9. Default and Remedies. (a) Event of Default. The occurrence (whether as a result of acts or omissions by Borrowers or any other Person) of an Event of Default under the Indenture, whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body, shall constitute an "Event of Default" hereunder. (b) Dividends and Voting Rights. Upon the occurrence and during the continuance of any Event of Default hereunder, Trustee may, upon notice to Shareholder, (i) notify Aladdin Gaming to pay all dividends on Shareholder's L.L.C. Interest to Trustee, for the benefit of the Noteholders, receive and collect all such dividends and make application thereof to the obligations in such order as Trustee may determine, and (ii) register all of Shareholder's L.L.C. Interest in the name of Trustee or its nominee, for the benefit of the Noteholders, and Trustee or its nominee may thereafter exercise (A) all voting, limited-liability company and other rights pertaining to Shareholder's L.L.C. Interest at any meeting of shareholders of Aladdin Gaming or otherwise and (B) any and all rights of conversion, exchange, subscription and any other rights, privileges or options pertaining to Shareholder's L.L.C. Interest as if it were the absolute owner thereof (including, without limitation, after Trustee has commenced to exercise remedies (or such remedies are deemed commenced) under the Indenture, the right to exchange at its discretion any and all of Shareholder's L.L.C. Interest upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the limited-liability company structure of Aladdin Gaming, or upon the exercise by Shareholder or Trustee of any right, privilege or option pertaining to Shareholder's L.L.C. Interest, and in connection therewith, the right to deposit and deliver any and all of Shareholder's L.L.C. Interest with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine), all without liability except to account for property actually received by it, but Trustee shall have no duty to Shareholder to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. Promptly after the waiver or cure of the Event of Default giving rise to Trustee's election under this Paragraph 6(b), Trustee shall notify Shareholder, Capital and Aladdin Gaming of such waiver or cure and for so long as no subsequent continuing Event of Default exists, Shareholder shall have all rights as a shareholder it had prior to the occurrence of such Event of Default, the Shareholder's L.L.C. Interest shall again be registered in the name of Shareholder and Aladdin Gaming shall again make all payments and distributions with respect to Shareholder's L.L.C. Interest to Shareholder. (c) Additional Remedies. Subject to the terms of the Indenture, upon the occurrence and during the continuance of an Event of Default, Trustee may exercise, in addition to all other rights and remedies granted in this L.L.C. Interest Pledge Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, any and all rights and remedies at law, including, without limitation, all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, Trustee may, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind to or upon Shareholder, Capital, Aladdin Gaming or any other Person (except notice of time and place of sale and any other notice required by law and any notice referred to below or in the Indenture) forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, in the over-the-counter market, at any exchange, broker's board or office of Trustee or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem commercially reasonable, for cash or on credit or for future delivery without assumption of any credit risk. Trustee shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in Shareholder, which right or equity is hereby waived and released. Trustee shall apply any proceeds from time to time held by it and the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred in respect thereof or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of Trustee hereunder, including, without limitation, reasonable attorneys' fees and disbursements of counsel to Trustee, to the payment in whole or in part of the Obligations, in such order as Trustee may elect, and only after such application and after the payment by Trustee of any other amount required by any provision of law, need Trustee account for the surplus, if any, to Shareholder. To the extent permitted by applicable law, Shareholder waives all claims, damages and demands it may acquire against Trustee arising out of the exercise by it of any rights hereunder except as may arise solely from Trustee's gross negligence or willful misconduct. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 5 business days before such sale or other disposition. 10. Authorized Actions. Shareholder acknowledges that the Obligations hereunder may be supplemented, augmented and otherwise increased as a result of changes in the underlying obligations of Borrowers pursuant to the Indenture. In that regard, Shareholder authorizes Trustee, in its discretion, without notice to Shareholder, irrespective of any change in the financial condition of Shareholder, Capital, or Aladdin Gaming since the date hereof, and without affecting or impairing in any way the liability of Shareholder hereunder, from time to time to (a) create new Obligations, and, either before or after receipt of notice of revocation, renew, compromise, extend, accelerate or otherwise change the time for payment or performance of, or otherwise change the terms of the Obligations or any part thereof, including increase or decrease of the rate of interest thereon; (b) take and hold additional security for the payment or performance of the Obligations and exchange, enforce, waive or release any such additional security; (c) apply such additional security and direct the order or manner of sale thereof; (d) purchase such additional security at public or private sale; (e) upon the occurrence and during the continuance of an Event of Default, make any payments and do any other acts Trustee shall deem necessary to protect the Noteholders' security interest in the Collateral, including, without limitation, pay, purchase, contest or compromise any encumbrance, charge or lien (other than a Permitted Lien) which in the judgment of Trustee appears to be prior to or superior to the security interest granted hereunder, and appear in and defend any action or proceeding purporting to affect its security interest in and/or the value of the Collateral, and in exercising any such powers or authority, pay all expenses incurred in connection therewith, including attorneys' fees, and Shareholder hereby agrees it shall be bound by any such payment made or act taken by Trustee hereunder and shall reimburse Trustee for all payments made and expenses incurred, which amounts shall be secured under this L.L.C. Interest Pledge Agreement; provided, however, that Trustee shall have no obligation to make any of the foregoing payments or perform any of the foregoing acts; (f) otherwise exercise any right or remedy it may have against Shareholder, Capital, or Aladdin Gaming, or any security, including, without limitation, the right to foreclose upon any such security by judicial or nonjudicial sale; (g) settle, compromise with, release or substitute any one or more makers, endorsers or guarantors of the Obligations; and (h) assign the Obligations or this L.L.C. Interest Pledge Agreement in whole or in part (subject to the terms and conditions of the Indenture). 11. Waivers. Shareholder waives (a) any right to require Trustee or the Noteholders to (i) proceed against Capital or Aladdin Gaming, (ii) proceed against or exhaust any security received from Capital or Aladdin Gaming or (iii) pursue any other remedy in Trustee's power whatsoever; (b) any defense resulting from the absence, impairment or loss of any right of reimbursement or subrogation or other right or remedy of Shareholder against Capital or Aladdin Gaming, or any security, whether resulting from an election by Trustee to foreclose upon security by nonjudicial sale, or otherwise; (c) any setoff or counterclaim of Capital or Aladdin Gaming or any defense which results from any disability or other defense of Capital or Aladdin Gaming or the cessation or stay of enforcement from any cause whatsoever of the liability of Capital or Aladdin Gaming; (d) any right to exoneration of sureties which would otherwise be applicable; (e) except to the extent prohibited by NRS 40.495, any right of subrogation or reimbursement and any right of contribution, and right to enforce any remedy which Trustee now has or may hereafter have against Capital or Aladdin Gaming, and any benefit of, and any right to participate in, any security now or hereafter received by Trustee until the Obligations have been paid in full; (f) all presentments, demands for performance, notices of non-performance, protests, notice of dishonor, and notices of acceptance of the L.L.C. Interest Pledge Agreement and of the existence, creation or incurrence of new or additional Obligations; (g) the benefit of any statute of limitations (to the extent permitted by law); and (h) any right to be informed by Trustee of the financial condition of Capital or Aladdin Gaming or any change therein or any other circumstances bearing upon the risk of nonpayment or nonperformance of the Obligations. Shareholder has the ability and assumes the responsibility for keeping informed of the financial condition of Capital and Aladdin Gaming and of other circumstances affecting such nonpayment and nonperformance risks. 12. Limitation on Duties Regarding Collateral. Trustee's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 104.9207 of the UCC or otherwise, shall be to deal with it in the same manner as Trustee deals with similar securities and property for its own account and as would be dealt by a prudent person in the reasonable administration of its affairs. Neither Trustee nor any of its directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of Shareholder or otherwise. 13. Nevada Gaming Law. This agreement will be governed by and subject to the Nevada Gaming Control Act. Without limiting the generality of the foregoing, the parties agree that: The pledge of the L.L.C. Interest of Aladdin Gaming provided for herein, and any restrictions on the transfer and agreements not to encumber the L.L.C. interest, will be subject to the approval of the Nevada Gaming Authorities (as defined in the Indenture) and such approval may require amendment of this agreement to include additional references to regulatory requirements; Notwithstanding approval by the Nevada Gaming Authorities pursuant to paragraph (a), other approvals of the Gaming Authorities (including the licensing of the Trustee and/or the Noteholders) may, and in some cases will, be required before certain transactions relating to this Agreement may occur, including but not limited to the following: any re-registration or action similar to re-registration of the L.L.C. Interest (or any distribution in respect of, in addition to, in substitution of, or in exchange for, the L.L.C. Interest or any part thereof); any foreclosure, sale, transfer or other disposition of the L.L.C. Interest or any other enforcement of the security interest therein; and (iii) to the extent required by the Nevada Gaming Authorities, the exercise by the Trustee of any of its remedies under Section 6 and any of the voting and consensual rights set forth therein, after and during the continuance of an Event of Default; and (iv) pursuant to Regulation 8.050 of the Nevada Gaming Commission, the payment or receipt of any money or other thing of value constituting any part of the consideration for the transfer or acquisition of the L.L.C. Interest, except that such consideration may be placed in escrow pending the necessary approvals. If required, the Trustee shall retain all evidence of ownership in the L.L.C. Interest of Aladdin Gaming, or any distribution of additional securities in respect of, in addition to, in substitution of, or in exchange for, such L.L.C. Interest of Aladdin Gaming, or any part thereof, in the State of Nevada at a location designated to the Nevada State Gaming Control Board (the "Nevada Board") through its agent, or such substitute agent as it may select in its reasonable discretion that is located in and authorized to do business in the State of Nevada, pursuant to the terms of an Escrow Agreement to be entered into by the Trustee and its agent substantially in the form attached hereto as Exhibit "B", and Trustee shall make the certificates or instruments evidencing the L.L.C. Interest available for inspection by agents or employees of the Nevada Board immediately upon request during normal business hours. 15. Termination. This L.L.C. Interest Pledge Agreement shall terminate upon the satisfaction of all Obligations, and Trustee shall promptly thereafter deliver the L.L.C. Interest certificates held by it hereunder to Shareholder and, at Shareholder's expense, execute and deliver to Shareholder such documents as Shareholder shall reasonably request to evidence such termination. Upon any release of the L.L.C. Interest of Aladdin Gaming from the pledge and security interest hereunder pursuant to the Release Provision, the Trustee shall promptly deliver to Shareholder all certificates representing such L.L.C. Interest and, at Shareholder's expense, execute and deliver to Shareholder such documents as Shareholder shall reasonably request to evidence such release. 16. Power of Attorney. Shareholder hereby appoints and constitutes Trustee as Shareholder's attorney-in-fact for purposes of (a) collecting any Collateral, (b) conveying any item of Collateral to any purchaser thereof, and (c) making any payments or taking any acts under Paragraph 6 hereof. Trustee's authority hereunder shall include, without limitation, upon the occurrence and during the continuance of an Event of Default, the authority to endorse and negotiate, for Trustee's own account, any checks or instruments in the name of Trustee, to execute or receipt for any document, to transfer title to any item of Collateral, and to take any other actions necessary or incident to the powers granted to Trustee in this L.L.C. Interest Pledge Agreement. This power of attorney is coupled with an interest and is irrevocable by Shareholder. 17. Miscellaneous. (a) Notices. Except as otherwise provided herein, all notices, requests, demands of other communications to or upon the parties hereto shall be addressed to the parties at the respective addresses indicated below or at such other address as either party hereto may designate by written notice to the other party, and shall be deemed to have been given (i) in the case of notice by letter, three (3) days after deposited in the mails registered and return receipt requested, or (ii) in the case of notice given by telecommunication, when sent and received by the recipient prior to 5:00 p.m. on the recipient's business day: Trustee: State Street Bank and Trust Company Corporate Trust Division Two International Place Boston, Massachusetts 02110 Ph: (617) 664-5340 FAX:(617) 664-5371 Shareholder: Aladdin Gaming Holdings, L.L.C. 2810 W. Charleston Blvd., Ste. 58 Las Vegas, Nevada 89102 Attn: Jack Sommer Ph: (702) 870-1234 FAX:(702) 870-8733 Capital: Aladdin Capital Corp. 2810 W. Charleston Blvd., Ste. 58 Las Vegas, Nevada 89102 Attn: Jack Sommer Ph: (702) 870-1234 FAX:(702) 870-8733 Aladdin Gaming: Aladdin Gaming, L.L.C. 2810 W. Charleston Blvd., Ste. 58 Las Vegas, Nevada Attn: Jack Sommer Ph: (702) 870-1234 FAX: (702) 870-8733 (b) Nonwaiver. No failure or delay on Trustee's part in exercising any right hereunder shall operate as a waiver thereof or of any other right nor shall any single or partial exercise of any such right preclude any other further exercise thereof or of any other right. (c) Amendments and Waivers. This L.L.C. Interest Pledge Agreement may not be amended or modified, nor may any of its terms be waived, except by written instruments signed by the party or parties against which enforcement thereof is sought. Each waiver or consent under any provision hereof shall be effective only in the specific instances for the purpose for which given. (d) Assignment. This L.L.C. Interest Pledge Agreement shall be binding upon inure to the benefit of Trustee, the Noteholders and Shareholder and their respective successors and assigns; provided, however, that Shareholder may not assign its rights or delegate its duties hereunder without the prior written consent of Trustee. Trustee may assign or otherwise transfer all or any part of its interest under this L.L.C. Interest Pledge Agreement, upon notice to Shareholder. Trustee may disclose this L.L.C. Interest Pledge Agreement and any financial or other information relating to Shareholder to any potential assignee or participant. (e) Cumulative Rights, etc. The rights, powers and remedies of Trustee under this L.L.C. Interest Pledge Agreement shall be in addition to all rights, powers and remedies given to Trustee by virtue of the Indenture, any applicable governmental rule or regulation or any other agreement, all of which rights, powers, and remedies shall be cumulative and may be exercised successively or concurrently without impairing Trustee's lien in the Collateral. Shareholder waives any right to require Trustee to proceed against any Person or to exhaust any Collateral or to pursue any remedy in Trustee's power. (f) Governing Law. This L.L.C. Interest Pledge Agreement shall be governed by and construed in accordance with the laws of the State of New York, except (i) as the Nevada Gaming Control Act may apply, (ii) as required by mandatory provisions of Nevada law and (iii) to the extent that the validity or perfection of the lien and security interest hereunder, or remedies hereunder, in respect of any particular Collateral are governed by the laws of the State of Nevada. IN WITNESS WHEREOF, Shareholder has caused this L.L.C. Interest Pledge and Security Agreement to be executed in favor of Trustee as of the day and year first above written. SHAREHOLDER: ALADDIN GAMING HOLDINGS, L.L.C., a Nevada limited-liability company By: /s/ Richard Goeglein ----------------------------- Name: Richard Goeglein Title: CEO & President By: /s/ Ronald Dictrow ------------------------------ Name: Ronald B. Dictrow Title: Executive V.P. & Secretary ACKNOWLEDGMENT AND CONSENT OF CAPITAL AND ALADDIN GAMING Each of ALADDIN CAPITAL CORP., a Nevada corporation ("Capital") and Aladdin Gaming, L.L.C., a Nevada limited-liability company ("Aladdin Gaming") hereby acknowledges receipt of a copy of the above L.L.C. Interest Pledge and Security Agreement, agrees to be bound by and comply with the terms thereof, including, without limitation, Paragraph 6 thereof and agrees to perform all covenants and obligations therein which, by their express or implied terms are to be performed by Capital and/or Aladdin Gaming. ALADDIN CAPITAL CORP., a Nevada corporation By: /s/ Richard Goeglein ------------------------------- Name: Richard Goeglein Title: CEO & President ALADDIN GAMING, L.L.C., a Nevada limited-liability company By: /s/ Richard Goeglein ------------------------------- Name: Richard Goeglein Title: CEO & President EXHIBIT "A" DESCRIPTION OF SHAREHOLDER'S L.L.C. INTEREST
Percentage of ------------- Issuer Class of L.L.C. Interest No. of Interests Outstanding ------ -------- --------------- ---------------- ----------- L.L.C. Interest Certificate No. Interests --------------- --------------- --------- Aladdin Gaming Preferred No. 1 100% Membership Interests (Series A)
EX-10.6 9 EXHIBIT 10.6 HOLDINGS COLLATERAL ACCT AGMT The Holdings Collateral Account Agreement HOLDINGS COLLATERAL ACCOUNT AGREEMENT This HOLDINGS COLLATERAL ACCOUNT AGREEMENT (this "Agreement") is dated February 26, 1998 and entered into by and among ALADDIN GAMING HOLDINGS, LLC, a Nevada limited liability company (the "Pledgor"), THE BANK OF NOVA SCOTIA, a Canadian chartered bank, as the initial Disbursement Agent under the Disbursement Agreement (in such capacity the "Secured Party"), and THE BANK OF NOVA SCOTIA, as the initial Securities Intermediary (in such capacity the "Securities Intermediary"). PRELIMINARY STATEMENTS A. The Project. Aladdin Gaming, LLC (the "Borrower") proposes to develop, construct and operate the Aladdin Hotel and Casino, a large scale theme hotel, casino, retail, meeting and entertainment complex, and to refurbish or cause the refurbishment of the Theater with related heating, ventilation and air conditioning and power station facilities to be developed at the Site. B. Credit Agreement. Concurrently herewith, the Borrower, the Agents and the Lenders have entered into the Credit Agreement pursuant to which the Lenders have agreed, subject to the terms thereof and hereof, to provide the Bank Credit Facility to the Borrower in an aggregate amount not to exceed $410,000,000. C. Discount Note Indenture. Concurrently herewith, Pledgor, Capital and the Discount Note Indenture Trustee have entered into the Discount Note Indenture pursuant to which Pledgor and Capital will issue Discount Notes. The net proceeds of the Discount Notes and warrants to purchase class B common stock of Aladdin Gaming Enterprises, Inc. will be applied by the Borrower to the development, construction, equipping and opening of the Main Project in an aggregate amount of approximately $107,000,000. D. Disbursement Agreement. Concurrently herewith, the Borrower, the Pledgor, Administrative Agent (acting on behalf of itself and the Lenders), the Discount Note Indenture Trustee (acting on behalf of itself and the Discount Noteholders), The Bank of Nova Scotia as "Disbursement Agent" and U.S. Bank National Association as "Servicing Agent" have entered into the Disbursement Agreement for the purpose of setting forth, among other things, (a) the mechanics for and allocation of the Borrower's requests for Advances under the Facilities and, inter alia, from the Borrower's Funds Account, (b) the conditions precedent to the initial Advance and conditions precedent to subsequent Advances, (c) the establishment of the Collateral Account, (d) the management of the Collateral Account, and (e) the events of default and remedies. E. Capacity and Obligations of Secured Party. The Secured Party has entered into this Agreement pursuant to the Disbursement Agreement and is obligated to exercise its rights and perform its duties hereunder in accordance with the Disbursement Agreement. F. Condition. It is a condition precedent to the purchase of the Discount Notes by Discount Noteholders that Pledgor shall have established the Collateral Account, granted control to the Disbursement Agent (as Secured Party) of such account, and undertaken the obligations contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce the Noteholders to purchase the Discount Notes and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Pledgor hereby agrees with Secured Party as follows: SECTION 1. Certain Definitions. a. Specific Definitions. The following terms used in this Agreement shall have the following meanings: "Broker-Dealer" means a person registered as a broker or dealer under the Securities Exchange Act of 1934, as amended, "Business Day" means any day other than a Saturday, Sunday or any other day which is a legal holiday or a day on which banking institutions are permitted to be closed in New York or Nevada. "Code" shall mean the Uniform Commercial Code as in effect in New York. "Collateral" means (i) the Collateral Account, (ii) all amounts credited to or held from time to time in the Collateral Account, (iii) all Investments and all Financial Assets, security entitlements, securities (whether certificated or uncertificated), instruments, accounts, general intangibles and deposits credited to 2 the Collateral Account representing or evidencing any Investments, (iv) all interest, dividends, cash, instruments, securities, investment property and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Collateral, and (v) to the extent not covered by clauses (i) through (iv) above, all proceeds of any or all of the foregoing Collateral. "Collateral Account" means the Restricted Securities Account and any other accounts or subaccounts in which Investments may be held or registered. "Investments" means any Financial Assets credited to the Restricted Securities Account, and any other property acquired by the Securities Intermediary as a securities intermediary hereunder in exchange for, with proceeds from or distributions on, or otherwise in respect of any Investments. "Overnight Investments" means an interest bearing overnight deposit account with the Securities Intermediary. "Permitted Investments" means (a) (i) direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America) or obligations fully guaranteed by the United States of America, (ii) obligations, debentures, notes or other evidence of indebtedness issued or guaranteed by any other agency or instrumentality of the United States, (iii) interest-bearing demand or time deposits (which may be represented by certificates of deposit) issued by banks having general obligations rated (on the date of acquisition hereof) at least "A" or the equivalent by any Rating Agency or, if not so rated, secured at all times, in the manner and to the extent provided by law, by collateral security in clause (i) or (ii) of this definition, of a market value of no less than the amount of monies so invested, (iv) commercial paper rated (on the date of acquisition thereof) at least "A-1" or "P-1" or the equivalent by any Rating Agency issued by any Person, (v) repurchase obligations for underlying securities of the types described in clause (i) or (ii) above, entered into with any commercial bank or any other financial institution having long-term unsecured debt securities rated (on the date of acquisition thereof) at least "A" or "A2" or the equivalent by any Rating Agency in connection with which such underlying securities are held in trust or by a third-party custodian, (vi) guaranteed investment contracts of any financial institution which has a long-term debt rated (on the date of acquisition thereof) at least "A" or "A2" or the equivalent by any Rating Agency, (vii) obligations (including both taxable and nontaxable municipal securities) issued or guaranteed by, and any other obligations the interest on which is 3 excluded from income for Federal income tax purposes issued by, any state of the United States of America or the District of Columbia or the Commonwealth of Puerto Rico or any political subdivision, agency, authority or instrumentality thereof, which issuer or guarantor has (A) a short-term debt rated (on the date of acquisition thereof) at least "A-1" or "P-1" or the equivalent by any Rating Agency and (B) a long-term debt rated (on the date of acquisition thereof) at least "A" or "A2" or the equivalent by any Rating Agency, (viii) investment contracts of any financial institution either (A) fully secured by (1) direct obligations of the United States, (2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States or (3) securities or receipts evidencing ownership interest in obligations or specified portions thereof described in clause (1) or (2), in each case guaranteed as full faith and credit obligations of the United States of America, having a market value at least equal to 102% of the amount deposited thereunder, or (B) with long-term debt rated at least "A" or "A2" or the equivalent by any Rating Agency and short-term debt rated at least "A-1" or "P-1" or the equivalent by any Rating Agency, (ix) a contract or investment agreement with a provider or guarantor (A) which provider or guarantor is rated (on the date of acquisition thereof) at least "A" or "A2" or the equivalent by any Rating Agency (provided that if a guarantor is party to the rating, the guaranty must be unconditional and must be confirmed in writing prior to any assignment by the provider to another subsidiary of such guarantor), (B) providing that monies invested shall be payable without condition (other than notice) and without brokerage fee or other penalty, upon not more than two Business Days' notice for application when and as required or permitted under the Loan Documents (as defined in the Credit Agreement), and (C) stating that such contract or agreement is unconditional, expressly disclaiming any right of setoff and providing for immediate termination in the event of insolvency of the provider and termination upon demand of the Disbursement Agent if prior to Completion after payment or other covenant default by the provider, or (x) any debt instruments of any Person which instruments are rated (on the date of acquisition thereof) at least "A," "A2," "A-1" or "P-1" or the equivalent by any Rating Agency; provided that in each case of clauses (i) through (x), such investments are denominated in United States dollars and maturing not more than 13 months from the date of acquisition thereof; (b) investments in any money market fund which is rated (on the date of acquisition thereof) at least "A" or "A2" or the equivalent by any Rating Agency; (c) investments in mutual funds sponsored by any securities broker-dealer of recognized national standing having an investment policy that requires substantially all the invested assets of such fund to be invested in investments described in any one or more of the foregoing clauses and having a rating of at least "A" or "A2" or the equivalent by any Rating Agency or (d) invest- 4 ments in both taxable and nontaxable (i) periodic auction reset securities ("PARS") which have final maturities between one and 30 years from the date of issuance and are repriced through a dutch auction or other similar method every 35 days or (ii) auction preferred shares ("APS") which are senior securities of leveraged closed end municipal bond funds and are repriced pursuant to a variety of rate reset periods, in each case having rating of at least "A" or "A2" or the equivalent by any Rating Agency. "Restricted Securities Account" means the Restricted Securities Account established and maintained with Securities Intermediary pursuant to Section 2 known as the Construction Note Disbursement Account. "Secured Obligations" means all obligations and liabilities of every nature of Pledgor now or hereafter existing under or arising out of or in connection with the Discount Note Indenture, the Discount Notes and each other agreement to which the Discount Note Indenture Trustee is a party or which grants a security interest for the benefit of the Discount Note Indenture Trustee or the Discount Noteholders, and all extensions or renewals thereof, whether for principal, interest (including interest that, but for the filing of a petition in bankruptcy with respect to Pledgor, would accrue on such obligations), fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated whether or not jointly owned with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Secured Party or any Discount Noteholder as a preference, fraudulent transfer or otherwise, and all obligations of every nature of Pledgor now or hereafter existing under this Agreement. "Securities Intermediary" means The Bank of Nova Scotia or any successor thereto. "Suspension Period" means each period beginning on the occurrence of a Default or Event of Default and continuing so long as any Default or Event of Default shall continue. b. General Provisions. Capitalized terms used but not defined herein shall have the meaning given to such terms in Exhibit A. Unless otherwise defined herein or in Exhibit A, terms used in 5 Articles 8 and 9 of the Code are used herein as therein defined. Words used herein, regardless of the number or gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. When a reference is made in this Agreement to an Appendix, Exhibit, Introduction, Recital, Section or Schedule, such reference shall be to an Appendix, an Exhibit, the Introduction, a Recital or a Section of, or a Schedule to, this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." SECTION 2. Establishment and Operation of the Collateral Account. a. Establishment of Construction Note Disbursement Account. Pledgor and Secured Party hereby authorize and direct Securities Intermediary to establish and maintain at its office at One Liberty Plaza, New York, New York 10006, a securities account numbered 0228710 in the name of Secured Party and under the sole dominion and control of Secured Party, designated as "The Bank of Nova Scotia, as Disbursement Agent under Disbursement Agreement dated February 26, 1998, Construction Note Disbursement Account fbo the Discount Note Indenture Trustee". Securities Intermediary hereby undertakes to treat Secured Party as the person entitled to exercise the rights and property interest that comprise any Financial Asset credited to the Bank Proceeds Account. The Secured Party and the Pledgor agree that this account shall be the "Construction Note Disbursement Account." b. Operations of the Collateral Account. The Collateral Account shall be operated, and all Investments shall be acquired and registered or held (as applicable), in accordance with the terms of this Agreement and the directions of Secured Party. 6 c. Account Statements. Securities Intermediary shall send Secured Party and Pledgor written account statements with respect to the Collateral Account not less frequently than monthly. Reports or confirmation of the execution of orders and statements of account shall be conclusive if not objected to in writing within 30 days after delivery pursuant to Section 21. SECTION 3. Mechanics of Deposits of Funds in Collateral Account. a. Transfers to Construction Note Disbursement Account. All transfers of funds to the Construction Note Disbursement Account shall be made by wire transfer (or, if applicable, intra-bank transfer from another account of Pledgor with Securities Intermediary) of immediately available funds, in each case addressed as follows: Account No.: 0228710 ABA No.: 026-002532 Reference: Aladdin Gaming Holdings-Construction Note Disbursement Account Attention: Marianne Velker b. Financial Assets Election. The Securities Intermediary hereby agrees that each item of property (whether investment property, financial asset, security, instrument or cash) credited to the Collateral Account shall be treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the Code. c. Notice of Transfers. In the event of any transfer of funds to or from the Collateral Account pursuant to any provision of Section 3, Pledgor, Secured Party or Securities Intermediary, as the case may be, shall promptly after initiating or sending out written instructions with respect to such transfer, give notice to the other such party by facsimile of the date and amount of such transfer. 7 SECTION 4. Permitted Investments and Transfers of Amounts in the Collateral Account. a. Strict Compliance. Cash held by Securities Intermediary in the Collateral Account shall not be (i) invested or reinvested, (ii) sold or redeemed, or (iii) transferred from or among the Collateral Account, except as provided in this Section 4. b. Pledgor's Right to Direct Investment. Except during any Suspension Period, Securities Intermediary shall, in accordance with Pledgor's written Entitlement Orders given to Securities Intermediary from time to time, sell or redeem Investments, and apply amounts transferred to or held for the credit of the respective Restricted Securities Account to make investments for credit to the Restricted Securities Account, in Securities Intermediary's name and as custodian under this Agreement, in Permitted Investments. During any Suspension Period, (i) Pledgor's right to direct such investments under this Section 4(b) shall be suspended, and Securities Intermediary shall not accept Entitlement Orders with respect to the Restricted Securities Account from any person other than Secured Party; and (ii) any credit balances shall be invested and reinvested only as provided in Section 4(c). c. Overnight Investments. To the extent that there are credit balances expected in any Restricted Securities Account as of the end of day, or as of 12:00 noon, New York time on any Business Day after settlement of all pending transactions, unless otherwise instructed by Secured Party or Pledgor pursuant to Section 4(b), Securities Intermediary shall apply the expected credit balances to acquire Overnight Investments. Any Overnight Investments shall be held for the credit of the Collateral Account from which the proceeds for acquisition was derived. Pledgor shall have no right to invest funds in a Restricted Securities Account to the extent that free balances have been invested in Overnight Investments pursuant to this Section. Pledgor hereby acknowledges that "Overnight Investments" may not benefit from any protections afforded to domestic depositors by state or Federal law and may have a lesser preference in a liquidation than a domestic deposit. 8 d. Actions of Securities Intermediary on Purchase of Investments. Promptly upon the purchase, acquisition or transfer for credit of any Collateral Account of any Investment, Securities Intermediary shall take all steps that it customarily takes in the ordinary course of its business to ensure that such Investment is credited on its books to the Collateral Account for which the Investment was acquired. Without limiting the generality of the foregoing, Securities Intermediary shall promptly (i) send to Pledgor and Secured Party a written confirmation of the acquisition of such Investment, and (ii) indicate by book entry in its records that such Investment has been credited to, and is held for the credit of, the specified Collateral Account. e. Control Agreement. Anything contained herein to the contrary notwithstanding, including the actual or alleged absence of a Default or Event of Default, if at any time Securities Intermediary shall receive any order from Secured Party, Securities Intermediary shall (i) comply with Entitlement Orders originated by Secured Party with respect to Financial Assets relating to the Collateral Account and any Security Entitlements therein, (ii) transfer, sell or redeem any Financial Assets relating to the Collateral, (iii) transfer any or all of the Collateral to any account or accounts designated by Secured Party, including any Collateral Account or an account established in Secured Party's name (whether at Secured Party or Securities Intermediary or otherwise), (iv) register title to any Collateral in any name specified by Secured Party, including the name of Secured Party or any of its nominees or agents, without reference to any interest of Pledgor, or (v) otherwise deal with the Collateral as directed by Secured Party, in each case, without consent of Pledgor or any other person. Securities Intermediary shall act on any instruction of Secured Party notwithstanding assertions or proof that (1) Secured Party has no right under Sections 14 or 15 to originate the instruction or take the underlying action; (2) such instruction or action constitutes a breach of this Agreement or any other agreement; or (3) this Agreement has terminated, unless notified in writing by Secured Party that this Agreement has terminated and such notice has not been withdrawn. Nothing contained in this paragraph shall constitute a waiver by Pledgor of any rights or remedies it may have against Secured Party under this Agreement or any other agreement. 9 f. Deposit of Proceeds. Any interest, cash dividends or other cash distributions received in respect of any Investments and the net proceeds of any sale or payment of any Investments shall be promptly credited to, and held for the credit of, the Collateral Account to which such Investment was credited. Any distribution of property other than cash in respect of any Investment shall be credited to and held for the credit of the Collateral Account to which the related Investment was credited; provided that, unless otherwise instructed in writing by Secured Party, Securities Intermediary shall, for credit to the Collateral Account, promptly sell, redeem or otherwise liquidate any such property that, as of the date of receipt, is not a Permitted Investment. SECTION 5. Pledge of Security for Secured Obligations. Pledgor hereby pledges and assigns to Secured Party and hereby grants to Secured Party a security interest in, all of Pledgor's right, title and interest in and to the Collateral as collateral security for the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. 362(a)), of all Secured Obligations. SECTION 6. Acknowledgments of Security Interests in Favor of Secured Party; Covenant Against Creation of Other Interests. a. Acknowledgment of Security Interest. Securities Intermediary acknowledges the security interest granted by Pledgor in favor of Secured Party in the Collateral. b. Acknowledgment of Securities Intermediary's Role. Securities Intermediary hereby further acknowledges that it holds the Collateral Account, and all Security Entitlements therein, as custodian for, for the benefit of, and subject to the control of, Secured Party. Securities Intermediary shall, by book entry or otherwise, indicate that the 10 Collateral Account, and all Security Entitlements registered to or held therein, are subject to the control of Secured Party as provided in Section 4(e). c. Securities Intermediary Has No Notice of Adverse Claims. Securities Intermediary represents and warrants that (i) it has no notice of any Adverse Claim against any of the Collateral other than the claim of Secured Party under this Agreement; and (ii) it is not, in its capacity as securities intermediary, party to any agreement other than this Agreement that governs its rights or duties or conflicts with the rights of Secured Party, including the exclusive right of Secured Party to control as provided in Section 4(e), with respect to the Collateral Account. d. Securities Intermediary Shall Not Acknowledge Other Claims. Securities Intermediary agrees that, except as expressly provided in this Agreement or with the written consent of Secured Party, it shall not agree to or acknowledge (i) any right by any Person other than Secured Party to originate Entitlement Orders or control with respect to the Collateral Account; or (ii) any limitation on the right of Secured Party to originate Entitlement Orders with respect to or direct the transfer of any Investments or cash credited to the Collateral Account. SECTION 7. Securities Intermediary Maintenance of the Collateral Account. a. Transactions Shall Comply With Rules. The parties acknowledge that all transactions in Financial Assets under this Agreement shall be in accordance with the rules and customs of the exchange, market or clearing organization, if any, in which the transactions are executed or settled and in conformity with applicable law and regulations of governmental authorities and future amendments or supplements thereto. b. Fees and Charges of Securities Intermediary. Pledgor shall pay to Securities Intermediary, in accordance with Securities Intermediary's usual schedule of charges or any written agreement between Securities Intermediary and Pledgor, any fees or charges reasonably 11 imposed by Securities Intermediary with respect to the establishment, maintenance and transactions in or affecting the Collateral Account. c. Securities Intermediary Shall Not Permit Leverage of Investments. Securities Intermediary shall not execute any transaction to acquire a Financial Asset under Section 4(b) unless there are sufficient funds in a specific Collateral Account or reasonably expected with respect to pending transactions in such Collateral Account to settle such transaction for the account of such Collateral Account. Notwithstanding the foregoing sentence, in the event that Securities Intermediary executes a transaction without adequate funds to settle the transaction, Pledgor shall be liable to Securities Intermediary for any deficiency and shall promptly reimburse Securities Intermediary for any loss or expense incurred thereby, including losses sustained by reason of Securities Intermediary's inability to borrow any securities or other property sold for the Collateral Account. Pledgor agrees to pay interest charges which may be imposed by Securities Intermediary in accordance with its usual custom, with respect to late payments for Financial Assets purchased for any Collateral Account and prepayments to any Collateral Account (i.e., the crediting of the proceeds of sale before the settlement date or receipt by Securities Intermediary of the items sold in good deliverable form). Pledgor agrees to pay promptly any amount which may become due in order to satisfy demands for additional margin or marks to market with respect to any security purchased or sold on instruction from Pledgor. d. Risk of Investments and Transactions. It is not the intention of the parties that Securities Intermediary should bear any investment risk associated with Permitted Investments or Overnight Investments acquired for the credit of the Collateral Account in accordance with Section 4. Any losses or gains realized on such Investments shall be charged or credited to the Collateral Account, as appropriate. On committing to a transaction for the credit of the Collateral Account pursuant to an instruction permitted in accordance with Section 4, Securities Intermediary may, (i) pending settlement, block (A) the Investments to be sold or (B) credit balances sufficient to settle any acquisition and, (ii) at the time of settlement, deliver such Investments or funds in accordance with the rules, custom or practice of the particular market. 12 e. Use of Intermediaries and Nominees. Securities Intermediary is authorized, subject to Secured Party's written instructions, to register any Financial Assets acquired by Securities Intermediary pursuant to this Agreement in the name of Securities Intermediary or in the name of its nominee, or to cause such securities to be registered in the name of a Federal reserve bank, a recognized securities intermediary or clearing corporation, or a nominee of any of them. Securities Intermediary may at any time and from time to time appoint, and may at any time remove, any bank, trust company, clearing corporation, or Broker-Dealer as its agent to carry out such of the provisions of this Agreement. The appointment or use of any intermediary, or the appointment of any such agent, shall not relieve Securities Intermediary of any responsibility or liability under this Agreement. f. Corporate Actions. Except as otherwise set forth herein, the parties agree that neither Secured Party nor Securities Intermediary shall have any responsibility for ascertaining or acting upon any calls, conversions, exchange offers, tenders, interest rate changes or similar matters relating to any Financial Assets credited to or held for the credit of the Restricted Securities Account (except based on written instructions originated by Pledgor or Secured Party), or for informing Pledgor or Secured Party with respect thereto, whether or not Securities Intermediary or Secured party has, or is deemed to have, knowledge of any of the aforesaid. Securities Intermediary is authorized to withdraw securities sold or otherwise disposed of, and to credit the appropriate Collateral Account with the proceeds thereof or make such other disposition thereof as may be directed in accordance with this Agreement. Securities Intermediary is further authorized to collect all income and other payments which may become due on Financial Assets credited to the Collateral Account, to surrender for payment maturing obligations and those called for redemption and to exchange certificates in temporary form or like certificates in definitive form, or, if the par value of any shares is changed, to effect the exchange for new certificates. It is understood and agreed by Pledgor and Secured Party that, although Securities Intermediary will use reasonable efforts to effect the transactions set forth in the preceding sentence, Securities Intermediary shall incur no liability for its failure to effect the same unless its failure is the result of wilful misconduct. 13 g. Disclosure of Account Relationships. Pledgor and Secured Party acknowledge that Securities Intermediary may be required to disclose to securities issuers the name, address and securities positions with respect to Financial Assets credited to the Collateral Account, and hereby consent to such disclosures. h. Forwarding of Documents. Securities Intermediary shall forward to Pledgor and Secured Party, or notify Pledgor and Secured Party by telephone of, all communications received by Securities Intermediary as owner of any Financial Assets credited to the Collateral Account and which are intended to be transmitted to the beneficial owner thereof. i. Direction of Secured Party Controls in Disputes. Pledgor, Securities Intermediary and Secured Party hereby agree that in the event any dispute arises with respect to the payment, ownership or right to possession of the Collateral Account or any other Collateral credited to or held therein, Securities Intermediary shall take such actions and shall refrain from taking such actions with respect thereto as may be directed by Secured Party. j. No Setoff, etc. Securities Intermediary shall not exercise on its own behalf any claim, right of set-off, banker's lien, clearing lien, counterclaim or similar right against any of the Collateral; provided that Securities Intermediary may deduct, from any credit balances, any usual and ordinary transaction and administration fees payable in connection with the administration and operation of the Collateral Account. Except for claims for deductions permitted in the preceding sentence, Securities Intermediary agrees that any security interest it may have in the Collateral Account or any security entitlement carried therein shall be subordinate and junior to the interest of Secured Party. k. Only Agreement. This Agreement shall govern the actions, rights and obligations of Securities Intermediary, and shall determine the governing law, with respect to the Collateral Account and the Collateral notwithstanding any term or condition in any agreement other than this Agreement as it may be amended, supplemented or otherwise modified in writing. 14 l. Care of Financial Assets. Securities Intermediary shall maintain possession or control of all Financial Assets credited to the Collateral Account by segregating such Financial Assets from its proprietary assets and keeping them free of any lien, charge or claim of any third party granted or created by Securities Intermediary. Securities Intermediary shall take such other steps to ensure that Financial Assets credited to the Collateral Account are identified as being held for customers of Securities Intermediary as may be required under applicable law, including 17 CFR Part 450, or in accordance with custom and practice in the industry. m. Further Actions. Securities Intermediary shall take such further actions as Secured Party shall reasonably request as being necessary or desirable to maintain or achieve perfection or priority of Secured Party's security interest with respect to the Collateral and to permit Secured Party to exercise its rights with respect to the Collateral. SECTION 8. Transactions in Collateral Account. a. Power of Secured Party to Sell or Transfer. Pledgor agrees that Secured Party may sell or cause the sale or redemption of any Investment and instruct Securities Intermediary to transfer the proceeds of such sale or any other credit or balance in the Collateral Account or any third party or account, in either case (i) if such sale or redemption is necessary to permit Secured Party to perform its duties under this Agreement or the Disbursement Agreement or (ii) as provided in Section 14. SECTION 9. Representations and Warranties By Securities Intermediary. Securities Intermediary hereby represents and warrants to Pledgor and Secured Party as follows: a. Corporate Power. Securities Intermediary has all necessary corporate power and authority to enter into and perform this Agreement. 15 b. Execution Authorized. The execution, delivery and performance of this Agreement by Securities Intermediary have been duly authorized by all necessary corporate action on the part of the Securities Intermediary. c. Securities Intermediary. Security Intermediary is a "securities intermediary" (as that term is defined in Section 8-102(a)(14) of the Code) and is acting in such capacity with respect to the Collateral Account. Securities Intermediary is not a "clearing corporation" (as that term is defined in Section 8-102(a)(5) of the Code). SECTION 10. Representations and Warranties of Pledgor. Pledgor represents and warrants as follows: a. Ownership of Collateral; Security Interest; Perfection and Priority. Pledgor is (or at the time of transfer thereof to Securities Intermediary will be) the legal and beneficial owner of the Collateral from time to time transferred by Pledgor to Securities Intermediary, as agent for Secured Party, free and clear of any Lien except for the security interest created by this Agreement. The pledge and assignment of the Collateral pursuant to this Agreement creates a valid security interest in the Collateral securing the payment of the Secured Obligations. Assuming compliance by Securities Intermediary with this Agreement, Secured Party will have a perfected security interest in the Collateral senior in priority to any other security interest created by Pledgor. b. Governmental Authorizations. Except as may be required under Nevada Gaming Laws, no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for either (i) the grant by Pledgor of the security interest granted hereby, (ii) the execution, delivery or performance of this Agreement by Pledgor, or (iii) the perfection of or the exercise by Secured Party or Securities Intermediary of its rights and remedies hereunder (except as may have been taken by or at the direction of Pledgor). c. Other Information. All information heretofore, herein or hereafter supplied to Secured Party or Securities Intermediary by or 16 on behalf of Pledgor with respect to the Collateral, the establishment of the Collateral Account or otherwise is accurate and complete in all material respects. SECTION 11. Further Assurances. a. Pledgor. Pledgor agrees that from time to time, at the expense of Pledgor, Pledgor shall promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or reasonably desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party or Securities Intermediary to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Pledgor shall: (a) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or reasonably desirable, or as Secured Party may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby, and (b) at Secured Party's request, appear in and defend any action or proceeding that may affect Pledgor's title to or Secured Party's security interest in all or any part of the Collateral. b. Securities Intermediary. Securities Intermediary shall take such further actions as Secured Party shall reasonably request as being necessary or desirable to maintain or achieve perfection or priority of Secured Party's security interest with respect to the Collateral and to permit Secured Party to exercise its rights with respect to the Collateral. c. Document Delivery. The Pledgor shall deliver to the Discount Note Indenture Trustee copies of all documents delivered to the Disbursement Agent pursuant to this Agreement, and shall do or cause to be done all such acts and things as may be necessary or proper, or as may be required by the provisions herein, to assure and confirm to the Discount Note Indenture Trustee and the Disbursement Agent that the security interest in the Collateral is available for the security of the Discount Note Indenture and the Discount Notes secured thereby. 17 d. Opinions. The Pledgor shall furnish to the Discount Note Indenture Trustee simultaneously with the execution and delivery of the Discount Note Indenture an Opinion of Counsel (as such term is defined in the Discount Note Indenture) either (a) stating that in the opinion of such counsel all action has been taken with respect to the recording, registering and filing of the Discount Note Indenture, financing statements or other instruments necessary to make effective the Liens intended to be created by this Agreement, and reciting with respect to the security interests in the Collateral, the details of such action, or (b) stating that, in the opinion of such counsel, no such action is necessary to make such Liens effective. The Pledgor shall furnish to the Disbursement Agent and the Discount Note Indenture Trustee on February 1 in each year beginning with February 1, 1999, an Opinion of Counsel dated as of such date, either (a)(i) stating that in the opinion of such counsel, action has been taken with respect to the recording, registering, filing, re-recording, re-registering and refiling of all supplemental indentures, financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Liens and reciting with respect to the security interests in the Collateral, the details of such section or referring to prior Opinions of Counsel in which such details are given, (ii) stating that, based on relevant laws as in effect on the date of such Opinion of Counsel, all financing statements and continuation statements have been executed and filed that are necessary as of such date and during the succeeding twelve (12) months fully to preserve and protect, to the extent such preservation and protection are possible by filing, the rights of the Discount Noteholders, the Disbursement Agent and the Discount Note Indenture Trustee under the Discount Note Indenture and this Agreement with respect to the security interests in the Collateral, or (b) stating that, in the opinion of such counsel, no such action is necessary to maintain such liens and assignments. SECTION 12. Transfers and other Liens. Pledgor agrees that, except as permitted in Section 4(b) and for the security interest created by this Agreement, it shall not (a) sell, assign (by operation of law or otherwise), redeem or otherwise dispose of any of the Collateral or (b) create or suffer to 18 exist any Lien upon or with respect to any of the Collateral. SECTION 13. Secured Party Appointed Attorney-in-Fact; Secured Party Performance. a. Secured Party Appointed Attorney-in-Fact. Pledgor hereby irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor, Secured Party or otherwise, from time to time in Secured Party's discretion to take any action and to execute any instrument that Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including (a) to file one or more financing or continuation statements, or amendments thereto, relative to all or any part of the Collateral without the signature of Pledgor and (b) to receive, endorse and collect any instruments or other Investments made payable to Pledgor representing any dividend, principal or interest payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. b. Performance by Secured Party. If Pledgor fails to perform any agreement contained herein, Secured Party may itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Pledgor under Section 16. SECTION 14. Remedies. a. Transfer or Sequestration of Collateral after Default or Event of Default. If any Default or Event of Default (as such terms are defined under the Discount Note Indenture) shall have occurred and be continuing, Secured Party may instruct Securities Intermediary to (i) sell or redeem any Investments, (ii) transfer any or all of the Collateral to any account designated by Secured Party, including account or accounts established in Secured Party's name (whether at Secured Party or Securities Intermediary or otherwise), (iii) register title to any Collateral in any name specified by Secured Party, including the name of Secured Party or any of its nominees or agents, without reference to 19 any interest of Pledgor, or (iv) otherwise deal with the Collateral as directed by Secured Party. b. Rights of Secured Party after Event of Default. If any Event of Default (as defined under the Discount Note Indenture) shall have occurred and be continuing, Secured Party may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code as in effect in any relevant jurisdiction (the "UCC") (whether or not the UCC applies to the affected Collateral), and Secured Party may also in its sole discretion sell the Collateral or any part thereof in one or more parcels at public or private sale, at any exchange or broker's board or at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Collateral. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Pledgor, and Pledgor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. c. Agreement as to Manner of Sale. Pledgor hereby agrees that the Collateral is of a type customarily sold on recognized markets and, accordingly, that no notice to any Person is required before any sale of any of the Collateral pursuant to the terms of this Agreement; provided that, without prejudice to the foregoing, Pledgor agrees that, to the extent notice of any such sale shall be required by law, at least ten days' notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reason able notification. 20 d. Deficiency. If the proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, Pledgor shall be liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency. SECTION 15. Application of Proceeds. If any Event of Default (as defined under the Discount Note Indenture) shall have occurred and be continuing, all cash included as Collateral and all proceeds received by Secured Party in respect of any sale or redemption of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of Secured Party, be held by or for Secured Party as Collateral for, or then, or at any other time thereafter, applied in full or in part by Secured Party against, the Secured Obligations in the following order of priority: FIRST: To the payment of all costs and expenses of such sale, collection or other realization, including reasonable compensation to Secured Party and its agents and counsel, and all other expenses, liabilities and advances made or reasonably incurred by Secured Party in connection therewith, and all amounts for which Secured Party is entitled to indemnification hereunder and all advances made by Secured Party hereunder for the account of Pledgor, and to the payment of all costs and expenses paid or incurred by Secured Party in connection with the exercise of any right or remedy hereunder, all in accordance with Section 16; SECOND: To the payment of all other Secured Obligations in accordance with the Discount Note Indenture; and THIRD: To the payment to or upon the order of Pledgor, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. 21 SECTION 16. Limitations on Duties; Exculpation; Indemnity; Expenses. a. Securities Intermediary. i. Limitation on Duties. Securities Intermediary's duties hereunder are only those specifically provided herein, and Securities Intermediary shall incur no liability whatsoever for any actions or omissions hereunder except for any such liability arising out of or in connection with Securities Intermediary's gross negligence or wilful misconduct. Securities Intermediary has no obligation to inquire into, or to ensure, the sufficiency of this Agreement or the arrangements described hereunder to satisfy any objectives of Secured Party or Pledgor. Securities Intermediary shall have no duty to supervise or to provide investment counseling or advice to Pledgor or Secured Party with respect to the purchase, sale, retention or other disposition of any Financial Assets held hereunder. Except as specifically otherwise provided in this Agreement, Securities Intermediary shall not be responsible for enforcing compliance by the other parties to this Agreement with their respective duties and obligations to each other under this or any other Agreement. ii. Consultation with Counsel. Securities Intermediary may consult with, and obtain advice from, legal counsel as to the construction of any of the provisions of this Agreement, and shall incur no liability in acting in good faith in accordance with the reasonable advice and opinion of such counsel. iii. Indemnification. Pledgor agrees to indemnify Securities Intermediary from and against any and all claims, losses, liabilities and expenses (including reasonable attorneys' fees and expenses) in any way relating to, growing out of or resulting from this Agreement or the performance of its obligations hereunder, except to the extent arising out of or in connection with Securities Intermediary's gross negligence or wilful misconduct. 22 iv. Reasonable Reliance. Securities Intermediary shall be fully protected and shall suffer no liability in acting in accordance with any written instructions reasonably believed by it to have been given (A) by Secured Party with respect to any aspect of the operation of the Collateral Account (including any such instructions relating to any investment or transfer of any amounts held therein or (B) by Pledgor, to the extent provided in Section 4(b), with respect to the Collateral Account. b. Secured Party. i. Exculpation. The powers conferred on Secured party hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Collateral, it being understood that Secured Party shall have no responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, (b) taking any necessary steps (other than steps taken in accordance with the standard of care set forth above to maintain possession of the Collateral) to preserve rights against any parties with respect to any Collateral, (c) taking any necessary steps to collect or realize upon the Secured Obligations or any guarantee therefor, or any part thereof, or any of the Collateral, (d) initiating any action to protect the Collateral against the possibility of a decline in market value, (e) any loss resulting from Investments made, held or sold pursuant to Section 4, except for a loss resulting from Secured Party's gross negligence or wilful misconduct in complying with Section 4, or (f) determining (i) the correctness of any statement or calculation made by Pledgor in any written or telex (tested or otherwise) instructions or (ii) whether any transfer to the Collateral Account is proper. Secured Party shall be deemed to have exercised reasonable 23 care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which Secured Party accords its own property of like kind. In addition to the foregoing and without limiting the generality thereof, Secured Party shall not be responsible for any actions or omissions of Securities Intermediary. ii. Indemnification. Pledgor agrees to indemnify Secured Party, Discount Note Indenture Trustee and each Noteholder from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including enforcement of this Agreement), except to the extent such claims, losses or liabilities result solely from Secured Party's gross negligence or wilful misconduct as finally determined by a court of competent jurisdiction. iii. Reasonable Reliance. Secured Party shall be fully protected and shall suffer no liability in acting in accordance with any written instructions reasonably believed by it to have been given by Pledgor, to the extent provided in Section 4(b), with respect to any investments of any amounts held for the credit of the Collateral Account. iv. Expenses. Pledgor shall pay to Secured Party upon demand the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that Secured Party may reasonably incur in connection with (a) the administration of this Agreement, (b) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (c) the exercise or enforcement of any of the rights of Secured Party hereunder, or (d) the failure by Pledgor to perform or observe any of the provisions hereof. 24 SECTION 17. Resignation and Removal of Securities Intermediary. a. Removal. Securities Intermediary may be removed at any time by written notice given by Secured Party to Securities Intermediary and Pledgor, but such removal shall not become effective until a successor Securities Intermediary shall have been appointed by Secured Party and shall have accepted such appointment in writing. b. Resignation. Securities Intermediary may resign at any time by giving not less than thirty days' written notice to Secured Party and Pledgor, but such removal shall not become effective until a successor Securities Intermediary shall have been appointed by Secured Party and shall have accepted such appointment in writing. If an instrument of acceptance by a successor Securities Intermediary shall not have been delivered to the resigning Securities Intermediary within thirty days after the giving of any such notice of resignation, the resigning Securities Intermediary may, at the expense of Pledgor, petition any court of competent jurisdiction for the appointment of a successor Securities Intermediary. c. Successor Securities Intermediary. Any successor Securities Intermediary shall be (i) The Bank of Nova Scotia Trust Company of New York, (ii) Merrill Lynch Capital Corporation (or an affiliate thereof) or (iii) a corporation qualified to, and located in, New York, which (A) is subject to supervision or examination by the applicable Governmental Instrumentality, (B) has a combined capital and surplus of at least Five Hundred Million Dollars (US$500,000,000), (C) has a long-term credit rating of not less than "A-" or "A3", respectively, by any Rating Agency; and provided, that any such bank with a long-term credit rating of "A-" or "A3" shall not cease to be eligible to act as Securities Intermediary upon a downward change in either such rating of no more than one category or grade of such minimum rating, as the case may be. d. Process of Succession. Upon the appointment of a successor Securities Intermediary and its acceptance of such appointment, the resigning or removed Securities Intermediary shall transfer all items of Collateral held by it to such successor (which items of Collateral 25 shall be transferred to appropriate new Collateral Account established and maintained by such successor). Following such appointment all references herein to Securities Intermediary shall be deemed a reference to such successor; provided that the provisions of Section 16(a) hereof shall continue to inure to the benefit of the resigning or removed Securities Intermediary with respect to any actions taken or omitted to be taken by it under this Agreement while it was Securities Intermediary hereunder. SECTION 18. Continuing Security Interest; Termination of Obligations of Securities Intermediary. This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the indefeasible payment in full of the Secured Obligations, (b) be binding upon Pledgor, its successors and assigns, and (c) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party, Discount Note Indenture Trustee and Noteholders and their respective successors, transferees and assigns. Upon the indefeasible payment in full of all Secured Obligations, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to Pledgor. Upon any such termination Secured Party shall, at Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence such termination and Pledgor shall be entitled to the return, upon its request and at its expense, against receipt and without recourse to Secured Party, of such of the Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. Securities Intermediary shall not be released from its obligations hereunder, and shall continue to maintain any Collateral in accordance with this Agreement, until notified in writing by Secured Party that this Agreement has terminated and so long as Se- 26 cured Party has not withdrawn such notification. SECTION 19. Secured Party as Disbursement Agent. a. Agency. Secured Party has been appointed to act as Secured Party hereunder pursuant to the Disbursement Agreement. Secured Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including, without limitation, the release or substitution of Collateral), solely in accordance with this Agreement and the Disbursement Agreement. b. Identity of Agent. Secured Party shall at all times be the same Person that is Disbursement Agent under the Disbursement Agreement. Written notice of resignation by Disbursement Agent pursuant to Section 4.7 of the Disbursement Agreement shall also constitute notice of resignation as Secured Party under this Agreement; removal of Disbursement Agent pursuant to Section 4.7 of the Disbursement Agreement shall also constitute removal as Secured Party under this Agreement; and substitution of a successor Disbursement Agent pursuant to Section 4.7 of the Disbursement Agreement shall also constitute substitution of a successor Secured Party under this Agreement. Upon the acceptance of any appointment as Disbursement Agent under Section 4.7 of the Disbursement Agreement by a successor Disbursement Agent, that successor Disbursement Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Secured Party under this Agreement, and the retiring or removed Secured Party under this Agreement shall promptly (i) transfer to such successor Secured Party all items of Collateral held by Secured Party (which as appropriate shall be credited to, and held for the credit of, any new restricted Collateral Account established and maintained by such successor Secured Party), together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Secured Party under this Agreement, and (ii) execute and deliver to such successor Secured Party such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor 27 Secured Party of the security interests created hereunder, whereupon such retiring or removed Secured Party shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Disbursement Agent's resignation or removal hereunder as Secured Party, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Secured Party hereunder. SECTION 20. Amendments; etc. No amendment or waiver of any provision of this Agreement, or consent to any departure by any party herefrom, shall in any event be effective unless the same shall be in writing and signed by the other parties, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. SECTION 21. Notices. Any communications between the parties hereto or notices provided herein to be given may be given to the address of the party as set forth under such party's name on the signature page hereof. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be considered as properly given (a) if delivered in person, (b) if sent by reputable overnight delivery service, (c) in the event overnight delivery services are not readily available, if mailed by first class mail, postage prepaid, registered or certified with return receipt requested or (d) if sent by prepaid telex, or by telecopy with correct answer back received. Notice so given shall be effective upon receipt by the addressee, except that communication or notice so transmitted by telecopy or other direct written electronic means shall be deemed to have been validly and effectively given on the day (if a Business Day and, if not, on the next following Business Day) on which it is validly transmit- 28 ted if transmitted before 4 p.m., recipient's time, and if transmitted after that time, on the next following Business Day, provided, however, that if any notice is tendered to an addressee and the delivery thereof is refused by such addressee, such notice shall be effective upon such tender. Any party shall have the right to change its address for notice hereunder to any other location by giving of no less than twenty (20) days' notice to the other parties in the manner set forth hereinabove. SECTION 22. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of Secured Party in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or for any other power, right or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 23. Severability. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 24. Headings. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute 29 a part of this Agreement for any other purpose or be given any substantive effect. SECTION 25. Governing Law. BOTH THIS AGREEMENT AND THE RESTRICTED SECURITIES ACCOUNT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. REGARDLESS OF ANY PROVISION IN ANY OTHER AGREEMENT, FOR PURPOSES OF THE UCC, NEW YORK SHALL BE DEEMED TO BE THE SECURITIES INTERMEDIARY'S JURISDICTION AND THE RESTRICTED SECURITIES ACCOUNT (AS WELL AS THE SECURITIES ENTITLEMENTS RELATED THERETO) SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 26. Consent to Jurisdiction and Service of Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS 30 AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. Pledgor hereby agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to Pledgor at its address provided in Section 21, such service being hereby acknowledged by Pledgor to be sufficient for personal jurisdiction in any action against Pledgor in any such court and to be otherwise effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Secured Party to bring proceedings against Pledgor in the courts of any other jurisdiction. SECTION 27. Waiver of Jury Trial. PLEDGOR, SECURITIES INTERMEDIARY AND SECURED PARTY HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Pledgor and Secured Party each acknowledge that this waiver is a material inducement for Pledgor and Secured Party to enter into a business relationship, that Pledgor and Secured Party have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related 31 future dealings. Pledgor and Secured Party further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 28. Counterparts. This Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. SECTION 29. Temporary Override. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, INCLUDING, WITHOUT LIMITATION, THE DEFINITION OF THE TERM "PERMITTED INVESTMENTS" IN SECTION 1 HEREOF, IT IS UNDERSTOOD AND AGREED BY THE PARTIES HERETO THAT SO LONG AS THE BANK OF NOVA SCOTIA SHALL BE THE SECURITIES INTERMEDIARY HEREUNDER, THE ONLY "PERMITTED INVESTMENTS" THAT MAY BE MADE UNDER THIS AGREEMENT ARE OVERNIGHT DEPOSITS AND TIME DEPOSITS WITH SCOTIABANK AND COMMERCIAL PAPER ISSUED BY SCOTIABANK. THIS SECTION OF THE AGREEMENT SHALL TERMINATE UPON THE APPOINTMENT OF A SUCCESSOR SECURITIES 32 INTERMEDIARY PURSUANT TO THE PROVISIONS OF SECTION 17 HEREOF. [Remainder of page intentionally left blank] 33 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first set forth above. PLEDGOR: ALADDIN GAMING HOLDINGS, LLC, a Nevada limited liability company By: By: /s/ Richard Goeglein ------------------------------ Name: Richard Goeglein Title: CEO & President Notice Address: Aladdin Gaming, LLC 3667 Las Vegas Boulevard South Las Vegas, Nevada 89109 Telecopier No.: (702) 736-7107 Attention: Chief Executive Officer With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates 919 Third Avenue New York, New York 10022 Telecopier No. (212) 735-3000 Attention: Wallace L. Schwartz, Esq. S-1 SECURITIES INTERMEDIARY: THE BANK OF NOVA SCOTIA, a Canadian chartered bank, as Securities Intermediary By: /s/ Alan Pendergast ------------------------------- Alan Pendergast Title: Relationship Manager Notice Address: The Bank of Nova Scotia 580 California Street San Francisco, CA 94104 Attention: Alan Pendergast Relationship Manager Facsimile Number: (415) 397-0791 with a copy to: The Bank of Nova Scotia 600 Peachtree Street, N.E. Atlanta, GA 30308 Attention: Marianne Velker Facsimile Number: (404) 888-8998 S-2 SECURED PARTY: THE BANK OF NOVA SCOTIA, a Canadian chartered bank, as Disbursement Agent under the Disbursement Agreement By: /s/ Alan Pendergast ------------------------------- Alan Pendergast Title: Relationship Manager Notice Address: The Bank of Nova Scotia 580 California Street San Francisco, CA 94104 Attention: Alan Pendergast Relationship Manager Facsimile Number: (415) 397-0791 with a copy to: The Bank of Nova Scotia 600 Peachtree Street, N.E. Atlanta, GA 30308 Attention: Marianne Velker Facsimile Number: (404) 888-8998 S-3 EXHIBIT A To Holdings Collateral Account Agreement DEFINITIONS Exhibit A-1 EX-10.13 10 EXHIBIT 10.13 CREDIT AGREEMENT [EXECUTION COPY] U.S. $410,000,000 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. Arranged By: The Bank of Nova Scotia Merrill Lynch Capital Corporation CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of February 26, 1998, 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 ("Scotiabank"), as administrative agent (in such capacity, the "Administrative Agent") for the Lenders, MERRILL LYNCH CAPITAL CORPORATION ("Merrill Lynch"), as syndication agent (in such capacity, the "Syndication Agent") for the Lenders, and CIBC OPPENHEIMER CORP. ("CIBC"), as documentation agent (in such capacity, the "Documentation Agent") for the Lenders. W I T N E S S E T H: WHEREAS, 100% of the Borrower Common Membership Interests (such term and other capitalized terms being used herein with the meanings provided in Section 1.1) are owned by Holdings, which, in turn, (x) to the extent of 72% of its common Membership Interests is owned indirectly through Sommer Enterprises, Enterprises and AHL by the Trust, (y) to the extent of 25% of its common Membership Interests is owned indirectly through LCNI and London Clubs Holdings by London Clubs and (z) to the extent of 3% of its common Membership Interests is owned by GAI, LLC; and WHEREAS, 100% of the Borrower Series A Preferred Membership Interests are owned by Holdings; and WHEREAS, the Borrower owns all of the outstanding common Membership Interests of AMH, which is anticipated to own 49% of the common Membership Interests of Aladdin Music, the remaining 51% of the Aladdin Music common Membership Interests are anticipated to be owned directly by Planet Hollywood (Boston) Inc., which is a direct, wholly-owned Subsidiary of Planet Hollywood; and WHEREAS, Borrower owns a site (the "Site") totaling approximately 35.16 acres at Las Vegas Boulevard and Harmon Avenue in Clark County, Nevada on which it intends to demolish the existing Aladdin hotel and casino (but leaving the existing Theater for the Performing Arts intact) and to develop and construct a new resort, casino and entertainment complex (the "Complex"), including: (a) a luxury themed hotel and casino (the "Hotel/Casino") to be known as the "Aladdin Hotel and Casino" consisting of a hotel of approximately 2,600 rooms (the "Hotel"), an approximately 116,000 square foot casino (the "Casino"), a 1,400 seat production showroom and seven restaurants, all of which will be developed, constructed, owned and operated by the Borrower on the Main Project Parcel as more particularly described in Exhibit N-3 hereto (the Hotel/Casino collectively with the Theater and the Energy Project Component, the "Main Project"); (b) a themed entertainment shopping mall with approximately 462,000 square feet of retail space (the "Desert Passage") and an approximately 4,800 space car parking facility (the "Carpark", and collectively with the Desert Passage, the "Mall Project"), both to be developed, constructed, owned and operated by Aladdin Bazaar on the Mall Project Parcel as more particularly described in Exhibit N-4 hereto; (c) a second hotel and casino complex with a music and entertainment theme (the "Music Project") to be developed, constructed and operated by Aladdin Music on the Music Project Parcel as more particularly described in Exhibit N-5 hereto; (d) a 7,000 seat theater (the "Theater") currently known as "The Aladdin Theater for the Performing Arts" to be leased by the Borrower to, and to be renovated and operated by, Aladdin Music in accordance with the Theater Lease; and (e) a facility (the "Energy Project") to provide electricity, chilled water and hot water to the Complex which will be constructed, owned and operated by the Energy Project Provider; and WHEREAS, the Borrower expects to fund the costs to construct the Hotel/Casino Component and pay for the Equipment Component and the Borrower's expenses, if any, with respect to the Energy Project Component, which are expected pursuant to the Main Project Budget to cost $724,000,000 in the aggregate, by (a) obtaining from Holdings in consideration for common membership interests of the Borrower (x) the Site which has a net equity value (the "Land Equity") of $67,000,000, based on an appraised value of $135,000,000 (after giving effect to the release of the portion of the Site required for the Mall Project and the Music Project) and the discharge of all Indebtedness secured thereby of $68,000,000, (y) the benefit of pre-development Main Project Costs of at least $7,000,000 and (z) a portion of the London Clubs Contribution in the amount of $42,000,000; (b) obtaining from Holdings in consideration for Series A Preferred Membership Interest of the Borrower, the amount of $115,047,100, representing the proceeds received by Holdings, Capital and Enterprises from the issuance of the Discount Notes and Warrants in an aggregate amount of $107,047,100 pursuant to the Discount Note Purchase Agreement and a portion of the London Clubs Contribution in the amount of $8,000,000; and 2 (c) obtaining from GECC pursuant to the Approved Equipment Funding Commitment a $60,000,000 capitalized lease and $20,000,000 in purchase money loans covering the Gaming Equipment and the Specified Equipment; and (d) obtaining Commitments from the Lenders in an aggregate amount of $410,000,000, all as further described in the following recital; and WHEREAS, the Borrower desires to obtain (a) Term A Loan Commitments from the Term A Lenders pursuant to which the Borrower may, from time to time on and after the Effective Date and prior to the Term A Loan Commitment Termination Date, obtain (i) from the Issuer, Letters of Credit in a maximum aggregate Stated Amount at any time outstanding not to exceed $20,000,000, and (ii) from the Term A Lenders, Borrowings of the Term A Loans, all subject, however, to the limitation that the sum at any time of (x) the aggregate original principal amount of all Term A Loans plus (y) the aggregate Stated Amount of outstanding Letters of Credit shall not exceed $136,000,000; (b) Term B Loan Commitments from the Term B Lenders pursuant to which a single Borrowing of Term B Loans in a maximum original principal amount of $114,000,000 shall be made by the Borrower on the Closing Date; and (c) Term C Loan Commitments from the Term C Lenders pursuant to a single Borrowing of Term C Loans in a maximum original principal amount of $160,000,000 shall be made by the Borrower on the Closing Date; and WHEREAS, the Lenders and the Issuer are willing, on the terms and subject to the conditions hereinafter set forth (including Article V), to enter into such Commitments and make such Loans to the Borrower and issue (or participate in) such Letters of Credit for the account of the Borrower; and WHEREAS, the proceeds of (a) the Loans will be applied (x) towards the Main Project Costs in respect of which such Loans were advanced by the Lenders, (y) prior to the Conversion Date, for payments of interest in respect of the Loans made hereunder and (z) in the case of Term A Loans, in addition to the foregoing purposes, towards the payment of reimbursement obligations arising from drawn Letters of Credit; and 3 (b) Letters of Credit will be issued for the account of the Borrower if required as a deposit by suppliers and/or contractors providing materials to the Main Project; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms (whether or not italicized) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "ABH" means Aladdin Bazaar Holdings, LLC, a Nevada limited-liability company. "Account" is defined in the Disbursement Agreement. "Additional Contract Certificate" means an Additional Contract Certificate substantially in the form of Exhibit Y hereto. "Administrative Agent" is defined in the preamble and includes each other Person as shall have subsequently been appointed as the successor Administrative Agent pursuant to Section 9.4. "Advance" is defined in the Disbursement Agreement. "Affected Lender" is defined in clause(a) of Section 4.11. "Affiliate" means, relative to any Person, any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding, however, any trustee under, or any committee with responsibility for administering, any Plan). With respect to any Lender, Approved Fund, or Issuer, a Person shall be deemed to be "controlled by" another Person if such other Person possesses, directly or indirectly, power to vote 51% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors, managing general partners or managers, as the case may be. With respect to all other Persons, a Person shall be deemed to be "controlled by" another Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors, managing general partners or managers, as the case may be; or 4 (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Affiliate Transaction" is defined in Section 7.2.13. "Agent" means the Administrative Agent, the Syndication Agent and/or the Documentation Agent, as the context may require. "Agreement" means, on any date, this Credit Agreement as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified. "AHL" means Aladdin Holdings, LLC, a Delaware limited liability company. "AHL Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of AHL pursuant to clause (d) of Section 5.1.3, as originally in effect on the Closing Date, in substantially the form of Exhibit E-2 hereto and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Aladdin Bazaar" means Aladdin Bazaar, LLC, a Delaware limited liability company. "Aladdin Music" means Aladdin Music, LLC, a Nevada limited-liability company. "Aladdin Parties" means, collectively, the Borrower, Holdings, Capital, Enterprises, Sommer Enterprises, AHL, Aladdin Music, AMH, ABH and the Trust. "Alternate Base Rate" means, on any date and relative to all Base Rate Loans, a fluctuating rate of interest per annum (rounded upward, if necessary, to the next highest 1/16 of 1%) equal to the higher of (a) the Base Rate in effect on such day; and (b) the Federal Funds Rate in effect on such day plus 1/2 of 1%. Changes in the rate of interest on that portion of any Loans maintained as Base Rate Loans will take effect simultaneously with each change in the Alternate Base Rate. The Administrative Agent will give notice promptly to the Borrower and the Lenders of changes in the Alternate Base Rate. "AMH" means Aladdin Music Holdings, LLC, a Nevada limited-liability company. 5 "AMH Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of AMH pursuant to clause (g) of Section 5.1.3, as originally in effect on the Closing Date, in substantially the form of Exhibit E-3 hereto and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Anticipated Earnings" is defined in the Disbursement Agreement. "Applicable Base Rate Margin" means, (w) relative to any Term B Loan and Term C Loan, the proceeds of which on any date are being held in the Bank Proceeds Account, 1.00% per annum, (x) relative to any Term B Loan, the proceeds of which on any date have been advanced to the Borrower from the Bank Proceeds Account, 2.50% per annum, (y) relative to any Term C Loan, the proceeds of which on any date have been advanced to the Borrower from the Bank Proceeds Account, 3.00% per annum and (z) relative to any Term A Loan, (1) on any date prior to the date which is six months after the Conversion Date, 2.00% per annum and (2) on any date from and after the date which is six months after the Conversion Date, the per annum percentage set forth below opposite the Total Debt to EBITDA Ratio set forth in the Current Compliance Certificate:
Total Debt to EBITDA Ratio Applicable Base Rate Margin - -------------------------- --------------------------- greater than or equal to 4.0:1 1.75% greater than or equal to 3.5:1 and < 4.0:1 1.50% greater than or equal to 3.0:1 and < 3.5:1 1.00% greater than or equal to 2.5:1 and < 3.0:1 0.75% < 2.5:1 0.50%
"Applicable LIBO Rate Margin" means, (w) relative to any Term B Loan and Term C Loan, the proceeds of which on any date are being held in the Bank Proceeds Account, 2.00% per annum, (x) relative to any Term B Loan, the proceeds of which on any date have been advanced to the Borrower from the Bank Proceeds Account, 3.50% per annum, (y) relative to any Term C Loan, the proceeds of which on any date have been advanced to the Borrower from the Bank Proceeds Account, 4.00% per annum and (z) relative to any Term A Loan, (1) on any date prior to the date which is six months after the Conversion Date, 3.00% per annum and (2) on any date from and after the date which is six months after the Conversion Date, the per annum percentage set forth below opposite the Total Debt to EBITDA Ratio set forth in the Current Compliance Certificate: 6
Total Debt to EBITDA Ratio Applicable LIBO Rate Margin - -------------------------- --------------------------- greater than or equal to 4.0:1 2.75% greater than or equal to 3.5:1 and < 4.0:1 2.50% greater than or equal to 3.0:1 and < 3.5:1 2.00% greater than or equal to 2.5:1 and < 3.0:1 1.75% < 2.5:1 1.50%
"Applicable Percentage" means the percentage of Direct Costs actually paid or payable by the Borrower to the Design/Builder pursuant to the Design/Build Contract or, if applicable, to a Contractor or Subcontractor pursuant to a Contract after taking into account the Retainage Amount. "Approved Equipment Funding Commitment" means, collectively, (x) the GECC Commitment and (y) any replacement of the GECC Commitment from an institutional or other lender approved by the Administrative Agent in its reasonable discretion if (1) such commitment is in form and substance reasonably satisfactory to the Administrative Agent and does not include any material conditions to funding that are not included in the GECC Commitment and (2) the lender providing such commitment executes an intercreditor agreement substantially similar to the GECC Intercreditor Agreement. "Approved Fund" means, relative to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Appurtenant Rights" means (x) all agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits at any time belonging or pertaining to the Site or the Improvements, including the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to the Site and (y) all permits, licenses and rights, whether or not of record, appurtenant to the Site. "Architect of Record" means ADP/FD of Nevada, Inc. "Architect's Agreement" means, collectively, the agreements pursuant to which architects, engineers and other design professionals have agreed with the Borrower to provide services in connection with the Main Project. "Architect's Closing Certificate" means a closing certificate in the form of Exhibit Q-3 hereto. 7 "Arranger" means Scotiabank or Merrill Lynch. "Arrangers' Fee Letter" means the confidential letter agreement, dated December 4, 1997, among the Borrower, the Sponsors and the Arrangers. "Assignee Lender" is defined in Section 10.11.1. "Assignment of Contracts" means an assignment of any and all contracts, agreements, proposals, Permits (to the extent such Permits are assignable), approvals (to the extent such approvals are assignable), Plans and Specifications pertaining to the Hotel/Casino Component, whether now existing or subsequently entered into by the Borrower, including the Approved Equipment Funding Commitments and the rights of the Borrower thereunder, management contracts, the Contracts, development rights, consents (to the extent assignable), architectural, engineering and leasing documents and such other documents as may be designated by the Administrative Agent. Such Assignment of Contracts shall include appropriate continuation agreements by the Contractors and/or Subcontractors thereunder. "Assignment of Consulting Agreement" means, on any date, the Assignment of Consulting Agreement, as originally in effect on the Closing Date, between the Borrower, AHL and the Administrative Agent and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Assignment of Design/Build Contract" means, on any date, the Assignment of Design/Build Contract, as originally in effect on the Closing Date, between the Borrower and the Administrative Agent and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Assignment of Project Management Agreement" means, on any date, the Assignment of Project Management Agreement, as originally in effect on the Closing Date, between AHL and the Administrative Agent and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Assignment of Salle Privee Agreement" means, on any date, the Assignment of Salle Privee Agreement, as originally in effect on the Closing Date, between the Borrower and the Administrative Agent and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Authorized Representative" means, relative to any Person, those of its officers or managing members (in the case of a limited liability company) whose signatures and incumbency shall have been certified to the Administrative Agent and the Lenders in a certificate of such Person delivered to the Administrative Agent. 8 "Available Funds" means, from time to time, the sum of (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 Disbursement 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. "Bank Credit Facility" means the Term A Loan Commitment, the Term B Loan Commitment and the Term C Loan Commitment. "Bank Proceeds Account" means the account established by the Borrower with the Disbursement Agent pursuant to the Borrower Collateral Account Agreement into which the proceeds of the Loans shall be deposited by the Administrative Agent from time to time. "Base Rate" means, at any time, the rate of interest then most recently established by the Administrative Agent in New York, New York as its base rate for U.S. dollars loaned in the United States. The Base Rate is not necessarily intended to be the lowest rate of interest determined by the Administrative Agent in connection with extensions of credit. "Base Rate Loan" means a Loan bearing interest at a fluctuating rate determined by reference to the Alternate Base Rate. "Board of Managers" means (x) for so long as the Borrower is a limited-liability company, the Board of Managers appointed pursuant to the Organizational Documents of the Borrower or (y) otherwise, the Board of Directors of the Borrower. "Borrower" is defined in the preamble. 9 "Borrower Collateral Account Agreement" means, on any date, the Borrower Collateral Account Agreement, as originally in effect on the Closing Date, among the Borrower, the Disbursement Agent and the Securities Intermediary and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Borrower Common Membership Interest" means a Common Share as defined in the Organizational Documents of the Borrower. "Borrower Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of the Borrower pursuant to clause (f) of Section 5.1.3, as originally in effect on the Closing Date, in substantially the form of Exhibit E-1 hereto and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Borrower Series A Preferred Membership Interests" means the Series A Preferred Shares as defined in the Organizational Documents of the Borrower. "Borrower's Closing Certificate" means a closing certificate in the form of Exhibit Q-1 hereto. "Borrower's Completion Certificate" means a certificate in the form of Exhibit S-1 hereto. "Borrower's Final Completion Certificate" means a certificate in the form of Exhibit U-1 hereto. "Borrower's Funds Account" is defined in the Borrower Collateral Account Agreement. "Borrowing" means the Loans of the same type and, in the case of LIBO Rate Loans, having the same Interest Period made by all Lenders required to make such Loans on the same Business Day and pursuant to the same Borrowing Request in accordance with Section 2.1. "Borrowing Request" means a Loan request and certificate duly executed by an Authorized Representative of the Borrower substantially in the form of Exhibit L-1 hereto. "Building Department" means the Clark County Building Department. "Business Day" means (a) any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in Las Vegas, Nevada or New York, New York; and 10 (b) relative to the making, continuing, prepaying or repaying of any LIBO Rate Loans, any day described in clause (a) on which dealings in Dollars are carried on in the London interbank eurodollar market. "Capital" means Aladdin Capital Corp., a Nevada corporation. "Capital Expenditures" means, for any period, the aggregate amount of all expenditures (other than any residual purchase payments under the FF&E Leases) of the Borrower and the other Aladdin Parties for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as capital expenditures. "Capital Stock" means, relative to any Person, any and all shares, interests (including Membership Interests), participations or other equivalents (however designated, whether voting or non-voting) of such Person's capital, whether now outstanding or issued after the Effective Date. "Capitalized Lease Liability" means, relative to any Person, any monetary obligation of such Person under any leasing or similar arrangement which, in accordance with GAAP, would be classified as a capitalized lease, and, for purposes of this Agreement and each other Loan Document, the amount of such obligation shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a premium or a penalty. "Carpark" is defined in clause (b) of the fourth recital. "Cash Contributions to Capital" means optional contributions (other than Cash Equity Contributions as defined in the Keep-Well Agreement), including to cure a Default that would otherwise exist under the Loan Documents, made by the Sponsors in cash to the Borrower, which contributions were (x) not made as a loan, (y) made in exchange for Borrower Series A Preferred Membership Interests and (z) made on terms and conditions satisfactory to the Administrative Agent as determined on good faith in its sole discretion. "Cash Equivalent Investment" means, at any time, (u) United States Dollars, (v) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (w) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (x) repurchase obligations with a term of not more than seven days for underlying securities of the types described in item (v) and (w) entered into with any financial institution 11 meeting the qualifications specified in item (w), (y) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition and (z) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in items (w)-(y) of this definition. "Cash Management Account" is defined in the Disbursement Agreement. "Casino" is defined in clause (a) of the fourth recital. "CERCLA" is defined in clause (a) of the definition of "Environmental Law". "CERCLIS" means the Comprehensive Environmental Response Compensation Liability Information System List. "Change in Control" means at any time, (a) the failure of the Trust or the beneficiaries or remaindermen of the Trust to (i) directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), all of (A) the Membership Interests of AHL not otherwise owned by GW Vegas, LLC on the Effective Date or (B) following the dissolution of the Trust and AHL, the Membership Interests of Sommer Enterprises not otherwise owned by Ronald B. Dictrow on the Effective Date or (ii) otherwise have the ability to elect the managers of (A) AHL or (B) following the dissolution of the Trust and AHL, Sommer Enterprises; (b) the failure of AHL or following the dissolution of the Trust and AHL, the beneficiaries or remaindermen of the Trust to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), 98.66% of the Membership Interests of Sommer Enterprises or otherwise have the ability to elect the managers of Sommer Enterprises; (c) the failure of Sommer Enterprises to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), 47.00% of the Membership Interests of Holdings (except that (v) on the Opening Date, the percentage interest of Sommer Enterprises in the Holdings Common Membership Interests may be increased by 0.5% provided that the percentage interest of LCNI therein is decreased by a corresponding amount (w) in the event of a default by London Clubs in payment of its share of amounts due under the Keep-Well Agreement, the percentage interest of Sommer Enterprises in the Holdings Common Membership Interests may be increased by 1, 1.5 or 2 times (depending on whether London Clubs is in default for 30 Business Days, 45 Business Days or 60 Business Days from the date of such default, respectively) multiplied by a dilution fraction (the "Dilution Fraction"), the 12 numerator of which is the delinquent contribution and the denominator of which is $200,000,000 provided that the percentage interest of LCNI therein is decreased by a corresponding amount, (x) in the event of a default by AHL in its share of amounts due under the Keep-Well Agreement, the percentage interest of LCNI in the Holdings Common Membership Interests may be increased by 1, 1.5 or 2 times (depending on whether AHL is in default for 30 Business Days, 45 Business Days or 60 Business Days from the date of such default, respectively) multiplied by the Dilution Fraction provided that the percentage interest of Sommer Enterprises therein is decreased by a corresponding amount), (y) in the event of any vesting of any unvested Membership Interests in Holdings pursuant to an Employment Agreement, Sommer Enterprises may be diluted thereby and (z) upon the exercise of the Warrants, the dilutive effect of such exercise directly and indirectly on the Membership Interests in Holdings) or otherwise for Sommer Enterprises and LCNI to have the ability to elect the board of managers of Holdings or for either of them to have the ability individually or collectively to elect the board of managers of Holdings; (d) except for Capital Stock of Enterprises issued in connection with the exercise of Warrants, the failure of Sommer Enterprises to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), all of the Capital Stock of Enterprises or otherwise have the ability to elect the members of the Board of Directors of Enterprises; (e) the failure of Enterprises to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), at least 25% of the Membership Interests of Holdings (except for any adjustments upon the exercise of any Warrants) or individually or collectively with Sommer Enterprises and LCNI to have the ability to elect the managing member of Holdings; (f) the failure of Holdings to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), all of the Borrower Common Membership Interests or otherwise to have the ability to elect the managing member of the Borrower; (g) the failure of Holdings to directly own, free and clear of all Liens (other than Liens in favor of the Discount Note Indenture Trustee for the benefit of the Discount Noteholders), the Borrower Series A Preferred Membership Interests unless the failure to own the Borrower Series A Preferred Membership Interests results from the exercise by the Discount Note Indenture Trustee of the Lien in favor of the Discount Note Indenture Trustee for the benefit of the Discount Noteholders; (h) the failure of Holdings to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), all of 13 the Capital Stock of Capital or otherwise have the ability to elect all of the members of the Board of Directors of Capital; (i) the failure of the Borrower to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), all of the Membership Interests of AMH or otherwise to have the ability to elect the managing member of AMH; (j) the failure of AMH to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), at least 49% of the Membership Interests of Aladdin Music or otherwise to have the ability to elect the managing member of Aladdin Music; (k) the failure of LCNI to directly own, free and clear of all Liens (other than Liens in favor of the Administrative Agent for the benefit of the Secured Parties), at least 25.0% of the Holdings Common Membership Interests (except that (v) on the Opening Date, the percentage interest of LCNI in the Holdings Common Membership Interests may be decreased by 0.5% provided that the percentage interest of Sommer Enterprises therein is increased by a corresponding amount (w) in the event of a default by Sommer Enterprises in payment of its share of amounts due under the Keep-Well Agreement, the percentage interest of LCNI in the Holdings Common Membership Interests may be increased by 1, 1.5 or 2 times (depending on whether Sommer Enterprises is in default for 30 Business Days, 45 Business Days or 60 Business Days from the date of such default, respectively) multiplied by the Dilution Fraction, provided that the percentage interest of Sommer Enterprises therein is decreased by a corresponding amount, (x) in the event of a default by LCNI in payment of its share of amounts due under the Keep-Well Agreement, the percentage interest of Sommer Enterprises in the Holdings Common Membership Interests may be increased by 1, 1.5 or 2 times (depending on whether LCNI is in default for 30 Business Days, 45 Business Days or 60 Business Days from the date of such default, respectively) multiplied by the Dilution Fraction provided that the percentage interest of LCNI is decreased by a corresponding amount) and (y) in the event of any vesting of unvested membership interests in Holdings pursuant to an Employment Agreement, LCNI may be diluted thereby and (z) upon the exercise of the Warrants, the dilutive effect of such exercise directly and indirectly on the Membership Interest of Holdings) or otherwise for LCNI and Sommer Enterprises to have the ability to elect the board of managers of Holdings; (l) until such time as London Clubs has paid and performed, in all material respects, its obligations under the Completion Guaranty and the Keep-Well Agreement (or the Completion Guaranty and the Keep-Well Agreement have expired or terminated), the failure of London Clubs to directly own all of the Capital Stock of London Clubs Holdings or otherwise have the ability to elect all members of the Board of Directors of London Clubs Holdings; 14 (m) the failure of London Clubs to own directly or indirectly all of the Capital Stock of LCNI or otherwise have the ability to elect all members of the Board of Directors of LCNI; or (n) any "Change of Control" under (and as defined in) the Discount Note Indenture. "Change Order" means, at any time, an adjustment made to the Guaranteed Maximum Price or the Design/Build Contract Time with respect to changes in the Work which increase or decrease the time of performance or the actual cost to the Design/Builder of the Work. "CIBC" is defined in the preamble. "Claim" is defined in the Disbursement Agreement. "Clark County Code" is defined in clause (b) of Section 7.1.19. "Closing" is defined in Section 5.1. "Closing Date" means the Business Day, if any, prior to the Term B and Term C Loan Commitment Termination Date, on which the conditions in Article V are satisfied. "Code" means the Internal Revenue Code of 1986, and the regulations thereunder, in each case as amended, reformed or otherwise modified from time to time. "Commitment" means, as the context may require, a Term A Loan Commitment, a Term B Loan Commitment, a Term C Loan Commitment or a Letter of Credit Commitment made by a Lender hereunder. "Commitment Amount" means, as the context may require, the Term A Loan Commitment Amount, the Term B Loan Commitment Amount, the Term C Loan Commitment Amount or the Letter of Credit Commitment Amount. "Commitment Letter" means the Commitment Letter, dated December 4, 1997, between the Arrangers, the Borrower and the Sponsors as thereafter from time to time amended. "Commitment Termination Date" means, as the context may require, the Term A Loan Commitment Termination Date or the Term B Loan and Term C Loan Commitment Termination Date. "Commitment Termination Event" means 15 (a) the occurrence of any Event of Default described in clauses (a) through (e) of Section 8.1.10; or (b) the occurrence and continuance of any other Event of Default and either (x) the declaration of all or any portion of the Loans to be immediately due and payable pursuant to Section 8.3 or (y) the giving of notice by the Administrative Agent, acting at the direction of the Required Lenders, to the Borrower that the Commitments have been terminated. "Common Parking Area Use Agreement" means, the Common Parking Area Use Agreement to be entered into between the Borrower and Aladdin Bazaar in form and substance satisfactory to the Administrative Agent determined in good faith in its sole discretion, and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Completion" means that each of the following has occurred: (a) the construction of the Hotel/Casino and any Tenant Improvements have been completed substantially in accordance with this Agreement, the Plans and Specifications, the provisions of the Reciprocal Easement Agreement applicable to the Hotel/Casino and all of the other Operative Documents to the extent that the development, construction, use or operation of the Hotel/Casino are affected thereby, except for the Main Project Punchlist Items applicable to the Hotel/Casino, and in substantial compliance with all Legal Requirements pertaining to the construction of the Hotel/Casino so as to allow the Hotel/Casino to be utilized for its intended purpose; (b) reasonable and safe means of access and facilities necessary for the use and occupancy of the Hotel/Casino have been installed and are operational including corridors, elevators, stairways, heating, ventilation, air conditioning, sanitary, water and electrical facilities and all security systems and life safety systems required by the Plans and Specifications, the Reciprocal Easement Agreement, the other Operative Documents and all Legal Requirements and that the Borrower has made arrangements (from the Energy Project or an alternative source) to obtain reliable electrical and other utility services at appropriate levels required to start up, operate and maintain the Hotel/Casino in a safe, efficient and reliable manner; and (c) there are no outstanding claims or Liens by any Contractor or Subcontractor or any other Person against any portion of the Hotel/Casino Component except for Permitted Liens and Permitted Encumbrances. "Completion Certificate" means, collectively, the Borrower's Completion Certificate and the Construction Consultant's Completion Certificate in the form of Exhibits S-1 and S-2 hereto, respectively. 16 "Completion Date" means the date on which Completion occurs but in no event shall the Completion Date extend beyond the Outside Completion Deadline, time being of the essence as to the Borrower. "Completion Guarantor" means, jointly and severally, each of London Clubs, ABH and the Trust. "Completion Guaranty" means, on any date, the Guaranty of Performance and Completion, as originally in effect on the Closing Date, by the Completion Guarantors in favor of the Lenders substantially in the form of Exhibit C hereto and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Complex" is defined in the fourth recital and is more fully described in Exhibit N-2 hereto. "Compliance Certificate" means a certificate duly completed and executed by an Authorized Representative of the Borrower substantially in the form of Exhibit R hereto, as amended, supplemented, amended and restated or otherwise modified from time to time, together with such changes thereto as the Administrative Agent may from time to time reasonably request for the purpose of monitoring the Borrower's compliance with the financial covenants contained herein. "Consent" means a consent, substantially in the form of Exhibit I hereto, to the collateral assignment by the Borrower of the Main Project Documents. "Construction Benchmark Schedule" means the schedule for construction and completion of each Construction Component, the Main Project as a whole and the other work that the Borrower is required to perform pursuant to the Operative Documents substantially the form of Exhibit X-1 (as amended from time to time in accordance with the terms hereof) which (w) shall demonstrate that Substantial Completion will occur on or before the Outside Completion Deadline, (x) includes a statement from the Owner Representative and the Design/Builder that the Construction Benchmark Schedule is realistic and can be adhered to (subject to Force Majeure Events) in completing the Main Project in accordance with the Plans and Specifications, (y) shows on a monthly basis the anticipated progress of the Work and other activities pertaining to the construction of the Hotel/Casino Component, the Energy Project Component and Theater renovations, and (z) the Construction Consultant has reviewed and certified in the Construction Consultant's Closing Certificate that the statement from the Owner Representative in item (x) is reasonable and that it is appropriate for the Administrative Agent to rely thereon and on the other schedules and benchmarks set forth in the Construction Benchmark Schedule. "Construction Component" means the Hotel/Casino Component, the Energy Project Component or the Equipment Component. 17 "Construction Consultant" means Rider Hunt (NV), L.L.C. or any other Person designated from time to time by the Administrative Agent to serve as the Construction Consultant under this Agreement and the Disbursement Agreement. "Construction Consultant Engagement Agreement" means the Engagement Letter, dated as of January 28, 1998, by and among the Construction Consultant, the Borrower, the Administrative Agent, the Disbursement Agent and the Discount Note Indenture Trustee. "Construction Consultant's Certificate" is defined in the Disbursement Agreement. "Construction Consultant's Closing Certificate" means a closing certificate in the form of Exhibit Q-2 hereto. "Construction Consultant's Completion Certificate" means a certificate in the form of Exhibit S-2 hereto. "Construction Consultant's Final Completion Certificate" means a certificate in the form of Exhibit U-2 hereto. "Construction Consultant's Report" means a report of the Construction Consultant delivered to the Disbursement Agent and the Administrative Agent pursuant to Section 3.1.10 of the Disbursement Agreement which shall include an analysis of the Plans and Specifications, the Main Project Budget, the Construction Benchmark Schedule, the Contracts, to the extent available, the construction and renovation of the Theater the construction of the Energy Project to be performed by the Energy Provider under the Energy Project Ground Lease and the Energy Project Development Agreement, and all other reports submitted to the Administrative Agent and stating, among other things, that (x) the Construction Consultant has reviewed the Main Project Documents, the Plans and Specifications, and other material information deemed necessary by the Construction Consultant for the purpose of evaluating whether the Main Project can be constructed and completed in the manner contemplated by the Operative Documents and (y) based on its review of such information, the Construction Consultant is of the opinion that the Main Project can be constructed in the manner contemplated by the Operative Documents and, in particular, that the Main Project can be constructed and completed in accordance with the Main Project Documents and the Plans and Specifications within the parameters set by the Construction Benchmark Schedule and the Main Project Budget. Such report shall contain an analysis reasonably satisfactory to the Administrative Agent demonstrating the adequacy of the Main Project Budget to complete the Main Project (and any improvements to be completed by the Borrower pursuant to the Reciprocal Easement Agreement) in accordance with the Construction Benchmark Schedule, confirmation that the Construction Benchmark Schedule is realistic, and verifying that the information delivered by the Borrower relating to the Complex and any improvements to be completed by the Borrower pursuant to the Reciprocal Easement Agreement are accurate. 18 "Construction Expenses" means all Main Project Costs, excluding, however, Pre-Opening Expenses, Debt Service due and payable after the Conversion Date and Issuance Fees and Expenses. "Construction Note Disbursement Account" is defined in the Holdings Collateral Account Agreement. "Contingent Liability" means, relative to any Person, any agreement, undertaking or arrangement by which such Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the Indebtedness of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount of the debt, obligation or other liability guaranteed thereby. "Continuation/Conversion Notice" means a notice of continuation or conversion and certificate duly executed by an Authorized Representative of the Borrower substantially in the form of Exhibit M hereto. "Contract" means any contract entered into from time to time by the Borrower with any Contractor for performance of services or sale of goods or services in connection with the design, engineering, installation, construction, operation or maintenance of the Main Project, including all warranties and guarantees. "Contract Amendment Certificate" means a Contract Amendment Certificate substantially in the form of Exhibit Z hereto. "Contractor" means any architect, consultant, designer, contractor, subcontractor, supplier, laborer or any other Person engaged by the Borrower in connection with the design, engineering, installation and construction of the Main Project (excluding, however, the Design/Builder). "Controlled Group" means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Conversion Date" means the date on which either of the following first occurs: 19 (a) the relevant Governmental Instrumentality issues a Main Project Certificate of Occupancy (which must include appropriate parking facilities) and operating permit for the Energy Project; or (b) the Administrative Agent and the Construction Consultant determine that Completion of the Main Project has occurred. "Credit Extension" means, as the context may require, (a) the making of a Loan by a Lender; or (b) the issuance of any Letter of Credit, or the extension of any Stated Expiry Date of any existing Letter of Credit, by an Issuer. "Credit Extension Request" means, as the context may require, any Borrowing Request or Letter of Credit Issuance Request. "Current Compliance Certificate" means the Compliance Certificate most recently delivered by the Borrower to the Administrative Agent pursuant to clause (d) of Section 7.1.1. Changes in the Applicable Base Rate Margin or Applicable LIBO Rate Margin resulting, after the Conversion Date, from a change in the Total Debt to EBITDA Ratio shall become effective upon delivery by the Borrower to the Administrative Agent of a new Compliance Certificate pursuant to clause (d) of Section 7.1.1. If the Borrower shall fail to deliver a Compliance Certificate within the number of days after the end of any Fiscal Quarter as required pursuant to clause (d) of Section 7.1.1 (without giving effect to any grace period), the Applicable Base Rate Margin or Applicable LIBO Rate Margin, as the case may be, from and including the first day after the date on which such Compliance Certificate was required to be delivered to but not including the date the Borrower delivers to the Administrative Agent a Compliance Certificate shall conclusively equal the highest Applicable Base Rate Margin or Applicable LIBO Rate Margin, as the case may be, set forth in the definition of such term. "Debt Service" means all principal repayments or interest and other amounts payable or accrued from time to time under any Loan Document or the Approved Equipment Funding Commitments. "Deed of Trust" means, on any date, the Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing in the form of Exhibit B hereto, as originally in effect on the date on which it is recorded, made by the Borrower, as trustor, to the trustee named therein, for the benefit of the Administrative Agent and the Lenders, as beneficiaries covering the Site and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. 20 "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Defaulting Lender" means any Lender with respect to which a Lender Default is in effect. "Desert Passage" is defined in clause (b) of the fourth recital. "Design/Build Contract" means, on any date, the Design/Build Contract, as originally in effect on the Closing Date, between the Borrower and the Design/Builder and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Design/Build Contract Time" is defined in Section 14.1 of the Design/Build Contract. "Design/Builder" means Fluor Daniel, Inc., a California corporation. "Design/Builder Consent and Acknowledgment" means the Consent and Acknowledgment by the Design/Builder in favor of the Lenders and the Administrative Agent dated as of the Closing Date. "Design/Build Final Completion" means "Final Completion" as defined in Section 31.9 of the General Conditions annexed to the Design/Build Contract as Attachment D. "Development Agreement" means, on any date, the Aladdin Hotel & Casino Agreement, dated March 18, 1997, among Holdings, Aladdin Management Corporation and the County of Clark, as assigned by Holdings and Aladdin Management Corporation to the Borrower, and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Direct Costs" means all Main Project Costs expended or incurred by the Borrower for labor, services, materials, tools, utilities, equipment, fixtures and furnishings in connection with the construction of the Main Project all as set forth on the Main Project Budget. "Disbursement Agent" means Scotiabank, in its capacity as the disbursement agent under the Disbursement Agreement, and its successors in such capacity. "Disbursement Agreement" means, on any date, the Disbursement Agreement, as originally in effect on the Closing Date, among the Borrower, Holdings, the Administrative Agent, the Discount Note Indenture Trustee, the Disbursement Agent, the Servicing Agent and the Securities Intermediary and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. 21 "Disclosure Schedule" means the Disclosure Schedule attached hereto as Schedule I hereto, as it may be amended, supplemented, amended and restated or otherwise modified from time to time by the Borrower with the written consent of the Administrative Agent and the Required Lenders. "Discount Note" means the 131/2% Series A and B Senior Discount Notes due 2010 of Holdings and Capital issued on the Closing Date for gross proceeds of $115,000,000. "Discount Note Indenture" means, on any date, the Indenture relating to the Discount Notes, as originally in effect on the Effective Date, among Holdings, Capital and the Discount Note Indenture Trustee and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Discount Note Indenture Trustee" means State Street Bank and Trust Company, in its capacity as the indenture trustee for the Discount Noteholders under the Discount Note Indenture. "Discount Note Offering Circular" means the offering memorandum, dated February 14, 1998, with respect to the units, consisting of the Discount Notes offered by Holdings and Capital and the Warrants offered by Enterprises. "Discount Note Purchase Agreement" means the Purchase Agreement with respect to the Discount Notes and Warrants, dated as of February 18, 1998, among Holdings, Capital, Enterprises, AHL, the Trust and Merrill Lynch and First Boston (as representatives of the several initial purchasers). "Discount Noteholder" means the duly registered holder of a Discount Note. "Documentation Agent" is defined in the preamble. "Dollar" and the symbol "$" mean lawful money of the United States. "Downgraded Lender" is defined in clause(b) of Section 4.11. "EBITDA" means, for the Borrower only, for any applicable period, the sum (without duplication) of (a) Net Income for such period, plus (b) the amount deducted by the Borrower, in determining Net Income for such period, representing 22 (i) Interest Expense of the Borrower; plus (ii) the amount deducted, in determining Net Income, of all federal, state and local income taxes (whether paid in cash or deferred) of the Borrower or, if the Borrower is treated as a pass-through entity or is not treated as a separate entity for United States federal income tax purposes, the amount of Restricted Payments made by the Borrower in accordance with clause (c) of Section 7.2.6, subject to the terms thereof; plus (iii) depreciation of assets of the Borrower; plus (iv) amortization; plus (v) the amount of Cash Equity Contributions (as defined in the Keep-Well Agreement); plus (vi) the amount of Cash Contributions to Capital; provided, however, that in computing EBITDA for purposes of determining the "Total Debt to EBITDA Ratio" in clause (h)(i)(B) of Section 7.2.6 or the amount of "Excess Cash Flow", the "Applicable Base Rate Margin" or the "Applicable LIBO Rate Margin", subclauses (b)(v) and (b)(vi) shall be excluded from such computation; provided further, however, that in computing EBITDA for any period commencing on the Conversion Date and ending as of the close of any Fiscal Quarter on or prior to the first anniversary of the Conversion Date, EBITDA for such period shall equal the product of (x) the sum of the amounts determined pursuant to clauses (a) and (b) for such period multiplied by (y) a fraction, the numerator of which is equal to 365 and the denominator of which is equal to the number of days that have elapsed in such period. "Effective Date" means the date this Agreement becomes effective pursuant to Section 10.8. "Employment Agreement" means, collectively, (u) the Amended Employment and Consulting Agreement among Holdings, the Borrower and Richard J. Goeglein effective January 23 1, 1997, (v) the Amended Employment Agreement among Holdings, the Borrower and James H. McKennon effective April 15, 1997, (w) the Amended Employment Agreement among Holdings, the Borrower and Cornelius T. Klerk effective July 1, 1997, (x) the Amended Employment Agreement among Holdings, the Borrower and Lee A. Galati effective July 1, 1997, (y) the Amended Employment Agreement among Holdings, the Borrower and Jose A. Rueda effective July 1, 1997 and (z) the Amended Consulting Agreement between GAI, LLC, Holdings and the Borrower effective January 1, 1997. "Energy Project" is defined in clause (e) of the fourth recital. "Energy Project Commitment" means the commitment (as set forth in the letter agreement, dated October 21, 1997, between the Energy Project Provider and AHL) of the Energy Project Provider to enter into the Energy Project Ground Lease, the Energy Project Development Agreement and the Energy Project Service Agreement. "Energy Project Completion" means that (a) the construction of the Energy Project has been completed substantially in accordance with the Energy Project Ground Lease and the provisions of the Reciprocal Easement Agreement applicable to the Energy Project except for any punchlist items applicable to the Energy Project and in substantial compliance with all Legal Requirements pertaining to the construction of the Energy Project so as to allow the Energy Project to be utilized for its intended purposes; (b) reasonable and safe means of access and facilities necessary for the use and operation of the Energy Project have been installed and are operational; (c) the Borrower has certified to the Administrative Agent that (1) arrangements have been made to obtain reliable electric and other utility services at the appropriate levels required for the operation of the Hotel/Casino and, to the extent applicable, other parts of the Complex that are subject to the Energy Service Agreement, (2) all other conditions precedent in the Energy Project Ground Lease relating to construction, installation, start-up and test activities have been satisfied in all material respects, and (3) there are no outstanding claims or Liens by any contractor or subcontractor or any other Person against any portion of the Energy Project Component except for Permitted Liens and Permitted Encumbrances. "Energy Project Component" means the portion of the Complex described in Exhibit N-9 hereto. "Energy Project Development Agreement" means, on any date, the Development Agreement, as originally in effect on the Closing Date, between the Borrower and the Energy 24 Project Provider and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Energy Project Easements" means the easements appurtenant, easements in gross, license agreements and other right running for the benefit of the Energy Project Provider and/or appurtenant to the Energy Project Ground Lease, including those certain easements and licenses described in each Title Policy. "Energy Project Ground Lease" means, on any date, the Ground Lease, as originally in effect on the Effective Date, between the Borrower and the Energy Project Provider and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Energy Project Guarantor" means Unicom Corporation, an Illinois corporation. "Energy Project Guaranty" means the Guaranty, dated as of December 3, 1997, executed by the Energy Project Guarantor to and for the benefit of the Borrower and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Energy Project Provider" means Northwind Aladdin, LLC, a Nevada limited-liability company. "Energy Project Service Agreement" means, on any date, the Energy Services Agreement, as originally in effect on the Effective Date, between the Borrower and the Energy Project Provider and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Enterprises" means Aladdin Gaming Enterprises, Inc., a Nevada corporation. "Enterprises Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of Enterprises pursuant to clause (e) of Section 5.1.3, as originally in effect on the Closing Date, in substantially the form of Exhibit E-4 hereto and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Environmental Claim" means any and all obligations, liabilities, losses, administrative, regulatory or judicial actions, suits, demands, decrees, claims, liens, judgments, warning notices, notices of noncompliance or violation, investigations, proceedings, removal or remedial actions or orders, or damages (foreseeable and unforeseeable, including consequential and punitive damages), penalties, fees, out-of-pocket costs, expenses, disbursements, attorneys' or consultants' fees, relating in any way to any Environmental Law or any Permit issued under any such Environmental Law including (x) any and all Claims by Governmental Instrumentalities for 25 enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (y) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Substances or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Consultant" means ERM-Northeast, Inc., or any other Person designated from time to time by the Administrative Agent in its sole discretion to serve as the Environmental Consultant. "Environmental Indemnity" means, on any date, the Environmental Indemnity Agreement, as originally in effect on the Effective Date, from the Borrower, the Trust and London Clubs for the benefit of the Administrative Agent on behalf of the Lenders in the form of Exhibit K hereto and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Environmental Law" means any of: (a) the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.) ("CERCLA"); (b) the Federal Water Pollution Control Act (33 U.S.C. Section 1251, et seq.) ("Clean Water Act" or "CWA"); (c) the Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.) ("RCRA"); (d) the Atomic Energy Act of 1954 (42 U.S.C. Section 2011, et seq.); (e) the Clean Air Act (42 U.S.C. Section 7401, et seq.); (f) the Emergency Planning and Community Right to Know Act (42 U.S.C. Section 11001, et seq.); (g) the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136, et seq.) ("FIFRA"); (h) the Oil Pollution Act of 1990 (P.L. 101-380, 104 Stat. 486); (i) the Safe Drinking Water Act (42 U.S.C. Sections 300f, et seq.) ("SDWA"); (j) the Surface Mining Control and Reclamation Act of 1974 (30 U.S.C. Sections 1201, et seq.); 26 (k) the Toxic Substances Control Act (15 U.S.C. Section 2601, et seq.) ("TSCA"); (l) the Hazardous Materials Transportation Act (49 U.S.C. Section 1801, et seq.) ("HMTA"); (m) the Uranium Mill Tailings Radiation Control Act of 1978 (42 U.S.C. Section 7901, et seq.) ("UMTRCA"); (n) the Occupational Safety and Health Act (29 U.S.C. Section 651, et seq.) ("OSHA"); (o) the Nevada Hazardous Materials law (NRS Chapter 459); (p) the Nevada Solid Waste/Disposal of Garbage or Sewage law (NRS 444.440 to 444.650, inclusive); (q) the Nevada Water Controls/Pollution law (NRS Chapter 445A); (r) the Nevada Air Pollution law (NRS Chapter 445B); (s) the Nevada Cleanup of Discharged Petroleum law (NRS 590.700 to 590.920, inclusive); (t) the Nevada Control of Asbestos law (NRS 618.750 to 618.850); (u) the Nevada Appropriation of Public Waters law (NRS 533.324 to 533.4385, inclusive); (v) the Nevada Artificial Water Body Development Permit law (NRS 502.390); (w) the Nevada Protection of Endangered Species, Endangered Wildlife Permit (NRS 503.585) and Endangered Flora Permit law (NRS 527.270); and (x) all other Federal, state and local Legal Requirements which govern Hazardous Substances, and the regulations adopted and publications promulgated pursuant to all such foregoing laws; in each case as amended by an amendment thereto or succeeded by a successor law, statute or regulation thereto. "Environmental Matter" means any: 27 (a) release, emission, entry or introduction into the air including the air within buildings and other natural or man-made structures above ground; (b) discharge, release or entry into water including into any river, watercourse, lake or pond (whether natural or artificial or above ground or which joins or flows into any such water outlet above ground) or reservoir, or the surface of the riverbed or of other land supporting such waters, ground waters, sewer or the sea; (c) deposit, disposal, keeping, treatment, importation, exportation, production, transportation, handling, processing, carrying, manufacture, collection, sorting or presence of any Hazardous Substance (including, in the case of waste, any substance which constitutes a scrap material or an effluent or other unwanted surplus substance arising from the application of any process or activity (including making it reusable or reclaiming substances from it) and any substance or article which is required to be disposed of as being broken, worn out, contaminated or otherwise spoiled); (d) nuisance, noise, defective premises, health and safety at work, industrial illness, industrial injury due to environmental factors, environmental health problems (including asbestosis or any other illness or injury caused by exposure to asbestos) or genetically modified organisms; (e) conservation, preservation or protection of the natural or man-made environment or any living organisms supported by the natural or man-made environment; or (f) other matter howsoever directly affecting the environment or any aspect of it. "Equipment Component" means the equipment, fixtures and other items described in Exhibit N-10 hereto. "Equity Interest" means, relative to any Person, Capital Stock and all warrants, options or other rights to acquire Capital Stock (excluding, however, any debt security that is convertible into, or exchangeable for, Capital Stock) of such Person. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections thereto. "ERISA Plan" means any employee benefit plan (x) maintained by the Borrower or any member of the Controlled Group, or to which the Borrower or any member of the Controlled Group contributes or is obligated to contribute, for its employees and (y) covered by Title IV of ERISA or to which Section 412 of the Code applies. 28 "Event of Default" is defined in Section 8.1. "Event of Loss" means, relative to any property or asset (tangible or intangible, real or personal), (x) any loss, destruction or damage of such property or asset, (y) any actual condemnation, seizure or taking by exercise of the power of eminent domain or otherwise of all or a part of such property or asset, or confiscation of all or a part of such property or asset or the requisition of the use of all or a part of such property or asset or (z) any settlement in lieu of item (y). "Excess Cash Flow" means, for any Fiscal Quarter, the excess (if any), of (a) EBITDA for such Fiscal Quarter over (b) the sum (during such Fiscal Quarter) of (i) Interest Expense of the Borrower actually paid in cash by the Borrower; plus (ii) scheduled payments, to the extent actually made, of the principal amount of the Loans pursuant to Section 3.1.1 and scheduled payments, to the extent actually made, with respect to the FF&E Financing; plus (iii) the amount of all federal, state and local income taxes (whether paid in cash or deferred) of the Borrower paid in cash by the Borrower or, if the Borrower is treated as a pass-through entity or is not treated as a separate entity for United States federal income tax purposes, the amount of Restricted Payments made in cash by the Borrower in accordance with clause (c) of Section 7.2.6, subject to the terms thereof; plus (iv) the amount of all Restricted Payments on the Borrower Series A Preferred Membership Interests made in accordance with clause (d) of Section 7.2.6; plus 29 (v) Capital Expenditures actually made or reserved by the Borrower. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Indebtedness" means Indebtedness of the Borrower in existence on the Effective Date (after giving effect to payment of Indebtedness that is being discharged and retired on the Closing Date, including all Indebtedness to be Paid) and identified in item (b) of Section 7.2.2 ("Existing Indebtedness") of the Disclosure Schedule. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "Fee Letter" means, the Arrangers' Fee Letter or the Scotiabank Fee Letter. "FF&E" means all furnishings, fixtures and equipment other than the Specified Equipment and the Gaming Equipment. "FF&E Financing" means the incurrence of Indebtedness, the proceeds of which are utilized solely to finance or refinance the acquisitions of (or the incurrence of Capitalized Lease Liabilities by the Borrower with respect to) the Gaming Equipment and the Specified Equipment. "FF&E Lease" means one or more leases entered into by the Borrower giving rise to synthetic lease liabilities to one or more lessors (the "FF&E Lessors") covering a portion of the FF&E, the Specified Equipment and/or the Gaming Equipment. "FF&E Lease Document" means the FF&E Lease and any other document executed and delivered by the Borrower and the FF&E Lessors in connection therewith, as the same may be amended, supplemented, amended and restated, replaced or otherwise modified from time to time in accordance with the terms hereof. "FF&E Lessor" is defined in the definition of "FF&E Lease". 30 "FF&E Reserve" is defined in Section 7.1.3. "Final Completion" means that (r) Design/Build Final Completion shall have occurred, (s) Energy Project Completion shall have occurred, (t) Theater Renovation Completion shall have occurred, (u) all other construction work with respect to the Main Project shall have been substantially completed in accordance with the Main Project Document applicable thereto so as to allow such improvements to be utilized for their intended purposes and in substantial compliance with all Legal Requirements applicable thereto, (v) each of the Hotel Casino, the Energy Project and the Theater shall have received a permanent Main Project Certificate of Occupancy from the Building Department and the Energy Project shall have received all Permits required by the Governmental Instrumentality having or asserting jurisdiction over the operation of the Energy Project (and a copy of each such certificate shall have been delivered to the Administrative Agent), (w) a Notice of Completion shall have been posted with respect to Hotel/Casino, the Energy Project and the Theater, as required, and recorded in the Office of the County, (x) the Borrower shall have delivered to the Administrative Agent its Final Completion Certificate certifying to the extent set forth therein that all Main Project Punchlist Items have been completed, (y) the Construction Consultant shall have delivered to the Administrative Agent its Final Completion Certificate in which it verifies the statements in items (r), (s), (t), (u), (v), and (w) and certifies that it is appropriate for the Administrative Agent to rely on the Final Completion Certificate of the Borrower delivered to the Administrative Agent pursuant to item (x) and (z) the Mall Project Parcel and the Music Project Parcel shall be separate legal parcels in accordance with Section 7.1.19. "Final Completion Certificate" means a Borrower's Final Completion Certificate or a Construction Consultant's Final Completion Certificate in the form of Exhibit U-1 or Exhibit U-2 hereto. "Final Completion Date" means the date on which Final Completion occurs. "Final Plans and Specifications" means, relative to any particular portion of the Work or other improvement, Plans and Specifications for such portion which (x) have received final approval from all Governmental Instrumentalities required to approve such Plans and Specifications prior to completion of the Work or improvements and (y) contain sufficient specificity to permit the completion of such portion of the Work or other improvements. "Fiscal Quarter" or "FQ" means a calendar quarter ending on the last day of March, June, September or December; references to a FQ with a following number (e.g., FQ1) refer to the number of Fiscal Quarters then to have elapsed in whole or in part since the Conversion Date. "Fiscal Year" means any period of twelve consecutive calendar months ending on December 31; references to a Fiscal Year with a number corresponding to any calendar year 31 (e.g., the "1998 Fiscal Year") refer to the Fiscal Year ending on December 31 of such calendar year. "Fleet Commitment" means, on any date, the Commitment Letter, as originally in effect on the Effective Date, between Fleet National Bank and Aladdin Bazaar and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms thereof. "Fluor" means Fluor Corporation, a California corporation. "Fluor Guaranty" means, on any date, the Fluor Guaranty, as originally in effect on the Effective Date, by Fluor in favor of the Borrower and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Force Majeure Event" means any event which is defined as "Force Majeure" in the Design/Build Contract and/or that causes a delay in the construction of the Main Project and is outside the Borrower's control but only to the extent (a) such event does not arise out of (w) the negligence, willful misconduct or inefficiencies of the Borrower, (x) late performance by the Design/Builder or the Architect of Record, (y) any cause or circumstance resulting in delays, stoppage or any other interference with the construction of the Main Project caused by the insolvency, bankruptcy or any lack of funds by the Borrower, any other Project Party, the Energy Provider, the Energy Project Guarantor and/or the Architect of Record or (z) delays, stoppage or other interference with the construction of the Main Project caused by the insolvency, bankruptcy or any lack of funds by Aladdin Bazaar, Aladdin Music and/or the construction contractors and project architects with respect to the Mall Project, the Music Project and/or the Energy Project; and (b) such event consists of an act of God (such as tornado, flood, hurricane, etc.), fires and other casualties; strikes, lockouts or other labor disturbances (except to the extent taking place at the Site only); riots, insurrections or civil commotions; embargos, shortages or unavailability of materials, supplies, labor, equipment and systems that first arise after the Effective Date, but only to the extent caused by another act, event or condition covered by this clause (b); sabotage; vandalism; the requirements of law, statutes, regulations and other Legal Requirements enacted after the Effective Date (unless the Borrower should, in the exercise of due diligence and prudent judgment, have anticipated such enactment); orders or judgments; or any similar types of events; provided, however, that (x) the Borrower has sought to mitigate the impact of the delay, (y) any delay resulting from the foregoing shall not exceed 365 days and (z) the period during which a Force Majeure Event exists shall commence on the date that the Borrower has given the Administrative Agent written notice describing in reasonable detail the event which constitutes a 32 Force Majeure Event and the Administrative Agent has confirmed the existence of such Force Majeure Event on the date of such notice and shall end on the date that such Force Majeure Event no longer exists, whether or not notice is given to the Administrative Agent, as determined by the Construction Consultant. "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "GAAP" is defined in Section 1.4. "GAI, LLC" means GAI, LLC, a Nevada limited-liability company. "Gaming Equipment" means the gaming equipment and gaming devices which are regulated gaming devices under any Nevada Gaming Law (such as slot machines, cashless wagering systems and associated equipment) together with all improvements and/or additions thereto financed by the $20,000,000 term loan facility under the GECC Commitment. "Gaming License" means any and all duly issued and valid licenses, approvals, registrations, findings of suitability and authorizations relating to gaming at the Hotel/Casino under the Nevada Gaming Laws or required by the Nevada Gaming Authorities or necessary for the operation of gaming at the Hotel/Casino. "GECC" means General Electric Capital Corporation. "GECC Commitment" means the commitment of GECC to enter into a $60,000,000 synthetic lease facility and a $20,000,000 term loan facility pursuant to that certain commitment letter, dated as of January 23, 1998, between the Borrower and GECC. "GECC Intercreditor Agreement" means the Intercreditor Agreement to be entered into between GECC and the Administrative Agent, initially in the form approved by the Administrative Agent determined in good faith in its sole discretion, and as from time to time thereafter amended, supplemented, amended and restated or otherwise modified. "Governmental Instrumentality" means any national, state or local government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi governmental, judicial, public or statutory instrumentality, authority, body, agency, bureau or entity (including the Nevada Gaming Authorities, any zoning authority, the Federal Deposit Insurance Corporation, the Comptroller of the Currency or the F.R.S. Board, any central bank or any comparable authority) or any arbitrator with authority to bind a party at law. "Ground Lease" means, collectively, the Mall Project Ground Lease, the Music Project Ground Lease and the Energy Project Ground Lease. 33 "Guaranteed Maximum Price" means the total costs payable by the Borrower to the Design/Builder for the Work, which costs shall not exceed $267,000,000, except as adjusted in accordance with this Agreement and the Design/Build Contract. "Guaranty Deposit Account" is defined in the Borrower Collateral Account Agreement. "Hazardous Substances" means (statutory acronyms and abbreviations having the meaning given them in the definition of "Environmental Laws") substances defined as "hazardous substances," "pollutants" or "contaminants" in Section 101 of the CERCLA; those substances defined as "hazardous waste," "hazardous materials" or "regulated substances" by the RCRA; those substances designated as a "hazardous substance" pursuant to Section 311 of the CWA; those substances defined as "hazardous materials" in Section 103 of the HMTA; those substances regulated as a hazardous chemical substance or mixture or as an imminently hazardous chemical substance or mixture pursuant to Sections 6 or 7 of the TSCA; those substances defined as "contaminants" by Section 1401 of the SDWA, if present in excess of permissible levels; those substances regulated by the Oil Pollution Act; those substances defined as a pesticide pursuant to Section 2(u) of the FIFRA; those substances defined as a source, special nuclear or by-product material by Section 11 of the AEA; those substances defined as "residual radioactive material" by Section 101 of the UMTRCA; those substances defined as "toxic materials" or "harmful physical agents" pursuant to Section 6 of the OSHA); those substances defined as hazardous wastes in 40 C.F.R. Part 261.3; those substances defined as hazardous waste constituents in 40 C.F.R. Part 260.10, specifically including Appendices VII and VIII of Subpart D of 40 C.F.R. Part 261; those substances designated as hazardous substances in 40 C.F.R. Parts 116.4 and 302.4; those substances defined as hazardous substances or hazardous materials in 49 C.F.R. Part 171.8; those substances regulated as hazardous materials, hazardous substances or toxic substances in 40 C.F.R. Part 1910; those substances defined as hazardous materials, hazardous substances or toxic substances in any other Environmental Laws; and those substances defined as hazardous materials, hazardous substances or toxic substances in the regulations adopted and publications promulgated pursuant to said laws, whether or not such regulations or publications are specifically referenced herein. "Hedging Liability" means, relative to any Person, any liability of such Person under any currency exchange agreement, interest rate swap agreement, interest rate cap agreement or interest rate collar agreement, or any other agreement designed to protect such Person against fluctuations in interest rates or currency exchange rates including the Rate Protection Agreement. "herein", "hereof", "hereto", "hereunder" and similar terms contained in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular Section, paragraph or provision of this Agreement or such other Loan Document. "Holdings" means Aladdin Gaming Holdings, LLC, a Nevada limited- liability company. 34 "Holdings Collateral Account Agreement" means, on any date, the Holdings Collateral Account Agreement, as originally in effect on the Closing Date, between Holdings, the Securities Intermediary and the Disbursement Agent, for the benefit of the Discount Note Indenture Trustee, and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Holdings Common Membership Interest" means a Common Share as defined in the Organizational Documents of Holdings. "Holdings Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of Holdings pursuant to clause (a) of Section 5.1.3, as originally in effect on the Closing Date, in substantially the form of Exhibit E-5 hereto and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Holdings Series A Preferred Membership Interests" means the Series A Preferred Shares as defined in the Organizational Documents of Holdings and issued to LCNI or Sommer Enterprises pursuant thereto in consideration for any payments to the Borrower required by London Clubs, the Trust or AHL pursuant to the Keep-Well Agreement, the Completion Guaranty or the Noteholder Completion Guaranty, as the case may be, when such payments are Cash Equity Contributions (as defined in the Keep-Well Agreement). "Holdings Series B Preferred Membership Interests" means the Series B Preferred Shares as defined in the Organizational Documents of Holdings and issued to LCNI or Sommer Enterprises pursuant thereto in consideration for any payments to the Borrower required by London Clubs, the Trust or AHL pursuant to the Keep-Well Agreement when such payments are Cash Equity Contributions (as defined in the Keep-Well Agreement). "Hotel" is defined in clause (a) of the fourth recital. "Hotel/Casino" is defined in clause (a) of the fourth recital. "Hotel/Casino Component" means the portion of the Complex described in Exhibit N-8. "Hotel/Casino Component Funding Source" means the Land Equity, the London Clubs Contribution, the proceeds of the Borrower Series A Preferred Membership Interests, the Loans, the Approved Equipment Funding Commitments, the amounts payable to the Borrower by Aladdin Bazaar pursuant to Section 4.5 of the Site Work Agreement, together with any amounts payable under the Completion Guaranty from time to time. "Impermissible Qualification" means, relative to the opinion or certification of any independent public accountant as to any financial statement of the Borrower, any other Aladdin 35 Party, LCNI, London Clubs Holdings or London Clubs, any qualification or exception to such opinion or certification (a) which is of a "going concern" or similar nature; (b) which relates to the limited scope of examination of matters relevant to such financial statement; or (c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause the Borrower to be in default of any of its obligations under Section 7.2.4. "Imposition" means any real estate tax, payment in lieu of taxes or other assessment levied, assessed or imposed against the portion of the Site owned by the Borrower, and any water rates, sewer rentals or other governmental, municipal or public dues, charges or impositions, of every nature and to whomever assessed, that may now or hereafter be levied or assessed upon the portion of the Site owned by the Borrower, or upon the rents, issues, income, proceeds or profits thereof, whether the Imposition is levied directly or indirectly against such portion of the Site owned by the Borrower or as excise taxes or income taxes. "Improvement" means any building, structure or other improvements to be located or constructed on the Main Project Parcel. "In Balance" will be deemed to exist when (x) the Unallocated Contingency Balance equals or exceeds the Required Minimum Contingency, (y) after giving effect to the requested Credit Extension, the Available Funds allocated to each Line Item Category equals or exceeds for such Line Item Category the aggregate of (1) the costs required to complete such Line Item Category, (2) the Retainage Amount to be paid to Persons who have supplied labor or materials in connection with such Line Item Category and (3) the amount required to pay interest and all other amounts due under this Agreement and the Approval Equipment Funding Commitments at the maximum rate of interest set forth in the Main Project Budget through the Conversion Date and (z) the Guaranteed Maximum Price remains in effect. "including" and "include" means including, without limiting the generality of any description preceding such term, and, for purposes of this Agreement and each other Loan Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned. 36 "Indebtedness" means, relative to any Person, without duplication: (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations, contingent or otherwise, relative to the face amount of all letters of credit (or reimbursement agreements in respect thereof), whether or not drawn, and banker's acceptances issued for the account of such Person; (c) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities; (d) all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) net liabilities of such Person under all Hedging Liabilities; (f) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services, and indebtedness (excluding, however, prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; and (g) all Contingent Liabilities of such Person in respect of any of the foregoing. For all purposes of this Agreement, (x) the Indebtedness of any Person shall include the proportion of Indebtedness of any partnership in which such Person is a general partner or joint venturer with liability for the entire indebtedness of the joint venture and (y) the amount of any Indebtedness outstanding as of any date shall be (1) the accredited value thereof, in the case of Indebtedness issued with original issue discount and (2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indebtedness to be Paid" means the Indebtedness identified in Item 5.1.10 on the Disclosure Schedule. "Indemnified Liability" is defined in Section 10.4. "Indemnified Party" is defined in Section 10.4. 37 "Independent Consultant" means the Construction Consultant, the Insurance Consultant, the Environmental Consultant or their successors engaged pursuant to this Agreement. "Indirect Cost" means any Main Project Cost which is not a Direct Cost, including appraisal fees, the Term A Loan Commitment Fee, the Term B and Term C Loan Commitment Fee, the fees set forth in the Fee Letters, interest on the Loans prior to the Conversion Date, brokers' commissions, fees of the Independent Consultants, insurance during construction, surety bond premiums, cost of surveys, Impositions during construction, title examination and title insurance premiums, recording expenses in connection with the Deed of Trust and other Security Documents and fees and disbursements of the attorneys for the Administrative Agent. "Instrument" means any contract, agreement, indenture, mortgage, deed of trust, document or writing (whether by formal agreement, letter or otherwise) under which any obligation is evidenced, assumed or undertaken, or any Lien (or right or interest therein) is granted or perfected. "Insurance Consultant" means Sedgwick of Tennessee, Inc. or its successor appointed pursuant to Section 9.8. "Insurance Requirement" means any provisions of any insurance policy covering or applicable to the Borrower, the Main Project or any portion thereof, all requirements of the issuer of any such policy and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any body exercising similar functions) applicable to or affecting the Main Project or any portion thereof, any use or condition thereof or the Borrower. "Interest Coverage Ratio" means, at the close of any Fiscal Quarter, the ratio computed for the period consisting of such Fiscal Quarter (or such shorter portion of any Fiscal Quarter after the occurrence therein of the Conversion Date) and each of the three immediately prior Fiscal Quarters (or such lesser number of Fiscal Quarters to have closed since the Conversion Date) of: (a) EBITDA for such period to (b) Interest Expense of the Borrower for such period; provided, however, that in computing the Interest Coverage Ratio for any such period ending on or prior to the first anniversary of the Conversion Date, the amount determined pursuant to clause (b) shall equal the product of (x) the Interest Expense for such period multiplied by (y) a fraction, the numerator of which is equal to 365 and the denominator of which is equal to the number of days that have elapsed in such period. 38 "Interest Expense" means, for any period, the aggregate cash interest expense (net of cash interest income) of the Borrower (including, to the extent the Borrower has any Contingent Liability in respect of such interest expense, the interest expense of other Persons) for such period, as determined in accordance with GAAP, including the portion of any payments made in respect of Capitalized Lease Liabilities allocable to interest expense, but excluding, however, deferred financing costs and other non-cash interest expense. "Interest Payment Account" means the account established by the Borrower with the Disbursement Agent pursuant to the Borrower Collateral Account Agreement into which the proceeds of the Loans shall be deposited by the Administrative Agent from time to time. "Interest Period" means, relative to any LIBO Rate Loan, the period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.3 or Section 2.4 and shall end on (but exclude) the day which numerically corresponds to such date one, two, three, six or, if then generally available from all Lenders, twelve months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), as the Borrower may select in its relevant notice pursuant to Section 2.3 or Section 2.4; provided, however, that (a) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates, (i) in the case of Term A Loans made or maintained as LIBO Rate Loans, occurring on more than eight different dates, (ii)in the case of Term B Loans made or maintained as LIBO Rate Loans, occurring on more than four different dates, and (iii) in the case of Term C Loans made or maintained as LIBO Rate Loans, occurring on more than four different dates; (b) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (c) no Interest Period for any Loan may end later than the Stated Maturity Date for such Loan. "Investment" means, relative to any Person, 39 (a) any loan or advance made by such Person to any other Person (including Affiliates) (excluding, however, commission, travel, petty cash and similar advances to officers and employees made in the ordinary course of business); (b) any Contingent Liability of such Person incurred in connection with loans or advances described in clause (a); (c) any ownership or similar interest held by such Person in any other Person; and (d) any other item that is or would be classified as an investment on a balance sheet of such Person prepared in accordance with GAAP. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of such Investment. If Holdings or any Subsidiary of Holdings sells, assigns, transfers or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of Holdings such that, after giving effect thereto, such Person is no longer a Subsidiary of Holdings, Holdings or such Subsidiary shall be deemed to have made an Investment on the date of such sale, assignment, transfer or other disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold, assigned, transferred or otherwise disposed of in an amount determined as provided in clause (d) of Section 7.2.6. "Issuance Fee or Expense" means any fee or expense incurred by the Borrower in connection with the raising of debt or equity to finance the Main Project which is paid on or before the Closing Date as more fully set forth on Schedule IX hereto. "Issuer" means Scotiabank in its capacity as issuer of the Letters of Credit. At the request of Scotiabank, another Lender or an Affiliate of Scotiabank may issue one or more Letters of Credit hereunder. "Keep-Well Agreement" means, on any date, the Keep-Well Agreement, as originally in effect on the Closing Date, by the Sponsors and ABH in favor of the Lenders substantially in the form of Exhibit D hereto and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Knowledge" of any Obligor means, at any time and relative to any matter, knowledge which the Authorized Representatives of such Obligor would have after inquiring of the current employees of such Obligor and its Subsidiaries who would reasonably be expected to have knowledge regarding such matter, whether or not such Authorized Representatives actually made inquiry of such employees. 40 "Land Equity" is defined in clause (a) of the fifth recital. "LCNI" means London Clubs Nevada Inc., a Nevada corporation. "LCNI Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of LCNI pursuant to clause (b) of Section 5.1.3, as originally in effect on the Closing Date, in substantially the form of Exhibit E-6 hereto and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Legal Requirement" means, relative to any Person or property, all laws (including Nevada Gaming Laws, if applicable), statutes, codes, regulations, rules, acts, ordinances, permits, licenses, authorizations, directions and requirements of all Governmental Instrumentalities, departments, commissions, boards, courts, authorities, agencies, officials and officers, and any deed restrictions or other requirements of record, applicable to such Person or such property, or any portion thereof or interest therein or any use or condition of such property or any portion thereof or interest therein (including those relating to zoning, planning, subdivision, building, safety, health, use, environmental quality and other similar matters). "Lender Assignment Agreement" means a lender assignment agreement substantially in the form of Exhibit H hereto. "Lender" is defined in the preamble and, in addition, shall include any commercial bank or other financial institution that becomes a Lender pursuant to Section 10.11.1. "Lender Default" means (x) the refusal (which has not been retracted) of a Lender to make available its portion of any Borrowing or to fund its portion of any unreimbursed payment under Section 2.6.1 or (y) a Lender having notified the Administrative Agent or the Borrower that it does not intend to comply with its obligations under Section 2.3 or under Section 2.6.1, in either case, as a result of the appointment of a receiver or conservator with respect to such Lender at the direction or request of any regulatory agency or authority. "Lender's Environmental Liability" means any and all losses, liabilities, obligations, penalties, claims, litigation, demands, defenses, costs, judgments, suits, proceedings, damages (including consequential damages), disbursements or expenses of any kind or nature whatsoever (including reasonable attorneys' fees at trial and appellate levels and consultants' and experts' fees and disbursements and expenses incurred in investigating, defending against or prosecuting any litigation, claim or proceeding) which may at any time be imposed upon, incurred by or asserted or awarded against any Lender or any of such Lender's parent and subsidiary corporations, and their Affiliates, shareholders, directors, officers, employees, and agents in connection with or arising from: 41 (a) any Hazardous Substances on, in, under or affecting all or any portion of any property of the Borrower, any of the Borrower's Subsidiaries or Aladdin Bazaar, the groundwater thereunder, or any surrounding areas thereof to the extent caused by Releases from the Borrower, any of the Borrower's Subsidiaries, any other Aladdin Party or Aladdin Bazaar or any of their respective properties; (b) any misrepresentation, inaccuracy or breach of any warranty, contained or referred to in Section 6.12; (c) any violation or claim of violation by the Borrower, any of the Borrower's Subsidiaries, any other Aladdin Party or Aladdin Bazaar of any Environmental Laws; or (d) the imposition of any Lien for damages caused by or the recovery of any costs for the cleanup, release or threatened release of Hazardous Substances by the Borrower, any of the Borrower's Subsidiaries, any other Aladdin Party or Aladdin Bazaar, or in connection with any property owned or formerly owned by the Borrower, any of the Borrower's Subsidiaries, any other Aladdin Party or Aladdin Bazaar, as the case may be. "Lender's Tax" is defined in Section 4.6. "Letter of Credit" is defined in Section 2.1.2. "Letter of Credit Commitment" means, (x) relative to an Issuer, such Issuer's obligation to issue Letters of Credit pursuant to Section 2.1.2 and (y) relative to each Lender (other than the Issuer) that has a Term A Loan Commitment, the obligation of such Lender to participate in Letters of Credit pursuant to Section 2.6.1. "Letter of Credit Commitment Amount" means, on any date, a maximum amount of $20,000,000, as such amount may be permanently reduced from time to time pursuant to Section 2.2. "Letter of Credit Disbursement" is defined in Section 2.6.2. "Letter of Credit Disbursement Date" is defined in Section 2.6.2. "Letter of Credit Issuance Request" means a Letter of Credit request and certificate duly executed by an Authorized Representative of the Borrower substantially in the form of Exhibit L-2 hereto. "Letter of Credit Outstandings" means, on any date, an amount equal to the sum of 42 (a) the then aggregate amount which is undrawn and available under all issued and outstanding Letters of Credit, plus (b) the then aggregate amount of all unpaid and outstanding Letter of Credit Reimbursement Obligations. "Letter of Credit Reimbursement Obligation" is defined in Section 2.6.3. "Letter of Credit Stated Expiry Date" is defined in Section 2.6. "LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans, the rate of interest equal to the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the rate per annum at which Dollar deposits in immediately available funds are offered to the Administrative Agent in the London, England interbank market as at or about 11:00 a.m. London, England time two Business Days prior to the beginning of such Interest Period for delivery on the first day of such Interest Period, and in an amount approximately equal to the amount of the LIBO Rate Loans and for a period approximately equal to such Interest Period. "LIBO Rate Loan" means a Loan bearing interest, at all times during an Interest Period applicable to such Loan, at a fixed rate of interest determined by reference to the LIBO Rate (Reserve Adjusted). "LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: LIBO Rate (Reserve Adjusted) = LIBO Rate ----------------------------------- 1.00 - LIBOR Reserve Percentage The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans will be determined by the Administrative Agent on the basis of the LIBOR Reserve Percentage in effect, and the applicable rates furnished to and received by the Administrative Agent from the Lenders, two Business Days before the first day of such Interest Period. "LIBOR Reserve Percentage" means, relative to any Interest Period for LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then 43 applicable to assets or liabilities consisting of or including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. "Lien" means, relative to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest therein). "Line Item" means each of the individual line items set forth in the Main Project Budget. "Line Item Category" means each of the following line item categories of the Main Project Budget: (a) Construction Costs; (b) Indirect Costs; (c) Indirect Fees; (d) General FF&E; (e) Gaming Equipment; (f) Owner FF&E; (g) Theming; (h) Project Contingency; (i) Mall Project Reimbursement; (j) Capitalized Interest; (k) Fees/Other Expenses; (l) Retirement of Existing Debt; (m) Retirement of Partnership Debt; (n) Pre-Opening Expenses; 44 (o) Working Capital; (p) Investment in Aladdin Music; and (i) Land/Infrastructure Contract. "Loan" means a Term A Loan, a Term B Loan or a Term C Loan of any type. "Loan Document" 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 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 Privee Agreement, the Assignment of Project Management Agreement, the Borrower Collateral Account Agreement, the Holding 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. "London Clubs" means London Clubs International, plc, a company registered in England and Wales. "London Clubs Contribution" means the $50,000,000 cash contribution by London Clubs indirectly through London Clubs Holding and LCNI in consideration for Common Membership Interests in Holdings. "London Clubs Holdings" means London Clubs Holdings, Ltd., a company registered in England and Wales. "London Clubs Parties" means, collectively, London Clubs and LCNI. "London Clubs Purchase Agreement" means the Amended and Restated Purchase Agreement, dated the Effective Date, among London Clubs, LCNI, AHL, Sommer Enterprises, the Trust, Holdings and the Borrower as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Loss Proceeds" is defined in Section 7.1.20. "Loss Proceeds Account" is defined in the Borrower Collateral Account Agreement. 45 "Main Project" is defined in clause (a) of the fourth recital. "Main Project Budget" means a budget in substantially the form of Exhibit X-2 (as amended from time to time in accordance with Section 7.2.18) which shall include (w) a breakdown of all Direct Costs and Indirect Costs by Line Item Categories as set forth on the Trade Detail Report, together with a schedule of costs by trades and Main Project Costs (including Main Project Costs incurred prior to, as well as after, the Effective Date, the Pre-Opening Expenses, the Issuance Fees or Expenses, Debt Service and initial working capital required to operate the Main Project on and after the Opening Date) which (1) are to be paid from the Hotel/Casino Component Funding Sources and (2) are to be constructed and paid for by the Borrower pursuant to the Site Work Agreement for improvements to the Mall Project, (x) a schedule setting forth the FF&E which is to be purchased from the proceeds of the Loans (which FF&E shall not include any Gaming Equipment and/or Specified Equipment), (y) a drawdown schedule for Advances necessary to achieve Final Completion and such other information relative to such Main Project Costs and the funding thereof as the Administrative Agent may reasonably require and (z) a balanced statement of sources and uses of proceeds (and any other funds necessary to complete the Main Project), broken down by Construction Component and Line Item. The Main Project Costs shall not exceed $724,000,000. "Main Project Budget/Schedule Amendment Certificate" means a Main Project Budget/Schedule Amendment Certificate substantially in the form of Exhibit X-3 hereto. "Main Project Certificate of Occupancy" means a permanent or temporary certificate of occupancy, in either case, for the portion of the Main Project specified in such certificate of occupancy issued by the Building Department pursuant to applicable Legal Requirements which permanent or temporary certificate of occupancy shall permit such portion of the Main Project to be used for its intended purposes, shall be in full force and effect and, in the case of a temporary certificate of occupancy, if such temporary certificate of occupancy shall provide for an expiration date, any Main Project Punchlist Items which must be completed in order for such temporary certificate of occupancy to be renewed or extended shall be completed no later than 15 days prior to the applicable expiration date. "Main Project Costs" means all costs incurred or to be incurred in accordance with the Main Project Budget in connection with the development, design, engineering, procurement, installation, construction, Final Completion and opening of the Main Project, including: (a) all costs incurred under the Design/Build Contract and the Contracts; (b) interest accruing under this Agreement, the other Loan Documents and the Approved Equipment Funding Commitments prior to the Conversion Date; (c) reasonable financing and closing costs related to the Main Project until the Conversion Date, including insurance costs (including, with respect to directors and 46 officers insurance, costs relating to such insurance extending beyond the Conversion Date), guarantee fees, legal fees and costs and expenses, financial advisory fees and expenses, technical fees and expenses (including fees and expenses of the Construction Consultant, the Environmental Consultant and the Insurance Consultant), commitment fees, management fees, agency fees (including fees and expenses of the Disbursement Agent and the Administrative Agent), interest, taxes (including value-added tax and Restricted Payments made in accordance with clause (c) of Section 7.2.6) and other out-of-pocket expenses payable by the Borrower under all documents related to the financing and construction of the Main Project until the Conversion Date; (d) the costs of acquiring Permits for the Main Project prior to the Final Completion Date (including Permits required for the operation of the Main Project subsequent to the Final Completion Date); (e) costs incurred in settling insurance claims in connection with Events of Loss and collecting Loss Proceeds; (f) amounts due under the Energy Project Service Agreement prior to the Conversion Date; and (g) without duplication, working capital costs. "Main Project Document" means, collectively, the Design/Build Contract, the Fluor Guaranty, the Contracts, the Energy Project Service Agreement, the Energy Project Ground Lease, the Mall Project Ground Lease, the Music Project Ground Lease, the Theater Lease (if entered into), the Reciprocal Easement Agreement, the Common Parking Area Use Agreement, the Site Work Agreement, the Project Management Agreement, the Development Agreement or any other document or agreement entered into on, prior to or after the Effective Date, relating to the development, construction, maintenance or operation of the Main Project (other than the Loan Documents and the Discount Note Trust Indenture), as the same may be amended from time to time in accordance with the terms and conditions hereof and thereof. "Main Project Easement" means any easement appurtenant, easement in gross, license agreement or other right running for the benefit of the Borrower or appurtenant to the Main Project Parcel, including those easements and licenses described in the Reciprocal Easement Agreement and each Title Policy. "Main Project Intended Use" means each intended use of the Main Project, as more particularly set forth on Exhibit O hereto. "Main Project Parcel" means the portion of the Site described on Exhibit N-3 hereto together with the Main Project Easements. 47 "Main Project Punchlist Completion Certificate" means the Main Project Punchlist Completion Certificate substantially in the form of Exhibit V. "Main Project Punchlist Item" means any minor or insubstantial detail of construction or mechanical adjustment, the non-completion of which, when all such items are taken together, will not interfere in any material respect with the use or occupancy of any portion of the Main Project for its intended purposes or the ability of the owner of the Main Project or the Energy Project Provider, as applicable, to perform work that is necessary or desirable to prepare such portion of the Main Project for such use or occupancy; provided, however, that, in all events, "Main Project Punchlist Items" shall include the items set forth in the punchlist to be delivered by the Borrower in connection with Substantial Completion (as defined in the Design/Build Contract) and all items that are listed on the "punchlists" furnished by the Building Department, the Nevada Department of Transportation or the Clark County Department of Public Works in connection with, or after, the issuance of a temporary Main Project Certificate of Occupancy for the portion of the Main Project covered thereby as those that must be completed in order for the Building Department to issue a permanent Main Project Certificate of Occupancy. "Main Project Security" means all real and personal property which is subject or is intended to become subject to the security interests or liens granted by any of the Operative Documents. "Major Contractor" means a Contractor who is party to a Material Main Project Document. "Mall Project" is defined in clause (b) of the fourth recital. "Mall Project Completion Assignment" means, on any date, the Mall Project Completion Assignment, as originally in effect on the Closing Date, from Holdings in favor of the Lenders substantially in the form of Exhibit G hereto and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Mall Project Easement" means any easement appurtenant, easement in gross, license agreement or other right running for the benefit of Aladdin Bazaar or appurtenant to the Mall Project Parcel, including those certain easements and licenses described in the Reciprocal Easement Agreement and each Title Policy. "Mall Project Ground Lease" means, on any date, the Lease, as originally in effect on the Effective Date, between the Borrower and Aladdin Bazaar and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Mall Project Parcel" means the portion of the Site described on Exhibit N-4 hereto, together with the Mall Project Easements. 48 "Mall Project Parcel Creation Date" means the date on which the Mall Project Parcel is created in accordance with clause (b) of Section 7.1.19. "Mandatory Prepayment" is defined in clause (c) of Section 3.1.1. "Material Adverse Effect" means (x) a material adverse effect on the financial condition, business, property, prospects of the Borrower or on its ability to perform in all material respects its obligations under any Operative Document to which it is a party, (y) a material adverse effect on the financial condition, business, property, prospects and ability of any other Project Party to perform in all material respects its obligations under any Operative Document to which it is a party or (z) a material impairment of the validity or enforceability of, or a material impairment of the rights, remedies or benefits available to the Administrative Agent, the Issuer or the Lenders under this Agreement or any other Operative Document; provided, however, that whenever the term "Material Adverse Effect" is used in a representation or warranty made by the Borrower, such representation or warranty as it relates to clause (y) above shall be deemed to have been made to the Borrower's Knowledge. "Material Main Project Document" means the Mall Project Ground Lease, the Music Project Ground Lease, the Reciprocal Easement Agreement, the Site Work Agreement, the Common Parking Area Use Agreement, the Energy Project Ground Lease, the Energy Project Service Agreement, the Theater Lease, the Design/Build Contract, the Fluor Guaranty, the Project Management Agreement, the Development Agreement and any other certificate, document or Instrument delivered in connection with or by the Borrower and any other Person pursuant to any Material Main Project Document, and such other agreements, whether or not specifically mentioned herein or therein and, without duplication, any Main Project Document with a total contract amount in excess of $2,500,000. "Membership Interest" means, relative to any Person which is a limited liability company, a membership interest or a limited liability company interest, as the case may be, of such Person. "Merrill Lynch" is defined in the preamble. "Minimum Fixed Charge Coverage Ratio" means, as of the close of any Fiscal Quarter, commencing with the close of the Fiscal Quarter in which the Conversion Date occurs, the ratio computed for the period consisting of such Fiscal Quarter (or such shorter period of any Fiscal Quarter after the occurrence therein of the Conversion Date and each of the three immediately prior Fiscal Quarters (or such lesser number of Fiscal Quarters to have closed since the Conversion Date) of: (a) EBITDA (for all such Fiscal Quarters or such shorter period, as the case may be and determined for any period ending on or prior to the first anniversary of the Conversion Date, consistently with the proviso to the definition of "EBITDA"); 49 to (b) the sum (for all such Fiscal Quarters or such shorter period, as the case may be) of (i) Interest Expense; plus (ii) scheduled principal repayments of the Loans pursuant to clauses (b) and (c) of Section 3.1.1 after giving effect to any reductions in such scheduled principal repayments attributable to any optional or mandatory prepayments of the Loans and scheduled payments made with respect to the FF&E Financing; plus (iii) the amount of all federal, state and local income taxes (whether paid in cash or deferred) of the Borrower paid by the Borrower or, if the Borrower is treated as a pass-through entity or is not treated as a separate entity for United States federal income tax purposes, the amount of Restricted Payments made by the Borrower in accordance with clause (c) of Section 7.2.6, subject to the terms thereof, in each case, in cash during such Fiscal Quarters; plus (iv) Restricted Payments of the types described in clause (d) of Section 7.2.6 made in cash during such Fiscal Quarters; plus (v) Capital Expenditures of the Borrower actually made or reserved during all such Fiscal Quarters pursuant to Section 7.2.7; provided, however, that in computing the Minimum Fixed Charge Coverage Ratio for any such period ending on or prior to the first anniversary of the Conversion Date, the amount determined pursuant to clause (b) shall equal the product of (x) the sum of the amounts determined pursuant to clause (b) for such period multiplied by (y) a fraction, the numerator of which is equal to 365 and the denominator of which is equal to the number of days that have elapsed in such period. "Moody's" means Moody's Investors Service, Inc., a Delaware corporation, or any successor thereto. "Music Investment Prepayment" is defined in clause (d) of Section 3.1.1. 50 "Music Project" is defined in clause (c) of the fourth recital. "Music Project Easement" means any easement appurtenant, easement in gross, license agreement or other right running for the benefit of Aladdin Music or appurtenant to the Music Project Parcel, including those certain easements and licenses described in the Reciprocal Easement Agreement and each Title Policy. "Music Project Ground Lease" means, on any date, the Lease, as originally in effect on the Effective Date, between the Borrower and Aladdin Music and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Music Project Parcel" means the portion of the Site described on Exhibit N-5 hereto, together with the Music Project Easements. "Music Project Parcel Creation Date" means the date on which the Music Project Parcel is created in accordance with clause (c) of Section 7.1.19. "Net Distribution Amount" means, for any period, the amount of fees paid to AMH under any keep-well agreement relating to the Music Project and then paid as distributions in cash to the Borrower by AMH to the extent permitted thereunder. "Net Income" means, for any period, the aggregate of all amounts (including extraordinary losses) which, in accordance with GAAP, would be included in determining net income on the financial statements of the Borrower for such period (excluding, however, (x) all amounts in respect of any extraordinary gains and any non-cash income and (y) net income of any Subsidiary, other than any Net Distribution Amount paid in cash to the Borrower during such period). "Net Worth" means the net worth of the Borrower determined in accordance with GAAP. "Nevada Gaming Authority" means the Nevada Gaming Commission, the Nevada State Gaming Control Board or the Clark County Liquor and Gaming Licensing Board. "Nevada Gaming Law" means the Nevada Gaming Control Act, as codified in Chapter 463 of the NRS, as amended from time to time, and the regulations of the Nevada Gaming Commission promulgated thereunder, as amended from time to time, and Clark County Code Sections 8.04.010 to 8.04.310 and 8.20.010 to 8.20.580, as amended from time to time. "Non-Defaulting Lender" means and includes each Lender other than a "Defaulting Lender". "Non-U.S. Lender" is defined in Section 4.6. 51 "Note" means a Term A Note, a Term B Note, a Term C Note or a Registered Note. "Note Construction Disbursement Account" is defined in the Holdings Collateral Account Agreement. "Noteholder Completion Guaranty" means, on any date, the Noteholder Completion Guaranty, as originally in effect on the Effective Date, by the Completion Guarantors in favor of the Discount Note Indenture Trustee (for the benefit of the Discount Noteholders) as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "NRS" means Nevada Revised Statutes. "Obligations" means (x) all loans, advances, debts, liabilities and obligations, howsoever arising, owed by the Borrower under this Agreement to any Lender of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, pursuant to the terms of the Disbursement Agreement, any of the Loan Documents or any of the other Operative Documents, including all interest, fees, charges, expenses, attorneys' fees, consultants' fees and accountants' fees chargeable to the Borrower in connection with such Person's dealings with the Borrower and payable by the Borrower hereunder or thereunder; (y) any and all sums advanced by the Lenders in order to preserve the Main Project Security or preserve any Secured Parties' security interest in the Main Project Security, including all protective advances; and (z) in the event of any proceeding for the collection or enforcement of, or any "working out" of, the Obligations after an Event of Default shall have occurred and be continuing, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Main Project Security, or of any exercise by any Secured Party of its rights under the Operative Documents, together with reasonable attorneys' fees and court costs. "Obligor" means, as the context may require, the Borrower, each other Aladdin Party, LCNI, London Clubs Holdings, London Clubs, each Sponsor, each Completion Guarantor and each other Person (other than the Agents, the Issuer or any Lender) to the extent such Person is obligated under this Agreement or any other Operative Document. "Ongoing Investment" is any Investment listed in Item 7.2.5(a) on the Disclosure Schedule. "On Schedule Certificate" means a certificate in the form of Exhibit AA hereto. 52 "Opening Condition" means, collectively, the following: (a) Substantial Completion shall have occurred; (b) the Hotel/Casino shall have received a Main Project Certificate of Occupancy from the Building Department (and a copy of such certificate shall have been delivered to the Administrative Agent); (c) each remaining Main Project Punchlist Item with respect to the Hotel/Casino and the completion thereof shall be such that it will not interfere with or disrupt the operation of the Main Project for its intended purposes or detract from the aesthetic appearance of the Main Project other than to a de minimis extent, as reasonably determined by the Owner Representative and confirmed by the Construction Consultant; (d) the failure to complete each remaining Main Project Punchlist Item would not interfere with or disrupt the operation of the Main Project for its intended purposes or detract from the aesthetic appearance of the Main Project other than to a de minimis extent, as reasonably determined by the Owner Representative and confirmed by the Construction Consultant; and (e) the Borrower shall have available a fully trained staff to operate the Hotel/Casino in accordance with first-class industry standards for a hotel/casino operation of similar size and location. "Opening Date" means the date on which all of the Opening Conditions are satisfied. "Operating" means the first time that (t) all Gaming Licenses have been granted and are not then revoked or suspended, (u) all Liens (other than Permitted Liens) related to the development, construction, and equipping of the Main Project have been paid or, if payment is not yet due or if such payment is contested in good faith by Borrower, either (1) sufficient funds remain in the Construction Note Disbursement Account to discharge such Liens or (2) such Liens have been bonded, (v) the Construction Consultant, the Design/Builder and the Architect of Record shall have delivered one or more certificates to the Administrative Agent each certifying that the Main Project is Complete in all material respects in accordance with the Plans and Specifications and all applicable Legal Requirements, (w) the Main Project is in a condition (including installation of FF&E) to receive invitees in the ordinary course of business, (x) gaming and other operations in accordance with applicable Legal Requirements are open to the general public and are being conducted at the Hotel/Casino, (y) a Main Project Certificate of Occupancy has been issued for the Main Project by the Building Department and (z) a notice of completion of the Main Project has been duly recorded. "Operating Costs" means all actual cash costs incurred by the Borrower and related to the operation of the Main Project or any portion thereof in the ordinary course of business, 53 including costs incurred for labor, consumables, utility services and all other operation-related costs; provided, however, that (x) Operating Costs shall not include non-cash charges (including depreciation and amortization) and (y) Debt Service shall constitute Operating Costs from and after the Conversion Date but not prior to such date. "Operative Document" means any Loan Document or Main Project Document. "Organizational Document" means, relative to any Obligor, as applicable, its certificate or articles of incorporation, by-laws, certificate of partnership, partnership agreement, certificate of formation, articles of organization, operating agreement, limited liability company or operating agreement and all shareholder agreements, voting trusts and similar arrangements applicable to any of such Obligor's partnership interests, limited liability company interests or authorized shares of capital stock. "Outside Completion Deadline" means the date which is 28 months following the Effective Date, time being of the essence; provided, however, if a Force Majeure Event occurs, then the Borrower shall be permitted to extend the Completion Date for up to one year subject to the satisfaction by the Borrower of the conditions to such extension as set forth in the definition of "Force Majeure Event". "Owner Representative" means Tishman Construction Corporation of Nevada. "Participant" is defined in Section 10.11.2. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (excluding, however, a multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. "Percentage" means, relative to any Lender, the applicable percentage relating to Term A Loans, Term B Loans or Term C Loans, as the case may be, as set forth opposite its signature hereto under the applicable column heading or as set forth in a Lender Assignment Agreement under the applicable column heading, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 10.11.1. A Lender shall not have any Commitment to make Term A Loans, Term B Loans or Term C Loans, as the case may be, if its percentage under the applicable column heading is zero percent (0%). 54 "Permit" means any material building, construction, land use, environmental or other permit, license, franchise, approval, consent and authorization (including central bank and planning board approvals from applicable Governmental Instrumentalities and approvals required under the Nevada Gaming Law) required for or in connection with the construction, ownership, use, occupation and operation of the Main Project and the transactions provided for in this Agreement and the other Operative Documents. "Permitted Encumbrance" means any encumbrance against all or a portion of the Site as set forth in Exhibit BB hereto. "Permitted Exception" means any exception to title to all or a portion of the Site as set forth in Exhibit CC hereto. "Permitted Lien" means any of the following types of Liens (excluding, however, any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA, any such Lien relating to or imposed in connection with any Environmental Claim and any such Lien expressly prohibited by any applicable terms of any of the Operative Documents or the Discount Note Indenture): (a) Liens in favor of the Borrower; (b) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business or in the construction of the Main Project; provided, however, that the Borrower has obtained a title insurance endorsement insuring against losses arising therewith or, if such Lien arises after completion of the Main Project, the Borrower has bonded such Lien within a reasonable time after becoming aware of the existence of such Lien; (c) Liens securing the Obligations under the Operative Documents; (d) Liens existing on the Effective Date and set forth in Item 7.2.3 of the Disclosure Schedule; (e) (x) Liens for Impositions or (y) statutory Liens of landlords, and carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business or in the construction of the Main Project, in the case of each of items (x) and (y), with respect to amounts that either (1) are not yet delinquent or (2) are being diligently contested in good faith by appropriate proceedings, provided, however, that, in each case, any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; 55 (f) easements, rights-of-way, avigational servitude, restrictions, minor defects or irregularities in title and other similar charges or encumbrances which do not interfere in any material respect with the ordinary conduct of business of the Borrower; (g) Liens created by the Reciprocal Easement Agreement; (h) Liens created by the Disbursement Agreement; (i) licenses of patents, trademarks and other intellectual property rights granted by the Borrower in the ordinary course of business; (j) any judgment attachment or judgment Lien not constituting an Event of Default; (k) subject to the terms of the GECC Intercreditor Agreement, Liens to secure all obligations under the FF&E Financing; provided, however, that (x) the principal amount of such Indebtedness does not exceed the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct expenses paid or charged in connection with, such purchase) of the FF&E purchased or leased with the proceeds thereof and (y) the aggregate principal amount of such Indebtedness including any Permitted Refinancing Indebtedness incurred to refinance or replace any Indebtedness secured by such Lien does not exceed $80,000,000 (including obligations characterized as operating leases or other off- balance sheet financing arrangements) outstanding at any time; (l) Liens securing obligations arising under the Contribution Agreement and between the parties thereto so long as such Liens cannot be enforced by the holder thereof until all Obligations have been paid in cash in full, all Letters of Credit have been terminated or expired and all Commitments have terminated provided, however, that to the extent any distributions on any relevant Capital Stock or Membership Interests, as the case may be, are permitted to be made to the shareholders or members, as the case may be, in respect thereof under the Loan Documents, such holder shall be permitted to enforce such Liens (including by causing the redirection of any such distribution to such holder); (m) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (excluding, however, obligations for the payment of borrowed money), incurred in the ordinary course of business so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Main Project Security on account thereof, (x) for amounts not yet overdue 56 or (y) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of 5 days) are being contested in good faith by appropriate proceedings, so long as (1) such reserves or other appropriate provisions, if any, as shall be required by generally accepted accounting principles shall have been made for any such contested amounts, and (2) in the case of a Lien with respect to any portion of the Main Project Security, such contest proceedings conclusively operate to stay the sale of any portion of the Main Project Security on account of such Lien; (n) Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time due and payable or which is being contested in good faith by appropriate governmental proceedings promptly instituted and diligently contested, so long as (x) such reserve or other appropriate provision, if any, as shall be required in conformity with generally accepted accounting principles shall have been made therefor through an allocation in the Trade Detail Report and (y) in case of any charge or claim which has or may become a Lien against any of the Main Project Security, such contest proceedings conclusively operate to stay the sale of any portion of the Main Project Security to satisfy such charge or claim; (o) Liens created by the Common Parking Area Use Agreement; and (p) Liens created pursuant to Permitted Refinancing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien and is permitted under Section 7.2.2 and which has been incurred in accordance with such Section; provided, however, that such Liens do not extend to cover any property or assets of the Borrower not already securing the Indebtedness so refinanced. "Permitted Refinancing Indebtedness" means any Indebtedness of the Borrower issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Borrower; provided, however, that (u) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount plus accrued interest on the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith), (v) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, (w) such Indebtedness is incurred by the Borrower as the Obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, (x) the security, if any, for the Permitted Refinancing Indebtedness shall be the same as that for the Indebtedness being refinanced (except to the extent that less security is granted to holders of such refinancing Indebtedness), (y) the holders of the Permitted Refinancing Indebtedness are not afforded covenants, defaults, rights or remedies more burdensome to the obligor or obligors than those contained in the Indebtedness being refinanced and (z) the Permitted Refinancing Indebtedness is subordinated to the same degree, if any, as the Indebtedness being refinanced. 57 "Person" means any natural person, corporation, limited liability company, partnership, joint venture, joint stock company, firm, association, trust or unincorporated organization, government, governmental agency, Governmental Instrumentality, court or any other legal entity, whether acting in an individual, fiduciary or other capacity. "Phase I Report" is defined in the Disbursement Agreement. "Plan" means any Pension Plan or Welfare Plan. "Planet Hollywood" means Planet Hollywood International, Inc. "Plans and Specifications" means all plans, specifications, design documents, schematic drawings and related items for the design, architecture and construction of the Main Project that are listed on Schedule VII hereto, as the same may be (x) finalized in a manner that reflects a natural evolution of their status on the date hereof and in a manner consistent with the standards set forth in Section 7.2.17 and (y) amended in accordance with Section 7.2.17. "Pledge Agreement" means, as the context may require, the Holdings Pledge Agreement, the LCNI Pledge Agreement, the Sommer Enterprises Pledge Agreement, the AHL Pledge Agreement, the Enterprises Pledge Agreement, the Borrower Pledge Agreement or the AMH Pledge Agreement. "Pledged Entity" means, at any time, each Person in respect of which the Lenders have been granted, at such time, a security interest in and to, or a pledge of, any of the issued and outstanding interests or shares of Capital Stock of such Person. "Preferred Stock" means any Equity Interest with preferential right of payment of dividends or distributions, as applicable, or upon liquidation, dissolution or winding up. "Pre-Opening Expense" means any expense of the type listed in Schedule VIII hereto. "Pre-Opening Revenues" means all operating revenues received by the Borrower with respect to the Main Project prior to the Opening Date. "Process Agent" is defined in Section 10.14. "Project Management Agreement" means, on any date, the Project Management Agreement, as originally in effect on the Effective Date, between AHL and the Owner Representative and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Project Party" means the Borrower, AHL, Sommer Enterprises, Capital, Holdings, London Clubs, LCNI, the Design/Builder or Fluor. 58 "Quarterly Payment Date" means the last Business Day of each March, June, September and December. "Rate Protection Agreement" means any interest rate swap, cap, collar or similar agreement entered into by the Borrower in respect of the Loans pursuant to the terms of this Agreement under which the counterparty to such agreement is (or, at the time such Rate Protection Agreement was entered into, was) a Lender or an Affiliate of a Lender reasonably acceptable to the Administrative Agent. "Real Property" means, relative to any Person, such Person's present and future right, title and interest (including any leasehold estate) in (a) any plots, pieces or parcels of land; (b) any improvements, buildings, structures and fixtures now or hereafter located or erected thereon or attached thereto of every nature whatsoever; (c) any other interests in property constituting appurtenances to the Site, or which hereafter shall in any way belong, relate or be appurtenant thereto; and (d) all other rights and privileges thereunto belonging or appertaining and all extensions, additions, improvements, betterments, renewals, substitutions and replacements to or of any of the rights and interests described in clause (c). "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 59 (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; 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. "Reciprocal Easement Agreement" means, on any date, the Construction, Operation and Reciprocal Easement Agreement, as originally in effect on the Effective Date, by and among the Borrower, Aladdin Bazaar and AMH and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Register" is defined in clause (b) of Section 2.8. "Registered Note" is defined in Section 2.8, in the form of Exhibit A-4 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time). "Release" means a "release", as such term is defined in CERCLA. "Remaining Costs" means, without duplication, the sum of (w) the costs required to achieve Final Completion plus (x) the Retainage Amounts to be paid to Persons who have supplied labor or materials in connection with such line item, plus (y) the amount required to pay fees and interest at the maximum rate of interest set forth in the Loan Documents (after giving effect to the Rate Protection Agreement) through the date which is six months after the Conversion Date plus (z) the Required Minimum Contingency. "Required Completion Amount" is defined in the Disbursement Agreement. "Required Lenders" means, at any time, (a) Non-Defaulting Lenders holding at least 66 2/3% of the sum of the aggregate outstanding principal amount of the Loans then held by such Lenders plus the participation interests of such Lenders in the Letter of Credit Outstandings, or (b) if no Loans or Letter of Credit are then outstanding, Lenders having at least 66 2/3% of the Commitments; provided, however, that (x) amendments affecting only one class of Lenders (with a class for each of the Term A Lenders, the Term B Lenders and the Term C Lenders) will require the approval of the Non-Defaulting Lenders holding 66 2/3% or more of the principal amount of the Loans, Letters of Credit or, if applicable, Commitments for such class and (y) the consent of all 60 of the Non-Defaulting Lenders in the same class and of all Non-Defaulting Lenders in all classes shall be required with respect to the matters set forth in Section 10.1. "Required Minimum Contingency" means (w) during the first month after the Effective Date, no less than $24,000,000, (x) during the second month after the Effective Date, no less than $23,000,000, (y) during the third month after the Effective Date, no less than $22,000,000 and (z) thereafter the product of (1) $25,000,000 reduced by (2) the $25,000,000 multiplied by the percentage completed in respect of such Line Item Category on the date that the Advance is made. "Required Scope Change Approval" means, relative to each proposed Scope Change, the consent of the Administrative Agent. "Restricted Payment" is defined in clause (b) of Section 7.2.6. "Retainage Amount" means, at any given time, amounts which have accrued and are owing under the terms of the Design/Build Contract, a Contract or a Subcontract, as the case may be, for work or services already provided but which at such time (and in accordance with the terms of the Design/Build Contract, the Contract or Subcontract, as the case may be) are being withheld from payment to the Design/Builder, a Contractor or a Subcontractor, as the case may be, until certain subsequent events (e.g., completion benchmarks) have been achieved under the Design/Build Contract or relevant Contract or Subcontract. "Reviewing Accountant" means Arthur Andersen LLP or any nationally recognized firm of independent public accountants subsequently selected by the Borrower with the consent of the Administrative Agent from time to time (which shall not be unreasonably withheld or delayed), as auditors of the Borrower. "S&P" means Standard & Poor's Ratings Group, Inc., a New York corporation, or any successor thereto. "Salle Privee Agreement" means, on any date, the Salle Privee Agreement, as originally in effect on the Effective Date, between the Borrower, LCNI and London Clubs and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Scheduled Amortization" is defined in clause (b) of Section 3.1.1. "Scope Change" means any change in the "Services" or "Work". "Scotiabank" is defined in the preamble. 61 "Scotiabank Fee Letter" means the confidential letter agreement, dated December 4, 1997, among the Borrower, the Sponsors and Scotiabank. "SEC" means the Securities and Exchange Commission. "Secured Party" means the Lenders, the Issuer, the Agents, each counterparty to a Rate Protection Agreement that is (or at the time such Rate Protection Agreement was entered into, was) a Lender or an Affiliate thereof reasonably acceptable to the Administrative Agent and, in each case, each of their respective successors, transferees and assigns. "Securities Intermediary" is defined in the Disbursement Agreement. "Security Agreement" means, on any date, the Security Agreement executed and delivered by an Authorized Representative of the Borrower pursuant to Section 5.1.5, as originally in effect on the Closing Date, in substantially the form of Exhibit F hereto and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Services" is defined in Section 1.7 of the Design/Build Contract. "Servicing Agent" means U.S. Bank National Association, in its capacity as the servicing agent under the Disbursement Agreement, and its successors and assigns in such capacity. "Servicing and Collateral Account Agreement" means, on any date, the Servicing and Collateral Account Agreement, as originally in effect on the Closing Date, among the Disbursement Agent, the Borrower and the Servicing Agent and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. "Shoulder Space" means the property and space described in Exhibit N-6 hereto. "Site" is defined in the fourth recital and is more fully described in Exhibit N-1 hereto. "Site Easement" means any easement appurtenant, easement in gross, license agreement and other right running for the benefit of the Borrower, the Main Project, the Mall Project and the owner of the Mall Project, the Music Project and the owner of the Music Project, the Energy Project and the lessee of the Energy Project or appurtenant to the Site, including those certain easements and licenses described in the Title Policy. "Site Work Agreement" means, on any date, the Site Work Development and Construction Agreement, as originally in effect on the Effective Date, among the Borrower, AHL and Aladdin Bazaar and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified in accordance with the terms hereof. 62 "Solvency Certificate" means a solvency certificate to be executed and delivered by the chief financial or accounting Authorized Representative of the Borrower substantially in the form of Exhibit P hereto. "Solvent" means, relative to any Person and its Subsidiaries on a particular date, that on such date (w) the fair value of the property of such Person and its Subsidiaries on a consolidated basis is greater than the total amount of liabilities, including contingent liabilities, of such Person and its Subsidiaries on a consolidated basis, (x) the present fair salable value of the assets of such Person and its Subsidiaries on a consolidated basis is not less than the amount that will be required to pay the probable liability of such Person and its Subsidiaries on a consolidated basis on its debts as they become absolute and matured, (y) such Person does not intend to, and does not believe that it or its Subsidiaries will, incur debts or liabilities beyond the ability of such Person and its Subsidiaries to pay as such debts and liabilities mature and (z) such Person and its Subsidiaries on a consolidated basis are not engaged in a business or transaction, and such Person and its Subsidiaries on a consolidated basis are not about to engage in business or a transaction, for which the property of such Person and its Subsidiaries on a consolidated basis would constitute an unreasonably small capital. "Sommer Enterprises" means Sommer Enterprises, LLC, a Nevada limited- liability company. "Sommer Enterprises Pledge Agreement" means, on any date, the Pledge Agreement executed and delivered by an Authorized Representative of Sommer Enterprises pursuant to clause (c) of Section 5.1.3, as originally in effect on the Closing Date, in substantially the form of Exhibit E-7 hereto and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Specified Equipment" means the portion of the new FF&E together with all improvements and/or additions thereto covered by an FF&E Lease and financed by a portion of the FF&E Financing. "Sponsor" means AHL or London Clubs. "Stated Amount" of each Letter of Credit means the total amount available to be drawn under such Letter of Credit upon the issuance thereof. "Stated Maturity Date" means (a) with respect to all Term A Loans, the date which is the seventh anniversary of the Closing Date; (b) with respect to all Term B Loans, the date which is 8.5 years after the Closing Date; and 63 (c) with respect to all Term C Loans, the tenth anniversary of the Closing Date. "Subcontract" means a contract between the Design/Builder and a Subcontractor which has been entered into in accordance with the Design/Build Contract. "Subcontractor" is defined in the Design/Build Contract. "Subsidiary" means, relative to any Person, any corporation, partnership or other business entity of which more than 50% of the outstanding capital stock (or other ownership interest) having ordinary voting power to elect the board of directors, managers or other voting members of the governing body of such Person (irrespective of whether at the time Capital Stock (or other ownership interest) of any other class or classes of such Person shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. Except as otherwise indicated herein, references to Subsidiaries refer to Subsidiaries of the Borrower. "Substantial Completion" means that (x) the conditions set forth in the definition of "Completion" have occurred, (y) "Substantial Completion" (as such is defined in Section 31.8 of the General Conditions annexed to the Design/Build Contract as Attachment D) has occurred and (z) a Main Project Certificate of Occupancy has been issued and is outstanding for the Hotel/Casino. "Survey" means, collectively, the surveys required by Section 3.1.24 of the Disbursement Agreement. "Syndication Agent" is defined in the preamble. "Tax" means any federal, state, local, foreign or other tax, levy, impost, fee, assessment or other government charge, including income, estimated income, business, occupation, franchise, property, payroll, personal property, sales, transfer, use, employment, commercial rent, occupancy, franchise or withholding taxes, and any premium, including interest, penalties and additions in connection therewith. "Tax Amount" means, relative to any period, without duplication, the increase in the cumulative United States federal, state and local income tax liability of the holders of Equity Interests in the Borrower (or if the holder is a pass-though entity for United States income tax purposes, the direct or indirect holders of its equity interests subject to United States, state and local income tax) in respect of such interests for such period, plus any additional amounts payable to such holders for taxes arising from ownership of such Equity Interests. "Tax Certificate" means a Tax Certificate substantially in the form of Exhibit EE hereto. 64 "Tenant Improvement" means (x) the portion of the construction to be performed by or on behalf of the Borrower in the interior of the Main Project pursuant to a lease to adapt the same for the initial use and occupancy by the tenant under such lease or (y) if a tenant under a Lease undertakes to complete the work to the portion of the Main Project covered by such Lease, any allowances or payments advanced to such Person by the Borrower. "Term A Lender" means any Lender which has made a Term A Loan Commitment or holds a Term A Loan. "Term A Loan" is defined in Section 2.1.1. "Term A Loan Commitment" means the aggregate principal amount of Term A Loans which the Term A Lenders are obligated to make pursuant to Section 2.1.1. The Term A Loan Commitment shall not exceed $136,000,000. "Term A Loan Commitment Amount" means, on any date, relative to any Term A Lender, the portion of the Term A Loan Commitment of such Term A Lender reduced by the principal amount of any Term A Loans made by such Term A Lender as of such date. The portion of the Term A Loan Commitment of each Term A Lender is set forth below such Term A Lender's signature hereto or in a Lender Assignment Agreement. "Term A Loan Commitment Fee" is defined in Section 3.3.1. "Term A Loan Commitment Termination Date" means the earlier of (a) the Term B and Term C Loan Commitment Termination Date (if the Term B Loans and Term C Loans have not been made on or prior to such date); (b) the Conversion Date; and (c) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (a) or (b), the Term A Loan Commitments shall terminate automatically and without any further action. "Term A Note" means, on any date, a promissory note of the Borrower payable to any Term A Lender, in the form of Exhibit A-1 hereto (as such promissory note may thereafter from time to time be amended, supplemented, amended and restated, endorsed or otherwise modified), evidencing the aggregate Indebtedness of the Borrower to such Term A Lender resulting from outstanding Term A Loans, and also means all other promissory notes accepted from time to time in substitution or replacement therefor or renewal thereof. 65 "Term B and Term C Loan Commitment Fee" is defined in Section 3.3.1. "Term B and Term C Loan Commitment Termination Date" means the earlier of (a) February 27, 1998; and (b) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (a) or (b), the Term B Loan Commitments and the Term C Loan Commitments shall terminate automatically and without any further action. "Term B Lender" means any Lender which has made a Term B Loan Commitment or holds a Term B Loan. "Term B Loan" is defined in clause (a) of Section 2.1.3. "Term B Loan Commitment" means the aggregate principal amount of Term B Loans which the Term B Lenders are obligated to make pursuant to clause (b) of Section 2.1.3. The Term B Loan Commitment shall not exceed $114,000,000. "Term B Loan Commitment Amount" means, on any date, relative to any Term B Lender, the portion of the Term B Loan Commitment of such Term B Lender reduced by the principal amount of any Term B Loans made by such Term B Lender as of such date. The portion of the Term B Loan Commitment of each Term B Lender is set forth below such Term B Lender's signature hereto or in a Lender Assignment Agreement. "Term B Note" means, on any date, a promissory note of the Borrower payable to any Term B Lender, in the form of Exhibit A-2 hereto (as such promissory note may thereafter from time to time be amended, supplemented, amended and restated, endorsed or otherwise modified), evidencing the aggregate Indebtedness of the Borrower to such Term B Lender resulting from outstanding Term B Loans, and also means all other promissory notes accepted from time to time in substitution or replacement therefor or renewal thereof. "Term C Lender" means any Lender which has made a Term C Loan Commitment or holds a Term C Loan. "Term C Loan" is defined in clause (b) of Section 2.1.3. "Term C Loan Commitment"means the aggregate principal amount of Term C Loans which the Term C Lenders are obligated to make pursuant to clause (c) of Section 2.1.3. The Term C Loan Commitment shall not exceed $160,000,000. 66 "Term C Loan Commitment Amount" means, on any date, relative to any Term C Lender, the portion of the Term C Loan Commitment of such Term C Lender reduced by the principal amount of any Term C Loans made by such Term C Lender as of such date. The portion of the Term C Loan Commitment of each Term C Lender is set forth below such Term C Lender's signature hereto or in a Lender Assignment Agreement. "Term C Note" means, on any date, a promissory note of the Borrower payable to any Term C Lender, in the form of Exhibit A-3 hereto (as such promissory note may thereafter from time to time be amended, supplemented, amended and restated, endorsed or otherwise modified), evidencing the aggregate Indebtedness of the Borrower to such Term C Lender resulting from outstanding Term C Loans, and also means all other promissory notes accepted from time to time in substitution or replacement therefor or renewal thereof. "Theater" is defined in clause (d) of the fourth recital. "Theater Lease" means, on any date, the Lease, to be entered into between the Borrower and Aladdin Music covering the Theater Space as the same may be amended, supplemented, amended and restated, replaced or otherwise modified from time to time in accordance with the terms hereof. "Theater Renovation Completion" means that each of the following has occurred: (a) the renovation of the Theater has been completed substantially in accordance with this Agreement, the Plans and Specifications, the provisions of the Reciprocal Easement Agreement applicable to the Theater and all of the other Operative Documents to the extent that the development, renovation, use or operation of the Theater are affected thereby, except for the Main Project Punchlist Items applicable to the Theater and in substantial compliance with all Legal Requirements pertaining to the renovation of the Theater so as to allow the Theater to be utilized for its intended purpose; (b) reasonable and safe means of access and facilities necessary for the use and occupancy of the Theater have been installed and are operational including corridors, elevators, stairways, heating, ventilation, air conditioning, sanitary, water and electrical facilities and all security systems and life safety systems required by the Plans and Specifications, the Reciprocal Easement Agreement, the other Operative Documents and all Legal Requirements; and (c) there are no outstanding claims or Liens by any Contractor or Subcontractor or any other Person against any portion of the Hotel/Casino Component except for Permitted Liens and Permitted Encumbrances. "Theater Space" means the property and the space described in Exhibit N-7 hereto. 67 "Title Insurer" means, collectively, Stewart Title Guaranty Company and Lawyers Title Insurance Corporation. "Title Policy" means each lenders A.L.T.A. policy of title insurance issued by the Title Insurer as of the Effective Date, as provided in Section 3.1.25 of the Disbursement Agreement, including all amendments thereto, endorsements thereof and substitutions or replacements therefor. "Total Debt" means, on any date, the outstanding principal amount of all Indebtedness of the Borrower of the type described in clauses (a), (b) and (c) of such definition and (without duplication) any Contingent Liability in respect of any of the foregoing of any other Person. "Total Debt to EBITDA Ratio" means, as of the close of any Fiscal Quarter, commencing with the close of the Fiscal Quarter in which the Conversion Date occurs, the ratio of (a) Total Debt outstanding on the last day of such Fiscal Quarter to (b) EBITDA computed for the period consisting of such Fiscal Quarter (or such shorter portion of any Fiscal Quarter after the occurrence therein of the Conversion Date) and each of the three immediately preceding Fiscal Quarters (or such lesser number of Fiscal Quarters to have closed since the Conversion Date) and determined for any period ending on or prior to the first anniversary of the Conversion Date, consistently with the proviso to the definition of the term "EBITDA". "Trade Detail Report" means a Trade Detail Report in the form of Exhibit DD hereto. "Trademark Security Agreement" means, on any date, the Trademark Security Agreement executed and delivered by an Authorized Representative of the Borrower pursuant to Section 5.1.6, as originally in effect on the Closing Date, in substantially the form of Exhibit B to the Security Agreement and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified. "Transaction" means the transactions contemplated by the Discount Note Indenture and the Operative Documents. "Trust" means the Trust under Article Sixth u/w/o Sigmund Sommer. "Trust Estate" is defined in the Deed of Trust. "type" means, relative to any Loan, the portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan. 68 "UCC" means the Uniform Commercial Code of the jurisdiction the law of which governs the document with respect to the term used. "Unallocated Contingency Balance" means (w) during the first month after the Effective Date, the greater of (1) $24,000,000 or (2) the Unallocated Contingency Calculation, (x) during the second month after the Effective Date, the greater of $23,000,000 or (2) the Unallocated Contingency Calculation, (y) during the third month after the Effective Date, the greater of $22,000,000 or (2) the Unallocated Contingency Calculation, and (z) thereafter, from time to time, the Unallocated Contingency Calculation. "Unallocated Contingency Calculation" means an amount equal to (x) $25,000,000 minus (y) the product of (1) $25,000,000 multiplied by (2) the percentage of construction completed on the date that the Advance is to be made, as determined by the Construction Consultant. "United States" or "U.S." means the United States of America, its fifty states and the District of Columbia. "Unsuitable Lender" is defined in clause (c) of Section 4.11. "Voting Stock" means, with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. "Warrant" means the warrants issued by Enterprises on February 18, 1998 which, if exercised, will in the aggregate for all such warrants entitle the holders thereof to acquire an aggregate of not more than 2,215,000 shares of the Capital Stock of Enterprises representing an indirect interest in not more than 10% of the Holdings Common Membership Interests, plus, warrants for up to 1,107,500 shares of the Capital Stock of Enterprises which may be issued in connection with the Mall Project credit enhancement on terms substantially the same as the Warrants issued by Enterprises on February 18, 1998. "Weighted Average Life to Maturity" means, relative to any Indebtedness at any date, the number of years (calculated to the nearest one-twelfth) obtained as the quotient of (x) the sum of the product of (1) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, multiplied by (2) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment divided by (y) the then outstanding principal amount or liquidation preference, as applicable, of such Indebtedness. "Welfare Plan" means a "welfare plan", as such term is defined in Section 3(1) of ERISA. 69 "wholly-owned" means, with respect to any direct or indirect Subsidiary, any Subsidiary all of the outstanding common stock (or similar equity interest) of which (other than any director's qualifying shares or investments by foreign nationals mandated by applicable laws) is owned directly or indirectly by the Borrower. "Work" is defined in Section 1.7 of the Design/Build Contract. SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in each other Loan Document, the Disclosure Schedule, or any Borrowing Request, Letter of Credit Issuance Request, Continuation/Conversion Notice, Compliance Certificate, notice or other communications delivered from time to time in connection with this Agreement or any other Loan Document. SECTION 1.3. Cross-References. Unless otherwise specified, references in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any item or clause are references to such item or clause of such Article, Section or definition. SECTION 1.4. Accounting and Financial Determinations. Unless otherwise specified, all accounting terms used herein or in any other Loan Document shall be interpreted, and all accounting determinations and computations hereunder or thereunder (including under Section 7.2.4) shall be made, in accordance with, those generally accepted accounting principles ("GAAP") applied in the United States or, if applicable, the United Kingdom in the preparation of the financial statements referred to in Section 5.1.4. Unless otherwise expressly provided, all financial covenants and defined financial terms for the Person covered thereby shall be computed on a consolidated basis for such Person and its Subsidiaries, in each case, without duplication. ARTICLE II COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES, NOTES AND LETTERS OF CREDIT SECTION 2.1. Commitments. On the terms and subject to the conditions of this Agreement (including Sections 2.1.4 and 2.1.5 and Article V), (a) each Lender severally agrees to make Loans pursuant to its Commitments, in each case as described in this Section 2.1; and 70 (b) the Issuer agrees that it will issue Letters of Credit pursuant to Section 2.1.2, and each other Lender that has a Term A Loan Commitment severally agrees that it will purchase participation interests in such Letters of Credit pursuant to Section 2.6.1. No Lender shall have any liability for the failure of another Lender to make its Commitment Amount available or to advance such Lender's Percentage of any Loans to be made to the Borrower. SECTION 2.1.1. Term A Loan Commitment. From time to time on any Business Day occurring from and after the date on which the proceeds of all Term B Loans and Term C Loans have been disbursed from the Bank Proceeds Account but prior to the Term A Loan Commitment Termination Date, each Lender that has a Term A Loan Commitment will make a loan (relative to such Lender, its "Term A Loan") to the Borrower equal to such Lender's Percentage of the aggregate amount of each Borrowing of the Term A Loans requested by the Borrower to be made on such day; provided, however, that each Lender may make Term A Loans prior to the date on which the proceeds of the Term B Loans and Term C Loans have been disbursed from the Bank Proceeds Account so long as the proceeds of such Loans are used to reimburse the Issuer for, or fund the drawings of, Letters of Credit. The Commitment of each such Lender described in this Section 2.1.1 is herein referred to as its "Term A Loan Commitment". On the terms and subject to the conditions hereof, the Borrower may from time to time borrow and prepay the Term A Loans but no amount paid or prepaid with respect to the Term A Loans may be reborrowed. SECTION 2.1.2. Letter of Credit Commitment. From time to time on any Business Day occurring from and after the date on which the Term B Loans and the Term C Loans have been funded into the Bank Proceeds Account but prior to the second Business Day immediately preceding the Conversion Date, the Issuer will (a) issue one or more standby letters of credit (relative to such Issuer, its "Letter of Credit") for the account of the Borrower in the Stated Amount requested by the Borrower on such day; or (b) extend the Letter of Credit Stated Expiry Date of an existing Letter of Credit previously issued in accordance with clause (a) of this Section 2.1.2 to a date not later than the earlier of (x) the Business Day immediately preceding the Conversion Date and (y) one year from the date of such extension. SECTION 2.1.3. Term B Loan and Term C Loan Commitments. In a single Borrowing on the Closing Date, each Lender that has a Term B Loan Commitment or a Term C Loan Commitment, as applicable, (a) will make a loan (relative to such Lender, its "Term B Loan") equal to such Lender's Percentage of the aggregate amount of the Borrowing of Term B Loans to be 71 made to the Borrower on such day (with the commitment of each such Lender described in this clause (a) herein referred to as its "Term B Loan Commitment"); and (b) will make a loan (relative to such Lender, its "Term C Loan") equal to such Lender's Percentage of the aggregate amount of the Borrowing of Term C Loans to be made to the Borrower on such day (with the commitment of each such Lender described in this clause (b) herein referred to as its "Term C Loan Commitment"), in each case directly into the Bank Proceeds Account on behalf of the Borrower. On the terms and subject to the conditions hereof, the Borrower may prepay the Term B Loans or the Term C Loans but no amount paid or prepaid with respect to Term B Loans or Term C Loans may be reborrowed. SECTION 2.1.4. Lenders Not Permitted or Required to Make Loans. No Lender shall be permitted or required to make any Loan if, after giving effect thereto, the aggregate outstanding principal amount of (a) all Term A Loans (i) of all Lenders with a Term A Loan Commitment, together with the aggregate amount of all Letter of Credit Outstandings, would exceed the then existing aggregate amount of the Term A Loan Commitment Amounts, or (ii) of such Lender with a Term A Loan Commitment, together with such Lender's Percentage of the aggregate amount of all Letter of Credit Outstandings, would exceed such Lender's then existing Term A Loan Commitment Amount of such Lender; or (b) all Term B Loans or all Term C Loans (as the case may be) (i) of all Lenders made on the Closing Date would exceed the aggregate amount of the Term B Loan Commitment Amounts (in the case of Term B Loans) or the aggregate amount of the Term C Loan Commitment Amounts (in the case of Term C Loans), or (ii) of such Lender with a Term B Loan Commitment or with a Term C Loan Commitment, as applicable, made on the Closing Date would exceed such Lender's then existing Term B Loan Commitment Amount (in the case of Term B Loans) or then existing Term C Loan Commitment Amount (in the case of Term C Loans). SECTION 2.1.5. Issuer Not Permitted or Required to Issue Letters of Credit. No Issuer shall be permitted or required to issue any Letter of Credit if, after giving effect thereto, (x) the 72 aggregate amount of all Letter of Credit Outstandings would exceed the Letter of Credit Commitment Amount or (y) the sum of the aggregate amount of all Letter of Credit Outstandings plus the aggregate principal amount of all Term A Loans then outstanding would exceed the aggregate amount of the Term A Loan Commitment Amounts. SECTION 2.2. Reduction of the Term A Loan Commitment Amount. The Borrower may, from time to time on any Business Day occurring after the Effective Date, voluntarily reduce the aggregate amount of the Term A Loan Commitment Amounts on the Business Day so specified by the Borrower; provided, however, that all such reductions shall require at least one Business Day's prior notice to the Administrative Agent and be permanent, and any partial reduction of the aggregate amount Term A Loan Commitment Amounts shall be in a minimum amount of $1,000,000 and in an integral multiple of $500,000. The aggregate amount of all Term A Loan Commitments shall be reduced by the Administrative Agent, prior to the Term A Loan Commitment Termination Date, by an amount equal to any reduction in the Main Project Budget as approved by the Administrative Agent, the Borrower and the Construction Consultant. In addition to the foregoing, in the event that the Borrower does not enter into the Theater Lease with Aladdin Music, there shall be no investment by the Borrower in Aladdin Music, the amount set forth in the Main Project Budget as "Investment in Aladdin Music, LLC" shall be applied by the Borrower to pay for the costs of renovation of the Theater (based upon a renovation budget approved by the Administrative Agent as determined in good faith in its sole discretion), and the unadvanced portion of the aggregate amount of the Term A Loan Commitment Amounts shall be reduced dollar-for-dollar by the amount remaining in such line item. Upon any reduction of the aggregate amount of the Term A Loan Commitment Amounts under this Section, the Term A Loan Commitment Amount of each Term A Lender shall be reduced by an amount equal to such Lender's Percentage of such reduction. SECTION 2.3. Borrowing Procedure. Loans shall be made by the Lenders in accordance with this Section 2.3. SECTION 2.3.1. Borrowing Procedure. On the terms and subject to the conditions of this Agreement, by delivering a Borrowing Request to the Administrative Agent on or before 10:00 a.m., New York City time, on a Business Day, the Borrower may from time to time irrevocably request, on not less than one Business Day's notice in the case of Base Rate Loans, or three Business Days' notice in the case of LIBO Rate Loans, and in either case not more than five Business Days' notice, that a Borrowing be made. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the type of Loans, and shall be made on the Business Day, specified in such Borrowing Request. On or before 11:00 a.m. (New York City time) on such Business Day each Lender that has a Commitment to make the Loans being requested shall deposit with the Administrative Agent same day funds in an amount equal to such Lender's Percentage of the requested Borrowing. Such deposit will be made to an account which the Administrative Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the Lenders, the Administrative Agent shall make such funds available to the Disbursement Agent by wire transfer to the Bank Proceeds 73 Account or, if applicable, the Collection Account for distribution to the Borrower in accordance with the Disbursement Agreement. SECTION 2.3.2. Term A Loans. On the terms and subject to the conditions of this Agreement and the Disbursement Agreement prior to the Term A Loan Commitment Termination Date, the Borrower may from time to time irrevocably request that Term A Loans be made by the Lenders. Any such request for Term A Loans shall be made in accordance with Section 2.3.1 and Section 2.4 of the Disbursement Agreement; provided, however, that any of the Term A Loans which are advanced by the Lenders to reimburse the Issuer for or fund draws under a Letter of Credit shall be made in accordance with Sections 2.6.1 and 2.6.2. SECTION 2.3.3. Term B Loans and Term C Loans. On the terms and conditions of this Agreement prior to the Term B and Term C Loan Commitment Termination Date, the Borrower may irrevocably request that the Term B Loans and the Term C Loans be made by the Lenders on the Closing Date. Any such request for the Term B Loans and the Term C Loans shall be made in accordance with Section 2.3.1 and Section 2.4 of the Disbursement Agreement. The Term B Loans and the Term C Loans shall be made simultaneously and neither any Term B Loan nor any Term C Loan shall be made without all other such Loans being then made. The proceeds of the Term B Loans and the Term C Loans shall be made available by the Lenders, by wire transfer to the Bank Proceeds Account, for distribution pro rata by the Disbursement Agent in accordance with the Disbursement Agreement. SECTION 2.3.4. Additional Term B Loans and/or Term C Loans. (a) On the terms and subject to the conditions of this Agreement and the Disbursement Agreement prior to the date on which all of the Term B Loans and Term C Loans have been advanced from the Bank Proceeds Account, the Borrower may request in accordance with Section 2.3.1 and Section 2.4 of the Disbursement Agreement an additional borrowing of a loan to be deemed to have been made as a Term B Loan and/or a Term C Loan in an aggregate amount not exceeding $5,000,000 by (i) any of the Lenders, in each case, which agrees to make such loan or (ii) any commercial bank, fund or other financial institution reasonably acceptable to the Administrative Agent and the Borrower, in each case, which agrees to make such loan in a single borrowing on a Business Day prior to such date. The proceeds of such loan shall be made available by such institution by wire transfer to the Bank Proceeds Account, for distribution by the Disbursement Agent in accordance with the Disbursement Agreement. (b) Following the making of such loan, (i) such borrowing shall be deemed to be a Borrowing; (ii) such loan shall be deemed to have been made as a Term B Loan and/or a Term C Loan, as the case may be; (iii) the final amortization payment amount set forth under the headings on "Scheduled Repayment of Term B Loan" and "Scheduled Repayment of Term C Loan" in Schedule II hereto shall be increased by the amount of such made as a Term B Loan and Term C Loan, respectively; (iv)such institution shall be deemed to be a Term B Loan Lender and/or a Term C Loan Lender; (v) the Percentage of Term B Loans of each Term B Lender (including such institution) shall be adjusted to equal a fraction, the numerator of which 74 equals the amount of Term B Loans held by such Term B Lender (including, in the case of such institution, such loan) and the denominator of which equals the aggregate outstanding amount of all Term B Loans (including such loan); and (vi) the Percentage of Term C Loans of each Term C Lender (including such institution) shall be adjusted to equal a fraction, the numerator of which equals the amount of Term C Loans held by such Term C Lender (including, in the case of such institution, such loan) and the denominator of which equals the aggregate outstanding amount of all Term C Loans (including such loan). (c) Notwithstanding the date on which such loan was made by such institution or any provisions of the UCC, any applicable law or decision, each Lender agrees that all Liens and security interests created under any Loan Document in favor of the Lenders shall inure to the benefit of such institution as if such institution had made such loan on the Closing Date and such Liens and security interests shall be treated by such Lenders, on the one hand, and such institution, on the other hand, as having equal priority. SECTION 2.4. Continuation and Conversion Elections. By delivering a Continuation/Conversion Notice to the Administrative Agent on or before 10:00 a.m., New York City time, on a Business Day, the Borrower may from time to time irrevocably elect, on not less than one Business Day's notice in the case of Base Rate Loans, or three Business Days' notice in the case of LIBO Rate Loans, and in either case not more than five Business Days' notice, that all, or any portion in an aggregate minimum amount of $4,000,000 and an integral multiple of $1,000,000, in the case of LIBO Rate Loans, or an aggregate minimum amount of $4,000,000 and an integral multiple of $1,000,000, in the case of Base Rate Loans, be, in the case of Base Rate Loans, converted into LIBO Rate Loans or be, in the case of LIBO Rate Loans, converted into Base Rate Loans or continued as LIBO Rate Loans (in the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three Business Days (but not more than five Business Days) before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan); provided, however, that (x) each such conversion or continuation shall be pro rated among the applicable outstanding Loans of all Lenders that have made such Loans and (y) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing. SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its obligation to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; provided, however, that such LIBO Rate Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility. In addition, the Borrower hereby consents and agrees that, for purposes of any determination to be made for purposes of Section 4.1, 4.2, 4.3 or 4.4, it shall be conclusively assumed that each Lender elected to fund all LIBO Rate Loans by purchasing Dollar deposits in its relevant interbank eurodollar market. 75 SECTION 2.6. Letter of Credit Issuance Procedures. By delivering to the Administrative Agent a Letter of Credit Issuance Request on or before 10:00 a.m., New York City time, on a Business Day, the Borrower may from time to time irrevocably request, on not less than three nor more than ten Business Days' notice in the case of an initial issuance of a Letter of Credit for the account of the Borrower and not less than three Business Days' prior notice in the case of a request for the extension of the Letter of Credit Stated Expiry Date of a Letter of Credit, that the Issuer issue, or extend the Letter of Credit Stated Expiry Date of, as the case may be, an irrevocable Letter of Credit in such form as may be requested by the Borrower and approved by the Issuer, solely for the purposes described in Section 7.1.9(c). Each Letter of Credit shall by its terms be stated to expire on a date (its "Letter of Credit Stated Expiry Date") no later than the earlier to occur of (x) the Business Day immediately preceding the Conversion Date or (y) one year from the date of its issuance. The Issuer will make available to the beneficiary thereof the original of each Letter of Credit which it issues hereunder. The issuance of a Letter of Credit under this Section 2.6 shall be deemed to be a Borrowing under the Term A Loan Commitment in the face amount of such Letter of Credit. SECTION 2.6.1. Other Lenders' Participation. Upon the issuance of each Letter of Credit pursuant hereto, and without further action, each Term A Lender (other than the Issuer) shall be deemed to have irrevocably purchased, to the extent of its Letter of Credit Commitment, a participation interest in such Letter of Credit (including any Letter of Credit Reimbursement Obligation with respect thereto), and each Term A Lender shall, to the extent of its then existing Term A Loan Commitment Amount, be responsible for funding promptly (and in any event within one Business Day) to the Issuer the amount of any Letter of Credit Reimbursement Obligation which has not otherwise been reimbursed by the Borrower in accordance with Section 2.6.3. In addition, each Term A Lender shall, to the extent of its Term A Loan Commitment, be entitled to receive a ratable portion of the Letter of Credit fees payable pursuant to Section 3.3.3 with respect to each Letter of Credit (other than the issuance fees payable to the Issuer of such Letter of Credit pursuant to the last sentence of Section 3.3.3) and of interest payable pursuant to Section 3.2 with respect to any Letter of Credit Reimbursement Obligation. To the extent that a Term A Lender has reimbursed any Issuer for a Letter of Credit Disbursement as required by this Section, such Term A Lender shall be entitled to receive its ratable portion of any amounts subsequently received (from the Borrower or otherwise) in respect of such Letter of Credit Disbursement. The obligations of each Term A Lender under this Section 2.6.1 are obligatory on the part of each Term A Lender, such obligations of each Term A Lender shall be performed whether or not a Default or Event of Default exists hereunder and whether or not the conditions set forth in Section 3.2 of the Disbursement Agreement and Article V of this Agreement have been satisfied, shall be absolute, unconditional, and irrevocable, and shall be performed by each Term A Lender strictly in accordance with the terms and provisions of this Agreement, under any and all circumstances and irrespective of any set-off, counterclaim, or defense to payment which the Term A Lenders, individually or collectively, may have or have had against the Issuer, the other Lenders, the Administrative Agent or the Disbursement Agent, shall not be subject to the requirement that the Borrower reimburse the Issuer for any sight drafts presented under any Letter of Credit and shall be 76 independent of all of the obligations of the Borrower, the Lenders, the Administrative Agent and/or the Disbursement Agent. Notwithstanding anything to the contrary in this Section 2.6.1, so long as any Letter of Credit is outstanding, each of the Term A Lenders shall have the absolute obligation to make a Term A Loan to the Issuer on behalf of Borrower in accordance with Section 2.6.2. SECTION 2.6.2. Letter of Credit Disbursements. The Issuer will notify the Borrower and the Administrative Agent promptly of the presentment for payment of any Letter of Credit, together with notice of the date (the "Letter of Credit Disbursement Date") such payment shall be made (each such payment, a "Letter of Credit Disbursement"). Immediately thereafter, the Administrative Agent shall give telephonic and facsimile notice to the Term A Lenders of the presentation of such sight draft, the amount of such sight draft, the date on which payment thereon has been or will be made, and the Percentage of each Term A Lender in the amount of such sight draft together with a copy of the sight draft and accompanying documents. A copy of such sight draft, together with such accompanying documents, shall, for purposes of this Agreement, be deemed to be a Borrowing Request for a Term A Loan to each of the Term A Lenders (which, on the date of such Borrowing, shall bear interest at the Base Rate). Subject to the terms and provisions of such Letter of Credit, the Issuer shall make such Letter of Credit Disbursement to the beneficiary (or its designee) of such Letter of Credit. Prior to 11:00 a.m., New York City time, on the first Business Day following the date on which notice was given by the Administrative Agent to the Term A Lenders, the Term A Lenders shall advance as an obligatory advance hereunder a Term A Loan to the Administrative Agent (whether or not the Borrower has satisfied the conditions set forth in Section 3.2 of the Disbursement Agreement or Article V of this Agreement), for the account of the Issuer, in an amount equal to such Term A Lender's Percentage of the amount which the Issuer has disbursed under such Letter of Credit, together with interest thereon at a rate per annum equal to the rate per annum then in effect for Base Rate Loans (with the then Applicable Base Rate Margin accruing on such amount) pursuant to Section 3.2 for the period from the Letter of Credit Disbursement Date through the date of such reimbursement. The Term A Loans made pursuant to this Section 2.6.2 shall be applied to the payment of such sight draft (and at the election of the Issuer be advanced directly to the beneficiary) and shall not be used for any other purpose. Without limiting in any way the foregoing and notwithstanding anything to the contrary contained herein or in any separate application for any Letter of Credit, the Borrower hereby acknowledges and agrees that it shall be obligated to reimburse the Issuer upon each Letter of Credit Disbursement by means of a Borrowing of Term A Loans made pursuant to this Section 2.6.2. SECTION 2.6.3. Reimbursement. The obligation (a "Letter of Credit Reimbursement Obligation") of the Borrower under Section 2.6.2 to reimburse the Issuer with respect to each Letter of Credit Disbursement (including interest thereon), and, upon the failure of the Borrower to reimburse the Issuer, each Term A Lender's obligation under Section 2.6.1 to reimburse the Issuer, shall be absolute, unconditional and irrevocable under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower or such Term A Lender, as the case may be, may have or have had against the Issuer or any other Term A 77 Lender, including any defense based upon the failure of any Letter of Credit Disbursement to conform to the terms of the applicable Letter of Credit (if, in the Issuer's good faith opinion, such Letter of Credit Disbursement is determined to be appropriate) or any non-application or misapplication by the beneficiary of the proceeds of such Letter of Credit; provided, however, that after paying in full its Letter of Credit Reimbursement Obligation hereunder, nothing herein shall adversely affect the right of the Borrower or such other Term A Lender, as the case may be, to commence any proceeding against the Issuer for any wrongful Letter of Credit Disbursement made by the Issuer under a Letter of Credit as a result of acts or omissions constituting gross negligence or wilful misconduct on the part of the Issuer. SECTION 2.6.4. Deemed Letter of Credit Disbursements. Upon the occurrence and during the continuance of any Default of the type described in Section 8.1.10 or, with notice from the Administrative Agent, upon the occurrence and during the continuance of any other Event of Default, (a) an amount equal to that portion of all Letter of Credit Outstandings attributable to the then aggregate amount which is undrawn and available under all Letters of Credit issued and outstanding hereunder shall, without demand upon or notice to the Borrower, be deemed to have been paid or disbursed by the Issuer under such Letters of Credit (notwithstanding that such amount may not in fact have been so paid or disbursed); and (b) upon notification by the Administrative Agent to the Borrower of its obligations under this Section, the Borrower shall be immediately obligated to reimburse the Issuer for the amount deemed to have been so paid or disbursed by such Issuer, in which case the last four sentences of Section 2.6.2 shall apply. Any amounts so payable by the Borrower pursuant to this Section 2.6.4 shall be deposited in cash with the Administrative Agent and held as collateral security for the Obligations in connection with the Letters of Credit issued by the Issuer, and the Administrative Agent shall make disbursements thereof from time to time to reimburse the Issuer for payments made by the Issuer with respect to Letters of Credit. At such time when the Default or Events of Default giving rise to the deemed disbursements hereunder shall have been cured or waived, the Administrative Agent shall return to the Borrower all amounts then on deposit with the Administrative Agent pursuant to this Section which have not been applied to the partial satisfaction of such Obligations. SECTION 2.6.5. Nature of Letter of Credit Reimbursement Obligations. The Borrower and, to the extent set forth in Section 2.6.1, each Term A Lender shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. The Issuer (except to the extent of its own gross negligence or wilful misconduct) shall not be responsible for: 78 (a) the form, validity, sufficiency, accuracy, genuineness or legal effect of any Letter of Credit or any document submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (b) the form, validity, sufficiency, accuracy, genuineness or legal effect of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or the proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (c) failure of the beneficiary to comply fully with conditions required in order to demand payment under a Letter of Credit; (d) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, facsimile or otherwise; or (e) any loss or delay in the transmission or otherwise of any document or draft required in order to make a Letter of Credit Disbursement under a Letter of Credit. None of the foregoing shall affect, impair or prevent the vesting of any of the rights or powers granted to the Issuer or any Term A Lender hereunder. In furtherance and not in limitation or derogation of any of the foregoing, any action taken or omitted to be taken by an Issuer in good faith (and not constituting gross negligence or willful misconduct) shall be binding upon the Borrower and each such Term A Lender, and shall not put such Issuer under any resulting liability to the Borrower or any such Term A Lender, as the case may be. SECTION 2.7. Notes. Each Lender's Loans under a Commitment shall be evidenced by a Note payable to the order of such Lender in a maximum principal amount equal to such Lender's original applicable Commitment Amount. The Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Note (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal of, and the interest rate and Interest Period applicable to the Loans evidenced thereby. Such notations shall be conclusive and binding on the Borrower absent manifest error; provided, however, that the failure of any Lender to make any such notations shall not limit or otherwise affect any Obligations of the Borrower or any other Obligor. SECTION 2.8. Registered Notes. (a) Any Lender may request the Borrower (through the Administrative Agent), and the Borrower agrees (i) to exchange for any Notes held by such Lender, or (ii) to issue to such Lender on the date it becomes a Lender, promissory notes(s) registered as provided in clause (b) of this Section 2.8 (each, a "Registered Note"), to be in substantially the form agreed to by the Borrower and such Lender. Registered Notes may not be exchanged for Notes that are not Registered Notes. 79 (b) The Borrower shall maintain, or cause to be maintained, a register (the "Register") (which, at the request of the Borrower, shall be kept by the Administrative Agent of behalf of the Borrower at no extra charge to the Borrower at the address to which notices to the Administrative Agent are to be sent under this Agreement) on which it enters the name of the registered owner of the Lender Obligations(s) evidenced by a Registered Note. (c)The Register shall be available for inspection by the Borrower and any Lender at any reasonable time upon reasonable (but in any event not less than 10 business Days) prior written notice. ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1. Repayments and Prepayments; Application. SECTION 3.1.1. Repayments and Prepayments. The Borrower shall repay in full the unpaid principal amount of each Loan upon the applicable Stated Maturity Date therefor. Prior thereto, payments and prepayments of Loans shall or may be made as set forth below. (a)(i) From time to time on any Business Day, the Borrower may make a voluntary prepayment, in whole, of the outstanding principal amount of any Term A Loan, provided, however, that (A) All such voluntary prepayments shall require at least one but no more than five Business Days' prior written notice to the Administrative Agent; and (B) All such voluntary partial prepayments shall be, in the case of LIBO Rate Loans, in an aggregate minimum amount of $4,000,000 and an integral multiple of $1,000,000 and, in the case of Base Rate Loans, in an aggregate minimum amount of $4,000,000 and an integral multiple of $1,000,000. (ii) From time to time on any Business Day after the second anniversary of the Effective Date, the Borrower may make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any Term B Loan or Term C Loan; provided, however, that (A) any such prepayment of such Loans shall be made pro rata among such Loans of the same type and, if applicable, having the same Interest Period of all Lenders that have made such Loans (with the 80 amounts so allocated being applied to the remaining amortization payments for such Loans in such amounts as the Borrower shall determine); (B) all such voluntary prepayments shall require at least one but no more than five Business Days' prior written notice to the Administrative Agent; (C) all such voluntary partial prepayments shall be, in the case of LIBO Rate Loans, in an aggregate minimum amount of $4,000,000 and an integral multiple of $1,000,000 and, in the case of Base Rate Loans, in an aggregate minimum amount of $4,000,000 and an integral multiple of $1,000,000; and (D) shall be accompanied by a premium equal to the product of (1) the percentage set forth opposite the 12-month period ending on the anniversary of the Effective Date in which such prepayment is made multiplied by (2) the amount then prepaid:
Third Anniversary: 3.00% Fourth Anniversary: 2.00% Fifth Anniversary: 1.00% Each Anniversary Thereafter: 0%
(b) From and after the Conversion Date, the principal amount of the Term A Loans, the Term B Loans and the Term C Loans shall be amortized (the "Scheduled Amortization") on the dates and in the amounts set forth on Schedule II. (c) From and after the Conversion Date, the Borrower shall make mandatory prepayments of principal (the "Mandatory Prepayments") of all Loans in addition to the Scheduled Amortization on the dates and in the amounts set forth in Schedule III; provided, however, on any date on which a Mandatory Prepayment is to be made, any Term B Lender or a Term C Lender may elect not to receive its portion of such Mandatory Prepayment in which case 50% of the portion of the Mandatory Prepayment which was to have been made to such Lender shall be paid pro rata to (x) the Term B Lenders and the Term C Lenders and which have elected to receive their portions of such Mandatory Prepayment and (y) the Term A Lenders which have made a Term A Loan (up to the outstanding amount of the Term A Loans), and upon the payment of such 50% portion of such Mandatory Prepayment, the Borrower shall be deemed to have satisfied its obligations to make such Mandatory Prepayment. Except as set forth in the proviso of the immediately preceding sentence, Mandatory Prepayments will be applied pro rata in inverse order among the Term A Loan, the Term B Loan and the Term C Loan. 81 (d) If the entire "Investment in Aladdin Music, LLC" has been advanced from the Commitments, the Borrower shall make a mandatory prepayment of principal (the "Music Investment Prepayment") of all Term A Loans within 5 days after request by the Administrative Agent to the Borrower by an amount equal to the excess of the amount set forth in the Main Project Budget as "Investment in Aladdin Music, LLC" over the costs of renovation of the Theater; and upon the payment of such Music Investment Prepayment, the Borrower shall be deemed to have satisfied its obligations to make such Music Investment Prepayment. (e) In addition to the Scheduled Amortization, the Mandatory Prepayments and the Music Investment Prepayments, the entire outstanding principal balance of all Loans shall become immediately due and payable (and any outstanding Letters of Credit shall be cash collateralized as contemplated by Section 2.6.4), and the obligation of any Term A Lender to make a Term A Loan (except as otherwise required under Section 2.6.2) or the Issuer to issue any Letters of Credit shall automatically terminate (a) upon a sale, transfer or conveyance of or borrowing against (whether or not secured by) the Hotel/Casino not otherwise permitted under the Loan Documents, (b) a Change in Control, or (c) if no disbursement of any proceeds of the Term B Loan or the Term C Loan is made from the Bank Proceeds Account within 12 months after the Closing Date (subject, however, to Force Majeure Events). Any repayment of the aggregate principal amount of the Term B Loan and the Term C Loan which is due with respect to a Change in Control shall be accompanied by a premium equal to the product of (x) the aggregate principal amount of the Term B Loans and the Term C Loans then outstanding multiplied by (y) 1%. SECTION 3.1.2. Application. Amounts paid or prepaid pursuant to Section 3.1.1 shall be applied as set forth in this Section. (a) So long as no Event of Default has occurred and is continuing, the Lenders shall apply all amounts received in accordance with the provisions of this Agreement first, to all Obligations (other than principal and interest on the Loans), second, to accrued and unpaid interest on the Loans, third, to the outstanding principal amount of the Loans being maintained as Base Rate Loans, and fourth, to the outstanding principal amount of the Loans being maintained as LIBO Rate Loans; provided, however, that Music Investment Prepayments, Mandatory Prepayments and Scheduled Amortization of LIBO Rate Loans, if not made on the last day of the Interest Period with respect thereto, shall be prepaid subject to the provisions of Section 4.4. (b) After an Event of Default has occurred and so long as such Event of Default is continuing, all amounts received by the Lenders shall be applied first, to the costs and expenses of protecting and preserving the security interests of the Lenders under the Loan Documents, second, to the costs and expenses of protecting and preserving the Main Project, third, to the costs and expenses of enforcing the rights of the Lenders 82 under this Agreement and the other Operative Documents, fourth, to all other Obligations due under this Agreement and the other Operative Documents (other than principal and interest on the Loans), fifth, to the Lenders for accrued and unpaid interest on the Loans and to the Lenders for all amounts due to them or their Affiliates under any Rate Protection Agreements, sixth, to the aggregate outstanding principal balance of the Term A Loans, then to the aggregate outstanding principal balance of the Term B Loans and then to the aggregate outstanding principal balance of the Term C Loans and, after all amounts evidenced and secured by the Loan Documents have been indefeasibly paid in full and the Borrowers have performed their obligations under the Loan Documents, the balance, if any, shall be delivered to the Borrower. (c) Each payment and prepayment of the principal amount of the Loans shall be applied to the outstanding principal amount of Loans of such Borrower in inverse order of maturity. SECTION 3.2. Interest Provisions. Interest on the outstanding principal amount of Loans and the Letter of Credit Reimbursement Obligations shall accrue and be payable in accordance with this Section 3.2. SECTION 3.2.1. Rates. Subject to Section 2.3.2, pursuant to an appropriately delivered Borrowing Request or Continuation/Conversion Notice, the Borrower may elect that Loans comprising a Borrowing accrue interest at a rate per annum: (a) on that portion maintained from time to time as a Base Rate Loan, equal to the sum of the Alternate Base Rate from time to time in effect plus the Applicable Base Rate Margin; and (b) on that portion maintained as a LIBO Rate Loan, during each Interest Period applicable thereto, equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the Applicable LIBO Rate Margin. All LIBO Rate Loans shall bear interest from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such LIBO Rate Loan. SECTION 3.2.2. Post-Maturity Rates. After the date any principal amount of any Loan or Letter of Credit Reimbursement Obligation is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise), or after any other monetary Obligation of the Borrower shall have become due and payable, the Borrower shall pay, but only to the extent permitted by law, interest (after as well as before judgment) on such amounts at a rate per annum equal to (a) in the case of any overdue amounts in respect of Loans or other obligations (or the related Commitments) relative thereto, the rate that would otherwise be applicable to such Loans made as Base Rate Loans pursuant to Section 3.2.1 plus 2% and (b) in the case of 83 other overdue monetary Obligations, the rate that would otherwise be applicable to Term A Loans made as Base Rate Loans pursuant to Section 3.2.1 plus 2%. SECTION 3.2.3. Payment Dates. Interest accrued on each Loan shall be payable, without duplication: (a) on the Stated Maturity Date therefor; (b) on the date of any payment or prepayment, in whole or in part, of principal outstanding on such Loan on the principal amount so paid or prepaid; (c) with respect to Base Rate Loans, on each Quarterly Payment Date occurring after the Effective Date; (d) with respect to LIBO Rate Loans, on the last day of each applicable Interest Period (and, if such Interest Period shall exceed three months, on each Quarterly Payment Date during such Interest Period); (e) with respect to any Base Rate Loans converted into LIBO Rate Loans on a day when interest would not otherwise have been payable pursuant to clause (c), on the date of such conversion; and (f) on that portion of any Loan the Stated Maturity Date of which is accelerated pursuant to Section 8.2 or Section 8.3, immediately upon such acceleration. Interest accrued on Loans or other monetary Obligations arising under this Agreement or any other Loan Document after the date such amount is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise) shall be payable upon demand. SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth in this Section 3.3. All such fees shall be non-refundable. SECTION 3.3.1. Commitment Fee. From and after the Effective Date and until the Conversion Date, a non-refundable fee (the "Term A Loan Commitment Fee") in the amount of one-half percent per annum of the aggregate amount of the then existing Term A Loan Commitment Amounts shall accrue on the daily average of the aggregate amount of the then existing Term A Loan Amount. The Term A Loan Commitment Fee shall be payable in arrears to the Term A Lenders on each Quarterly Payment Date in proportion to such Term A Lenders' respective then existing Term A Loan Commitment Amount. SECTION 3.3.2. Agency Fee. The Borrower agrees to pay to the Administrative Agent, for its own account, the fees in the amounts and on the dates set forth in the Fee Letters. 84 SECTION 3.3.3. Letter of Credit Fee. From and after the date that a Letter of Credit is issued until such time as such Letter of Credit is fully drawn or, if applicable, returned to the Issuer, the Borrower agrees to pay to the Administrative Agent, for the account of the Term A Lenders, a Letter of Credit fee in an amount equal to the then Applicable Margin for Term A Loans maintained as LIBO Rate Loans (whether or not advanced by the Lenders), multiplied by the Stated Amount of such Letter of Credit, such fees being payable on each Quarterly Payment Date in arrears to the Term A Lenders in proportion to such Term A Lenders' respective Percentage of the Stated Amount of such Letter of Credit. The Borrower further agrees to pay in advance on each Quarterly Payment Date to the Issuer the issuance fee as specified in the Scotiabank Fee Letter. SECTION 3.3.4. Other Fees. The Borrower agrees to pay the Administrative Agent, for the account of the Person entitled thereto, without duplication, all other fees described in the Fee Letters when and as due and payable in accordance with the terms of the Fee Letters. ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 4.1. LIBO Rate Lending Unlawful. If any Lender shall determine (which determination shall, upon notice thereof to the Administrative Agent, the Borrower and the other Lenders, be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to make, continue or maintain any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of such Lender to make, continue, maintain or convert any such LIBO Rate Loan shall, upon such determination, forthwith be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and all outstanding LIBO Rate Loans shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto, or sooner, if required by such law or assertion. SECTION 4.2. Deposits Unavailable. If the Administrative Agent shall have determined that (a) Dollar deposits in the relevant amount and for the relevant Interest Period are not available to the Administrative Agent in its relevant market; or (b) by reason of circumstances affecting the Administrative Agent's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans, 85 then, upon notice from the Administrative Agent to the Borrower and the Lenders, the obligations of all Lenders under Section 2.3 and Section 2.4 to make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans shall forthwith be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. SECTION 4.3. Increased LIBO Rate Loan Costs, etc. The Borrower agrees to reimburse each Lender for any increase in the cost to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, making, continuing or maintaining (or of its obligation to make, continue or maintain) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans that arises in connection with any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in after the date hereof of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other governmental authority, except for such changes with respect to increased capital costs and taxes which are governed by Sections 4.5 and 4.6, respectively. Such Lender shall promptly notify the Administrative Agent and the Borrower in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Lender for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrower directly to such Lender within five days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. Without limiting the foregoing, in the event that, as a result of any such change, introduction, adoption or the like described above, the LIBOR Reserve Percentage decreases for any Lender's LIBO Rate Loans, such Lender shall give prompt notice thereof in writing to the Administrative Agent and the Borrower. The LIBO Rate (Reserve Adjusted) attributable to such Lender's LIBO Rate Loans shall be adjusted to give the Borrower the benefit of such decrease (for so long as such decrease shall remain in effect). SECTION 4.4. Funding Losses. In the event any Lender shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loans on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.1 or otherwise; (b) any Loans not being made as LIBO Rate Loans in accordance with the Borrowing Request therefor; or 86 (c) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/Conversion Notice therefor, then, upon the written notice of such Lender to the Borrower (with a copy to the Administrative Agent), the Borrower shall, within five days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.5. Increased Capital Costs. If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other governmental authority affects or would affect the amount of capital required or expected to be maintained by any Lender or any Person controlling such Lender, and such Lender determines (in good faith but in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of the Commitments or the Loans made, or the Letters of Credit participated in, by such Lender is reduced to a level below that which such Lender or such controlling Person could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by such Lender to the Borrower, the Borrower shall immediately pay directly to such Lender additional amounts sufficient to compensate such Lender or such controlling Person for such reduction in rate of return. A statement of such Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. In determining such amount, such Lender may use any method of averaging and attribution that it (determines in good faith in its sole and absolute discretion) shall deem applicable. SECTION 4.6. Lender's Tax. All payments by the Borrower of principal of, and interest on, the Credit Extensions and all other amounts payable hereunder (including fees) shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Lender's net income or receipts (each such non-excluded item being called a "Lender's Tax"). In the event that any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Lender's Tax pursuant to any applicable law, rule or regulation, then the Borrower will (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Administrative Agent an official receipt or other documentation satisfactory to the Administrative Agent evidencing such payment to such authority; and 87 (c) pay to the Administrative Agent for the account of the Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Moreover, if any Lender's Tax is directly asserted against the Administrative Agent or any Lender with respect to any payment received by the Administrative Agent or such Lender hereunder, the Administrative Agent or such Lender may pay such Lender's Tax and the Borrower will promptly pay such additional amounts (including any penalties, interest or expenses) as is necessary in order that the net amount received by such Person after the payment of such Lender's Tax (including any Lender's Tax on such additional amount) shall equal the amount such Person would have received had not such Lender's Tax been asserted. If the Borrower fails to pay any Lender's Tax when due to the appropriate taxing authority or fails to remit to the Administrative Agent, for the account of the respective Lenders, the required receipts or other required documentary evidence, the Borrower shall indemnify the Lenders for any incremental Lender's Tax, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 4.6, a distribution hereunder by the Administrative Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrower. Upon the request of the Borrower or the Administrative Agent, each Lender that is organized under the laws of a jurisdiction other than the United States or a State thereof (for purposes of this Section 4.6, a "Non-U.S. Lender") shall, prior to the date on which any Loan is made or Letter of Credit is issued hereunder (or in the case of a Lender that becomes a party to this Agreement pursuant to Section 4.11 or any Assignee Lender, before it becomes a party hereto) (a) execute and deliver to the Borrower and the Administrative Agent one or more (as the Borrower or the Administrative Agent may reasonably request) United States Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or documents (or successor forms or documents), appropriately completed, certifying in each case that such Lender or Assignee Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, and an applicable Internal Revenue Service Form W-8 or Form W-9 or successor applicable form (if required by law), as the case may be, to establish an exemption from United States backup withholding tax or (b) if such Non-U.S. Lender is not a "bank" or other person described in Section 881 (c) (3) of the Code and cannot deliver either Form 4224 or Form 1001 pursuant to clause (a) above, execute and deliver to the Borrower and the Administrative Agent one or more (as the Borrower or Administrative Agent may reasonably request) copies of the Tax Certificate, Form W-8 (or any successor form) and any other certificate or statement of exemption required under the Code or Treasury Regulations issued thereunder, appropriately completed, certifying that such Lender or Assignee Lender is entitled to receive payments under this Agreement without deduction or withholding of United States federal income tax and establishing an exemption from United States backup withholding tax. All Lenders other than Non-U.S. Lenders shall, prior to the date 88 on which any Loan is made or Letter of Credit is issued hereunder (or in the case of a Lender that becomes a party to this Agreement pursuant to Section 4.11 or is an Assignee Lender, before such Lender becomes a party hereto), execute and deliver to the Borrower and the Administrative Agent one or more copies (as the Borrower or Administrative Agent may reasonably request) of United States Internal Revenue Form W-9 or successor applicable form (if required by law), as the case may be, to establish exemption from United States backup withholding tax. Each Lender which undertakes to deliver to the Borrower a Tax Certificate, a Form 4224, Form 1001, Form W-8 or Form W-9 pursuant to the preceding paragraph shall further undertake to deliver to the Borrower two further copies of said Tax Certificate, Form 4224, Form 1001, Form W-8 or Form W-9 (if required by law), or successor applicable forms, or other manner of certification, as the case may be, on or before the date that such form expires or becomes obsolete or after the occurrence of an event requiring a change in the most recent form delivered by it to the Borrower and the Administrative Agent, and such extensions or renewals thereof as may be reasonably requested by the Borrower or Administrative Agent, certifying in the case of a Tax Certificate, Form 4224 or Form 1001 that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless in any case an event (including any change in treaty, law or regulation) has occurred prior to the date on which such delivery would otherwise be required which renders all forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or Form W-9, establishing an exemption from backup withholding. In the event that any Sponsor, Indemnitor or Guarantor is required to make a payment pursuant to a Completion Guaranty, Keep-Well Agreement, Environmental Indemnity or other agreement entered into pursuant hereto, such Persons shall have the same rights as the Borrower or Administrative Agent (as described above) to obtain from the Lenders the appropriate Internal Revenue Service Forms certifying that the Lenders are entitled to receive such payments from such Persons without deduction or withholding for United States federal income taxes and without backup withholding tax. SECTION 4.7. Payments, Computations, etc. Unless otherwise expressly provided, all payments by the Borrower pursuant to this Agreement, the Notes, each Letter of Credit or any other Loan Document shall be made by the Borrower to the Administrative Agent for the pro rata account of the Lenders entitled to receive such payment. All such payments required to be made to the Administrative Agent shall be made, without setoff, deduction or counterclaim, not later than 11:00 a.m., New York City time, on the date due, in same day or immediately available funds, to such account as the Administrative Agent shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Administrative Agent on the next succeeding Business Day. The Administrative Agent shall promptly remit in same day funds to each Lender its share, if any, of such payments received by the Administrative Agent for the account of such Lender. All interest (including interest on 89 LIBO Rate Loans) and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Loan (calculated at other than the Federal Funds Rate), 365 days or, if appropriate, 366 days). Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by clause (c) of the definition of the term "Interest Period") be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. SECTION 4.8. Sharing of Payments. If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Loan or Letter of Credit Reimbursement Obligation (other than pursuant to the terms of Section 4.3, 4.4, 4.5 or 4.6) in excess of its pro rata share of payments then or therewith obtained by all Lenders, such Lender shall purchase from the other Lenders such participations in Credit Extensions made by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (a) the amount of such selling Lender's required repayment to the purchasing Lender to (b) total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 4.9) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 4.9. Setoff. Each Lender shall, upon the occurrence and during the continuance of any Default described in clauses (a) through (e) of Section 8.1.10 or, with the consent of the Required Lenders, upon the occurrence and during the continuance of any other 90 Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it (whether or not then due), and (as security for such Obligations) the Borrower hereby grants upon the execution of this Agreement to each Lender a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter maintained with such Lender; provided, however, that any such appropriation and application shall be subject to the provisions of Section 4.8. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Lender may have. SECTION 4.10. Mitigation. Each Lender agrees that if it makes any demand for payment under Sections 4.3, 4.4, 4.5, or 4.6, or if any adoption or change of the type described in Section 4.1 shall occur with respect to it, it will use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, as determined in its sole discretion) to designate a different lending office if the making of such a designation would reduce or obviate the need for the Borrower to make payments under Sections 4.3, 4.4, 4.5, or 4.6, or would eliminate or reduce the effect of any adoption or change described in Section 4.1. SECTION 4.11. Replacement of Lenders. Each Lender hereby severally agrees as set forth in this Section. If (a) (i) any Lender (an "Affected Lender") makes demand upon the Borrower for (or if the Borrower is otherwise required to pay) amounts pursuant to Section 4.3, 4.4, 4.5 or 4.6 and the payment of such additional amounts are, and are likely to continue to be, more onerous in the reasonable judgment of the Borrower than with respect to the other Lenders or (ii) a Lender becomes a Defaulting Lender, the Borrower may, within 30 days of receipt by the Borrower of such demand or notice (or the occurrence of such other event causing the Borrower to be required to pay such compensation) or from the date that such Lender becomes a Defaulting Lender, as the case may be, give notice in writing to the Administrative Agent and such Affected Lender or such Defaulting Lender, as the case may be, of its intention to replace such Affected Lender or such Defaulting Lender, as the case may be, with a financial institution designated in such notice. The Administrative Agent and the Syndication Agent agree to use commercially reasonable efforts to assist the Borrower in replacing such Defaulting Lender. If the Administrative Agent shall, in the exercise of its reasonable discretion and within 30 days of its receipt of such notice, notify the Borrower and such Affected Lender or such Defaulting Lender, as the case may be, in writing that the designated financial institution is satisfactory to the Administrative Agent (such consent not being required where such financial institution is already a Lender or an Approved Fund), then such Affected Lender or such Defaulting Lender, as the case may be, shall, subject to the 91 payment of any amounts due pursuant to Section 4.4 by the Borrower, assign, in accordance with Section 10.11.1, all of its Commitments, Loans, Notes and other rights and obligations under this Agreement and all other Loan Documents (including Reimbursement Obligations, if applicable) to such designated financial institution; provided, however, that (i) such assignment shall be without recourse, representation or warranty (except as to (x) such Affected Lender's or such Defaulting Lender's, as the case may be, then existing Commitment Amount(s) and the outstanding principal amount of Loans held by such Affected Lender or such Defaulting Lender, as the case may be, and (y) the absence of Liens arising by, through and under the Affected Lender or such Defaulting Lender, as the case may be ) and shall be on terms and conditions reasonably satisfactory to such Affected Lender and such designated financial institution, (ii) the purchase price paid by such designated financial institution shall be in the amount of such Affected Lender's or such Defaulting Lender's, as the case may be, Loans and its Percentage of outstanding Reimbursement Obligations, together with all accrued and unpaid interest and fees in respect thereof, plus all other amounts (including the amounts demanded and unreimbursed under Sections 4.3, 4.5 and 4.6), owing to such Affected Lender or such Defaulting Lender, as the case may be, hereunder and (iii) the Borrower shall pay to such Affected Lender or such Defaulting Lender, as the case may be, and the Administrative Agent all reasonable out-of-pocket expenses incurred by such Affected Lender or such Defaulting Lender, as the case may be, and the Administrative Agent in connection with such assignment and assumption (including the processing fees described in Section 10.11.1). (b) If S&P, Moody's or Thompson's BankWatch (or InsuranceWatch Ratings Service, in the case of Lenders that are insurance companies (or Best's Insurance Reports, if such insurance company is not rated by Insurance Watch Ratings Service) (or Duff & Phelps, Inc. or Fitch Investor Services, Inc., if such Lender is neither an insurance company nor rated by S&P, Moody's or Thompson's BankWatch)) shall, after the date that any Person becomes a Lender and prior to the date that all of the Commitments of such Lender have been fully funded, downgrade the long-term certificate of deposit rating or long-term senior unsecured debt rating of such Lender (a "Downgraded Lender"), and the resulting ratings shall be below BBB-, Baa3 or C (or BB, in the case of Lender that is an insurance company (or B, in the case of an insurance company rated by Best's Insurance Reports (or BBB- or BBB-, in the case of a Lender which is neither rated by S&P, Moody's or Thompson's BankWatch nor an insurance company))), respectively, or the equivalent, the Borrower (or the Issuer) may, within 30 days of receipt by the Borrower (or the Issuer) of notice of such downgrade and while such downgrade is in effect, give notice in writing to the Administrative Agent and such Downgraded Lender (and the Borrower) of its intention to replace such Downgraded Lender (or have such Downgraded Lender replaced) with a financial institution designated in such notice (or another notice given by the Borrower at the request of the Issuer). If the Administrative Agent and the Issuer shall, in the exercise of their reasonable discretion and within 30 days of their receipt of such notice, notify the 92 Borrower and such Downgraded Lender in writing that the designated financial institution is satisfactory to the Administrative Agent and the Issuer (such consent not being required where such financial institution is already a Lender or an Approved Fund), then such Downgraded Lender shall, subject to the payment of any amounts due pursuant to Section 4.4 by the Borrower, assign, in accordance with Section 10.11.1, all of its Commitments, Loans, Notes and other rights and obligations under this Agreement and all other Loan Documents (including Reimbursement Obligations, if applicable) to such designated financial institution; provided, however, that (i) such assignment shall be without recourse, representation or warranty (except as to (x) such Downgraded Lender's then existing Commitment Amount(s) and the principal amount of Loans held by such Downgraded Lender and (y) the absence of Liens arising by, through and under the Downgraded Lender) and shall be on terms and conditions reasonably satisfactory to such Downgraded Lender and such designated financial institution, (ii) the purchase price paid by such designated financial institution shall be in the amount of such Downgraded Lender's Loans and its Percentage of outstanding Reimbursement Obligations, together with all accrued and unpaid interest and fees in respect thereof, plus all other amounts (including the amounts demanded and unreimbursed under Sections 4.3, 4.5 and 4.6), owing to such Downgraded Lender hereunder and (iii) the Borrower shall pay to the Downgraded Lender and the Administrative Agent all reasonable out-of-pocket expenses incurred by the Downgraded Lender and the Administrative Agent in connection with such assignment and assumption (including the processing fees described in Section 10.11.1). (c) If any Nevada Gaming Authority or any other gaming authority with jurisdiction over the gaming business of the Borrower, as the case may be, shall determine that any Lender (an "Unsuitable Lender") does not meet the suitability standards prescribed under any applicable Nevada Gaming Law or the suitability standards of such gaming authority, as the case may be, the Borrower may give notice in writing to the Administrative Agent and such Unsuitable Lender of its intention to replace such Unsuitable Lender with a financial institution designated in such notice. If the Administrative Agent shall, in the exercise of its reasonable discretion and promptly following its receipt of such notice, notify the Borrower and such Unsuitable Lender in writing that the designated financial institution is satisfactory to the Administrative Agent (such consent not being required where such financial institution is already a Lender or an Approved Fund), then such Unsuitable Lender shall, subject to the payment of any amounts due pursuant to Section 4.4 by the Borrower, assign, in accordance with Section 10.11.1, all of its Commitments, Loans, Notes and other rights and obligations under this Agreement and all other Loan Documents (including Reimbursement Obligations, if applicable) to such designated financial institution; provided, however, that (i) such assignment shall be without recourse, representation or warranty (except as to (x) such Unsuitable Lender's then existing Commitment Amount(s) and the principal amount of Loans held by such Unsuitable Lender and (y) the absence of Liens arising by, through and under the Unsuitable Lender) and shall be on terms and conditions 93 reasonably satisfactory to such Unsuitable Lender and such designated financial institution, (ii) the purchase price paid by such designated financial institution shall be in the amount of such Unsuitable Lender's Loans and its Percentage of outstanding Reimbursement Obligations, together with all accrued and unpaid interest and fees in respect thereof, plus all other amounts (including the amounts demanded and unreimbursed under Sections 4.3, 4.5 and 4.6), owing to such Unsuitable Lender hereunder and (iii) the Borrower shall pay to the Unsuitable Lender and the Administrative Agent all reasonable out-of-pocket expenses incurred by the Unsuitable Lender and the Administrative Agent in connection with such assignment and assumption (including the processing fees described in Section 10.11.1); provided further, however, that if the Borrower fails to find a substitute financial institution within any time specified by the appropriate gaming authority for the withdrawal of such Unsuitable Lender (the "Withdrawal Period"), the Borrower shall prepay in full the outstanding principal amount of the Loans made by such Unsuitable Lender (without giving effect to Section 4.8) and shall be deemed to have requested a reduction in each of the aggregate amounts of the Commitment Amounts relating to all Commitments held by such Lender, in each case, in an amount equal to such Unsuitable Lender's then existing Commitment Amounts. (d) Upon the effective date of an assignment described in clause (a), (b) or (c), the Borrower shall issue a replacement Note or Notes, as the case may be, to such replaced Lender and such institution shall become a "Lender" for all purposes under this Agreement and the other Loan Documents. Upon any such termination or assignment, such replaced Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of any provisions of this Agreement which by their terms survive the termination of this Agreement. ARTICLE V CONDITIONS TO CREDIT EXTENSIONS SECTION 5.1. Initial Credit Extension. The obligations of the Lenders to fund the Term B Loans and the Term C Loans into the Bank Proceeds Account (the "Closing") shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 5.1. SECTION 5.1.1. Satisfaction of Conditions Precedent to the Closing Date. The Borrower and Holdings shall satisfy in all material respects the conditions precedent to the Closing as set forth in Section 3.1 of the Disbursement Agreement. 94 SECTION 5.1.2. Delivery of Notes. The Administrative Agent shall have received, for the account of each Lender, such Lender's Notes duly executed and delivered by an Authorized Representative of the Borrower. SECTION 5.1.3. Pledge Agreements. The Administrative Agent shall have received, with counterparts for each Lender, (a) the Holdings Pledge Agreement, dated as of the Closing Date, duly executed and delivered by an Authorized Representative of Holdings, together with certificates evidencing all of issued and outstanding (x) Borrower Common Membership Interests and (y) Capital Stock of Capital, which certificates shall be accompanied by undated powers of transfer relating thereto duly executed in blank; (b) the LCNI Pledge Agreement from LCNI , dated as of the Closing Date, duly executed and delivered by an Authorized Representative of LCNI, together with certificates evidencing all of the Holdings Common Membership Interests of LCNI, which certificates shall be accompanied by undated powers of transfer relating thereto duly executed in blank; (c) the Sommer Enterprises Pledge Agreement, dated as of the Closing Date, duly executed and delivered by an Authorized Representative of Sommer Enterprises, together with (x) certificates evidencing all of the Holdings Common Membership Interests of Sommer Enterprises and (y) certificates evidencing all of the issued and outstanding shares of Capital Stock of Enterprises, subject to the rights of the holders of the Warrants both while such holders hold Warrants and on the exercise of such Warrants into shares of Capital Stock of Enterprise, which certificates shall be accompanied by undated powers of transfer relating thereto duly executed in blank; (d) the AHL Pledge Agreement, dated as of the Closing Date, duly executed and delivered by an Authorized Representative of AHL, together with certificates evidencing all of the Membership Interests of AHL in Sommer Enterprises, which certificates shall be accompanied by undated powers of transfer relating thereto duly executed in blank; (e) the Enterprises Pledge Agreement, dated as of the Closing Date, duly executed and delivered by an Authorized Representative of Enterprises, together with certificates evidencing all of the Holdings Common Membership Interests of Enterprises, which certificates shall be accompanied by undated powers of transfer relating thereto duly executed in blank; (f) the Borrower Pledge Agreement, dated as of the Closing Date, duly executed and delivered by an Authorized Representative of the Borrower, together with certificates evidencing all of the Membership Interests of the Borrower in AMH, which certificates 95 shall be accompanied by undated powers of transfer relating thereto duly executed in blank; and (g) the AMH Pledge Agreement, dated as of the Closing Date, duly executed and delivered by an Authorized Representative of AMH, together with certificates evidencing all of the Membership Interests of AMH in Aladdin Music, which certificates shall be accompanied by undated powers or transfer relating thereto duly executed in blank. SECTION 5.1.4. Financial Information, etc. The Administrative Agent shall have received prior to the Effective Date, with counterparts for each Lender, audited financial statements of each of the Borrower, the other Aladdin Parties, (other than the Trust and Aladdin Music), LCNI and London Clubs, in each case as at December 31, 1997, except in the case of the LCNI and London Clubs which audited financial statements shall have been prepared as at March 30, 1997. SECTION 5.1.5. Security Agreement. The Administrative Agent shall have received, with counterparts for each Lender, executed counterparts of the Security Agreement, dated as of the Closing Date, duly executed by the Borrower, together with (a) executed copies of Uniform Commercial Code financing statements (Form UCC-1), naming the Borrower as a debtor and the Administrative Agent as the secured party, or other similar instruments or documents, to be filed under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the reasonable opinion of the Administrative Agent, desirable to perfect the security interests of the Administrative Agent pursuant to the Security Agreement and the other Operative Documents; (b) executed copies of proper Uniform Commercial Code termination statements, if any, necessary to release all Liens and other rights of any Person (i) in any collateral described in the Security Agreement previously subject to a Lien or other right granted to any Person, and (ii) securing any of the Indebtedness to be Paid, together with such other Uniform Commercial Code termination statements as the Administrative Agent may reasonably request from such Obligors; and (c) certified copies of search reports certified by the offices from which they were requested or another Person acceptable to the Administrative Agent, dated a date reasonably near to the Effective Date, listing all effective financing statements which name the Borrower (under its present name and any previous names) and such other Persons designated by the Administrative Agent as the debtor and which are filed in the 96 jurisdictions in which filings were made pursuant to clause (a) above, together with copies of such financing statements (none of which (other than those described in clause (a), if such search report, as the case may be, is current enough to list such financing statements described in clause (a)) shall cover any collateral described in the Security Agreement). SECTION 5.1.6. Trademark Security Agreement. The Administrative Agent shall have received the Trademark Security Agreement, as applicable, each dated as of the Closing Date and duly executed and delivered by the Borrower or appropriate Owner of the related intellectual property registration. SECTION 5.1.7. Deed of Trust. The Administrative Agent shall have received the Deed of Trust, dated as of the Closing Date, duly executed by the Borrower, together with (a) evidence of the completion (or satisfactory arrangements for the completion) of all recordings and filings of the Deed of Trust as may be necessary or, in the reasonable opinion of the Administrative Agent, desirable effectively to create a valid, perfected first priority Lien against the properties and the leasehold interests described therein purported to be covered thereby; (b) the Title Policy described in Section 3.1.25 of the Disbursement Agreement together with all endorsements described therein; and (c) such other approvals, opinions, or documents as the Administrative Agent may reasonably request including consents and estoppel agreements and a current survey of the Site in form and substance reasonably satisfactory to the Administrative Agent and the Title Insurer. SECTION 5.1.8. Solvency, etc. The Administrative Agent shall have received, with counterparts for each Lender, a duly executed Solvency Certificate, dated as of the Effective Date. SECTION 5.1.9. Initial Rate Protection Agreement. The Administrative Agent shall have received the initial Rate Protection Agreement, dated as of the Closing Date, executed and delivered by an Authorized Representative of the Borrower, which shall be in a notional amount of the Commitments at a maximum rate approved by the Administrative Agent in its sole discretion. SECTION 5.1.10. Payment of Outstanding Indebtedness, etc. All Indebtedness to be Paid on or before the Closing Date, together with all interest, all prepayment premiums and other amounts due and payable with respect thereto, shall have been paid in full from the London Clubs Contribution and/or the proceeds of the Discount Notes and the commitments in respect of such Indebtedness shall have been terminated, and all Liens securing payment of any 97 such Indebtedness shall have been discharged and released and the Administrative Agent shall have received copies of all termination statements or other instruments as may be suitable or appropriate in connection therewith. SECTION 5.1.11. Closing Fees, Expenses, etc. The Administrative Agent shall have received for its own account, or for the account of each Lender, as the case may be, all fees, costs and expenses due and payable pursuant to Sections 3.3 and 10.3, if then invoiced. SECTION 5.1.12. Opinions of Counsel. The Administrative Agent shall have received the opinions substantially in the forms of the ones attached as Schedule IV hereto, dated the Closing Date 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. SECTION 5.1.13. Satisfactory Form and Substance. All documents executed or submitted pursuant hereto by or on behalf of the Borrower, any of the other Aladdin Parties, and any of the other Project Parties shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel and the Administrative Agent and its counsel shall have received all information, approvals, opinions, documents or instruments as the Administrative Agent or its counsel may reasonably request. SECTION 5.1.14. Other Loan Documents. The Administrative Agent shall have received, with counterparts for each Lender, each of the following documents duly executed by the parties thereto, each of which shall be in full force and effect, and all actions necessary or desirable, including all filings, in the reasonable opinion of the Administrative Agent to perfect the same as a valid first security interest encumbering the Main Project Security shall have been taken or made: (a) the Keep-Well Agreement; (b) the Completion Guaranty; (c) the Disbursement Agreement; (d) the Mall Project Completion Assignment; (e) the Fee Letters; (f) the Environmental Indemnity; (g) the Assignments of Contracts; (h) the Borrower Collateral Account Agreement; 98 (i) the Holdings Collateral Account Agreement; and (j) the Servicing and Collateral Account Agreement. SECTION 5.1.15. Main Project Documents. The Administrative Agent shall have received, with counterparts for each Lender, the Main Project Documents (other than the Theater Lease) duly executed by the parties thereto, each of which shall be in full force and effect. SECTION 5.1.16. Other Documents. The Administrative Agent shall have received such other documents and evidence as it may reasonably request in connection with the transactions contemplated hereby. SECTION 5.2. All Credit Extensions. The obligation of each Lender and each Issuer to make any Credit Extension (including the initial Credit Extension) shall be subject to Sections 2.1.4 and 2.1.5 and the satisfaction of each of the conditions precedent set forth in this Section 5.2. SECTION 5.2.1. Conditions for Advances under the Disbursement Agreement and the Making of Term A Loans. Not in limitation but in furtherance of the other conditions in this Article V, the following conditions shall be satisfied prior to the making of any Advance under the Disbursement Agreement or any Term A Loan, as the case may be, (a) all conditions to the making of any Advance as set forth in Section 3.2 of the Disbursement Agreement shall be satisfied by the Borrower or otherwise waived in writing by the Administrative Agent in good faith in its sole discretion; (b) the proceeds of the Term B Loan and Term C Loan shall be fully disbursed from the Term B Sub-Account and the Term C Sub-Account, respectively, prior to the making of the Term A Loan (other than advances of the Term A Loan which are made to reimburse the Issuer for, or fund draws under, a Letter of Credit); and (c) the amount to be advanced to the Borrower hereunder and under the Disbursement Agreement for Direct Costs, Indirect Costs, unincorporated materials, investments in Aladdin Music and advances for interest on the Loans shall be limited as set forth in Article 2 of the Disbursement Agreement. SECTION 5.2.2. Conditions for the Making of an Additional Term B Loan and/or Term C Loan. Not in limitation but in furtherance of the other conditions in this Article V, the following conditions shall be satisfied prior to the making of the Loan(s) referred to in Section 2.3.4: (a) the Administrative Agent shall have received from the Borrower a certificate, dated the date such Loan(s) is to be made, of the Secretary of the Borrower as to limited 99 liability company action then in full force and effect authorizing the Borrowing of such Loan(s) and the execution, delivery and performance of the Note(s) referred to in clause (b) below; (b) the Administrative Agent shall have received, for the account of the Lender making such Loan(s), such Lender's Note(s) duly executed and delivered by an Authorized Representative of the Borrower; (c) if such Lender was not already a Lender prior to the making of such Loan, the Administrative Agent shall have received from such Lender a joinder to this Agreement, which joinder shall be in form and substance reasonably satisfactory to the Administrative Agent; (d) the Administrative Agent shall have received, for the account of the Lender making such Loan(s), such Lender's Note(s) duly executed and delivered by an Authorized Representative of the Borrower; (e) the Administrative Agent shall have received an affirmation and acknowledgment (in form and substance satisfactory to the Administrative Agent in its sole discretion) from an Authorized Representative of each Obligor; (f) the Administrative Agent shall have received opinions, dated the date such Loan is to be made and addressed to the Agents and the Lenders, from the Borrower's New York counsel and Nevada counsel in form and substance (including opinions as to the non-impairment of any Liens or security interests created under, or any guarantees made under, any Loan Document in favor of the Administrative Agent for the benefit of the Lenders) reasonably satisfactory to the Administrative Agent; and (g) such other amendments, approvals, opinions, or documents as the Administrative Agent may reasonably request. SECTION 5.2.3. Compliance with Warranties, No Default, etc. Both before and after giving effect to any Credit Extension the following statements shall be true and correct: (a) the accuracy of the representations and warranties contained in Article VI (excluding, however, those contained in Section 6.7) and each other Operative Document as if made on the date of the Credit Extension or Advance, as the case may be, (except those that relate to a different date) unless the failure of the foregoing to be the case would not have a Material Adverse Effect; (b) except as disclosed by the Borrower to the Agents and the Lenders pursuant to Section 6.7 there exists 100 (i) no material litigation which could reasonably be expected to have a Material Adverse Effect or which purports to affect the legality, validity or enforceability of this Agreement, the Notes or any other Operative Document; and (ii) no material development shall have occurred in any litigation disclosed pursuant to Section 6.7 which could reasonably be expected to have a Material Adverse Effect; (c) the absence of any material adverse change in (i) the financial condition, business, property or prospects of the Borrower or on its ability to perform in all material respects its obligations under any Operative Document to which it is a party or (ii) the financial condition, business, property or prospects of any other Project Party affecting its ability to perform in all material respects its obligations under any Operative Document to which it is a party or (iii) a material impairment of the validity of enforceability of, or a material impairment of the rights, remedies or benefits available to the Administrative Agent, the Issuer or the Lenders under this Agreement or any other Operative Document; (d) the absence of any default or an event of default with respect to the Operative Documents which would be reasonably likely to cause a Material Adverse Effect. SECTION 5.2.4. Credit Extension Request, etc. Subject to Section 2.3.2 with respect to Term A Loans and Section 2.3.3 with respect to Term B Loans and Term C Loans, the Administrative Agent shall have received a Borrowing Request for the Loan being requested or a Letter of Credit Issuance Request if a Letter of Credit is being requested or extended. Each of the delivery of a Borrowing Request or Letter of Credit Issuance Request and the acceptance by the Borrower of the proceeds of such Credit Extension shall constitute a representation and warranty by the Borrower that on the date of such Credit Extension (both immediately before and after giving effect to such Credit Extension and the application of the proceeds thereof) the statements made in Section 5.2.3 are true and correct in all material respects. SECTION 5.2.5. Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of the Borrower, any of the other Aladdin Parties, LCNI, London Clubs Holdings, London Clubs and any of the other Project Parties shall satisfy the applicable provisions of Section 7.2.12. SECTION 5.2.6. Other Documents. The Administrative Agent shall have received, with counterparts for each Lender, any Operative Documents (other than the Theater Lease) entered into or obtained after the Closing Date (including the GECC Intercreditor Agreement), each of which shall be duly executed by the parties thereto and in full force and effect. 101 ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce the Lenders, the Issuer and the Agents to enter into this Agreement and to make Credit Extensions hereunder, the Borrower represents and warrants unto the Agents, the Issuer and each Lender as set forth in this Article VI. SECTION 6.1. Organization, etc. Each of the Borrower, each of the other Aladdin Parties and LCNI, are validly organized and existing and in good standing under the laws of the state or jurisdiction of its organization, is duly qualified to do business and is in good standing in each jurisdiction where the nature of its business requires such qualification and where failure to do so would have a Material Adverse Effect; and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under this Agreement and each of the other Operative Documents to which it is a party and to own, hold and, if applicable, lease its property and to conduct its business substantially as currently conducted by it the absence of which would have a Material Adverse Effect; provided, however, that the failure of the Borrower to be in good standing in the State of Nevada shall be deemed to have a Material Adverse Effect on it. SECTION 6.2. Due Authorization, Non-Contravention, etc. The execution, delivery and performance by each of the Borrower, each of the other Aladdin Parties and LCNI of this Agreement and each of the other Operative Documents to which it is a Party, and participation by the Borrower, each of the other Aladdin Parties and LCNI in the consummation of all aspects of the Transaction, and the execution, delivery and performance by the Borrower, each of the other Aladdin Parties and LCNI of the other agreements executed and delivered in connection with the Transaction are in each case within each such Person's powers, have been duly authorized by all necessary action, and do not (a) contravene any such Person's Organizational Documents; (b) contravene any contractual restriction binding on or affecting any such Person which contravention would have a Material Adverse Effect; (c) contravene (i) any court decree or order binding on or affecting any such Person or (ii) any Legal Requirement binding on or affecting any such Person; or (d) result in, or require the creation or imposition of, any Lien on any of such Person's properties (except as expressly permitted by this Agreement). SECTION 6.3. 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 (other than those that have been, or on the Closing Date will be, duly obtained or 102 made and which are, or on the Closing Date will be, in full force and effect and except for filings and registrations of any UCC financing statements, the Deed of Trust or intellectual property filings (all of which have been duly executed and delivered to the Administrative Agent on the Closing Date by the Borrower or other relevant Project Party, as the case may be, party thereto) necessary to record the Lenders' security interest in certain personal, real or intellectual property included in the Collateral) is required for the due execution, delivery or performance by the Borrower, the other Aladdin Parties and LCNI of this Agreement and any other Operative Document to which it is a party, in each case by the parties thereto or the consummation of the Transaction. SECTION 6.4. Validity, etc. This Agreement and each other Loan Document executed by the Borrower will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms; and each other Operative Document executed by the Borrower, the other Aladdin Parties and LCNI will, on the due execution and delivery thereof by such Person, constitute the legal, valid and binding obligation of such Person enforceable against such Person in accordance with its terms (except, in any case above, as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and by principles of equity). SECTION 6.5. Financial Information. The financial statements of the Borrower, the other Aladdin Parties and LCNI furnished to the Administrative Agent pursuant to Section 5.1.4 have been prepared in accordance with GAAP consistently applied, and present fairly the financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended. All balance sheets, all statements of operations, equity amounts, cash flow and all other financial information of each of the Borrower, the other Aladdin Parties and LCNI furnished pursuant to Section 7.1.1 have been and will for periods following the Effective Date be prepared in accordance with GAAP consistently applied, and do or will present fairly the financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended, except that quarterly financial statements need not include footnote disclosure and may be subject to ordinary year-end adjustment. The Borrower represents that (a) all factual information that has been or will be made available to the Agents by or on behalf of the Borrower, the other Aladdin Parties and LCNI is or will be, when furnished, complete and correct in all material respects and does not or will not, when furnished, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not materially misleading in light of the circumstances under which such statements are made and (b) the projections that have been or will be made available to the Agents by or on behalf of the Borrower, the other Aladdin Parties and LCNI have been or will be prepared in good faith based upon reasonable assumptions. SECTION 6.6. No Material Adverse Change. No material adverse change in (a) the financial condition, business, property, prospects or ability of the Borrower to perform in all 103 material respects its obligations under any Operative Document to which it is a party or (b) the financial condition, business, property, prospects and ability of any other Aladdin Party, LCNI or, to the best Knowledge of the Borrower, 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 date of the financial statements of such Person delivered pursuant to Section 5.1.4. SECTION 6.7. Litigation, Labor Controversies, etc. There is no pending material litigation, action, proceeding, or labor controversy which could reasonably be expected to have a Material Adverse Effect or which purports to affect the legality, validity or enforceability of this Agreement, the Notes or any other Operative Document, except as disclosed in Item 6.7 of the Disclosure Schedule. SECTION 6.8. Subsidiaries. The Subsidiaries of the Borrower, the other Aladdin Parties (other than the Trust) and LCNI are identified in Item 6.8 of the Disclosure Schedule. SECTION 6.9. Ownership of Properties. Other than the Borrower, Aladdin Music and the Trust, the Aladdin Parties and LCNI do not own or lease any real property other than the Mall Project Ground Lease and Music Project Ground Lease. The Borrower and AMH (x) in the case of owned real property, have good and marketable fee title to, and (y) in the case of leased real property, hold valid and enforceable leasehold interests in, all of such owned or lease real property, as the case may be, free and clear in each case of all Liens or claims, except for Liens permitted pursuant to Section 7.2.3 and where the failure to own or hold such title, as the case may be, will not have a Material Adverse Effect. Except as permitted pursuant to Section 6.13 or Section 7.2.3, the Borrower, the other Aladdin Parties and LCNI (x) in the case of owned personal property, have good and valid title to, and (y) in the case of leased personal property, hold valid and enforceable leasehold interests in, all of such material personal properties and assets, tangible and intangible, of any nature whatsoever, free and clear in each case of all Liens or claims, except for Liens permitted pursuant to Section 7.2.3, or where the failure to own or hold such title will not have a Material Adverse Effect. SECTION 6.10. Taxes. (a) Each of the Aladdin Parties and LCNI has filed, or caused to be filed, all material tax and informational returns that are required to have been filed by it in any jurisdiction, and has paid all material Taxes shown to be due and payable on such returns and all other taxes and assessments payable by it, to the extent the same have become due and payable (other than those Taxes (i) that it is contesting in good faith and by appropriate proceedings, with adequate, segregated reserves established for such Taxes or (ii) with respect to which failure to pay the same could not reasonably be expected to have a Material Adverse Effect or to impair the respective interests of the Lenders in the Main Project Security) and, to the extent such Taxes are not due, has established reserves therefor by allocating, in the Trade Detail Report, amounts that are adequate for the payment thereof and are required by GAAP. 104 (b) None of the Aladdin Parties or LCNI has incurred any material Tax liability in connection with the Main Project or the other transactions contemplated by the Operative Documents which has not been disclosed in writing to, and approved by, the Administrative Agent, except as set forth in Item 6.10(b) of the Disclosure Schedule. (c) All interest that accrues on funds on deposit in the Accounts (other than the Construction Note Disbursement Account) is for the account of the Borrower and, accordingly, no withholding or deduction of any payments (including payments of principal, interest or premium, if any) to any Agent or Lender is required in respect thereof. SECTION 6.11. Pension and Welfare Plans. During the twelve consecutive month period prior to the Effective Date and prior to the date of any Credit Extension hereunder, no steps have been taken to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which might result in the incurrence by the Borrower or any member of the Controlled Group of any material liability, fine or penalty. Except as disclosed in Item 6.11 in the Disclosure Schedule neither the Borrower nor any member of the Controlled Group has any Contingent Liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Title I of ERISA. SECTION 6.12. Environmental Warranties. Except as set forth in Item 6.12 in the Disclosure Schedule: (a) all facilities and property (including underlying groundwater) owned or leased by the Borrower, Aladdin Bazaar and Aladdin Music have been, and continue to be, owned or leased by such Person in material compliance with all Environmental Laws; (b) there have been no past, and there are no pending or threatened (i) claims, complaints, notices or requests for information received by the Borrower, Aladdin Bazaar or Aladdin Music with respect to any alleged violation of any Environmental Law, or (ii) complaints, notices or inquiries to the Borrower, Aladdin Bazaar or Aladdin Music regarding potential liability under any Environmental Law; (c) there have been no Releases of Hazardous Substances at, on or under any property now or previously owned or leased by the Borrower, Aladdin Bazaar or Aladdin Music that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; 105 (d) the Borrower, Aladdin Bazaar and Aladdin Music have been issued and are in material compliance with all permits, certificates, approvals, licenses and other authorizations relating to environmental matters and necessary or desirable for their businesses; (e) to the Knowledge of the Borrower, no property now or previously owned or leased by the Borrower, Aladdin Bazaar or AMH, is listed or proposed for listing (with respect to owned property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list of sites requiring investigation or clean-up; (f) there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property now or previously owned or leased by the Borrower, Aladdin Bazaar or Aladdin Music that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; (g) neither the Borrower, Aladdin Bazaar nor Aladdin Music has directly transported or directly arranged for the transportation of any Hazardous Substances to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to material claims against the Borrower, Aladdin Bazaar or Aladdin Music for any remedial work, damage to natural resources or personal injury, including claims under CERCLA; (h) there are no polychlorinated biphenyls or friable asbestos present at any property now or previously owned or leased by the Borrower, Aladdin Bazaar or Aladdin Music that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; and (i) no conditions exist at, on or under any property now or previously owned or leased by the Borrower, Aladdin Bazaar or Aladdin Music which, with the passage of time, or the giving of notice or both, would give rise to liability under any Environmental Law. SECTION 6.13. Intellectual Property. The Borrower owns or licenses (as the case may be) or will own or hold licenses for all such patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights and copyrights as the Borrower considers necessary for the conduct of the businesses of the Borrower without, to the Knowledge of Borrower, any infringement upon rights of other Persons, in each case except as could not reasonably be expected to individually or in the aggregate result in a Material Adverse Effect and there is no individual patent, patent right, trademark, trademark right, trade name, trade name right, service mark, service mark right or copyright the loss of which would result in a Material Adverse Effect, any of the other Aladdin Parties or LCNI, except as may be disclosed in Item 6.13 in the Disclosure Schedule. 106 SECTION 6.14. Regulations G, U and X. Neither the Borrower, any of the other Aladdin Parties nor LCNI is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Credit Extensions will be used to purchase or carry margin stock or otherwise for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation G, U or X. Terms for which meanings are provided in F.R.S. Board Regulation G, U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 6.15. Accuracy of Information. None of the factual information, taken as a whole (including the factual information set forth in the Discount Note Offering Circular), heretofore or contemporaneously furnished by or on behalf of the Borrower, any of the other Aladdin Parties, LCNI or London Clubs in writing to any Agent, the Issuer or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby or with respect to the Transaction (true and complete copies of which were furnished to each Agent, the Issuer and each Lender in connection with its execution and delivery hereof), contains any untrue statement of a material fact, and none of the other factual information, taken as a whole, hereafter furnished in connection with this Agreement or any other Operative Document by the Borrower, any of the other Aladdin Parties, LCNI, London Clubs Holdings or London Clubs to any of the Agents, the Issuer or any Lender will contain any untrue statement of a material fact on the date as of which such information, taken as a whole, is dated or certified and, as of the Effective Date, the information delivered prior thereto (unless such information specifically relates to a prior date) does not, and the factual information, taken as a whole, hereafter furnished shall not on the date as of which such information is dated or certified, omit to state any material fact necessary to make such information, taken as a whole, not misleading. SECTION 6.16. Permits. There are no Permits that are required or will become required for the ownership, construction, financing or operation of the Main Project, other than the Permits described in Exhibit D to the Disbursement Agreement. Each Permit described in Exhibit D to the Disbursement Agreement as required to be obtained by the date that this representation is deemed to be made is in full force and effect and is not at such time subject to any appeals or further proceedings or to any unsatisfied condition (that is required to be satisfied by the date that this representation is deemed to be made) that may allow modification or revocation. Each Permit described in Exhibit D to the Disbursement Agreement as not required to have been obtained by the date that this representation is deemed to be made is of a type that is routinely granted on application except approval by the applicable Governmental Instrumentalities for the creation of the Mall Project Parcel and the Music Project Parcel as separate legal parcels under Nevada subdivision law and except for approvals, licences, authorizations and findings of suitability required under Nevada Gaming Laws for the operation of the Main Project as a Casino. The Borrower has no reason to believe that any Permit so indicated will not be obtained before it becomes necessary for the ownership, construction, financing or operation of the Main Project or that obtaining such Permit will result in undue expense or delay. The Borrower is not in violation of any condition in any Permit the effect of which could reasonably be expected to have a Material Adverse Effect. 107 SECTION 6.17. Security Interests. (a) The security interests granted to the Secured Parties pursuant to the Loan Documents (i) constitute, as to personal property included in the Main Project Security, subject to the Nevada Gaming Laws, the filings, registrations and recordations set forth on Schedule V hereto and, with respect to subsequently acquired personal property included in the Main Project Security, will constitute, a perfected security interest under the UCC and/or other applicable law, except for any subsequently issued certificate or instrument that constitutes collateral thereunder which will be perfected upon the delivery of such certificate or instrument to the Administrative Agent, and (ii) have been, and, with respect to such subsequently acquired property, will be perfected under the UCC and/or other applicable law as aforesaid, (A) the first priority contemplated thereby and (B) as between the Secured Parties and any third Persons, superior priority and rights over the rights of any such third Persons now existing or hereafter arising whether by way of mortgage, deed of trust, lien, security interests, encumbrance, assignment or otherwise, subject to the rights and priorities of Permitted Liens and Permitted Encumbrances. All such action as is necessary has been taken to establish and perfect the Secured Parties' rights in and to the Main Project Security, including any recording, filing, registration, giving of notice or other similar action, subject to the filings, registrations and recordations set forth on Schedule V hereto. As of the Effective Date, no filing, registration, recordation, re-filing or re-recording other than those listed on Schedule V hereto is necessary to perfect and maintain the perfection of the interest, title or Liens of the Loan Documents, and on the Effective Date all such filings or recordings will have been made except for any filings or recordings for Liens as to which the Title Insurers have issued or committed to issue Title Policies acceptable to the Administrative Agent. The Borrower has properly delivered or caused to be delivered to the Administrative Agent all Main Project Security that requires perfection of the Lien and security interest described above by possession. (b) No authorization, approval or other action by, and no notice to or filing with, any Governmental Instrumentality (except for those by or with the Nevada Gaming Authorities when any of the Borrower, the Aladdin Parties and LCNI obtain a gaming license) is required for either (i) the pledge or grant by the Borrower, the other Aladdin Parties and LCNI of the Liens purported to be created in favor of the Secured Parties pursuant to any of the Loan Documents or (ii) the exercise by the Administrative Agent and the other Secured Parties of any rights or remedies in respect of any Main Project Security (whether specifically granted or created pursuant to any of the Loan Documents or created or provided for by applicable law), except for filings or recordings contemplated by Section 6.17(a) above or as set forth on Schedule V hereto. (c) Except such as may have been filed in favor of the Secured Parties as contemplated by Section 6.17(a) above or as set forth on Schedule V hereto, no effective UCC financing statement, fixture filing or other instrument similar in effect covering all or any part of the Main Project Security is on file in any filing or recording office. 108 (d) All information supplied to the Administrative Agent and the Lenders by or on behalf of the Borrower, the other Aladdin Parties and LCNI with respect to any of the Main Project Security (in each case taken as a whole with respect to any particular Main Project Security) is accurate and complete in all material respects. SECTION 6.18. Existing Defaults. There is no Default or Event of Default which has occurred and is continuing under any of the Operative Documents. SECTION 6.19. Design/Build Contract; Construction Contracts. Each of the Design/Build Contract and the other Contracts which have been executed by or on behalf of the Borrower (w) is in full force and effect and there are no material defaults thereunder on the part of the Borrower or, to the best knowledge of the Borrower, of the other party thereto which have not been previously disclosed in writing to the Administrative Agent (nor has any event, act or condition occurred which, with notice or expiration of any applicable grace period, or both, would constitute an event of default thereunder by the Borrower or, to the best of the Knowledge of the Borrower, the other party thereto, as the case may be and which has not been previously disclosed in writing to the Administrative Agent), (x) has not been terminated, modified, amended or assigned except as permitted hereunder, (y) has not expired by its terms and (z) has been delivered to the Administrative Agent prior to the Effective Date. SECTION 6.20. Contingent Liabilities. None of the Aladdin Parties (other than the Trust) nor LCNI has any material Contingent Liabilities in respect of Indebtedness (excluding, however, Indebtedness of the nature referred to in clause (d) of the definition thereof) or obligations except those authorized under or contemplated by the Operative Documents and not prohibited by this Agreement or the Discount Note Indenture. SECTION 6.21. Business, Debt, Contracts, etc. None of the Aladdin Parties (other than the Trust) nor LCNI has conducted any business other than the business contemplated by the Operative Documents. None of the Aladdin Parties (other than the Trust) nor LCNI has any outstanding Indebtedness other than Indebtedness incurred under the Loan Documents or permitted under the Loan Documents or liabilities other than those incurred under the Operative Documents or permitted under the Loan Documents and the Discount Note Indenture, and is not a party to or bound by any Contract other than as contemplated by the Operative Documents to which such Person is a party or permitted under the Loan Documents and the Discount Note Indenture. SECTION 6.22. Representations and Warranties. As of the Effective Date (in each case except to the extent related to a different date), all representations and warranties of the Aladdin Parties and LCNI and, to the best of the Borrower's Knowledge, the Design/Builder, Fluor, the Architect of Record, and each other Major Contractor and each other Person (other than the Borrower) to a Material Main Project Document contained in the Operative Documents are true and correct in all material respects (unless the failure of such representation or warranty could not reasonably be expected to have a Material Adverse Effect) and the Borrower hereby 109 confirms each such representation and warranty made by it with the same effect as if set forth in full herein. SECTION 6.23. Utilities. All utility services necessary for the construction and the operation of the Main Project for its intended purposes are or will be available at the Site as and when required on commercially reasonable terms. SECTION 6.24. In Balance Requirement. As of the date of each Borrowing and Advance the Main Project Budget shall be In Balance. SECTION 6.25. Sufficiency of Interests and Main Project Documents. SECTION 6.25.1. Ownership, Title, etc. Except for the Permitted Liens, Permitted Encumbrances and Permitted Exceptions and as set forth on the Exhibits to the Trademark Security Agreement, the Borrower owns the Site in fee simple, free and clear of all Liens and encumbrances and has good legal and beneficial title to the property, assets and revenues on which it purports to grant Liens pursuant to the Loan Documents. The Borrower, AMH, Bazaar, and the Energy Provider own the Site Easements, as their interests may appear. After giving effect to the Mall Project Ground Lease, Aladdin Bazaar has and, until the Mall Project Parcel Creation Date, will have, good leasehold title to the Mall Project Parcel and the Mall Project Easements. From and after the Mall Project Parcel Creation Date, Aladdin Bazaar will own the Mall Project Parcel and the Mall Project Easements in fee simple. After giving effect to the Music Project Ground Lease, Aladdin Music has and, until the Music Project Parcel Creation Date, will have, good leasehold title to the Music Project Parcel and the Music Project Easements. From and after the Music Project Parcel Creation Date, Aladdin will own the Music Project Parcel and the Music Project Easements in fee simple. Other than those services to be performed and materials to be supplied that can be reasonably expected to be commercially available when and as required, the Borrower owns all of the property interests and has entered into all documents and agreements necessary to develop, construct, complete, own and operate the Main Project on the Main Project Parcel and in accordance with all Legal Requirements and the Construction Benchmark Schedule and as contemplated in the Operative Documents. SECTION 6.25.2. Main Project Documents. The Administrative Agent has received a true, complete and correct copy of each of the Main Project Documents in effect or required to be in effect as of the date this representation is made or deemed made (including all exhibits, schedules, side letters and disclosure letters referred to therein or delivered pursuant thereto, if any). A list of all Main Project Documents entered into as of the Effective Date is attached hereto as Schedule VI hereto. SECTION 6.25.3. Satisfaction to Main Project Document Conditions. All conditions precedent to the obligations of the respective parties (other than the Borrower) under the Main Project Documents have been satisfied, except for such conditions precedent (a) the failure of which to be satisfied could not reasonably be expected to have a Material Adverse Effect or 110 (b) which by their terms cannot be met until a later stage in the construction or operation of the Main Project, and the Borrower has no reason to believe that any such condition precedent (the failure of which to be satisfied could reasonably be expected to have a Material Adverse Effect) cannot be satisfied on or prior to the appropriate stage in the construction or operation of the Main Project. SECTION 6.26. Main Project Budget; Trade Detail Report. SECTION 6.26.1. Main Project Budget. The Main Project Budget (a) is consistent with the provisions of the Operative Documents in all material respects, (b) has been and will be prepared in good faith and with due care, (c) sets forth, for each Line Item, the total Main Project Costs which are anticipated to be incurred through Final Completion, and (d) fairly represents the Borrower's expectation as to the matters covered thereby. The Main Project Budget (including the detailed schedules thereto) allocates the Main Project Costs to be incurred with respect to construction and completion of each of the Hotel/Casino Component, the Energy Project Component and the Equipment Component. SECTION 6.26.2. Trade Detail Report. The Trade Detail Report (as in effect from time to time): (a) sets forth the amount allocated to each Line Item pursuant to the Main Project Budget then in effect; (b) sets forth, for each Line Item other than the Line Items in the Line Item Category entitled "Project Contingency", an amount no less than the total anticipated costs to be incurred by the Borrower from the commencement through the completion of the work contemplated by such Line Item, as determined by the Borrower and the Owner Representative with the reasonable concurrence of the Construction Consultant in the Construction Consultant's Certificate dated the date on which this representation is made or deemed made; (c) sets forth, for each Line Item Category, an aggregate amount no less than the aggregate amount set forth for such Line Item Category in the Main Project Budget then in effect less Realized Savings obtained with respect to such Line Item Category (and not reflected in the Main Project Budget); and (d) to the Knowledge of the Borrower is true and correct in all material respects. SECTION 6.27. Fees and Enforcement. Other than amounts that have been paid in full or will have been paid in full by the Effective Date or the date when due for same, no fees or Taxes, including stamp, transaction, registration or similar taxes, are required to be paid for the legality, validity or enforceability of the Operative Documents. 111 SECTION 6.28. ERISA Compliance. Either (a) there are no ERISA Plans for the Borrower or any member of the Controlled Group or (b) the Borrower and each member of the Controlled Group have fulfilled their obligations (if any) under the minimum funding standards of ERISA and the Code for each ERISA Plan in compliance in all material respects with the currently applicable provisions of ERISA and the Code and have not incurred any liability to the PBGC or an ERISA Plan under Title IV of ERISA (other than liability for premiums due in the ordinary course). Neither the execution of this Agreement or the other Operative Documents nor the consummation of the Transactions will involve a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code which is not exempt under Section 408 of ERISA or under Section 4975(d) of the Code. SECTION 6.29. Labor Disputes; Acts of God; Casualty and Condemnation. Neither the business nor the properties of the Borrower or, to the Knowledge of the Borrower, any other party to a Material Main Project Document is affected by any fire, explosion, accident, strike, lockout or other labor dispute (except as set forth in Item 6.29 in the Disclosure Schedule as in effect on the Effective Date), drought, storm, hail, earthquake, embargo, act of God or of the public enemy, or other casualty or Force Majeure Event, that could reasonably be expected to have a Material Adverse Effect. As of the date hereof, there is no casualty or condemnation proceeding pending or, to the best knowledge of the Borrower, threatened, affecting all or a portion of the Site. SECTION 6.30. Liens. Except for Permitted Liens and Permitted Encumbrances, the Borrower has not secured or agreed to secure any Indebtedness by any Lien upon any of its present or future revenues or assets or upon the Borrower Common Membership Interests. The Borrower does not have outstanding any Lien or obligation to create Liens on or with respect to any of its properties or revenues (other than the security interest granted by Holdings to the Discount Note Indenture Trustee pursuant to the Holdings Collateral Account Agreement), other than Permitted Liens and Permitted Encumbrances and as provided in the Loan Documents. Holdings has not secured or agreed to secure any Indebtedness by any Lien upon any of its present or future revenues or assets or Holdings Series A Preferred Membership Interests other than the security interest granted by Holdings to the Discount Note Indenture Trustee pursuant to the Holdings Collateral Amount Agreement and the Holdings Pledge Agreement. None of the Borrower, Holdings, Capital, Enterprises, Sommer Enterprises, AHL, AMH, ABH or LCNI has outstanding any Lien or obligation to create Liens on or with respect to any of its properties or revenues, other than as provided in the Loan Documents and the Discount Note Indenture. SECTION 6.31. Construction Benchmark Schedule; Guaranteed Maximum Price. SECTION 6.31.1. Construction Benchmark Schedule. The Construction Benchmark Schedule accurately specifies in summary form the Work and the other improvements that the Borrower and the Design/Builder propose to complete in each calendar month from the Effective Date through the Final Completion of the Main Project, all of which can be expected to be achieved. 112 SECTION 6.31.2. Guaranteed Maximum Price. The Design/Build Contract has been amended to provide that the Guaranteed Maximum Price will remain in effect if the Borrower provides the Design/Builder with the Notice to Proceed (as defined in the Design/Build Contract) on or before February 27, 1998 and that the Design/Builder shall have no right to terminate the Design/Build Contract if the Notice to Proceed is delivered on or before March 1, 1998. SECTION 6.32. Proper Subdivision. The Site has been properly subdivided or entitled to exception therefrom, and for all purposes the Site may be mortgaged, conveyed and otherwise dealt with as separate legal lot or parcel. The parties acknowledge, however, that this Agreement contemplates the creation of a separate legal parcel for each of the Mall Project Parcel (including sub-parcels relating to the common parking area and the retail facility), the Music Project Parcel, the Energy Project Parcel and the Optional Improvement Site. SECTION 6.33. Offices; Location of Collateral. (a) The chief executive office or chief place of business (as such term is used in Article 9 of the Uniform Commercial Code as in effect in the State of New York from time to time) of the Borrower is located in Clark County, Nevada. The Borrower's federal employer identification number is 86-0856993. (b) All of the Main Project Security (other than the Accounts and general intangibles) is, or when installed pursuant to the Main Project Documents will be, located on the Site. (c) The Borrower's books of accounts and records are located at the chief executive office or the chief place of business. SECTION 6.34. Government Regulation. None of the Aladdin Parties nor LCNI is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Interstate Commerce Act or registration under the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness, other than the Nevada Gaming Laws (from and after the date that such Person holds any Gaming License), or which may otherwise render all or any portion of the Obligations unenforceable. Incurrence of the Obligations under the Operative Documents complies with all applicable provisions of the Nevada Gaming Laws. SECTION 6.35. No Brokers. The Borrower represents that no broker or finder was responsible for or involved with the parties in connection with the transactions contemplated by this Agreement and the other Loan Documents and that there is no obligation for the payment of any brokerage commission, compensation or fee of any kind with respect to this Agreement or any other Loan Document except those included as an Issuance Fee or Expense. 113 ARTICLE VII COVENANTS SECTION 7.1. Affirmative Covenants. The Borrower agrees with the Agents, the Issuer and each Lender that, until all Commitments have terminated and all Obligations have been indefeasibly paid and performed in full, the Borrower will perform or cause to be performed the obligations set forth in this Section 7.1. SECTION 7.1.1. Financial Information, Reports, Notices, etc. The Borrower will furnish, or will cause to be furnished, to each Lender, the Issuer, the Administrative Agent and, as applicable, the Construction Consultant copies of the following financial statements, reports, notices and information: (a) as soon as available and in any event within 30 days after the end of each month other than the last month of any Fiscal Quarter, a balance sheet of the Borrower and a consolidated and consolidating balance sheet of the Borrower and Subsidiaries, in each case as of the end of such month, and consolidated and consolidating statements of earnings and cash flow of the Borrower and Subsidiaries and statements of earnings and cash flow of the Borrower for such month and for the period commencing at the end of the previous Fiscal Year and ending with the end of such month, certified as complete and correct by the chief financial or accounting Authorized Representative of the Borrower; (b) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year, a balance sheet of the Borrower, the other Aladdin Parties (other than the Trust) and LCNI and a consolidated and consolidating balance sheet of each of the Borrower and Subsidiaries and the other Aladdin Parties (other than the Trust) and each of their respective Subsidiaries, in each case as of the end of such Fiscal Quarter, and consolidated and consolidating statements of earnings and cash flow of each of the Borrower and Subsidiaries and the other Aladdin Parties (other than the Trust) and each of their respective Subsidiaries and statements of earnings and cash flow of the Borrower, the other Aladdin Parties (other than the Trust) and LCNI, in each case for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, certified as complete and correct by the chief financial or accounting Authorized Representative of the Person for which such information is being delivered; (c) as soon as available and in any event within 90 days after the end of each Fiscal Year, a copy of the annual audited financial statements for such Fiscal Year for such Person and for the Borrower and Subsidiaries and the other Aladdin Parties (other than the Trust) and each of their respective Subsidiaries, including therein a consolidated and consolidating balance sheet of each of the Borrower and Subsidiaries and the other 114 Aladdin Parties (other than the Trust) and each of their respective Subsidiaries as of the end of such Fiscal Year and consolidated and consolidating statements of earnings and cash flow of each of the Borrower and Subsidiaries and the other Aladdin Parties (other than the Trust) and each of their respective Subsidiaries for such Fiscal Year, in each case as audited (without any Impermissible Qualification) by nationally recognized independent public accountants acceptable to the Administrative Agent; (d) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year and within 90 days after the end of the Fiscal Year, a Compliance Certificate, executed by the chief financial or accounting Authorized Representative of the Borrower, showing (in reasonable detail and with appropriate calculations and computations in all respects reasonably satisfactory to the Administrative Agent) compliance (currently and on a pro forma basis after giving effect the payments to be made in respect of all federal, state and local income taxes of the Borrower or, if the Borrower is treated as a pass-through entity or is not treated as a separate entity for United States federal income tax purposes, the payments to be made pursuant to clause (c) of Section 7.2.6) with the financial covenants set forth in Section 7.2.4. (e) as soon as possible and in any event within 90 days after the end of the fiscal year of the Trust, a letter from the Trust's tax accountants stating that the net worth of the Trust based upon the fair market value of its assets less liabilities is not less than $100,000,000, together with all other financial information required to be submitted by the Trust from time to time to the Person financing the Mall Project; (f) as soon as possible and in any event within three days after the Borrower, any of the other Aladdin Parties, LCNI, London Clubs Holdings or London Clubs obtains Knowledge of the occurrence of a Default, a statement of the chief executive, financial or accounting Authorized Representative of such Person setting forth details of such Default and the action which such Person has taken and proposes to take with respect thereto; (g) as soon as possible and in any event within five Business Days after the Borrower, any of the other Aladdin Parties, LCNI, London Clubs Holdings or London Clubs obtains Knowledge of (x) the occurrence of any material adverse development with respect to any litigation, action, proceeding or labor controversy of the type and materiality described in Item 6.7 of the Disclosure Schedule, or (y) the commencement of any litigation, action, proceeding or labor controversy of the type and materiality described in Item 6.7 of the Disclosure Schedule, notice thereof and, to the extent the Administrative Agent reasonably requests, copies of all documentation relating thereto; (h) promptly after the sending or filing thereof, (x) copies of all reports and registration statements which the Borrower, any of the other Aladdin Parties or LCNI files with the SEC or any national or foreign securities exchange and (y) copies of all 115 reports required to be filed by the Borrower with any Governmental Instrumentality, including any reports with respect to Environmental Matters and the Permits; (i) immediately upon becoming aware of (w) the institution of any steps by the Borrower or any other Person to terminate any Pension Plan, (x) the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA, (y) the taking of any action with respect to a Pension Plan which could result in the requirement that the Borrower furnish a bond or other security to the PBGC or such Pension Plan or (z) the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Borrower, any of the other Aladdin Parties or LCNI of any material liability, fine or penalty, notice thereof and copies of all documentation relating thereto; (j) promptly upon receipt thereof, copies of all detailed management letters submitted to the Borrower by the independent public accountants referred to in clause (b) in connection with each audit made by such accountants of the books of the Borrower, any of the other Aladdin Parties or LCNI; (k) promptly when available and in any event no later than 45 days prior to the last day of each Fiscal Year (commencing after the Effective Date), a budget for the next Fiscal Year, which budget shall be prepared on a Fiscal Quarter basis and shall contain a projected, consolidated balance sheet and statement of earnings and cash flow of the Borrower and Subsidiaries for such Fiscal Year, prepared in reasonable detail by the chief accounting or financial Authorized Representative of the Borrower (the Administrative Agent shall have the right to request clarifications on such budget within 20 days after delivery thereof); (l) promptly and in any event within five Business Days after the receipt thereof, any material notice received by any of the Borrower, any Aladdin Party or LCNI from any Nevada Gaming Authority, including all NGC-1 Reports and all exception reports, which notice relates to the construction, operation or maintenance of the Main Project, any Permit related thereto or any Equity Interest or any Membership Interest in any such Person; (m) as soon available and in any event within 30 days after the end of each month following the Opening Date, a report detailing the occupancy rate of the Hotel, the average room rate thereof, the win rate at the Casino and such other information prepared by the Borrower relating to the operation and condition of the Hotel/Casino; (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 of 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 116 estimate of the time and cost required to complete each Construction Component and the Main Project as a whole, the progress of construction and how it relates to the Construction Benchmark Schedule and such other information and reports as the Administrative Agent or Construction Consultant may reasonably request; and (o) prior to Final Completion promptly after receipt thereof by the Borrower, all progress reports provided by the Design/Builder pursuant to the Design/Build Contract and the attachments thereto, if any, and such additional information relative thereto as the Administrative Agent or Construction Consultant may reasonably request; (p) as soon as possible and in any event within three days after the Borrower obtains Knowledge thereof, notice of any event, occurrence or circumstance which reasonably could be expected to cause the Main Project Budget not to be In Balance or render the Borrower, one or more of the Completion Guarantors, the Design/Builder, Fluor, the Energy Project Provider, or the Energy Project Guarantor incapable of, or preventing such Person from (x) achieving the Completion Date on or before the Outside Completion Deadline or (y) meeting any material obligation of such Person under the Operative Documents, the Design/Build Contract or the other Material Main Project Documents as and when required thereunder; (q) as soon as possible and in any event within three days after the Borrower obtains Knowledge thereof, notice of any termination or event of default or notice thereof or any requests for indemnification of any other party or any other notice relating to material rights or obligations with respect to the Reciprocal Easement Agreement, Site Work Agreement or Common Parking Area Use Agreement pursuant to the terms thereof under any Material Main Project Document; (r) any change in the Authorized Representatives of the Borrower, the other Aladdin Parties, LCNI, London Clubs Holdings or London Clubs and such notice shall include a certified specimen signature of any new Authorized Representative so appointed and, if requested by the Administrative Agent, satisfactory evidence of the authority of such new Authorized Representative; (s) prior to Final Completion, any proposed material change in the nature or scope of the Main Project or the business or operations of any of the Aladdin Parties (other than the Trust) or LCNI; (t) prior to Final Completion, any notice of any schedule delay delivered under the Design/Build Contract and all remedial plans and updates thereof; (u) the occurrence or existence of any Environmental Matter requiring notice to a Governmental Instrumentality or with respect to which notice is received from a Governmental Instrumentality; 117 (v) any Event of Loss or any other event or development which could reasonably be expected to have a Material Adverse Effect; (w) prior to Final Completion, promptly, but in no event later than ten days after the receipt thereof by the Borrower, copies of (x) all Main Project Documents and Permits obtained or entered into by the Borrower after the Effective Date, (y) any amendment, supplement or other modification to any Permit received by the Borrower after the Effective Date, and (z) all notices relating to the Main Project received by or delivered to the Borrower from any Governmental Instrumentality or any of the other Project Parties; and (x) such other information respecting the condition or operations, financial or otherwise, of the Borrower, the other Aladdin Parties and/or LCNI as required by the other Loan Documents applicable to it other than with respect to the Trust (including information and reports from the chief accounting or financial Authorized Representative of the Borrower, in such detail as the Administrative Agent or any Lender or the Issuer through the Administrative Agent may reasonably request, with respect to the terms of and information provided pursuant to any Compliance Certificate) and as any Lender or the Issuer through the Administrative Agent may from time to time reasonably request. SECTION 7.1.2. Compliance with Laws, etc. The Borrower and Subsidiaries will comply in all material respects with all applicable Legal Requirements, including: (a) the maintenance and preservation of the corporate or other organizational existence of such Person; and (b) the payment, before the same become delinquent, of all material Taxes, assessments and governmental charges imposed upon it or upon its property, except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves, if any, in accordance with GAAP shall have been set aside on its books. SECTION 7.1.3. Maintenance of Properties; Operation; Reserves. The Borrower and Subsidiaries will maintain, preserve, protect and keep the portion of the Site owned or leased by such Person in good repair, working order and condition (ordinary wear and tear excepted), and make necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times. The Borrower will operate the Main Project as a luxury themed casino hotel (with a separate level of the Casino catering to premium players) in accordance with the standards which shall be at least equivalent to the standards of the Mirage on the Effective Date. The Theater shall be used to present events which are consistent with the first class nature of Complex. The Borrower shall maintain adequate working capital reserves and other reserves as set forth in the annual budget to be delivered by the Borrower in accordance with clause (k) of Section 7.1.1. From and after the 118 Opening Date, the Borrower shall for each year following the Opening Date establish a reserve for replacements ("FF&E Reserve") which shall be funded on a monthly basis at the percentage of gross revenues set forth below and to the level of maximum funding set forth below, in each case, opposite such year. After the FF&E Reserve has been funded to the level of maximum funding set forth below opposite such year, the Borrower shall have no further obligation to fund the FF&E Reserve until such time as amounts are withdrawn from the FF&E Reserve in which case monthly contributions at the percentage of gross revenues set forth opposite such year below shall resume:
Percentage of Maximum Year Gross Revenues Funding ---- -------------- ------- 1 1.75% $12,000,000 2 1.25% $12,000,000 3 1.3% $12,000,000 4 1.35% $12,000,000 5 2.5% $18,000,000 6 2.5% $18,000,000 7 3.0% $18,000,000 8 3.0% $18,000,000 9 3.0% $18,000,000 10 3.0% $18,000,000
SECTION 7.1.4. Insurance. The Borrower shall maintain the insurance set forth on Exhibit E to the Disbursement Agreement and shall comply in all material respects with the requirements of such insurance policies. SECTION 7.1.5. Books and Records. The Borrower and Subsidiaries shall maintain adequate books, accounts and records with respect to the Main Project in compliance in all material respects with the regulations of any Governmental Instrumentality having jurisdiction thereof and, with respect to financial statements, in accordance with GAAP. Subject to reasonable safety requirements and the rights of other Persons, and (from and after the date that the Borrower holds a Gaming License) subject to Nevada Gaming Laws, the Borrower shall, at its cost and expense, permit employees or agents of the Administrative Agent and the Construction Consultant at any reasonable times and upon reasonable prior notice to inspect the Main Project, to examine or audit all of the Borrower's books, accounts and records pertaining or related to the Main Project, to make copies and memoranda thereof and, with respect to any Environmental Matters, to perform any tests or studies and prepare any reports reasonably required by the Administrative Agent. For all expenditures with respect to which Loans are made, the Borrower shall retain, until at least five years after the Administrative Agent has received the report specified in clause (a) of Section 7.1.1 for the calendar month in which the 119 last Advance was made by the Lenders, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures. SECTION 7.1.6. Environmental. The Borrower and Subsidiaries will: (a) construct, use and operate all of its facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in material compliance therewith, and handle all Hazardous Substances in material compliance with all applicable Environmental Laws; (b) promptly notify the Administrative Agent and provide copies upon receipt of all material written claims, complaints, notices or inquiries relating to potential liability under or non-compliance with, Environmental Laws, and shall promptly resolve any material non- compliance with Environmental Laws and keep its property free of any Lien imposed by any Environmental Law; and (c) provide such information and certifications which the Administrative Agent may reasonably request from time to time to evidence compliance with this Section, including certificates confirming (x) removal of asbestos in the existing building on or before June 30, 1998, (y) removal of asbestos from the Theater within 30 days after such removal has been completed and (z) removal of all underground storage tanks within 30 days after such removal has been completed. SECTION 7.1.7. Additional Collateral. The Borrower shall cause the Administrative Agent to have at all times a first priority perfected security interest (subject only to Permitted Liens and Permitted Encumbrances) in all of the property (real and personal) owned from time to time by the Borrower, the other Aladdin Parties (other than the Trust) and LCNI to the extent the same constitutes or would constitute "Collateral" under the Loan Documents. Without limiting the generality of the foregoing, the Borrower shall, and shall cause each of the other Aladdin Parties (other than the Trust) and LCNI to, execute, deliver and/or file (as applicable) or cause to be executed, delivered and/or filed (as applicable), the pledge agreement(s), the security agreement(s), Uniform Commercial Code (Form UCC-1) financing statements, Uniform Commercial Code termination statements, and other documentation necessary to grant and perfect such security interest, in each case in form and substance satisfactory to the Administrative Agent. SECTION 7.1.8. Use of Proceeds. The Borrower shall apply the proceeds of the Credit Extensions: (a) to pay in part the Main Project Costs which are identified in the Main Project Budget to be paid from the Loans; 120 (b) to pay the costs, expenses and fees required to be paid by the Borrower under this Agreement, the other Loan Documents and, to the extent set forth in the Main Project Budget, the other Operative Documents; and (c) in the case of Letters of Credit, for issuing Letters of Credit for the account of the Borrower to be delivered to suppliers or contractors providing materials to the Main Project which constitute Main Project Costs set forth in the Main Project Budget to be paid from the Loans; provided, however, that no Letter of Credit shall be issued for the Gaming Equipment or the Specified Equipment which is to be leased under an FF&E Lease and/or financed by the credit facilities contemplated by the Approved Equipment Funding Commitments. SECTION 7.1.9. Deposits into the Accounts. The Borrower shall deposit or cause to be deposited (v) all amounts required pursuant to Section 7.1.14 into the Guaranty Deposit Account, (w) all amounts paid pursuant to the Completion Guaranty into the Guaranty Deposit Account, (x) all Loss Proceeds into the Loss Proceeds Account, (y) all Pre-Opening Revenues, the Net Distribution Amount, all amounts received from Aladdin Bazaar for reimbursement of costs of work on the Shoulder Space pursuant to the Site Work Agreement, all damages, liquidated or otherwise, and all other amounts paid to the Borrower prior to the Conversion Date pursuant to the Design/Build Contract, the Fluor Guaranty, the Contracts and the other Main Project Documents into the Borrower's Funds Account and (z) all other funds received by the Borrower prior to the Conversion Date (other than those permitted or required to be deposited elsewhere) into the Borrower's Funds Accounts. The Borrower shall not, at any time prior to the Completion Date, open or establish any bank, deposit or any other accounts at any financial institution other than the Accounts provided for herein. SECTION 7.1.10. Main Project Costs. The Borrower shall apply all proceeds described in Section 7.1.9 and all other amounts in the Accounts from time to time only to pay Main Project Costs in accordance with the terms of this Agreement and, if applicable, the Disbursement Agreement, including: (a) the application of the proceeds of Hotel/Casino Component Funding Sources only to pay Main Project Costs permitted pursuant to the allocation procedures of Section 2.5 of the Disbursement Agreement; (b) the application of the proceeds of Approved Equipment Funding Commitments only to the payment of the Gaming Equipment, the Specified Equipment and other Main Project Costs allocated to the Equipment Component; (c) the application of amounts in the Accounts only to pay Main Project Costs allocated to the Hotel/Casino Component, as set forth in the Main Project Budget; and 121 (d) the incurrence and payment of Pre-Opening Expenses only to satisfy the Opening Conditions. SECTION 7.1.11. Repayment of Indebtedness. The Borrower shall repay, in accordance with its terms, all Indebtedness, including all sums due under this Agreement and the other Operative Documents subject, however, in the case of any such Indebtedness (excluding, however any Obligation) the repayment of which is limited by any term of any Operative Document, to such limitation. SECTION 7.1.12. Diligent Construction of the Main Project. With respect to the construction and Final Completion of each of the Hotel/Casino, the Energy Project, and, if applicable, the renovations to the Theater, the Borrower shall: (a) take or cause to be taken all action, make or cause to be made all Contracts and, if required, Subcontracts and do or cause to be done all things necessary to construct of the Hotel/Casino and, if applicable, the renovations to the Theater diligently to Final Completion in accordance with the Design/Build Contract, the Plans and Specifications and the other Operative Documents; (b) take or cause to be taken all action and do or cause to be done all things necessary to enforce the obligation of the Energy Project Provider and, if applicable, the Energy Project Guarantor to construct or cause the construction of the Energy Project diligently to Final Completion in accordance with the Energy Project Ground Lease, the Energy Service Agreement and the other Operative Documents applicable to the Energy Project, subject to clause (c) of Section 8.1.13; and (c) promptly after completing the Main Project Punchlist Items applicable to the Hotel/Casino and the Theater, as the case may be, request the Construction Consultant to issue the Main Project Punchlist Completion Certificate applicable to the Hotel/Casino and the Theater, as the case may be. SECTION 7.1.13. Compliance with Legal Requirements. The Borrower promptly and diligently shall (x) own, construct, maintain and operate the Main Project in compliance in all material respects with all applicable Legal Requirements, including the Permits, the Environmental Laws and (from and after the date that the Borrower holds a Gaming License) Nevada Gaming Laws and (y) procure, maintain and comply, or cause to be procured, maintained and complied with, in all material respects, all Permits required for any ownership, construction, financing, maintenance or operation of the Main Project or any part thereof at or before the time each such Permit becomes necessary for the ownership, construction, financing, maintenance or operation of the Main Project, as the case may be, as contemplated by the Operative Documents, except that the Borrower may, at its expense, contest by appropriate proceedings conducted in good faith the validity or application of any such Legal Requirements, provided, however, that (1) none of the Agents, any of the Lenders, any of the Aladdin Parties or 122 LCNI would be subject to any criminal liability for failure to comply therewith and (2) all proceedings to enforce such Legal Requirements against the Agents, any of the Aladdin Parties or LCNI shall have been duly and effectively stayed during the entire pendency of such contest, except where failure to procure such stay could not reasonably be expected to result in a Material Adverse Effect. SECTION 7.1.14. In Balance; Borrower Equity. If at any time the 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 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. SECTION 7.1.15. Security Interest in Newly Acquired Property. If the Borrower shall at any time acquire any interest in property not covered by the Loan Documents (excluding, however, property in which, pursuant to the Loan Documents, the Borrower is not required to grant a security interest in favor of any Secured Party) or enter into a Main Project Document, then promptly upon such acquisition or execution the Borrower shall execute, deliver and record a supplement to the Loan Documents, reasonably satisfactory in form and substance to the Administrative Agent, subjecting such interests to the Lien and security interests created by the applicable Loan Documents (with the priority contemplated thereby in favor of each Secured Party) and (if the Main Project Document is a Material Main Project Document) deliver to the Administrative Agent, on behalf of the Secured Parties, Consents (with such changes thereto as are reasonably acceptable to the Administrative Agent) with respect to the collateral assignment of any such Main Project Document. SECTION 7.1.16. Plans and Specifications. The Borrower shall provide to the Construction Consultant a copy of, and maintain at the Site, a complete set of Plans and Specifications as in effect from time to time. The Borrower shall provide or make available to the Construction Consultant a copy of all shop drawings, schedules, reports, diagrams, layouts, setting plans, cuts, explanations, catalogue references, samples and other data prepared by the Design/Builder, the Architect of Record or any Subcontractor in connection with the development of the Plans and Specifications during the time that the Borrower and the Owner Representative have to review and approve such items in order for the Construction Consultant to confirm the conformity thereof to the applicable provisions of this Agreement and the other Operative Documents; provided, however, in no event shall any such review by the Construction Consultant require the Borrower or the Owner Representative to delay the approval process thereof as set forth in Section 4.2 of the General Conditions annexed to the Design/Build Contract as Attachment D. Following the review and approval of such submissions as aforesaid, no material modifications to the Plans and Specifications may be made without the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld or delayed if, after giving effect thereto, such modifications will not (w) cause a breach under the 123 Discount Note Indenture, (x) extend the Completion Date beyond the Outside Completion Deadline, (y) require any adjustment to the Guaranteed Maximum Price or the Design/Build Contract Time and (z) the Completion Guarantors have consented in writing to such modifications. The Borrower shall provide Final Plans and Specifications for the Hotel/Casino no later than six months prior to the estimated Completion Date and "as built" Plans and Specifications for the Hotel/Casino no later than three months after the Completion Date. SECTION 7.1.17. Construction Consultant. The Borrower shall: (a) cooperate and cause the Design/Builder and the Architect of Record to cooperate with the Construction Consultant in the performance of the Construction Consultant's duties hereunder and under the Construction Consultant Engagement Agreement. Without limiting the generality of the foregoing, the Borrower shall and shall instruct the Design/Builder and the Architect of Record to: (w) communicate with and promptly provide or make available to the Construction Consultant all invoices, documents, shop drawings, schedules, reports, diagrams, layouts, setting plans, cuts, explanations, catalogue references, samples and other data and information reasonably requested by the Construction Consultant with respect to the construction of the Main Project and, if applicable, the renovation of the Theater (x) provide the Construction Consultant with access to the Site and, subject, however, to required safety precautions, the construction areas (the Owner Representative shall accompany the Construction Consultant on any such visits), (y) provide the Construction Consultant with reasonable working space and access to telephone, copying and telecopying equipment (at no cost to the Lenders, the Construction Consultant, the Administrative Agent or the Disbursement Agent) and (z) otherwise facilitate the Construction Consultant's review of the construction of the Main Project and preparation of the certificates required hereby and by the Disbursement Agreement. (b) pay or cause to be paid to the Construction Consultant (or the Administrative Agent for the account of the relevant Lenders for reimbursement of payments advanced to the Construction Consultant) out of the Loans made hereunder (to the extent not otherwise paid from the Accounts or any other sources) all amounts required hereunder and under the Construction Consultant Engagement Agreement (and, in the case of any such reimbursement, to the extent so advanced by the Administrative Agent). (c) in addition to any other consultation required hereunder, following the end of each Fiscal Quarter, upon the reasonable request of the Administrative Agent, consult with any Person (other than Contractors or Subcontractors) regarding any adverse event or condition identified in any report prepared by the Construction Consultant or the Owner Representative, as the case may be. 124 SECTION 7.1.18. Proper Legal Forms. The Borrower shall take all action within its control required or advisable to ensure that each of the Operative Documents is in proper legal form. SECTION 7.1.19. Preserving the Main Project Security. The Borrower shall: (a) Subject to clauses (b) and (c), undertake all actions which are necessary or appropriate in the reasonable judgment of the Administrative Agent and (from and after the date that the Borrower holds a Gaming License) as required by the Nevada Gaming Laws to (x) maintain the Secured Parties' respective security interests under the Loan Documents in the Main Project Security in full force and effect at all times (including the priority thereof) and (y) preserve and protect the Main Project Security and protect and enforce the Borrower's rights and title and the respective rights of the Secured Parties to the Main Project Security, including the making or delivery of all filings and recordations, the payments of fees and other charges, the issuance of supplemental documentation, the discharge of all claims or other Liens (other than the Permitted Liens and the Permitted Encumbrances) adversely affecting the respective rights of the Secured Parties to and under the Main Project Security (except to the extent same is being contested in good faith by appropriate governmental proceedings promptly instituted and diligently contested, so long as (1) such reserve or other appropriate provision, if any, as shall be required in conformity with generally accepted accounting principles shall have been made therefor and (2) in case of any charge or claim which has or may become a Lien against any of the Main Project Security, such contested proceedings conclusively operate to stay the sale of any portion of the Main Project Security to satisfy such charge or claim which has of may become a Lien against any of the Main Project Security, such contested proceedings conclusively operate to stay the sale of any portion of the Main Project Security to satisfy such charge or claim) and the publication or other delivery of notice to third parties. (b) Take all actions and do all things as may be reasonably necessary under NRS Chapter 278 and the applicable provisions of the Clark County Code, Clark County, Nevada (the "Clark County Code"), to cause the Mall Project Parcel to become a separate legal parcel as promptly as practicable. The Borrower shall, upon creation of the Mall Project Parcel as a separate legal parcel, deliver a notice to such effect to the Administrative Agent. Promptly thereafter, at the Borrower's sole cost and expense, in substantially concurrent transactions: (i)the Borrower, in accordance with the Mall Project Ground Lease, shall transfer all of its right, title and interest in and to the Mall Project Parcel to Aladdin Bazaar by executing, delivering and recording at the Clark County, Nevada, Recorder's Office a Grant, Bargain and Sale Deed substantially in the form of Exhibit J hereto; 125 (ii) the Borrower and Aladdin Bazaar shall terminate the Mall Project Ground Lease; (iii) the Mall Project Parcel shall be released from the Deed of Trust and reconveyed by the Lenders to Aladdin Bazaar, which release shall be recorded at the Clark County, Nevada, Recorder's Office; and (iv) substantially concurrently with the foregoing, and as a condition precedent thereto, the Borrower shall deliver to the Administrative Agent: (A) a legal opinion from counsel reasonably acceptable to the Administrative Agent to the effect that (after giving effect to the amendments and re-recordations contemplated by this clause (b)) (1) the Mall Project Parcel has been legally created as a separate legal parcel under NRS Chapter 278 and the applicable provisions of the Clark County Code, and (2) the Deed of Trust remains enforceable in accordance with its terms and continues to be effective to create the security interests described therein, together with such other legal opinions as the Administrative Agent may reasonably request, each in form and substance reasonably satisfactory to the Administrative Agent, (B) endorsements, or commitments by the Title Insurer to issue endorsements, to the Title Policies, in each case in form and substance satisfactory to the Administrative Agent, insuring the continuing perfection and priority of the respective Liens on the Main Project Security and (C) any amendments to the Reciprocal Easement Agreement, the Site Work Agreement and the Common Parking Area Use Agreement necessary to allow continued performance by the parties thereto of their obligations thereunder. (c) Take all actions and do all things as may be reasonably necessary under NRS Chapter 278 and the applicable provisions of the Clark County Code, to cause the Music Project Parcel to become a separate legal parcel as promptly as practicable. The Borrower shall, upon creation of the Music Project Parcel as a separate legal parcel, deliver a notice to such effect to the Administrative Agent. Promptly thereafter, at the Borrower's sole cost and expense, in substantially concurrent transactions: (i) The Borrower, in accordance with the Music Project Ground Lease, shall transfer all of its right, title and interest in and to the Music Project Parcel to Aladdin Music by executing, delivering and recording at the Clark County, Nevada, Recorder's Office a Grant, Bargain and Sale Deed substantially in the form of Exhibit J hereto; (ii) the Borrower and Aladdin Music shall terminate the Music Project Ground Lease; 126 (iii) the Music Project Parcel shall be released from the Deed of Trust and reconveyed by the Lenders to Aladdin Music, which release shall be recorded at the Clark County, Nevada, Recorder's Office; and (iv) substantially concurrently with the foregoing, and as a condition precedent thereto, the Borrower shall deliver to the Administrative Agent: (A) a legal opinion from counsel reasonably acceptable to the Administrative Agent to the effect that (after giving effect to the amendments and re-recordations contemplated by this clause (c)) (1) the Music Project Parcel has been legally created as a separate legal parcel under NRS Chapter 278 and the applicable provisions of the Clark County Code, and (2) the Deed of Trust remains enforceable in accordance with its terms and continues to be effective to create the security interests described therein, together with such other legal opinions as the Administrative Agent may reasonably request, each in form and substance reasonably satisfactory to the Administrative Agent, (B) endorsements, or commitments by the Title Insurer to issue endorsements, to the Title Policies, in each case, in form and substance satisfactory to the Administrative Agent, insuring the continuing perfection and priority of the respective Liens on the Main Project Security and (C) any amendments to the Reciprocal Easement Agreement, the Site Work Agreement and the Common Parking Area Use Agreement necessary to allow continued performance by the parties thereto of their obligations thereunder. SECTION 7.1.20. Application of Insurance and Condemnation Proceeds. (a) As a material inducement to the Lenders to enter into this Agreement, if any Event of Loss shall occur with respect to the Complex or any part thereof, the Borrower shall (x) promptly upon discovery or receipt of notice thereof provide written notice thereof to the Administrative Agent, (y) diligently pursue all its rights to compensation against all relevant insurers, reinsurers and/or Governmental Instrumentalities, as applicable, in respect of such event and (z) not, without consent of the Administrative Agent (which consent shall not be unreasonably withheld or delayed), compromise or settle any claim involving an amount in excess of $100,000 per claim. (b) All awards, amounts, damages, compensation, payments, settlements and proceeds (including instruments) in respect of any Event of Loss including the proceeds of any insurance policy required to be maintained by the Borrower hereunder and awards or settlements from any condemnation (collectively, "Loss Proceeds") shall be applied as provided in this Section, subject, however, to the applicable provisions of the Reciprocal Easement Agreement. All Loss Proceeds shall be paid by the insurers, reinsurers, Governmental Instrumentalities or other payors directly to the Administrative Agent for deposit in the Loss Proceeds Account. If any Loss Proceeds are paid directly to the Borrower, any other Aladdin Party, LCNI, London Clubs Holdings or London Clubs or 127 any Affiliate of any of the foregoing by any insurer, reinsurer, Governmental Instrumentality or such other payor, (x) such Loss Proceeds shall be received in trust for the Administrative Agent, (y) such Loss Proceeds shall be segregated from other funds of such Person and (z) such Person shall pay (or, if applicable, Borrower shall cause the Aladdin Parties or, if applicable, LCNI, London Clubs Holdings or London Clubs to pay) such Loss Proceeds over to the Administrative Agent in the same form as received (with any necessary endorsement) for deposit in the Loss Proceeds Account. In the event that for a period of 60 days after any Loss Proceeds are deposited in the Loss Proceeds Account, the Borrower is not permitted pursuant to the terms of the Disbursement Agreement to obtain Advances of such Loss Proceeds, then the Borrower shall use such proceeds to prepay the Loans in accordance with this Agreement, subject, however, to the applicable provisions of the Reciprocal Easement Agreement. SECTION 7.1.21. Shoulder Space Encroachments. (a) The Borrower shall construct or cause to be constructed the Hotel/Casino and the Energy Project within the Main Project Parcel; provided, however, that (x) portions of the Hotel/Casino and other improvements constituting the Main Project may encroach onto the Mall Project Parcel or the Music Project Parcel, (y) portions of the Mall Project may encroach onto the Main Project Parcel or the Music Project Parcel and (z) portions of the Music Project may encroach onto the Mall Project Parcel or the Main Project Parcel, so long as: (1) none of such encroachments extends beyond the limitations set forth in the Reciprocal Easement Agreement and the Final Plans and Specifications and (2) the Borrower complies in all material respects with the provisions set forth in Section 7.2.17 in implementing any Scope Change that causes such encroachment. (b) Promptly after the creation of the Mall Project Parcel and the Music Project Parcel in accordance with this Agreement and the other Operative Documents, the Borrower shall implement such lot line adjustments as may be necessary to ensure that (x) all improvements which are to be constructed on the Mall Project are located on the Mall Project Parcel or on a parcel as to which Aladdin Bazaar has a permanent easement, (y) all improvements which are to be constructed on the Main Project are located on the Main Project Parcel or on a parcel as to which the Borrower has a permanent easement and (z) all improvements which are to be constructed on the Music Project are located on the Music Project Parcel or on a parcel as to which Aladdin Music has a permanent easement. SECTION 7.1.22. GECC Intercreditor Agreement. On or before the earlier of June 30, 1998 or the applicable date set forth in the GECC Commitment, the Borrower shall provide the Administrative Agent with the final form of documents to be used with respect to the FF&E Financing including the GECC Intercreditor Agreement. Such documents shall be in form and substance satisfactory to the Administrative Agent as determined in good faith in its sole discretion. The GECC Intercreditor Agreement shall provide, in relevant part, that the 128 Administrative Agent shall receive all notices given or received by GECC with respect to the FF&E Financing, that the Administrative Agent, on behalf of the Lenders, shall have the right but not the obligation to cure defaults of the Borrower under the FF&E Financing and such other rights, remedies and options as are customary for senior secured lenders to receive in transactions of this type. SECTION 7.1.23. Compliance with Material Main Project Documents and the Approved Equipment Funding Commitment. The Borrower shall comply duly and promptly, in all material respects, with its obligations, and enforce all of its respective rights, under all Material Main Project Documents, except where the failure to comply or enforce such rights, as the case may be, could not reasonably be expected to have a Material Adverse Effect. The Borrower shall comply duly and promptly, in all material respects, with its obligations, and enforce all of its respective rights, under the Approved Equipment Funding Commitment. SECTION 7.2. Negative Covenants. The Borrower agrees with the Agents, the Issuer and each Lender that, until all Commitments have terminated and all Obligations have been indefeasibly paid and performed in full, the Borrower will perform the obligations set forth in this Section 7.2. SECTION 7.2.1. Business Activities. The Borrower and Subsidiaries will not engage in any business activity, except those described in the recitals and such activities as are reasonably incidental or substantially similar thereto. SECTION 7.2.2. Indebtedness. The Borrower and Subsidiaries will not directly or indirectly, create, incur, assume or suffer to exist or otherwise become or be liable in respect of any Indebtedness or issue any shares of Preferred Stock, other than, without duplication, the following: (a) Indebtedness in respect of the Credit Extensions and other Obligations; (b) Existing Indebtedness; (c) Indebtedness of the Borrower comprised of Hedging Liabilities; provided, however, that the notional principal amount of any such Hedging Liabilities does not exceed the principal amount of Indebtedness to which such Hedging Liabilities relate; (d) Indebtedness of the Borrower incurred under the FF&E Financing; provided, however, that (x) the principal amount of such Indebtedness does not exceed the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct and transaction expenses paid or charged in connection with, such purchase including reasonable transaction costs) of the FF&E purchased or leased with the proceeds thereof and (y) the aggregate principal amount of such Indebtedness, including any Permitted Refinancing Indebtedness incurred to refinance or replace any 129 Indebtedness incurred pursuant to this clause (d), does not exceed $80,000,000 (including obligations characterized as operating leases or other off-balance sheet financing arrangements) outstanding at any time; (e) Indebtedness (to the extent that the incurrence thereof does not result in incurrence by the Borrower of any obligation for the payment of borrowed money of others) solely in respect of performance bonds; provided, that such Indebtedness was incurred in the ordinary course of business of the Borrower and in an aggregate principal amount outstanding under this clause (e) at any one time of not more than $10,000,000; (f)Indebtedness of the Borrower comprised of (x) at any time prior to the Outside Completion Deadline, additional Indebtedness under clause (d) of this Section in an aggregate amount not to exceed $40,000,000, plus (y) after a Default of the "In Balance" requirements in Section 7.1.14 and at any time prior to the Outside Completion Deadline, additional Indebtedness under clause (d) in an aggregate amount not to exceed $50,000,000 (provided that Indebtedness incurred pursuant to this clause (f)(y) is matched, dollar for dollar, by additional equity investments; provided, however, that the foregoing amounts shall be reduced by any amounts which the Lenders have agreed by amendment to this Agreement to lend pursuant to clause (a); (g) the Borrower may incur Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refinance, renew, replace, substitute or refund, Indebtedness that was permitted to be incurred under clauses (b), (d) and (h) of this covenant; (h) after the Hotel/Casino is Operating, Indebtedness of the Borrower under any Working Capital Facility in an aggregate amount at any time outstanding not to exceed $20,000,000; and (i) Indebtedness of Aladdin Music in respect of the construction of the Music Project, the terms of which and the Instruments which evidence and secure such Indebtedness shall be satisfactory to the Administrative Agent as determined in good faith in its sole discretion. Accrual of interest, the accretion of the accreted value or principal and the payment of interest in the form of additional Indebtedness and the issuance of the Borrower Series A Preferred Membership Interests, will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. SECTION 7.2.3. Liens. The Borrower and Subsidiaries will not create, incur, assume or suffer to exist any Lien upon any of its property, revenues or assets, whether now owned or hereafter acquired, or any proceeds, income or profits therefrom, or assign or convey any right to receive income therefrom, excluding, however, Liens securing (x) the Obligations, 130 (y) Permitted Refinancing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien and is permitted under Section 7.2.2 and which has been incurred in accordance with such Section; provided, however, that such Liens do not extend to cover any property or assets of the Borrower not already securing the Indebtedness so refinanced and (z) Permitted Liens, Permitted Encumbrances and Permitted Exceptions. SECTION 7.2.4. Financial Condition and Operations. The Borrower will not, as of the close of any Fiscal Quarter, commencing with the close of the Fiscal Quarter in which the Conversion Date occurs, permit: (a) Total Debt to EBITDA Ratio. The Total Debt to EBITDA Ratio at the close of any such Fiscal Quarter set forth below to exceed the ratio set forth opposite such Fiscal Quarter:
Such FQ Closing Total Debt to EBITDA after Conversion Date Ratio --------------------- -------------------- FQ 1 4.1:1 FQ 2 4.0:1 FQ 3 4.0:1 FQ 4 3.75:1 FQ 5 3.75:1 FQ 6 3.60:1 FQ 7 3.60:1 FQ 8 3.25:1 FQ 9 3.25:1 FQ 10 2.85:1 FQ 11 2.85:1 FQ 12 2.55:1 FQ 13 2.55:1 FQ 14 2.40:1 FQ 15 2.40:1 FQ 16 2.25:1 FQ 17 2.25:1
131
Such FQ Closing Total Debt to EBITDA after Conversion Date Ratio --------------------- -------------------- FQ 18 2.15:1 FQ 19 2.15:1 FQ 20 and thereafter 2.00:1
(b) Interest Coverage Ratio. The Interest Coverage Ratio as of the close of any such Fiscal Quarter to be less than 2.0:1.0. (c) Net Worth. Net Worth as of the close of any such Fiscal Quarter to be less than the sum of $100,000,000 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. (d) EBITDA. EBITDA at the close of any such Fiscal Quarter (determined for such Fiscal Quarter and the three immediately preceding such Fiscal Quarters or such lesser number of Fiscal Quarters to have elapsed since the Conversion Date) during any period set forth below to be less than the amount set forth below opposite such period:
Period of FQs after Conversion Date Amount ------------------- ------------ FQ1 through FQ4 $105,000,000 FQ5 through FQ8 $110,000,000 FQ9 through FQ12 $120,000,000 FQ13 through FQ16 $125,000,000 FQ17 through FQ20 $130,000,000 FQ21 and each Fiscal Quarter thereafter $140,000,000
(e) Minimum Fixed Charge Coverage. The Minimum Fixed Charge Coverage Ratio as of the close of any such Fiscal Quarter to be less than 1.10:1.0. SECTION 7.2.5. Investments. The Borrower and Subsidiaries will not make, incur, assume or suffer to exist any Investment in any other Person, except: 132 (a) Ongoing Investments; (b) Cash Equivalent Investments; (c) without duplication, Investments to the extent permitted as Indebtedness pursuant to Section 7.2.2; (d) without duplication, Investments permitted as Capital Expenditures pursuant to Section 7.2.7; (e) Investments by way of contributions to capital or purchases of interests (directly or indirectly) (i) by the Borrower in AMH and Aladdin Music or by such Subsidiary in any of its Subsidiaries, subject to the limitations and the satisfaction of the conditions set forth in Section 2.2.7 of the Disbursement Agreement; (f) Investments constituting (x) accounts receivable arising, (y) trade debt granted or (z) deposits made in connection with the purchase price of goods or services, in each case in the ordinary course of business; (g) the grant by the Borrower to Bazaar of the Mall Project Ground Lease and, upon the subdivision of the Site, the transfer by the Borrower to Aladdin Bazaar of the fee interest in the Mall Project Parcel and the Mall Project Easements, subject to, however subsection (b) of Section 7.1.22; (h) the grant of the Energy Project Ground Lease; (i) (x) the grant by the Borrower to AMH of the Music Project Ground Lease by the Borrower to Aladdin Music, (y) upon the subdivision of the Site, the transfer by the Borrower to Aladdin Music of the fee interest in the Music Project Parcel and the Music Project Easements, subject to, however subsection (c) of Section 7.1.19 and (z) upon consummation of the Music Project financing, an Investment not to exceed $21,250,000 in consideration for preferred Membership Interests in Aladdin Music pursuant to the Organizational Documents of Aladdin Music; provided, however, that (j) any Investment which when made complied with the requirements of clauses (w), (x) or (y) of the definition of the term "Cash Equivalent Investment" may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; and 133 (k) no Investment otherwise permitted by clauses (c), (d), (e), (f) or (i)(z) shall be permitted to be made if any Default has occurred and is continuing or would result therefrom. SECTION 7.2.6. Restricted Payments, etc. On and at all times after the date hereof: (a) the Borrower will not declare, pay or make any dividend or distribution (in cash, property or obligations) on any Membership Interests (now or hereafter outstanding) of the Borrower or on any warrants, options or other rights with respect to any shares of any Membership Interests (now or hereafter outstanding) of the Borrower (other than dividends or distributions payable in its Membership Interests or warrants to purchase its Membership Interests or splitups or reclassifications of its Membership Interests into additional or other shares of its Membership Interests ) or apply, or permit any of its Subsidiaries to apply, any of its funds, property or assets to the purchase, redemption, sinking fund or other retirement of, or agree or permit any of its Subsidiaries to purchase or redeem, any shares of any Membership Interests (now or hereafter outstanding) of the Borrower, or warrants, options or other rights with respect to any shares of any Membership Interests (now or hereafter outstanding) of the Borrower; (b) the Borrower will not, and will not permit any of its Subsidiaries to (i) make any payment or prepayment of principal of, or make any payment of interest on, (x) any subordinated debt on any day other than the stated, scheduled date for such payment or prepayment set forth in the documents and instruments memorializing such subordinated debt, or which would violate the subordination provisions of such subordinated debt or (y) any Discount Note; or (ii) redeem, purchase or defease, any subordinated debt or any Discount Note or make any payment for purposes of funding any of the foregoing; (the foregoing prohibited acts referred to in clauses (a) and (b) being herein collectively referred to as "Restricted Payments"); provided, however, that (c) notwithstanding the provisions of clause (a) above, for so long as the Borrower is treated as a pass-through entity, or the Borrower is not treated as a separate entity, for United States federal income tax purposes (as evidenced by an opinion of counsel subject to usual qualifications and in reliance on customary representations, at least annually), the Borrower shall be permitted to make Restricted Payments to equity holders of the Borrower, in an amount not to exceed the Tax Amount for such period; provided, however, that (x) prior to any distributions of Tax Amounts, the Borrower shall deliver an officers' certificate to the Administrative Agent to the effect that the Borrower is a limited-liability company taxable as a partnership or other substantially similarly 134 treated pass-through entity, or the Borrower is not treated as a separate entity, for United States federal income tax purposes and, after giving effect to any such distribution of such Tax Amount, the Borrower will continue to be in compliance with the covenants in Sections 7.2.4 and (y) at the time of such distributions, the most recent audited financial statements of the Borrower required to have been furnished pursuant to clause (c) of Section 7.1.1 reflect that the Borrower is treated as a limited-liability company taxable as a partnership or other substantially similarly treated pass-through entity or the Borrower, is not treated as a separate entity for United States federal income tax purposes for the period covered by such financial statements; (d) notwithstanding the provisions of clause (a) above, from and after March 1, 2003, the Borrower shall be permitted to make Restricted Payments on the Borrower Series A Preferred Membership Interests to Holdings from time to time in an amount sufficient to enable Holdings to make payments of interest on the Discount Notes which are then due and payable, such amount not to exceed the amount payable thereunder in accordance with the terms thereof in effect on the Effective Date; (e) notwithstanding the provisions of clause (a) above, the Borrower shall be permitted to make Restricted Payments in respect of the Management Fee pursuant to the Salle Privee Management Agreement as in effect on the Effective Date to Holdings, which shall in turn utilize all of any such Restricted Payment to make a distribution or dividend to LCNI, which shall in turn utilize all of any such Restricted Payment to make a distribution and/or dividend to London Clubs Holdings, which shall in turn utilize all of any such distribution or dividend to make a distribution and/or dividend to London Clubs; (f) notwithstanding the provisions of clause (a), the Borrower shall be permitted to make Restricted Payments on the Effective Date in respect of a fee equal to 1% of the amount of Indebtedness supported and enhanced by the Keep-Well Agreement on the Effective Date (such amount of Indebtedness being $265,000,000) and payment of an annual fee equal to 1.5% of the annual average Indebtedness outstanding under the Bank Credit Facility which is supported and enhanced by the Keep-Well Agreement, in each case as set forth in the London Clubs Purchase Agreement as in effect on the Effective Date, to Holdings, which shall in turn utilize all of any such Restricted Payment to make a distribution and/or dividend to LCNI, which shall in turn utilize all of any such Restricted Payment to make a distribution and/or dividend to London Clubs Holdings, which shall in turn utilize all of any such distribution or dividend to make a distribution or dividend to London Clubs; (g) notwithstanding the provisions of clause (a), the Borrower shall be permitted to make Restricted Payments with respect to the Employment Agreements in an aggregate amount not exceeding $2,000,000 in any Fiscal Year; and 135 (h) notwithstanding the provisions of clause (a) above, the Borrower shall be permitted to make Restricted Payments as dividends or distributions to its stockholders in any Fiscal Quarter following the Conversion Date, so long as (i) the Borrower shall have delivered to the Administrative Agent (A) financial statements prepared on a pro forma basis to give effect to such Restricted Payment for the Fiscal Quarter (the "Base Fiscal Quarter") then last ended for which financial statements and the Compliance Certificate relating thereto have been delivered to the Administrative Agent pursuant to Section 7.1.1, and (B) a certificate of the Borrower executed by its chief financial or accounting Authorized Representative demonstrating that the financial results reflected in such financial statements would result in a Total Debt to EBITDA Ratio at the Close of any such Base Fiscal Quarter occurring during any period set forth below to be less than the ratio set forth opposite such period:
Period of Fqs Total Debt to After Conversion Date EBITDA Ratio --------------------- ------------- FQ1 through FQ4 3.50:1 FQ5 through FQ8 3.25:1 FQ9 and thereafter 3.00:1; and
(ii) the aggregate amount of such Restricted Payment to be made by the Borrower pursuant to this clause (h), when added to the aggregate amount of all such Restricted Payments during the Fiscal Quarter in which such Restricted Payment would be made, does not exceed the lesser of (A) the sum of (1) 50% of Net Income for the Base Fiscal Quarter plus (2) the amount of Cash Contributions to Capital and (B) an amount equal to the excess of (1) Excess Cash Flow for the Base Fiscal Quarter over (2) the amount of Mandatory Prepayments required to have been made pursuant to clause (c) of Section 3.1.1 (without giving effect to the proviso to such Section) for the Base Fiscal Quarter; (i) no Restricted Payments otherwise permitted by clause (c), (d), (e), (f), (g) or (h) shall be made if a Default shall have occurred and be continuing or if a Default will result after giving effect thereto. 136 SECTION 7.2.7. Capital Expenditures, etc. From and after the Conversion Date, the Borrower will not make or commit to make Capital Expenditures, except Capital Expenditures set forth in a budget delivered by the Borrower in accordance with clause (k) of Section 7.1.1; provided, however, in no event shall the Borrower make or commit to make any Capital Expenditures during any Fiscal Year occurring (a) during the period from the Effective Date through the fourth anniversary thereof in excess of $12,000,000 or (b) after such anniversary in excess of $18,000,000, in each case whether or not funded from the FF&E Reserve. SECTION 7.2.8. Rental Obligations. The Borrower will not, and will not permit any Subsidiary to, enter into at any time any arrangement (other than the arrangement described in clause (c) of the fifth recital) which involves the leasing by the Borrower from any lessor of any real or personal property (or any interest therein), which does not create a Capitalized Lease Liability and except arrangements which, together with all other such arrangements which shall then be in effect, will not require the payment of an aggregate amount in any Fiscal Year of rentals by the Borrower and Subsidiary in excess of, in the case of any such arrangements entered into prior to the 90th day following the Final Completion Date, $1,000,000 per annum and, in the case of any such arrangement entered into on or subsequent to such date, $5,000,000 per annum. SECTION 7.2.9. Take or Pay Contracts. Except for the Energy Project Service Agreement, the Borrower and Subsidiaries will not enter into or be a party to any arrangement for the purchase of materials, supplies, other property or services if such arrangement by its express terms requires that payment be made by the Borrower or such other Person regardless of whether such materials, supplies, other property or services are in fact or can be required to be delivered or furnished to it. SECTION 7.2.10. Consolidation, Merger, etc. The Borrower and Subsidiaries will not liquidate or dissolve, consolidate with, or merge into or with, any other Person, or purchase or otherwise acquire all or substantially all of the assets of any Person (or of any division thereof). SECTION 7.2.11. Permitted Dispositions. The Borrower and Subsidiaries will not sell, transfer, lease, contribute or otherwise convey (including by way of merger), or grant options, warrants or other rights with respect to, any of the assets of such Person (including accounts receivable or capital stock of Subsidiaries) to any Person unless such disposition is in the ordinary course of its business or otherwise permitted by this Agreement; provided, however, that the Administrative Agent will not unreasonably withhold its consent to transfers of minority interests in the Borrower to members of the management team of the Borrower so long as such interests are pledged to the Lenders as security for the Loans. SECTION 7.2.12. Modification of Certain Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, amend (by Change Order or otherwise), modify (by Change Order or otherwise), terminate, supplement or waive a right under or permit or consent to the amendment, modification, termination, supplement or waiver 137 of any of the provisions of, or grant any consent under (v) any Security Agreement without the consent of the Administrative Agent (provided, however, that the Administrative Agent shall consent to any such amendment, termination or supplement which the Borrower is permitted to enter into pursuant to this Agreement), (w) any Permit, the effect of which could reasonably be expected to have a Material Adverse Effect, (x) the Energy Project Service Agreement, the Energy Project Ground Lease, the Mall Project Ground Lease (other than as set forth in clause (b) of Section 7.1.19), the Music Project Ground Lease (other than as set forth in clause (c) of Section 7.1.19), the Organizational Documents of the Borrower and Subsidiaries, the Fluor Guaranty, or the approved Equipment Funding Commitments (except for the purpose of replacing them with a commitment described in clause (b) of the definition of "Approved Equipment Funding Commitments") without obtaining the Administrative Agent's prior written consent in its sole discretion, (y) the Design/Build Contract or any other Subcontract entered into with a Subcontractor constituting a Material Main Project Document except in accordance with the procedures set forth in Section 7.2.18 and Section 8.1.13, as applicable, below or (z) any other Material Main Project Document, the effect of which, with respect to such other Material Main Project Document, could reasonably be expected to have a Material Adverse Effect with respect to the Borrower or the Complex. Notwithstanding any of the foregoing, the Borrower may: (a) enter into Contracts and Subcontracts constituting Material Main Project Documents consistent with the Plans and Specifications, the Construction Benchmark Schedule, the Main Project Budget, and the Design/Build Contract as each is in effect from time to time so long as such Contract or Subcontract does not increase the Guaranteed Maximum Price or require an adjustment of the Design/Build Contract Time. Each such Contract or Subcontract, as the case may be, shall be in writing and shall become effective when and only when: (i) the Borrower and such other party thereto have executed and delivered such Contract or Subcontract (with the effectiveness thereof subject only to satisfaction of the conditions in clauses (ii), (iii), (iv), (v) and (vi) below); (ii) the Borrower has submitted to the Administrative Agent an Additional Contract Certificate together with all exhibits, attachments and certificates required thereby (including the Construction Consultant's Certificate), each duly completed and executed; (iii) if entering into such Contract or Subcontract will require a Change Order affecting the Main Project Budget, the Borrower has complied with the requirements of Section 7.2.18; (iv) if entering into such Contract or Subcontract will require a Change Order resulting in a Scope Change, the Borrower has complied with the provisions of Section 7.2.17; (v) if entering into such Contract will cause the Main Project Budget not to be In Balance, the Borrower has complied with the requirements of Section 7.1.14; and (vi) the Administrative Agent has acknowledged receipt of the materials referenced in clause (ii) above, as contemplated in the Additional Contract Certificate (which the Administrative Agent agrees to do promptly upon receipt of said material); and (b) from time to time, deliver a Change Order or amend any Contract or Subcontract to effect a Scope Change and may issue a Pending Item Claim (as referred to 138 in Section 18.11 of the Design/Build Contract). Any such Change Order or amendment shall be in writing and shall identify with particularity all changes being made. Each such amendment shall be effective when and only when: (i) the Borrower and the Design/Builder, the Architect of Record or such other party to the Design/Build Contract, the Contract or Subcontract, as the case may be, have executed and delivered the Change Order or amendment, as the case may be (with the effectiveness thereof subject only to satisfaction of the conditions in clauses (ii), (iii), (iv), (v) and (vi) below); (ii) the Borrower has submitted to the Administrative Agent a Contract Amendment Certificate together with all exhibits, attachments and certificates required thereby, each duly completed and executed; (iii) if such Change Order or amendment will result in an adjustment to the Main Project Budget, the Borrower has complied with the requirements of Section 7.2.18; (iv) if such Change Order or amendment will have the effect of a Scope Change, the Borrower has complied with the provisions of Section 7.2.17; (v) if such amendment will cause the Project Budget not to be In Balance, the Borrower has complied with the requirements of Section 7.1.14 and (vi) the Administrative Agent has acknowledged its receipt of the materials referenced in clause (ii) above (which the Administrative Agent agrees to do promptly upon receipt of said materials). SECTION 7.2.13. Transactions with Affiliates. The Borrower will not sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Borrower than those that would have been obtained in a comparable transaction by the Borrower with an unrelated Person and (ii) the Borrower delivers to the Administrative Agent (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1,000,000, a certificate from an Authorized Representative of the Borrower certifying that such Affiliate Transaction complies with clause (i) above, (b) with respect to any Affiliate Transaction or series of Affiliate Transactions involving aggregate consideration in excess of $5,000,000, a resolution of the Management Committee set forth in a certificate from an Authorized Representative of the Borrower certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved unanimously by the Management Committee and (c) with respect to any Affiliate Transactions involving aggregate consideration in excess of $10,000,000, an opinion as to the fairness to the Administrative Agent of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The foregoing provisions will not apply to any payments, transfers or dispositions pursuant to the following: (i) any employment, indemnification, noncompetition or confidentiality agreement entered into by the Borrower in the ordinary course of business on terms customary in the hotel/casino business including the Employment Agreement; (ii) Restricted Payments permitted by the provisions of Sections 7.2.6; (iii) the Noteholder Completion Guaranty; (iv) the Keep-Well Agreement; (v) the Salle Privee Management Agreement; (vi) the Reciprocal Easement Agreement as in effect on the Effective Date; (vii) the 139 Common Parking Area Use Agreement; (viii) any amendments, modifications, restatements, renewals, supplements and replacements to the Reciprocal Easement Agreement or the Common Parking Area Use Agreement approved by the Administrative Agent in its sole discretion; (ix) the Theater Lease after the Administrative Agent has approved the form and content thereof; (x) the payment by Aladdin Bazaar to the Borrower of up to $14,200,000 pursuant to Section 4.5(a) of the Site Work Agreement, (xi) loans or advances to employees of the Borrower to fund the exercise price of options granted under employment agreements or stock option plans or agreements of the Borrower, in each case, as in effect on the Effective Date, not to exceed $500,000 outstanding at any one time; (xii) the Investments described in clauses (g), (h) and (i) of Section 7.2.5 and (xiii) the payment of reasonable fees to members of the Board of Managers or the Board of Directors, as the case may be, of the Borrower who are not employees of the Borrower. SECTION 7.2.14. Negative Pledges, Restrictive Agreements, etc. The Borrower will not enter into any agreement (excluding, however, (i) this Agreement and any other Loan Document, or (ii) in the case of clause (a) below, any agreement governing any Indebtedness permitted by clause (d) of Section 7.2.2 as to the assets financed with the proceeds of such Indebtedness) governing any Indebtedness prohibiting (a) the creation or assumption of any Lien upon its properties, revenues or assets, whether now owned or hereafter acquired, to the extent that any such negative pledge would prohibit the creation or first priority perfection of any Liens of the type described in clause (x) of Section 7.2.3; (b) the ability of the Borrower or Subsidiaries to amend or otherwise modify any Operative Document; or (c) the ability of any Subsidiary to make any payments, directly or indirectly, to the Borrower by way of dividends, advances, repayments of loans or advances, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments, or any other agreement or arrangement which restricts the ability of any such Subsidiary to make any payment, directly or indirectly, to the Borrower. SECTION 7.2.15. Sale and Leaseback. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any agreement or arrangement with any other Person providing for the leasing by the Borrower or any of its Subsidiaries of real or personal property which has been or is to be sold or transferred by the Borrower or any of its Subsidiaries to such other Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Borrower or any of its Subsidiaries. SECTION 7.2.16. Stock of Subsidiaries. The Borrower will not permit any Subsidiary to issue any Capital Stock (whether for value or otherwise) to any Person other than (x) to the 140 Borrower or another wholly-owned Subsidiary or (y) up to 50% of the common Membership Interests of AMH to Planet Hollywood. SECTION 7.2.17. Scope Changes. (a) Without obtaining the Required Scope Change Approval, the Borrower shall not direct, consent to or enter into any Scope Change if such Scope Change: (i) will cause an increase in the Guaranteed Maximum Price or the Main Project Budget not to be In Balance, unless the Borrower complies with the requirements of Section 7.1.14 or amends the Main Project Budget as provided in clause (a) of Section 7.2.18 so that, after giving effect to the proposed Scope Change, the Main Project Budget will be In Balance; (ii) in the reasonable judgment of the Administrative Agent, is reasonably likely to materially and adversely change or affect the Main Project, the Energy Project, the Mall Project or the Music Project; (iii) in the reasonable judgment of the Construction Consultant (based on its experience, familiarity and review of the Main Project and representations provided by the Borrower, the Design/Builder, the Contractors and Subcontractors), could reasonably require an adjustment to the Design/Build Contract Time, delay the Completion Date beyond the Outside Completion Deadline, or could reasonably require the Design/Builder or the Subcontractors to accelerate performance (except in accordance with the Scope Change) of the Work pursuant to Section 16.0 of the General Conditions annexed to the Design/Build Contract as Attachment D; (iv) in the reasonable judgment of the Construction Consultant, could reasonably permit or result in any materially adverse modification or materially impair the enforceability of any warranty under or any material reduction in the quality standards set forth in the Design/Build Contract, any Contract or any Subcontract; (v) is not permitted by a Main Project Document; (vi) could reasonably present a significant risk of the revocation or material adverse modification of any Permit; (vii) could reasonably cause the Main Project, the Mall Project, the Energy Project or the Music Project not to comply with Legal Requirements (provided, however, that the Construction Consultant shall be entitled to determine that no violation of any Legal Requirement will occur on the basis of a certification by the Borrower to such effect unless the Construction Consultant is aware of any inaccuracies in such certification); or 141 (viii) could reasonably result in a material adverse modification, cancellation or termination of any insurance policy required to be maintained by the Borrower pursuant to Section 7.1.4. Prior to implementing any Scope Change, the Borrower shall submit an Additional Contract Certificate or Contract Amendment Certificate and otherwise comply with the provisions of clauses (a) or (b) of Section 7.2.12, as applicable. (b) The Borrower shall not permit the Owner Representative to approve Design/Build Final Completion until the Construction Consultant has accompanied the Owner Representative on the final inspection of the Work and confirmed the acceptance thereof, which confirmation shall not be unreasonably withheld or delayed. (c) The Borrower may not approve any Change Order setting forth the amount of Realized Savings as contemplated by the Design/Build Contract until such Realized Savings have been confirmed by the Construction Consultant, which confirmation shall not be unreasonably withheld or delayed. SECTION 7.2.18. Amendment of Main Project Budget, Construction Benchmark Schedule; Design/Build Contract Time and Guaranteed Maximum Price. The Borrower shall not directly or indirectly amend (by Change Order or otherwise), modify (by Change Order or otherwise), allocate, reallocate or supplement or permit or consent to the amendment (by Change Order or otherwise), modification (by Change Order or otherwise), allocation, reallocation or supplementation of any of the Line Items, Line Item Categories or other sections of the Main Project Budget, the Construction Benchmark Schedule, or the Design/Build Contract Time or adjust the Guaranteed Maximum Price except as follows: (a) Concurrently with the implementation of any Scope Change, the Borrower shall submit a Main Project Budget/Schedule Amendment Certificate and amend the Main Project Budget in accordance with the provisions of clause (c) of Section 7.2.18 to the extent necessary so that the amount set forth therein for each Line Item Category and Line Item therein shall reflect all Scope Changes that have been made thereto. (b) The Borrower may from time to time amend the Main Project Budget in accordance with the provisions of clause (c) of this Section 7.2.18 in order to increase, decrease or otherwise reallocate amounts allocated to specific Line Item Categories or Line Items. Any such amendments shall be effective after the Owner Representative and the Construction Consultant have reviewed and approved the proposed amendment. (c) The Borrower shall request an amendment to the Main Project Budget by delivering to the Disbursement Agent and the Construction Consultant a Main Project Budget/Schedule Amendment Certificate together with all exhibits, attachments and certificates required thereby, each duly completed and executed. Each such Main Project 142 Budget/Schedule Amendment Certificate shall describe with particularity the increases, decreases, contingency allocations, and other proposed amendments to the Line Item Categories and the Line Items within each Line Item Category which will be adjusted by such amendment. Increases to any Line Item Category or Line Item within such Line Item Category will only be permitted to the extent of (w) a trade transfer to such Line Item Category or Line Item within such Line Item Category from a different Line Item Category or Line Item within such Line Item Category so long as (1) such trade transfer is for a Main Project Cost which is included in the Line Item Category and a Line Item within such Line Item Category to which such trade transfer is being made, (2) after giving effect to such trade transfer, such Main Project Cost is no longer included in the Line Item Category or in any Line Item within such Line Item Category from which such trade transfer was made and (3) after giving effect to any such trade transfer, the Available Funds allocated to each such Line Item Category and Line Item equals or exceeds for such Line Item Category and Line Item the aggregate of (X) the costs required to complete such Line Item Category and Line Item, as the case may be, (Y) the Retainage Amount to be paid to Persons who have supplied labor or materials in connection with such Line Item Category and Line Item and (Z) with respect to the Line Item Category entitled "Cap. Interest", the amount required to pay interest and all other amounts due under this Agreement and the Approved Equipment Funding Commitment at the maximum rate of interest set forth in the Main Project Budget through the Conversion Date, (x) allocation of Realized Savings obtained in a different Line Item Category, (y) allocation of previously "unallocated contingency" (which allocations shall be subject to clause (f) of this Section 7.2.18 and, after giving effect to such allocation, the Unallocated Contingency Balance will equal or exceed the Required Minimum Contingency), or (z) allocation of an increase in Available Funds, including additional funds deposited in to the Accounts. Decreases to any Line Item Category will only be permitted upon (x) obtaining Realized Savings in such Line Item Category and (y) a trade transfer from such Line Item Category to a different Line Item Category so long as (1) such trade transfer is for a Main Project Cost which is included in the Line Item Category and a Line Item within such Line Item Category to which such trade transfer is being made, (2) after giving effect to such trade transfer, such Project Cost is no longer included in the Line Item Category or in any Line Item within such Line Item Category from which such trade transfer was made and (3) after giving effect to any such trade transfer, the Available Funds allocated to such Line Item Category and Line Item equals or exceeds for such Line Item Category and Line Item the aggregate of (X) the costs required to complete such Line Item Category or Line Item, as the case may be, (Y) the Retainage Amount to be paid to Persons who have supplied labor or materials in connection with such Line Item Category and Line Item and (Z) with respect to the Line Item Category entitled "Cap. Interest", the amount required to pay interest and all other amounts due under this Agreement and the Approved Equipment Funding Commitment at the maximum rate of interest set forth in the Main Project Budget through the Conversion Date. 143 (d) The Borrower may, from time to time, amend the Construction Benchmark Schedule to extend the Completion Date, but not beyond the Outside Completion Deadline, by delivering to the Administrative Agent a Main Project Budget/Schedule Amendment Certificate (x) containing a revised Construction Benchmark Schedule reflecting the new Completion Date and (y) complying with the applicable provisions of this Section 7.2.18 with respect to the changes in the Main Project Budget that will result from the extension of the Completion Date. If a Force Majeure Event occurs, then the Borrower shall be permitted to extend the Completion Date for up to one year to the extent that (w) the Borrower certifies the occurrence and continuation of such Force Majeure Event in writing, (x) the Construction Consultant confirms that such extension is reasonably necessary to overcome any delays caused by the Force Majeure Event, (y) the Borrower has satisfied the conditions to such extension as set forth in the definition of "Force Majeure Event", and (z) such extension is permitted by the Design/Build Contract. (e) Upon satisfaction of the conditions set forth in this Section 7.2.18, such Change Order or amendment shall become effective hereunder. (f) Allocations of the Line Items in the Line Item Category entitled "Project Contingency" (x) for each of the first three months after the Effective Date shall not exceed $1,000,000 in the aggregate for each such month and (y) thereafter shall not exceed 10% for any one Line Item Category provided that after giving effect to such allocation, the Unallocated Contingency Balance will equal or exceed the Required Minimum Contingency. SECTION 7.2.19. Hazardous Substances. The Borrower and Subsidiaries shall not release, emit or discharge into the environment any Hazardous Substances in material violation of any Environmental Law, Legal Requirement or Permit. SECTION 7.2.20. No Other Powers of Attorney. The Borrower and Subsidiaries shall not execute or deliver any agreement creating any Lien (other than Permitted Liens), powers of attorney (other than powers of attorney for signatories of documents permitted or contemplated by the Operative Documents), or similar documents, instruments or agreements, except to the extent such documents, instruments or agreements comprise part of the Loan Documents. SECTION 7.2.21. Opening. The Borrower shall not begin Operating the Hotel/Casino unless each of the Opening Conditions has been satisfied and the Borrower has delivered to the Administrative Agent a certificate in the form of Exhibit T-1 hereto and the Construction Consultant has delivered to the Administrative Agent a certificate in the form of Exhibit T-2 hereto. SECTION 7.2.22. Actions Affecting Energy Provider. The Borrower shall not take any action, give consent to, approve or fail to object to the action of any other Person which results 144 in the Energy Provider being subject to more extensive or restrictive regulation under federal or Nevada state law. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. Listing of Events of Default. Each of the following events or occurrences described in this Section 8.1 shall constitute an "Event of Default". SECTION 8.1.1. Non-Payment of Obligations. The Borrower shall default in the payment or prepayment when due of (a) any Letter of Credit Reimbursement Obligation or any deposit of cash for collateral purposes pursuant to Section 2.6.2 or Section 2.6.4, as the case may be; (b) any principal of or interest on any Loan, and, with respect to any Default in the payment of interest, such Default shall continue unremedied for a period of two Business Days; or (c) any fee described in Article III or of any other Obligation and such Default shall continue unremedied for a period of five days. SECTION 8.1.2. Breach of Warranty. Any representation or warranty of the Borrower and Subsidiaries made or deemed to be made hereunder or in any other Operative Document executed by it or any other writing or certificate furnished by or on behalf of any such Person to any Agent, the Issuer or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article V hereof or Article 3 of the Disbursement Agreement) is or shall be incorrect when made or deemed to have been made in any material respect. SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations. The Borrower and Subsidiaries shall default in the due performance and observance of any of their respective obligations under Section 7.1.9, Section 7.1.10 or Section 7.2. SECTION 8.1.4. Non-Performance of Other Covenants and Obligations. The Borrower, any of the other Aladdin Parties, LCNI, London Clubs Holdings or London Clubs shall default in the due performance and observance of any Operative Document executed by it, and such default shall continue unremedied for a period of 30 days (or such other period of time during which performance is required under the applicable Operative Document) after notice thereof shall have been given to such Person by the Administrative Agent. 145 SECTION 8.1.5. Default on Other Indebtedness. A default shall occur in the payment when due (subject to any applicable grace period or, whether by acceleration or otherwise, of any Indebtedness of the Borrower or any of its Subsidiaries (other than Aladdin Music and AMH) (other than Indebtedness described in Section 8.1.1 or unsecured Indebtedness of the Borrower or any such Subsidiary incurred in the ordinary course of business (including open accounts extended by suppliers on normal trade terms in connection with purchases of goods and services, but excluding, however, (x) Indebtedness incurred through the borrowing of money and (y) Contingent Liabilities in respect of Indebtedness other than Indebtedness of the nature referred to in clause (d) thereof)) having a principal amount, individually or in the aggregate, in excess of $2,000,000, or a Default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness (subject to any applicable grace period) if the effect of such Default is to accelerate the maturity of any such Indebtedness or such Default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause or declare such Indebtedness to become due and payable or to require such Indebtedness to be prepaid, redeemed, purchased or defeased, or to cause an offer to purchase or redeem such Indebtedness to be required to be made, prior to its expressed maturity. SECTION 8.1.6. Outside Completion Deadline. The Borrower shall fail to achieve the Completion Date on or before the Outside Completion Deadline. SECTION 8.1.7. Judgments. Any judgment or order for the payment of money in excess of $1,000,000 individually or in the aggregate (excluding, however, any amounts fully covered by insurance (less any applicable deductible) or indemnification and as to which the insurer or the indemnifying party, as the case may be, has acknowledged its responsibility to cover such judgment or order) shall be rendered against the Borrower or Subsidiaries, (y) or Aladdin Bazaar or ABH prior to completion of the Mall Project or (z) Aladdin Music or AMH prior to the completion of the Music Project and such judgment shall not have been vacated or discharged or stayed or bonded pending appeal within 45 days after the entry thereof. SECTION 8.1.8. Pension Plans. Any of the following events shall occur with respect to any Pension Plan (a) the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower or any such member could be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $1,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA and such failure continues for 30 days or more. 146 SECTION 8.1.9. Change in Control. Any Change in Control shall occur. SECTION 8.1.10. Bankruptcy, Insolvency, etc. The Borrower, any of the other Aladdin Parties (other than the Trust), LCNI or, prior to the time that London Clubs has indefeasibly paid and performed its obligations under the Completion Guaranty and the Keep-Well Agreement or such Instruments have terminated or otherwise expired by their terms, London Clubs shall (a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness generally to pay, debts as they become due; (b) apply for, consent to, or acquiesce in the appointment of a trustee, receiver, sequestrator or other custodian for any substantial part of the property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for a substantial part of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days; provided, however, that the Borrower and Subsidiaries each hereby expressly authorizes the Administrative Agent and each Lender to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend their rights under this Agreement and the other Loan Documents; (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect thereof, and, if any such case or proceeding is not commenced by the Person which is the subject of such case or proceeding, such case or proceeding shall be consented to or acquiesced in by such Person or shall result in the entry of an order for relief or shall remain for 60 days undismissed; provided, however, that the Borrower and Subsidiaries each hereby expressly authorizes the Administrative Agent and each Lender to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents and the other Operative Documents; or (e) take any action authorizing, or in furtherance of, any of the foregoing. SECTION 8.1.11. Impairment of Security, etc. Any Loan Document, or any Lien granted thereunder, shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of any Obligor party thereto; the Borrower, any other Obligor or any other Person shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; or, 147 except as permitted under any Loan Document, any Lien securing any Obligation shall, in whole or in part, cease to be a perfected first priority Lien. SECTION 8.1.12. Advance Requests. The failure, for 30 consecutive days, of the Borrower to submit an Advance Request or if an Advance Request is submitted, the failure for 30 consecutive days, of the Borrower to satisfy, in all material respects, the conditions to the approval of such Advance Request by the Disbursement Agent. SECTION 8.1.13. Breach of Main Project Documents. The Borrower, any other Aladdin Party or any other Person thereto shall breach or default under any term, condition, provision, covenant, representation or warranty contained in any Material Main Project Document or any other agreement (other than the Loan Documents and the Discount Note Trust Indenture) to which such Person is a party if the effect of such breach or default could reasonably be expected to have a Material Adverse Effect and such breach or default shall continue unremedied for 30 days after notice from the Administrative Agent to the Borrower; provided, however, that in the case of any Main Project Document, (a) if the breach or default is reasonably susceptible to cure within 90 days but cannot be cured within such 30 day period despite the Borrower's or such other Person's, as the case may be, good faith and diligent efforts to do so, the cure period shall be extended as is reasonably necessary beyond such 30 day period (but in no event longer than 90 days) if remedial action reasonably likely to result in cure is promptly instituted within such 30 day period and is thereafter diligently pursued until the breach or default is corrected; and (b) if the breach is by a Person other than the Borrower or any of the other Aladdin Parties, then no Event of Default shall be deemed to have occurred as a result of such breach if the Borrower provides written notice to the Administrative Agent immediately upon (but in no event more than 2 Business Days after) such Person becoming aware of such breach that such Main Project Document shall be replaced (or that replacement is not necessary) and (x) a replacement obligor or obligors reasonably acceptable to the Borrower (after consultation with the Construction Consultant) for the affected Person (if in the reasonable judgment of the Borrower (after consultation with the Construction Consultant) a replacement is necessary), (y ) the Borrower enters into a replacement Main Project Document in accordance with Section 7.2.12 on terms no less beneficial to the Borrower and the Lenders in any material respect than the Main Project Document so terminated (if in the reasonable judgment of the Borrower (after consultation with the Construction Consultant) a replacement is necessary) and (z) such termination, after considering any replacement obligor and replacement Main Project Document and the time required to implement such replacement, has not had and would not reasonably be expected to have a Material Adverse Effect. 148 (c) if the breach is by the Energy Project Provider under the Energy Project Ground Lease and, if applicable, the Energy Service Agreement and the Energy Project Guarantor is not performing its obligations under the Energy Project Guaranty, no Event of Default shall be deemed to have occurred as a result of such breach if (w) the Borrower provides written notice to the Administrative Agent immediately upon (but in no event more than 2 Business Days after) the Borrower becoming aware of such breach that the Borrower will commence and diligently and continuously prosecute to completion the enforcement of the obligations of the Energy Project Provider under the Energy Project Ground Lease and, if applicable, the Energy Service Agreement and the Energy Project Guarantor under the Energy Project Guaranty, (x ) the Borrower has made arrangements to obtain reliable electrical and other utility services at appropriate levels required to start-up, operate and maintain the Hotel/Casino in a safe, efficient and reliable manner, (y) if the Energy Project Ground Lease or the Energy Service Agreement is terminated as a result of such breach the Borrower replaces the Energy Project Ground Lease and Energy Service Agreement so terminated in accordance with Section 7.2.12 on terms no less beneficial to the Borrower and the Lenders in any material respect than the Energy Project Ground Lease or Energy Service Agreement so terminated and (z) any such termination, after considering any replacement obligor and replacement to the Energy Project Ground Lease or Energy Service Agreement, as the case be, and the time required to implement such replacement, has not had and would not reasonably be expected to have a Material Adverse Effect. SECTION 8.1.14. Termination or Invalidity of Main Project Documents; Abandonment of Main Project. (a) The Design/Build Contract shall have terminated, become invalid or illegal or otherwise ceased to be in full force and effect or if any of the other Material Main Project Documents shall have terminated (except with respect to the Energy Project as provided in clause (c) of Section 8.1.13), become invalid or illegal, or otherwise ceased to be in full force and effect if the effect thereof could reasonably be expected to have a Material Adverse Effect with respect to the Borrower or the Main Project; provided, however, that, with respect to any Material Main Project Document other than the Design/Build Contract and the Fluor Guaranty, no Event of Default shall be deemed to have occurred as a result of such termination if the Borrower provides written notice to the Administrative Agent, immediately upon (but in no event more than two Business Days after) the Borrower becoming aware of such Main Project Document ceasing to be in full force or effect that the Borrower intends to replace such Main Project Document (or that replacement is not necessary) and (x) the Borrower obtains a replacement obligor or obligors reasonably acceptable to the Borrower (after consultation with the Construction Consultant) for the affected party (if in the reasonable judgment of the Borrower (after consultation with the Construction Consultant) a replacement is necessary), (y) the Borrower enters into a replacement Main Project Document in accordance with Section 7.2.12, on terms no less beneficial to the Borrower and the Lenders in any material respect than the Main Project Document so terminated, within 60 days of such termination (if in the 149 reasonable judgment of the Borrower (after consultation with the Construction Consultant) a replacement is necessary) and (z) such termination, after considering any replacement obligor and replacement Main Project Document and the time required to implement such replacement, has not had and would not reasonably be expected to have a Material Adverse Effect; (b) The Borrower shall cease to own the Site (excluding, however, the Mall Project Parcel and the Music Project Parcel to the extent permitted by clause (b) of Section 7.1.19 and clause (c) of Section 7.1.19) and all parcels and subdivisions comprising the Site, the Improvements or the Site Easements for the purpose of owning, constructing, maintaining and operating the Main Project in the manner contemplated by the Operative Documents; or (c) The Borrower shall abandon the Main Project or otherwise cease construction of the Main Project or, after Final Completion, cease to pursue the operations of the Main Project in accordance with standard industry practice or shall sell or otherwise dispose of its interest in the Main Project. SECTION 8.1.15. Government Authorizations. Any Permit necessary for the ownership, construction, maintenance, financing or operation of the Main Project shall be modified, refused, rejected, suspended, revoked or canceled, or allowed to lapse (including casino, gaming or gambling business) or a notice of a material violation is issued under any Permit, by the issuing agency or other Governmental Instrumentality having jurisdiction, or any proceeding is commenced by any Governmental Instrumentality for the purpose of modifying, suspending, revoking or canceling any Permit and such modification, refusal, rejection, revocation or loss of such Permit or such notice of a material violation or proceeding is reasonably likely to have a Material Adverse Effect. SECTION 8.2. Action if Bankruptcy. If any Event of Default described in clauses (a) through (e) of Section 8.1.10 shall occur, the Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other Obligations (including Letter of Credit Reimbursement Obligations) shall automatically be and become immediately due and payable without notice or demand and the Borrower shall automatically and immediately be obligated to deposit with the Administrative Agent cash collateral in an amount equal to all Letter of Credit Outstandings in accordance with Section 2.6.4. SECTION 8.3. Action if Other Event of Default. If any Event of Default (other than any Event of Default described in clauses (a) through (e) of Section 8.1.10) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Administrative Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare all or any portion of the outstanding principal amount of the Loans and other Obligations (including Letter of Credit Reimbursement Obligations) to be due and payable or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due 150 and payable, without further notice, demand or presentment, or, as the case may be, the Commitments shall terminate and the Borrower shall automatically and immediately be obligated to deposit with the Administrative Agent cash collateral in an amount equal to all Letter of Credit Outstandings in accordance with Section 2.6.4. In addition to the foregoing, the Administrative Agent upon direction of the Required Lenders may, without further notice of default, presentment or demand for payment, protest or notice of non-payment or dishonor, or other notices or demands of any kind, all such notices and demands being waived (to the extent permitted by applicable law), exercise any or all rights and remedies at law or in equity (in any combination or order that the Lenders may elect, subject to the foregoing), including, without prejudice to the Lenders' other rights and remedies, the following: (a) refuse, and the Lenders shall not be obligated, to consent to or direct that any payments be made from any Account or other funds held by the Disbursement Agent by or on behalf of the Borrower and may suspend or terminate the Lenders' obligation to make additional Advances (other than obligatory Advances hereunder pursuant to Section 2.6.1 and Section 2.6.4), to process requests by the Borrower and to perform any other obligations of the Lenders which are expressly subject to there not being a Default under this Agreement shall be terminated; the remedy set forth in this Section 8.3(a) shall be exercised automatically upon an Event of Default with respect to the Borrower described in Section 8.1.10; (b) make or do the same in such manner and to such extent as the Lenders may deem necessary to protect the security hereof, the Lenders being authorized to enter upon and take possession of the portion of the Site owned by the Borrower for such purposes, and any sums expended for such purposes shall become part of the Indebtedness evidenced and secured by the Deed of Trust; (c) commence, appear in and/or defend any action or proceedings purporting to affect the security hereof, and/or any additional or other security therefor, the interests, rights, powers or duties of the Lenders hereunder, whether brought by or against the Borrower or the Lenders; (d) pay, purchase, contest or compromise any claim, debt, lien, charge or encumbrance that in the judgment of the Lenders may impair or reasonably appear to impair the security of the Deed of Trust or the other Loan Documents, the interests of the Lenders or the rights, powers and/or duties of the Lenders hereunder and any sums expended for such purposes shall become part of the Indebtedness evidenced and secured by the Loan Documents; (e) the Lenders (and their nominee and/or designee) are authorized either by themselves or by their agents or by a receiver appointed by a court of competent jurisdiction, to enter into and upon and take and hold possession of any portion or all of the Main Project, both real and personal, and exclude the Borrower and all other Persons 151 therefrom and thereupon the Lenders (or their nominee or designee) may, (u) use, operate, manage, control, insure, maintain, repair, restore and otherwise deal with all and every part of the Main Project and conduct business thereat, (v) take possession of all materials, supplies, tools, equipment and construction facilities and appliances located on the portion of the Site owned by the Borrower and perform any and all work and labor necessary to complete the construction of the Main Project in accordance with the Plans and Specifications, the Reciprocal Easement Agreement, the other Operative Documents and any agreements relating to the Main Project existing at the time the Lenders (or their nominee and/or designee) enter into possession of the Main Project and perform any and all work and labor necessary to complete the Main Project or to operate and maintain the Main Project, and all sums expended in so doing, together with interest on such total amount at the rate set forth in Section 3.2.2, shall be repaid by the Borrower to the Lender upon demand and shall be secured by the Loan Documents, (w) employ watchmen to protect the Main Project, (x) make alterations, additions, renewals, replacements and improvements to the Main Project and, if required by the Reciprocal Easement Agreement, the Operative Documents or any agreements relating to the portion of the Site owned by the Borrower, (y) exercise all rights and powers of the Borrower with respect to the portion of the Site owned by it and pursuant to or under the Reciprocal Easement Agreement, the Operative Documents or any agreements relating to the portion of the Site owned by the Borrower, whether in the name of the Borrower or otherwise, including the right to make, cancel, enforce or modify the Reciprocal Easement Agreement, the Operative Documents or any agreements relating to the portion of the Site owned by the Borrower, obtain and evict tenants and other Persons, and demand, sue for, collect and receive all earnings, revenues, rents, issues, profits and other income from the Main Project, and every part thereof, the Reciprocal Easement Agreement, the Operative Documents or any agreements relating to the portion of the Site owned by the Borrower and (z) apply the receipts therefrom to the payment of the Indebtedness evidenced and secured by the Loan Documents in accordance with this Agreement, after deducting therefrom all expenses (including reasonable attorneys' fees and costs and expenses) incurred in connection with the aforesaid operations and all amounts to pay the Impositions, assessments, insurance and other charges in connection with the Main Project as well as just and reasonable compensation for the services of the Administrative Agent, the Lenders and their counsel, agents and employees; (f) exercise all rights and remedies under the Deed of Trust and the other Loan Documents; (g) institute an action, suit or proceeding in equity for the specific performance by the Borrower of any covenant, condition, or agreement contained herein or in any of the other Loan Documents; 152 (h) recover judgment on the Completion Guaranty or the Keep-Well Agreement either before, during or after any proceedings for the enforcement of the Lenders' rights and remedies hereunder or under the other Loan Documents; (i) apply, ex parte and without notice to any Person, for the appointment of a custodian, receiver, liquidator or conservator of the portion of the Site owned by the Borrower, without regard for the adequacy of the security for the Indebtedness evidenced and secured by the Loan Documents; (j) set off and apply all monies on deposit in any Account or any amounts paid under the Completion Guaranty or any other monies of the Borrower on deposit with the Disbursement Agent to the satisfaction of the Obligations under all of the Loan Documents; and (k) exercise any and all rights and remedies available to it under applicable law or any of the Operative Documents. Except as otherwise set forth herein, all sums expended by the Lenders for any of the purposes described above shall be deemed to have been advanced to the Borrower under and pursuant to the provisions of this Agreement, shall bear interest at the rate of interest set forth in Section 3.2.2 and shall be secured by the Deed of Trust. The Administrative Agent or the Lenders (or their nominee or designee) may at any time discontinue any action or remedy commenced by it or them, as the case may be, or change any course of action undertaken by it or them, and in such event, the Administrative Agent and the Lenders (or their nominee or designee) shall not be bound by any requirements or limitations of time contained in the Deed of Trust or the other Loan Documents. For the foregoing purposes, the Borrower to the fullest extent permitted by law, hereby constitute and appoint the Administrative Agent (or its nominee or designee) as the true and lawful agent and attorney-in-fact of the Borrower with full power of substitution and hereby empowers the Administrative Agent (and its nominee or designee) to take such action and require such performance as its or they deem necessary or desirable. This agency and power of attorney shall be deemed to be coupled with an interest and shall be irrevocable. ARTICLE IX THE ADMINISTRATIVE AGENT SECTION 9.1. Actions. Each Lender hereby appoints Scotiabank as its Administrative Agent under and for purposes of this Agreement, the Notes and each other Loan Document. Each Lender authorizes the Administrative Agent to act on behalf of such Lender under this Agreement, the Notes and each other Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by the Administrative Agent (with respect to which the Administrative Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel in order to avoid contravention of 153 applicable law), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Administrative Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) the Administrative Agent, pro rata according to such Lender's Percentage, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, the Administrative Agent in any way relating to or arising out of this Agreement, the Notes and any other Loan Document, including reasonable attorneys' fees, consultants' fees and as to which the Administrative Agent is not reimbursed by the Borrower; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted solely from the Administrative Agent's gross negligence or wilful misconduct. The Administrative Agent shall not be required to take any action hereunder, under the Notes or under any other Operative Document, or to prosecute or defend any suit in respect of this Agreement, the Notes or any other Operative Document, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of the Administrative Agent shall be or become, in the Administrative Agent's determination, inadequate, the Administrative Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. SECTION 9.2. Funding Reliance, etc. Unless the Administrative Agent shall have been notified by telephone, confirmed in writing, by any Lender by 5:00 p.m., New York City time, on the Business Day prior to a Borrowing that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent and, in reliance upon such assumption, make available to the Borrower a corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Administrative Agent, such Lender and the Borrower severally agree to repay the Administrative Agent forthwith on demand such corresponding amount, together with interest thereon, for each day from the date the Administrative Agent made such amount available to the Borrower to the date such amount is repaid to the Administrative Agent, at the interest rate applicable at the time to Loans comprising such Borrowing in the case of the Borrower and at the Federal Funds Rate (in the case of a Lender) (for the first two Business Days after which such amount has not been repaid) and thereafter at the interest rate applicable to Loans comprising such Borrowing. Nothing in this Section shall affect or impair the rights or remedies of the Borrower against such Lender so long as such amount and interest, if any, has been repaid to the Administrative Agent. SECTION 9.3. Exculpation. Neither the Administrative Agent nor any of its directors, officers, employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under this Agreement or any other Loan Document, or in connection herewith or therewith, except for its own wilful misconduct or gross negligence, nor responsible for any 154 recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of this Agreement or any other Loan Document, nor for the creation, perfection or priority of any Liens purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry respecting the performance by the Borrower of its obligations hereunder or under any other Loan Document. Any such inquiry which may be made by the Administrative Agent shall not obligate it to make any further inquiry or to take any action. The Administrative Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which the Administrative Agent believes to be genuine and to have been presented by a proper Person. SECTION 9.4. Successor. The Administrative Agent may resign as such at any time upon at least 30 days' prior notice to the Borrower and all Lenders. If the Administrative Agent at any time shall resign, the Required Lenders may appoint another Lender as a successor Administrative Agent which shall thereupon become the Administrative Agent hereunder. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be one of the Lenders or a commercial banking institution organized under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking institution and having (x) a combined capital and surplus of at least $250,000,000 and (y) a credit rating of AA or better by Moody's or a comparable rating by S&P; provided, however, that if, after expending all reasonable commercial efforts, such retiring Administrative Agent is unable to find a commercial banking institution which is willing to accept such appointment and which meets the qualifications set forth in item (y), such retiring Administrative Agent shall be permitted to appoint as its successor from all available commercial banking institutions willing to accept such appointment such institution having the highest credit rating of all such available and willing institutions. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall be entitled to receive from the retiring Administrative Agent such documents of transfer and assignment as such successor Administrative Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation hereunder as the Administrative Agent, the provisions of (a) this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement; and (b) Section 10.3 and Section 10.4 shall continue to inure to its benefit. SECTION 9.5. Loans by Scotiabank. Scotiabank shall have the same rights and powers with respect to (x) the Credit Extensions made by it or any of its Affiliates, and (y) the Notes 155 held by it or any of its Affiliates as any other Lender and may exercise the same as if it were not the Administrative Agent. Scotiabank and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower, the other Aladdin Parties, LCNI, London Clubs Holdings or London Clubs or any of the other Project Parties or any Subsidiary or Affiliate thereof as if Scotiabank were not the Administrative Agent hereunder. SECTION 9.6. Credit Decisions. Each Lender acknowledges that it has, independently of the Administrative Agent and each other Lender, and based on such Lender's review of the financial information of the Borrower, the other Aladdin Parties, LCNI, London Clubs Holdings or London Clubs, this Agreement, the other Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitments. Each Lender also acknowledges that it will, independently of the Administrative Agent and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. SECTION 9.7. Copies, etc. The Administrative Agent shall give prompt notice to each Lender of each notice or request required or permitted to be given to the Administrative Agent by the Borrower pursuant to the terms of this Agreement (unless concurrently delivered to the Lenders by the Borrower). The Administrative Agent will distribute to each Lender each document or instrument received for its account and copies of all other communications received by the Administrative Agent from the Borrower for distribution to the Lenders by the Administrative Agent in accordance with the terms of this Agreement or any other Loan Document. SECTION 9.8. Consultants and Reports. (a) The Administrative Agent, in its sole discretion, may remove from time to time the Independent Consultants and appoint replacements as the Administrative Agent may choose after consultation with the Borrower. As soon as practicable, notice of any replacement Independent Consultant shall be given by the Administrative Agent to the Borrower and the Independent Consultant being replaced. All reasonable fees and expenses of the Independent Consultants (whether the original ones or replacements) shall be paid by the Borrower. (b) Each of the Independent Consultants shall be contractually obligated to the Administrative Agent to carry out the activities required of it in the Loan Documents, the Disbursement Agreement and in the Construction Consultant Engagement Agreement and as otherwise requested by the Administrative Agent. The Borrower acknowledges that, except as provided in the Construction Consultant's Engagement Agreement with respect to the Construction Consultant, it will not have any cause of action or claim against any Independent Consultant resulting from any decision made or not made, any action taken or not taken or any 156 advice given by such Independent Consultant in the due performance in good faith of its duties except for the gross negligence and willful misconduct of the Independent Consultant. SECTION 9.9. GECC Intercreditor Agreement. Each Lender hereby authorizes the Administrative Agent, on behalf of and for the benefit of such Lender, to enter into the GECC Intercreditor Agreement, and such Lender agrees to be bound by the terms of the Intercreditor Agreement; provided that the Administrative Agent shall not enter into or consent to any amendment, modification, termination or waiver of any provision contained in the Intercreditor Agreement without the prior consent of the Required Lenders (or, if such amendment, modification, termination or waiver would result in a change that under Section 10.1 would require the consent of all Lenders, then the prior consent of all Lenders). ARTICLE X MISCELLANEOUS PROVISIONS SECTION 10.1. Waivers, Amendments, etc. The provisions of this Agreement and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and the Required Lenders; provided, however, that no such amendment, modification or waiver shall: (a) extend any Commitment Termination Date or modify this Section without the consent of all Lenders; (b)increase the aggregate amount of any Lender's then existing Commitment Amounts, increase the aggregate amount of any Loans required to be made by a Lender pursuant to its Commitments or reduce any fees described in Article III payable to any Lender without the consent of such Lender; (c) extend the Stated Maturity Date for any Lender's Loan, or reduce the principal amount of or rate of interest on any Lender's Loan, without the consent of such Lender; provided, however, that any vote to rescind any acceleration made pursuant to Section 8.2 or 8.3 of amounts owing with respect to the Loans and other Obligations shall only require the vote of the Required Lenders; (d) change the definition of "Required Lenders" or any requirement hereunder that any particular action be taken by all Lenders without the consent of all Lenders; (e) increase the Stated Amount of any Letter of Credit unless consented to by each Issuer; (f) release the Sponsors under the Keep-Well Agreement, the Completion Guarantors under the Completion Guaranty, or discharge the Lien of the Deed of Trust 157 (except in accordance with clause (b) or (c) of Section 7.1.19) or release all or substantially all of the other security interests granted pursuant to the Loan Documents, in each case without the consent of all Lenders as expressly provided herein or therein; or (g) affect adversely the interests, rights or obligations of the Administrative Agent qua the Administrative Agent, or any Issuer, unless consented to by the Administrative Agent or such Issuer, as the case may be. provided, further, however, that, at any time when no Default shall have occurred and be continuing, Non-Defaulting Lenders holding more than 50% of the sum of the aggregate outstanding principal amount of the Loans then held by such Lenders plus the participation interests of such Lenders in Letter of Credit Outstandings may authorize the release by the Administrative Agent of the Music Project Parcel and the common Membership Interests of Aladdin Music upon the closing of the financing for the Music Project. No failure or delay on the part of the Administrative Agent, the Issuer or any Lender in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Administrative Agent, any Issuer or any Lender under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 10.2. Notices. All notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing and addressed, delivered or transmitted to such party at its address or facsimile number set forth below its signature hereto or set forth in the Lender Assignment Agreement or at such other address or facsimile number as may be designated by such party in a notice to the other parties. All such notices and communications shall be deemed to have been properly given if (x) hand delivered with receipt acknowledged by the recipient; (y) if mailed, upon the fifth Business Day after the date on which it is deposited in registered or certified mail, postage prepaid, return receipt requested or (z) if by Federal Express or other nationally- recognized express courier service with instructions to deliver on the following Business Day, on the next Business Day after delivery to such express courier service. Notices and other communications may also be properly given by facsimile but shall be deemed to be received upon automatic facsimile confirmation of receipt thereof by the intended recipient machine therefor with the original of such notice or communication to be given in the manner provided in the second sentence of this Section; provided, however, that the failure to deliver a copy in accordance with the second sentence of this Section shall not invalidate the effectiveness of such facsimile notice. SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees to pay on demand all expenses of the Administrative Agent (including the reasonable fees and out-of- 158 pocket expenses of counsel to the Administrative Agent and of local counsel, if any, who may be retained by counsel to the Administrative Agent) in connection with (a) the negotiation, preparation, execution and delivery of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Agreement or any other Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated; (b) the filing, recording, refiling or rerecording of any Loan Document or any Uniform Commercial Code financing statements relating thereto and all amendments, supplements, amendments and restatements and other modifications to any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms hereof or the terms of any Loan Document; (c) the preparation and review of the form of any document or instrument relevant to this Agreement or any other Loan Document; and (d) the preparation of any information or response required with respect to any investigative request or inquiry, approval, findings of suitability or any other response or communication involving a Governmental Instrumentality arising out of this Agreement, any other Operative Documents or any Obligation evidenced and secured by the Loan Documents or the participation in any public or investigatory hearing or meeting. The Borrower further agrees to pay, and to save the Administrative Agent, the Issuer and the Lenders harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of this Agreement, the Credit Extensions hereunder, or the issuance of the Notes, the Letters of Credit or any other Loan Documents. The Borrower also agrees to reimburse the Administrative Agent and, following a Default of the nature set forth in Section 8.1.10 or an Event of Default, the Issuer and each Lender upon demand for all reasonable out-of-pocket expenses (including reasonable attorneys' fees and legal expenses of counsel and fees and expenses of consultants to the Administrative Agent, the Issuer and the Lenders, and, based upon the written advice of legal counsel, a copy of which shall be provided to the Borrower, that in such counsel's judgment having a common counsel for the Administrative Agent, the Issuer and the Lenders would present such counsel with a conflict of interest, of one other counsel selected by the Required Lenders (other than the Administrative Agent)) incurred by the Administrative Agent, the Issuer or such Lenders in connection with (x) the negotiation of any restructuring or "work-out" with the Borrower, whether or not consummated, of any Obligations and (y) the enforcement of any Obligations. SECTION 10.4. Indemnification. In consideration of the execution and delivery of this Agreement by each Lender and the extension of the Commitments, the Borrower hereby 159 indemnifies, exonerates and holds the Administrative Agent, the Issuer and each Lender and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements, whether incurred in connection with actions between or among the parties hereto or the parties hereto and third parties (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Credit Extension, including all Indemnified Liabilities arising in connection with the Transaction; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of any determination by the Required Lenders pursuant to Article V not to fund any Credit Extension); provided, however, that any such action is resolved in favor of such Indemnified Party; (c) any investigation, litigation or proceeding related to any acquisition or proposed acquisition by the Borrower or any Subsidiary of all or any portion of the stock or assets of any Person, whether or not the Administrative Agent, the Issuer or any Lender is party thereto; (d) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by the Borrower or any other Aladdin Party which owns or leases a portion of the Site of any Hazardous Substances; (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the Borrower or any other Aladdin Party which owns or leases a portion of the Site of any Hazardous Substances (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Borrower or any other Aladdin Party which owns or leases a portion of the Site; (f) each Lender's Environmental Liability (the indemnification herein for any Environmental Claim shall survive repayment of the Notes and any transfer of the property of the Borrower by foreclosure or by a deed in lieu of foreclosure, regardless of whether caused by, or within the control of, the Borrower); or 160 (g) the liability of any of the Indemnified Parties with respect to the Reciprocal Easement Agreement, the Site Work Agreement and the Common Parking Area Use Agreement; except for, in each case, (x) any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or wilful misconduct and (ii) any such Indemnified Liabilities arising from actions, occurrences, or events that take place after conveyance of the portion of the Site by foreclosure or deed in lieu of foreclosure. The Borrower and its successors and assigns hereby waive, release and agree not to make any claim or bring any cost recovery action against the Administrative Agent, the Issuer or any Lender under CERCLA or any state equivalent, or any similar law now existing or hereafter enacted. It is expressly understood and agreed that to the extent that any of the Indemnified Parties is strictly liable under any Environmental Laws, the Borrower's obligation to such Person under this indemnity shall likewise be without regard to fault on the part of the Borrower with respect to the violation or condition which results in liability of such Person. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 10.5. Survival. The obligations of the Borrower under Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders under Section 9.1, shall in each case survive any assignment from one Lender to another (in the case of Sections 10.3 and 10.4) and any termination of this Agreement, the payment in full of all the Obligations and the termination of all the Commitments. The representations and warranties made by the Borrower and each other Obligor in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. SECTION 10.6. Severability. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 10.7. Headings. The various headings of this Agreement and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Borrower, the Administrative Agent and each Lender (or notice thereof satisfactory to the Administrative 161 Agent) shall have been received by the Administrative Agent and notice thereof shall have been given by the Administrative Agent to the Borrower and each Lender. SECTION 10.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES AND EACH OTHER LOAN DOCUMENT (INCLUDING PROVISIONS WITH RESPECT TO INTEREST, LOAN CHARGES AND COMMITMENT FEES) SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF A SECURITY INTEREST OR DEED OF TRUST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. This Agreement, the Notes, the other Loan Documents and the Fee Letters constitute the entire understanding among the parties hereto with respect to the subject matter hereof and thereof and supersede any and all prior agreements, written or oral, with respect thereto including the Commitment Letter. SECTION 10.10. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: (a) the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Administrative Agent and all Lenders, which consent shall be determined in good faith in their sole discretion; and (b) the rights of sale, assignment and transfer of the Lenders are subject to Section 10.11. SECTION 10.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes. Each Lender may assign, or sell participations in, its Loans, Letters of Credit and Commitments to one or more other Persons in accordance with this Section 10.11. SECTION 10.11.1. Assignments. Upon prior notice to the Borrower and the Administrative Agent, any Lender, (a) with the consent of the Borrower, the Issuer and the Administrative Agent (which consents shall not be unreasonably delayed or withheld; provided, however, that in the event of a proposed assignment of any Commitment to an assignee, the obligations of which do not satisfy the credit ratings set forth in Section 9.4, any of the Administrative Agent, the Issuer or the Borrower may withhold such consent in its sole discretion), may at any time assign and delegate to one or more commercial banks, funds or other financial institutions, and 162 (b) with notice to the Borrower and the Administrative Agent, but without the consent of the Borrower or the Administrative Agent, may assign and delegate to any of its Affiliates, any other Lender, any Approved Fund or any other institution set forth in Schedule X hereto so long as such assignment and delegation to such institution is made within ten Business Days of the Closing Date, (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), all or any fraction of such Lender's total Loans, Letter of Credit Outstandings and Commitments in a minimum aggregate amount of $5,000,000 (or, if less, the entire remaining amount of such Lender's Loans, Letter of Credit Outstandings and Commitments). The Borrower and each other Obligor and the Administrative Agent shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned and delegated to an Assignee Lender until (c) notice of such assignment and delegation, together with (i) payment instructions, (ii) the Internal Revenue Service Forms or other statements contemplated or required to be delivered pursuant to Section 4.6 and (iii) addresses and related information with respect to such Assignee Lender, shall have been delivered to the Borrower and the Administrative Agent by such Lender and such Assignee Lender; (d) such Assignee Lender shall have executed and delivered to the Borrower and the Administrative Agent a Lender Assignment Agreement, accepted by the Administrative Agent; and (e) the processing fees described below shall have been paid. From and after the date that the Administrative Agent accepts such Lender Assignment Agreement (and records the information therein in the Register, if applicable), (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (y) the assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents. Within five Business Days after its receipt of notice that the Administrative Agent has received and accepted an executed Lender Assignment Agreement, subject, however, to clause (d), the Borrower shall execute and deliver to the Administrative Agent (for delivery to the relevant Assignee Lender) a new Note evidencing such Assignee Lender's assigned Loans and Commitments and, if the assignor Lender has retained Loans and Commitments hereunder, a replacement Note in the principal amount of the Loans and Commitments retained by the assignor Lender hereunder (such Note to be in exchange for, but not in payment of, the Note then held by such assignor Lender). Each such Note shall be 163 dated the date of the predecessor Note. The assignor Lender shall mark each predecessor Note "exchanged" and deliver each of them to the Borrower. Accrued interest on that part of each predecessor Note evidenced by a new Note, and accrued fees, shall be paid as provided in the Lender Assignment Agreement. Accrued interest on that part of each predecessor Note evidenced by a replacement Note shall be paid to the assignor Lender. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Note and in this Agreement. Such assignor Lender or such Assignee Lender must also pay a processing fee in the amount of $3,500 to the Administrative Agent upon delivery of any Lender Assignment Agreement. Any attempted assignment and delegation not made in accordance with this Section 10.11.1 shall be null and void. Notwithstanding anything to the contrary set forth above, any Lender may (without requesting the consent of the Borrower or the Administrative Agent) pledge its Loans to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank, and any Lender that is an investment fund that invests in bank loans may, without the consent of the Administrative Agent or Borrower, pledge all or any portion of its interest and rights (but may not delegate any of its duties or obligations hereunder or under any other Loan Document, including its Commitment(s), if any) to any trustee or any other representative of holders of obligations owed or securities issued by such investment fund as security for such obligations or securities. SECTION 10.11.2. Participations. Upon prior written notice to the Borrower and the Administrative Agent, any Lender may at any time sell to one or more commercial banks or other Persons (other than an Obligor or an Affiliate of an Obligor) (each of such commercial banks and other Persons being herein called a "Participant") participating interests in any of the Loans, Commitments, or other interests of such Lender hereunder; provided, however, that (a) no participation contemplated in this Section shall relieve such Lender from its Commitments or its other obligations hereunder or under any other Loan Document; (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations; (c) the Borrower and each other Obligor and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents; (d) no Participant, unless such Participant is an Affiliate of such Lender or an Approved Fund or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document, except that such Lender may agree with any Participant that such Lender will not, without such Participant's consent, take any actions of the type described in clause (a), (b), (f) or, to the extent requiring the consent of such Lender, clause (c) of Section 10.1; and 164 (e) the Borrower shall not be required to pay any amount under this Agreement that is greater than the amount which it would have been required to pay had no participating interest been sold. The Borrower acknowledges and agrees that each Participant, for purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8 or 4.9 shall be considered a Lender. Each Participant shall only be indemnified for increased costs pursuant to Section 4.3, 4.4, 4.5 or 4.6 if and to the extent that the Lender which sold such participating interest to such Participant concurrently is entitled to make, and does make, a claim on the Borrower for such increased costs. Any Lender that sells a participating interest in any Loan, Commitment or other interest to a Participant under this Section 10.11.2 shall indemnify and hold harmless the Borrower and the Administrative Agent from and against any taxes, penalties, interest or other costs or losses (including reasonable attorneys' fees and expenses) incurred or payable by the Borrower or the Administrative Agent as a result of the failure of the Borrower or the Administrative Agent to comply with its obligations to deduct or withhold any Taxes from any payments made pursuant to this Agreement to such Lender or the Administrative Agent, as the case may be, which Taxes would not have been incurred or payable if such Participant had been a Lender organized under the laws of a jurisdiction other than the United States that was entitled to deliver to the Borrower, the Administrative Agent or such Lender, and did in fact so deliver, a duly completed and valid Form W-8 or W-9 or Form 1001 or 4224 (or applicable successor form) entitling such Participant to receive payments under this Agreement without deduction or withholding of any United States federal taxes. SECTION 10.11.3. Assignment of Registered Notes. A Registered Note and the Obligation(s) evidenced thereby may be assigned or otherwise transferred in whole or in part pursuant to the terms of Section 10.11.1 and only by registration of such assignment or transfer of such Registered Note and the Obligation(s) evidenced thereby on the Register (and each Registered Note shall expressly so provide). Any assignment or transfer of all or part of such Obligation(s) and the Registered Note(s) evidencing the same shall be registered on the Register only upon surrender for registration of assignment or transfer of the Registered Note(s) evidencing such Obligation(s), duly endorsed by (or accompanied by a written instrument of assignment or transfer duly executed by) the Registered Noteholder thereof, and thereupon one or more new Registered Note(s) in the same aggregate principal amount shall be issued to the designated Assignee Lender, and the old Registered Note shall be returned by the Administrative Agent to the Borrower marked "Replaced". Prior to the due presentment for registration of assignment or transfer of any Registered Note, the Borrower and the Administrative Agent shall treat the Person in whose name such Obligation(s) and the Registered Note(s) evidencing the same is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding any notice to the contrary. SECTION 10.12. Other Transactions. Nothing contained herein shall preclude the Agents, the Issuer or any other Lender from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its 165 Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 10.13. Execution by Authorized Representative. Any signature by any Authorized Representative on this Agreement, any Loan Document and any other instrument and certificate executed or to be executed pursuant to or in connection with this Agreement or such other Loan Documents is provided only in such Authorized Representative's capacity as an officer or member of the Person in question, and not in any way in such Authorized Representative's personal capacity. SECTION 10.14. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, THE LENDERS, THE ISSUER OR THE BORROWER IN CONNECTION HEREWITH OR THEREWITH SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION, SUBJECT TO THE BORROWER'S RIGHT TO CONTEST SUCH JUDGMENT BY MOTION OR APPEAL ON ANY GROUNDS NOT EXPRESSLY WAIVED IN THIS SECTION 10.14. THE BORROWER HEREBY IRREVOCABLY APPOINTS CT CORPORATION SYSTEM (THE "PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, UNITED STATES, AS ITS AGENT TO RECEIVE, ON THE BORROWER'S BEHALF AND ON BEHALF OF THE BORROWER'S PROPERTY, SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO THE BORROWER IN CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND THE BORROWER HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON ITS BEHALF. AS AN ALTERNATIVE METHOD OF SERVICE, THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF 166 PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK AT THE ADDRESS FOR NOTICES SPECIFIED IN SECTION 10.2. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 10.15. Waiver of Jury Trial. THE ADMINISTRATIVE AGENT, THE LENDERS, THE ISSUER AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, THE LENDERS, THE ISSUER OR THE BORROWER IN CONNECTION HEREWITH OR THEREWITH. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT, THE LENDERS AND EACH ISSUER ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. SECTION 10.16. Maximum Rate of Interest. Nothing contained in this Agreement or in any other Loan Documents shall be construed to permit the Lenders to charge or receive at any time interest, fees or other charges in excess of the amounts which the Lenders are legally entitled to charge and receive under any law to which such interest, fees or charges are subject. In no contingency or event whatsoever shall the compensation payable to the Lenders by any Person, howsoever characterized or computed, hereunder or under any of the other Loan Documents, exceed the highest rate permissible under any law to which such compensation is subject. There is no intention that the Lenders shall contract for, charge or receive compensation in excess of the highest lawful rate, and, in the event it should be determined that the Lenders 167 have contracted for any rate of interest in excess of the highest lawful rate, then ipso facto such rate shall be reduced to the highest lawful rate so that no amounts shall be charged or received which are in excess thereof, and, in the event it should be determined that any excess over such highest lawful rate has been charged or received, the Lenders shall promptly refund such excess to the Person entitled thereto; provided, however, that, if lawful, any such excess shall be paid by the Borrower to the Lenders as additional interest (accruing at a rate equal to the maximum legal rate minus the rate provided for hereunder) during any subsequent period when regular interest is accruing hereunder at less than the maximum legal rate. SECTION 10.17. Time of Essence. Time is of the essence as to all times and dates set forth in or applicable to this Agreement with respect to all payments to be made by or on behalf of the Borrower hereunder; provided, however, that whenever any payment to be made under the Loan Documents shall be stated to be due on a day other than a Business Day, such payment may be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of interest payable hereunder. SECTION 10.18. Consent or Approval of the Administrative Agent and the Lenders. (a) Any request by the Borrower for consent or approval by the Administrative Agent and/or the Lenders under this Agreement or any of the other Operative Documents shall be given in writing in accordance with Section 10.2. Except where a specific time period for response is provided in this Agreement, the Administrative Agent and the Lenders, as applicable, shall have 30 days to grant or deny any such request. If the Administrative Agent or the Lenders, as applicable, fail to respond to any such request in writing within such 30 day period, the Borrower's request shall be deemed disapproved. (b) No Claims may be made by the Borrower or any other Person against the Agents, the Lenders, any Affiliate of the foregoing, or the officers, directors, employees, attorneys, consultants or agents of any of them for consequential or punitive damages in respect of any Claim for breach or contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or by the other Operative Documents, or an act, omission, or event occurring in connection therewith; and the Borrower, the other Aladdin Parties, LCNI, the London Clubs Holdings and London Clubs each for itself and for all Persons claiming by, through and under each of them, waives, releases, and agrees not to sue upon any Claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. SECTION 10.19. No Third Party Beneficiary. All conditions of the obligations of the Lenders to make Loans hereunder and Advances under the Disbursement Agreement are imposed solely and exclusively for the benefit of the Lenders, and neither the Design/Builder nor the Main Project Architect or any other Contractor, Subcontractor or any other Person (x) shall have standing to require satisfaction of such conditions or be entitled to assume that the Lenders will refuse to make Loans in the absence of strict compliance with any or all of such conditions 168 or (y) shall, under any circumstances, be deemed to be a beneficiary under this Agreement or the Disbursement Agreement or of such conditions, any or all of which may be waived in whole or in part by the Administrative Agent or the Lenders at any time if they, in their sole discretion, deem it advisable to do so. The waiver by the Lenders at any time of any of such conditions shall be deemed to be made pursuant to, and not in modification of, this Agreement. SECTION 10.20. Cumulative Remedies. No right or remedy conferred upon the Administrative Agent or the Lenders in this Agreement is intended to be exclusive of any other right or remedy contained in the other Loan Documents or at law and equity and every such right and remedy shall be cumulative and shall be in addition to every other right or remedy contained in the other Loan Documents and as now or hereafter available to the Lenders at law or in equity, by statute or otherwise. SECTION 10.21. Estoppel Certificates. The Borrower shall execute and deliver, or cause to be executed and delivered, to the Administrative Agents all instruments and certificates as the Administrative Agent may reasonably request (including estoppel certificates certifying that the Loans and each of the Loan Documents are in full force and effect and that there are no defenses or offsets, claims or counterclaims with respect thereto or if there are, stating the nature of such defenses, offsets, claims or counterclaims) to effect, confirm or assure the rights, remedies and Liens intended to be granted to the Lenders under the Loan Documents. SECTION 10.22. Claims of Discount Noteholders. Subject to the provisions of Article 12 of the Discount Note Indenture, the Discount Note Indenture Trustee and the Discount Noteholders will be entitled in any insolvency proceeding in which Holdings and the Borrower were substantively consolidated (other than any consolidated proceeding resulting following assertion of substantive consolidation by the Trustee or any Discount Noteholder in violation of the provisions of Article 12 of the Discount Note Indenture) to exercise all rights available to the Discount Noteholders, as creditors or otherwise, and none of the Lenders, the Issuer or the Administrative Agent shall (x) contest the involvement in such proceeding of the Discount Note Indenture Trustee or any Discount Noteholder or (y) seek an equitable subordination of the Discount Noteholders' claims. Notwithstanding anything to the contrary in Section 10.1, this Section shall not be amended without the consent of the Discount Note, Indenture Trustee or the holders of a majority of the Accreted Value of the Discount Notes. 169 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. ALADDIN GAMING, LLC By: /s/ Richard Goeglein ---------------------- Title: President, CEO Address: 831 Pilot Road Las Vegas, NV 89119* Facsimile No.: (702) 736-7107 Attention: Ronald Dictrow with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP Address: 919 Third Avenue New York, NY 10022 Facsimile No.: (212) 735-2000 Attention: Wallace L. Schwartz *after Conversion Date: 3667 Las Vegas Blvd. So. Las Vegas, NV 89109 Facsimile No: (702) 736-7107 Attention: Ronald Dictrow 170 THE BANK OF NOVA SCOTIA, as Administrative Agent By: /s/ Alan Pendergast ------------------------- Name: Alan Pendergast Title: Relationship Manager MERRILL LYNCH CAPITAL CORPORATION, as Syndication Agent By: /s/ Christopher Birosak -------------------------- Name: Christopher Birosak Title: Vice President CIBC OPPENHEIMER CORP., as Documentation Agent By: /s/ Mark W.B. Harms --------------------------- Name: Mark W.B. Harms Title: Managing Director 171
Term A Loan Commitment: THE BANK OF NOVA SCOTIA 18.382352941698% By: /s/ Alan Pendergast ------------------------- Term B Loan Commitment: Name: Alan W. Pendergast Title: Relationship Manager 54.142300192983% Term C Loan Commitment: Address for Notices: 580 California Street 31.611111112500% 21st Floor San Francisco, CA 94104 Facsimile No.: (415) 397-0791 Attention: Alan W. Pendergast With a copy of: The Bank of Nova Scotia Loan Administration Department Suite 2700 600 Peachtree Street N.E. Atlanta, Georgia 30308 Facsimile No.: (404) 888-8998 Attention: Marianne Velker
172
Term A Loan Commitment: MERRILL LYNCH CAPITAL CORPORATION 18.382352941176% By: /s/ Christopher Birosak -------------------------- Term B Loan Commitment: Name: Christopher Birosak Title: Vice President 11.403508771930% Term C Loan Commitment: Address for Notices: World Financial Center 12.625000000000% Two Vesey Street New York, New York 10281 Facsimile No.: (212) 449-8230 Attention: Christopher Birosak
173
Term A Loan Commitment: CIBC INC. 18.382352941176% Term B Loan Commitment: By: /s/ Dean J. Decker -------------------------- Name: Dean J. Decker 8.771929824561% Title: Executive Director CIBC Oppenheimer Corp., AS AGENT Term C Loan Commitment: Address for Notices: 350 S. Grand Avenue, Suite 2600 0% Los Angeles, CA 90071 Facsimile No.: (213) 346-0157 Attention: Dean J. Decker
174
Term A Loan Commitment: THE INTERNATIONAL COMMERCIAL BANK OF CHINA, NEW YORK 14.70588235242% AGENCY Term B Loan Commitment: By: /s/ Robin C. C. Lin -------------------------------- Name: Robin C. C. Lin 0% Title: Vice President & Deputy General Manager Term C Loan Commitment: Address for Notices: 65 Liberty Street, 2nd Floor 0% New York, New York 10005 Facsimile No.: (212) 766-5006 Attention: Mr. M.S. Wu
175
Term A Loan Commitment: FIRST COMMERCIAL BANK (incorporated in Taiwan, R.O.C.) 11.029411764706% LOS ANGELES BRANCH Term B Loan Commitment: By: /s/ June Shiong Lu ------------------------------- Name: June Shiong Lu 0% Title: SVP & General Manager Term C Loan Commitment: Address for Notices: 515 S. Flower Street, Suite 1050 0% Los Angeles, CA 90071 Facsimile No.: (212) 362-0219 Attention: Jonathan Kuo
176
Term A Loan Commitment: U.S. BANK NATIONAL ASSOCIATION 11.029411764706% Term B Loan Commitment: By: /s/ Terry A. Gentry ---------------------------------- Name: Terry A. Gentry 0% Title: Assistant Vice President Term C Loan Commitment: Address for Notices: U.S. Bank 0% 2300 West Sahara, Suite 120 Las Vegas, NV 89102 Facsimile No.: (703) 386-3903 Attention: Terry A. Gentry
177
Term A Loan Commitment: ERSTE BANK DER OESTERREICHISCHEN 8.088235294118% SPARKASSEN AG Term B Loan Commitment: By: /s/ John Runnion ------------------------------ Name: John Runnion 0% Title: First Vice President Term C Loan Commitment: By: /s/ David Manheim ------------------------------ Name: David Manheim 0% Title: Assistant Vice President Address for Notices: 280 Park Avenue West Bldg., 32nd Floor New York, NY 10017 Facsimile No.: (212) 984-5627 Attention: David Manheim
178
Term A Loan Commitment: ING HIGH INCOME PRINCIPAL PRESERVATION FUND 0% HOLDINGS, LDC By: ING Capital Advisors, Inc. as Investment Advisor Term B Loan Commitment: By: /s/ Michael D. Hatley -------------------------------------------- Name: Michael D. Hatley 4.736842105263% Title: Vice President & Portfolio Manager Term C Loan Commitment: Address for Notices: ING High Income Principal 6.000000000000% Preservation Fund Holdings, LDC 333 South Grand Avenue, Suite 4250 Los Angeles, CA 90071 Facsimile No.: (212) 346-3995 Attention: Michael Hatley 179 Term A Loan Commitment: THE ING CAPITAL SENIOR SECURED HIGH INCOME FUND, LP. 0% By: ING Capital Advisors, Inc. as Investment Advisor Term B Loan Commitment: By: /s/ Michael D. Hatley -------------------------------------------- Name: Michael D. Hatley 3.157894736842% Title: Vice President & Portfolio Manager Term C Loan Commitment: Address for Notices: The ING Capital Senior Secured 4.000000000000% High Income Fund, LP. 333 South Grand Avenue, Suite 4250 Los Angeles, CA 90071 Facsimile No.: (212) 346-3995 Attention: Michael Hatley
180
Term A Loan Commitment: PPM AMERICA, INC., as Attorney-in-Fact on behalf of Jackson National Life 0% Insurance Company Term B Loan Commitment: By: /s/ Michael DiRe --------------------------- Name: Michael DiRe 17.543859649123% Title: Managing Director Term C Loan Commitment: Address for Notices: 225 West Wacker Drive, Suite 1200 18.750000000000% Chicago, IL 60606-1228 Facsimile No.: (312) 634-0054 Attention: Private Placement - Michael DiRe or Mike King 181 Term A Loan Commitment: VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST 0% Term B Loan Commitment: By: /s/ Jeffrey W. Maillet ---------------------------------------- Name: Jeffrey W. Maillet 0% Title: Senior Vice President Director Term C Loan Commitment: Address for Notices: Van Kampen American Capital 25.625000000000% One Parkview Plaza Oakbrook, IL 60181 Facsimile No.: (630) 684-6740/6741 Attention: State Street Bank & Trust Corporate Trust Department P.O. Box 778 Boston, MA 02102 Facsimile: (617) 664-5366/5367 Attention: Sean Emerson
182
Term A Loan Commitment: FLOATING RATE PORTFOLIO By: Chancellor LGT Senior Secured 0% Management Inc., as Attorney- in-Fact Term B Loan Commitment: By: /s/ Anthony R. Clemente ---------------------------------------- Name: Anthony R. Clemente 0.243664719298% Title: Authorized Signatory Term C Loan Commitment: Address for Notices: Chancellor LGT Asset Management, Inc. 1.388888887500% 50 California Street, 27th Floor San Francisco, CA 94111-4624 Facsimile No.: (415) 445-7525 Attention: Linda DiNapoli Chancellor LGT Senior Secured Management, Inc. 1166 Avenue of the Americas, 27th Floor New York, NY 10036 Facsimile: (212) 278-9647 Attention: Peter Wollman
183 SCHEDULE I DISCLOSURE SCHEDULE TO CREDIT AGREEMENT ITEM 5.1.9 Indebtedness to be Paid. CREDITOR OUTSTANDING PRINCIPAL AMOUNT ITEM 6.7 Litigation. ITEM 6.8 Subsidiaries. ITEM 6.11 Employee Benefit Plans. ITEM 6.12 Environmental Matters. ITEM 6.13 Intellectual Property. ITEM 6.29 Labor Disputes. ITEM 7.2.2(b) Existing Indebtedness CREDITOR OUTSTANDING PRINCIPAL AMOUNT ITEM 7.2.3(c) Ongoing Liens. ITEM 7.2.5(a) Ongoing Investments. TABLE OF CONTENTS ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
Section Page - ------- ---- 1.1. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.2. Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . .68 1.3. Cross-References . . . . . . . . . . . . . . . . . . . . . . . . . . . .68 1.4. Accounting and Financial Determinations. . . . . . . . . . . . . . . . .68 ARTICLE II COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES, NOTES AND LETTERS OF CREDIT 2.1. Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69 2.1.1. Term A Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . .69 2.1.2. Letter of Credit Commitment. . . . . . . . . . . . . . . . . . . . . .69 2.1.3. Term B Loan and Term C Loan Commitments. . . . . . . . . . . . . . . .70 2.1.4. Lenders Not Permitted or Required to Make Loans. . . . . . . . . . . .70 2.1.5. Issuer Not Permitted or Required to Issue Letters of Credit. . . . . .71 2.2. Reduction of the Term A Loan Commitment Amount . . . . . . . . . . . . .71 2.3. Borrowing Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . .71 2.3.1. Borrowing Procedure. . . . . . . . . . . . . . . . . . . . . . . . . .71 2.3.2. Term A Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 2.3.3. Term B Loans and Term C Loans. . . . . . . . . . . . . . . . . . . . .72 2.3.4. Additional Term B Loans and/or Term C Loans. . . . . . . . . . . . . .72 2.4. Continuation and Conversion Elections. . . . . . . . . . . . . . . . . .73 2.5. Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73 2.6. Letter of Credit Issuance Procedures . . . . . . . . . . . . . . . . . .74 2.6.1. Other Lenders' Participation . . . . . . . . . . . . . . . . . . . . .74 2.6.2. Letter of Credit Disbursements . . . . . . . . . . . . . . . . . . . .75 2.6.3. Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . . . .75 2.6.4. Deemed Letter of Credit Disbursements. . . . . . . . . . . . . . . . .76 2.6.5. Nature of Letter of Credit Reimbursement Obligations . . . . . . . . .76 2.7. Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77 2.8. Registered Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
i ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
Section Page - ------- ---- 3.1. Repayments and Prepayments; Application. . . . . . . . . . . . . . . . .78 3.1.1. Repayments and Prepayments . . . . . . . . . . . . . . . . . . . . . .78 3.1.2. Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80 3.2. Interest Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . .81 3.2.1. Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81 3.2.2. Post-Maturity Rates. . . . . . . . . . . . . . . . . . . . . . . . . .81 3.2.3. Payment Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . . .82 3.3. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82 3.3.1. Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . .82 3.3.2. Agency Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82 3.3.3. Letter of Credit Fee . . . . . . . . . . . . . . . . . . . . . . . . .83 3.3.4. Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83 ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS 4.1. LIBO Rate Lending Unlawful . . . . . . . . . . . . . . . . . . . . . . .83 4.2. Deposits Unavailable . . . . . . . . . . . . . . . . . . . . . . . . . .83 4.3. Increased LIBO Rate Loan Costs, etc. . . . . . . . . . . . . . . . . . .84 4.4. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84 4.5. Increased Capital Costs. . . . . . . . . . . . . . . . . . . . . . . . .85 4.6. Lender's Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85 4.7. Payments, Computations, etc. . . . . . . . . . . . . . . . . . . . . . .87 4.8. Sharing of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . .88 4.9. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88 4.10. Mitigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89 4.11. Replacement of Lenders. . . . . . . . . . . . . . . . . . . . . . . . .89
ii ARTICLE V CONDITIONS TO CREDIT EXTENSIONS
Section Page - ------- ---- 5.1. Initial Credit Extension . . . . . . . . . . . . . . . . . . . . . . . .92 5.1.1. Satisfaction of Conditions Precedent to the Closing Date . . . . . . .92 5.1.2. Delivery of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . .92 5.1.3. Pledge Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . .92 5.1.4. Financial Information, etc.. . . . . . . . . . . . . . . . . . . . . .93 5.1.5. Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .94 5.1.6. Trademark Security Agreement . . . . . . . . . . . . . . . . . . . . .94 5.1.7. Deed of Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . .94 5.1.8. Solvency, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .95 5.1.9. Initial Rate Protection Agreement. . . . . . . . . . . . . . . . . . .95 5.1.10. Payment of Outstanding Indebtedness, etc. . . . . . . . . . . . . . .95 5.1.11. Closing Fees, Expenses, etc.. . . . . . . . . . . . . . . . . . . . .95 5.1.12. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . .95 5.1.13. Satisfactory Form and Substance . . . . . . . . . . . . . . . . . . .95 5.1.14. Other Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . .96 5.1.15. Main Project Documents. . . . . . . . . . . . . . . . . . . . . . . .96 5.1.16. Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . .96 5.2. All Credit Extensions. . . . . . . . . . . . . . . . . . . . . . . . . .96 5.2.1. Conditions for Advances under the Disbursement Agreement and the Making of Term A Loans. . . . . . . . . . . . . . . . . . . . . . .97 5.2.2. Conditions for the Making of an Additional Term B Loan and/or Term C Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97 5.2.3. Compliance with Warranties, No Default, etc. . . . . . . . . . . . . .98 5.2.4. Credit Extension Request, etc. . . . . . . . . . . . . . . . . . . . .99 5.2.5. Satisfactory Legal Form. . . . . . . . . . . . . . . . . . . . . . . .99 5.2.6. Other Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . .99 ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1. Organization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . .99 6.2. Due Authorization, Non-Contravention, etc. . . . . . . . . . . . . . . 100 6.3. Government Approval, Regulation, etc.. . . . . . . . . . . . . . . . . 100 6.4. Validity, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 6.5. Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . 101 6.6. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . 101
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Section Page - ------- ---- 6.7. Litigation, Labor Controversies, etc.. . . . . . . . . . . . . . . . . 101 6.8. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 6.9. Ownership of Properties. . . . . . . . . . . . . . . . . . . . . . . . 101 6.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 6.11. Pension and Welfare Plans . . . . . . . . . . . . . . . . . . . . . . 102 6.12. Environmental Warranties. . . . . . . . . . . . . . . . . . . . . . . 103 6.13. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . 104 6.14. Regulations G, U and X. . . . . . . . . . . . . . . . . . . . . . . . 104 6.15. Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . 104 6.16. Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 6.17. Security Interests. . . . . . . . . . . . . . . . . . . . . . . . . . 105 6.18. Existing Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 106 6.19. Design/Build Contract; Construction Contracts . . . . . . . . . . . . 106 6.20. Contingent Liabilities. . . . . . . . . . . . . . . . . . . . . . . . 106 6.21. Business, Debt, Contracts, etc. . . . . . . . . . . . . . . . . . . . 107 6.22. Representations and Warranties. . . . . . . . . . . . . . . . . . . . 107 6.23. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 6.24. In Balance Requirement. . . . . . . . . . . . . . . . . . . . . . . . 107 6.25. Sufficiency of Interests and Main Project Documents . . . . . . . . . 107 6.25.1. Ownership, Title, etc.. . . . . . . . . . . . . . . . . . . . . . . 107 6.25.2. Main Project Documents. . . . . . . . . . . . . . . . . . . . . . . 108 6.25.3. Satisfaction to Main Project Document Conditions. . . . . . . . . . 108 6.26. Main Project Budget; Trade Detail Report. . . . . . . . . . . . . . . 108 6.26.1. Main Project Budget . . . . . . . . . . . . . . . . . . . . . . . . 108 6.26.2. Trade Detail Report . . . . . . . . . . . . . . . . . . . . . . . . 108 6.27. Fees and Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . 109 6.28. ERISA Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . 109 6.29. Labor Disputes; Acts of God; Casualty and Condemnation. . . . . . . . 109 6.30. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 6.31. Construction Benchmark Schedule; Guaranteed Maximum Price . . . . . . 110 6.31.1. Construction Benchmark Schedule . . . . . . . . . . . . . . . . . . 110 6.31.2. Guaranteed Maximum Price. . . . . . . . . . . . . . . . . . . . . . 110 6.32. Proper Subdivision. . . . . . . . . . . . . . . . . . . . . . . . . . 110 6.33. Offices; Location of Collateral . . . . . . . . . . . . . . . . . . . 110 6.34. Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . 111 6.35. No Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
iv ARTICLE VII COVENANTS
Section Page - ------- ---- 7.1. Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 111 7.1.1. Financial Information, Reports, Notices, etc.. . . . . . . . . . . . 111 7.1.2. Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . . . 115 7.1.3. Maintenance of Properties; Operation; Reserves . . . . . . . . . . . 116 7.1.4. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 7.1.5. Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . 117 7.1.6. Environmental. . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 7.1.7. Additional Collateral. . . . . . . . . . . . . . . . . . . . . . . . 117 7.1.8. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . 118 7.1.9. Deposits into the Accounts . . . . . . . . . . . . . . . . . . . . . 118 7.1.10. Main Project Costs. . . . . . . . . . . . . . . . . . . . . . . . . 118 7.1.11. Repayment of Indebtedness . . . . . . . . . . . . . . . . . . . . . 119 7.1.12. Diligent Construction of the Main Project . . . . . . . . . . . . . 119 7.1.13. Compliance with Legal Requirements. . . . . . . . . . . . . . . . . 119 7.1.14. In Balance; Borrower Equity . . . . . . . . . . . . . . . . . . . . 120 7.1.15. Security Interest in Newly Acquired Property. . . . . . . . . . . . 120 7.1.16. Plans and Specifications. . . . . . . . . . . . . . . . . . . . . . 120 7.1.17. Construction Consultant . . . . . . . . . . . . . . . . . . . . . . 121 7.1.18. Proper Legal Forms. . . . . . . . . . . . . . . . . . . . . . . . . 122 7.1.19. Preserving the Main Project Security. . . . . . . . . . . . . . . . 122 7.1.20. Application of Insurance and Condemnation Proceeds. . . . . . . . . 124 7.1.21. Shoulder Space Encroachments. . . . . . . . . . . . . . . . . . . . 125 7.1.22. GECC Intercreditor Agreement. . . . . . . . . . . . . . . . . . . . 125 7.1.23. Compliance with Material Main Project Documents and the Approved Equipment Funding Commitment . . . . . . . . . . . . . . . . . . 126 7.2. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 126 7.2.1. Business Activities. . . . . . . . . . . . . . . . . . . . . . . . . 126 7.2.2. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 7.2.3. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 7.2.4. Financial Condition and Operations . . . . . . . . . . . . . . . . . 128 7.2.5. Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 7.2.6. Restricted Payments, etc.. . . . . . . . . . . . . . . . . . . . . . 131 7.2.7. Capital Expenditures, etc. . . . . . . . . . . . . . . . . . . . . . 133 7.2.8. Rental Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 134 7.2.9. Take or Pay Contracts. . . . . . . . . . . . . . . . . . . . . . . . 134 7.2.10. Consolidation, Merger, etc. . . . . . . . . . . . . . . . . . . . . 134 7.2.11. Permitted Dispositions. . . . . . . . . . . . . . . . . . . . . . . 134
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Section Page - ------- ---- 7.2.12. Modification of Certain Agreements. . . . . . . . . . . . . . . . . 134 7.2.13. Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . 136 7.2.14. Negative Pledges, Restrictive Agreements, etc.. . . . . . . . . . . 137 7.2.15. Sale and Leaseback. . . . . . . . . . . . . . . . . . . . . . . . . 137 7.2.16. Stock of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 137 7.2.17. Scope Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 7.2.18. Amendment of Main Project Budget, Construction Benchmark Schedule; Design/Build Contract Time and Guaranteed Maximum Price. . . . . 139 7.2.19. Hazardous Substances. . . . . . . . . . . . . . . . . . . . . . . . 141 7.2.20. No Other Powers of Attorney . . . . . . . . . . . . . . . . . . . . 141 7.2.21. Opening . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 7.2.22. Actions Affecting Energy Provider . . . . . . . . . . . . . . . . . 141 ARTICLE VIII EVENTS OF DEFAULT 8.1. Listing of Events of Default . . . . . . . . . . . . . . . . . . . . . 141 8.1.1. Non-Payment of Obligations . . . . . . . . . . . . . . . . . . . . . 142 8.1.2. Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . 142 8.1.3. Non-Performance of Certain Covenants and Obligations . . . . . . . . 142 8.1.4. Non-Performance of Other Covenants and Obligations . . . . . . . . . 142 8.1.5. Default on Other Indebtedness. . . . . . . . . . . . . . . . . . . . 142 8.1.6. Outside Completion Deadline. . . . . . . . . . . . . . . . . . . . . 143 8.1.7. Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 8.1.8. Pension Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 8.1.9. Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . . 143 8.1.10. Bankruptcy, Insolvency, etc.. . . . . . . . . . . . . . . . . . . . 143 8.1.11. Impairment of Security, etc.. . . . . . . . . . . . . . . . . . . . 144 8.1.12. Advance Requests. . . . . . . . . . . . . . . . . . . . . . . . . . 144 8.1.13. Breach of Main Project Documents. . . . . . . . . . . . . . . . . . 144 8.1.14. Termination or Invalidity of Main Project Documents; Abandonment of Main Project. . . . . . . . . . . . . . . . . . . . . . . . . 146 8.1.15. Government Authorizations . . . . . . . . . . . . . . . . . . . . . 146 8.2. Action if Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . 147 8.3. Action if Other Event of Default . . . . . . . . . . . . . . . . . . . 147
vi ARTICLE IX THE ADMINISTRATIVE AGENT
Section Page - ------- ---- 9.1. Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 9.2. Funding Reliance, etc. . . . . . . . . . . . . . . . . . . . . . . . . 150 9.3. Exculpation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 9.4. Successor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 9.5. Loans by Scotiabank. . . . . . . . . . . . . . . . . . . . . . . . . . 152 9.6. Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 9.7. Copies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 9.8. Consultants and Reports. . . . . . . . . . . . . . . . . . . . . . . . 153 9.9. GECC Intercreditor Agreement . . . . . . . . . . . . . . . . . . . . . 153 ARTICLE X MISCELLANEOUS PROVISIONS 10.1. Waivers, Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . 153 10.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 10.3. Payment of Costs and Expenses . . . . . . . . . . . . . . . . . . . . 155 10.4. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 10.5. Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 10.6. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 10.7. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 10.8. Execution in Counterparts, Effectiveness, etc.. . . . . . . . . . . . 158 10.9. Governing Law; Entire Agreement . . . . . . . . . . . . . . . . . . . 158 10.10. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 158 10.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 10.11.1. Assignments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 10.11.2. Participations . . . . . . . . . . . . . . . . . . . . . . . . . . 160 10.11.3. Assignment of Registered Notes . . . . . . . . . . . . . . . . . . 161 10.12. Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 162 10.13. Execution by Authorized Representative . . . . . . . . . . . . . . . 162 10.14. Forum Selection and Consent to Jurisdiction. . . . . . . . . . . . . 162 10.15. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . 163 10.16. Maximum Rate of Interest . . . . . . . . . . . . . . . . . . . . . . 163 10.17. Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . . . 164 10.18. Consent or Approval of the Administrative Agent and the Lenders. . . 164 10.19. No Third Party Beneficiary . . . . . . . . . . . . . . . . . . . . . 164
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Section Page - ------- ---- 10.20. Cumulative Remedies. . . . . . . . . . . . . . . . . . . . . . . . . 165 10.21. Estoppel Certificates. . . . . . . . . . . . . . . . . . . . . . . . 165 10.22. Claims of Discount Noteholders . . . . . . . . . . . . . . . . . . . 165
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SCHEDULE I - Disclosure Schedule SCHEDULE II - Scheduled Amortization SCHEDULE III - Mandatory Prepayments SCHEDULE IV - Forms of Opinions SCHEDULE V - Schedule of Security Filings SCHEDULE VI - Schedule of Main Project Documents SCHEDULE VII - Schedule of Plans and Specifications SCHEDULE VIII - Schedule of Pre-Opening Expenses SCHEDULE IX - Schedule of Issuance Fees and Expenses SCHEDULE X - Pre-Approved Assignees EXHIBIT A-1 - Form of Term A Note EXHIBIT A-2 - Form of Term B Note EXHIBIT A-3 - Form of Term C Note EXHIBIT A-4 - Form of Registered Note EXHIBIT B - Form of Deed of Trust EXHIBIT C - Form of Completion Guaranty EXHIBIT D - Form of Keep-Well Agreement EXHIBIT E-1 - Form of Borrower Pledge Agreement EXHIBIT E-2 - Form of AHL Pledge Agreement EXHIBIT E-3 - Form of AMH Pledge Agreement EXHIBIT E-4 - Form of Enterprises Pledge Agreement EXHIBIT E-5 - Form of Holdings Pledge Agreement EXHIBIT E-6 - Form of LCNI Pledge Agreement EXHIBIT E-7 - Form of Sommer Enterprises Pledge Agreement EXHIBIT F - Form of Security Agreement EXHIBIT G - Form of Mall Project Completion Assignment EXHIBIT H - Form of Lender Assignment Agreement EXHIBIT I - Form of Consent to Agreement EXHIBIT J - Form of Grant, Bargain and Sale Deed EXHIBIT K - Form of Environmental Indemnity EXHIBIT L-1 - Form of Borrowing Request EXHIBIT L-2 - Form of Letter of Credit Issuance Request EXHIBIT M - Form of Continuation/Conversion Notice EXHIBIT N-1 - Description of the Site EXHIBIT N-2 - Description of the Complex EXHIBIT N-3 - Description of the Main Project Parcel EXHIBIT N-4 - Description of the Mall Project Parcel EXHIBIT N-5 - Description of the Music Project Parcel EXHIBIT N-6 - Description of the Shoulder Space EXHIBIT N-7 - Description of the Theater Space EXHIBIT N-8 - Description of the Hotel/Casino Component EXHIBIT N-9 - Description of the Energy Project Component
ix
EXHIBIT N-10 - Description of the Equipment Component EXHIBIT O - Description of the Main Project Intended Use EXHIBIT P - Form of Solvency Certificate EXHIBIT Q-1 - Form of Borrower's Closing Certificate EXHIBIT Q-2 - Form of Construction Consultant's Closing Certificate EXHIBIT Q-3 - Form of Architect's Closing Certificate EXHIBIT R - Form of Compliance Certificate EXHIBIT S-1 - Form of Borrower's Completion Certificate EXHIBIT S-2 - Form of Construction Consultant's Completion Certificate EXHIBIT T-1 - Form of Borrower's Opening Date Certificate EXHIBIT T-2 - Form of Construction Consultant's Opening Date Certificate EXHIBIT U-1 - Form of Borrower's Final Completion Certificate EXHIBIT U-2 - Form of Construction Consultant's Final Completion Certificate EXHIBIT V - Form of Main Project Punchlist Completion Certificate EXHIBIT W - Form of Realized Savings Certificate EXHIBIT X-1 - Form of Construction Benchmark Schedule EXHIBIT X-2 - Form of Main Project Budget EXHIBIT X-3 - Form of Main Project Budget/Schedule Amendment Certificate EXHIBIT Y - Form of Additional Contract Certificate EXHIBIT Z - Form of Contract Amendment Certificate EXHIBIT AA - Form of On-Schedule Certificate EXHIBIT BB - Permitted Encumbrances EXHIBIT CC - Permitted Exceptions EXHIBIT DD - Trade Detail Report EXHIBIT EE - Tax Certificate
x EX-10.14 11 EXHIBIT 10.14 BANK COMPLETION GUARANTY Bank Completion Guaranty GUARANTY OF PERFORMANCE AND COMPLETION THIS GUARANTY OF PERFORMANCE AND COMPLETION (this "Completion Guaranty"), dated as of February 26, 1998 is made by LONDON CLUBS INTERNATIONAL PLC, a company registered in England and Wales under company number 2862479 ("LCI"), THE TRUST UNDER ARTICLE SIXTH UNDER THE WILL OF SIGMUND SOMMER (the "Trust") and ALADDIN BAZAAR HOLDINGS, LLC, a Nevada limited liability company ("ABH"; ABH, the Trust and LCI are individually called a "Guarantor" and collectively called the "Guarantors"), in favor of each of the Administrative Agent and the Lenders and their respective successors, transferees and assigns. W I T N E S S E T H: WHEREAS, pursuant to a Credit Agreement, dated as of even date herewith (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among Aladdin Gaming, LLC, a Nevada limited liability company (the "Borrower"), the various lending institutions (individually a "Lender" and collectively the "Lenders") as are, or may from time to time become, parties thereto and The Bank of Nova Scotia as administrative agent (together with any successor(s) thereto in such capacity, the "Administrative Agent") for the Lenders, Merrill Lynch Capital Corporation as the syndication agent (together with any successor thereto in such capacity, the "Syndication Agent") and CIBC Oppenheimer Corp. as the documentation agent (together with any successor thereto in such capacity, the "Documentation Agent"), the Lenders have extended Commitments to make Loans to the Borrower and to issue Letters of Credit for the account of the Borrower; and WHEREAS, as a condition precedent to the effectiveness of the Credit Agreement, the Guarantors are required to execute and deliver this Completion Guaranty and certain subsidiaries of LCI (the "Subsidiary Guarantors") have agreed to fully and unconditionally guarantee the payment of LCI's obligations under this Completion Guaranty pursuant to a guaranty agreement of even date herewith (the "Subsidiary Guaranty"); and WHEREAS, the Guarantors have duly authorized the execution, delivery and performance of this Completion Guaranty and the Subsidiary Guarantors have duly authorized the execution, delivery and performance of the Subsidiary Guaranty; and WHEREAS, it is in the best interests of the Guarantors to execute this Completion Guaranty and the Subsidiary Guarantors to execute the Subsidiary Guaranty inasmuch as the Guarantors and the Subsidiary Guarantors will derive substantial direct and indirect benefits from the Loans made to the Borrower by the Lenders pursuant to the Credit Agreement and the Letters of Credit issued for the account of the Borrower under the Credit Agreement. NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and in order to induce the Lenders to make Loans to the Borrower and to issue Letters of Credit for the account of the Borrower pursuant to the Credit Agreement, the Guarantors agree, for the benefit of the Administrative Agent, the Syndication Agent and each Lender, as follows: 1. Definitions. Terms defined in the Credit Agreement and not otherwise defined in this Completion Guaranty shall have the meanings ascribed to them in the Credit Agreement. For the purposes of Section 12(g) and Section 13 hereof, the terms set forth on Schedule 1 hereto shall have the meanings ascribed thereto on such Schedule. As used in this Completion Guaranty, the following terms shall have the meanings respectively set forth after each: "Accelerated Payment Amount" shall have the meaning ascribed to such term in the Keep-Well Agreement. "Advance" shall have the meaning ascribed to such term in the Disbursement Agreement. "Bankruptcy Code" shall mean Title 11 of the United States Code as amended from time to time. "Cash Equity Contributions" shall mean cash contributions by the Guarantors to the Borrower in exchange for preferred interests of Holdings. "Consolidated Intangibles": at a particular date, all assets of a Guarantor and its consolidated Subsidiaries, determined on a consolidated basis, that would, in conformity with GAAP, be classified as intangible assets, including, without limitation, unamortized debt discount and expense, unamortized organization and reorganization expense, costs in excess of the fair market value of acquired companies, patents, trade or service marks, franchises, trade names, goodwill and, from and after June 30, 1997, the amount of all write-ups in the book value of assets resulting from any revaluation thereof. "Consolidated Tangible Assets": at a particular date, the amount equal to (a) the amount which would be included as assets on the consolidated balance sheet of a Guarantor and its consolidated Subsidiaries as at such date in accordance with GAAP minus (b) Consolidated Intangibles. "Dormant Subsidiary" means any Subsidiary of a Guarantor which has no operating assets or property and conducts no business. 2 "Enforcement Costs" means all reasonable out-of-pocket costs and expenses of the Lenders in connection with the enforcement of the rights and remedies of the Lenders under this Completion Guaranty and any amendment, waiver or consent relating hereto including, without limitation, reasonable attorneys' fees and costs and expenses, court costs and filing fees in addition to all other amounts due hereunder whether or not such Enforcement Costs are incurred in one or more proceedings. "Existing Senior Debt" shall mean all principal, premium (if any), interest and other amounts owing from time to time under (i) the Note Agreements and (ii) the Facilities Agreement, in either case as amended, supplemented or refinanced, from time to time, provided that the aggregate principal amount of the Note Agreements and the Facilities Agreement shall not be greater than the sum of (A) the maximum aggregate principal amount which could be outstanding under the Facilities Agreement and the Note Agreements in accordance with their terms as at the date hereof plus (B) 25% of Consolidated Net Assets of LCI; provided further, that the aggregate principal amount of the Existing Senior Debt in excess of the maximum aggregate principal amount which could be outstanding under the Facilities Agreement and the Note Agreements in accordance with their terms as at the date hereof shall be excluded from the parenthetical phrase of Section 14(b) hereof. "Facilities Agreement" shall mean that certain (pounds)65,000,000 Facilities Agreement (originally dated 24th May 1994 as amended and restated) among, inter alia, LCI, various banks and National Westminster PLC (the predecessor-in-interest to The Bank of Nova Scotia) as arranger and agent, as in effect on the date hereof and as the same may be modified by amendments that would not, in the aggregate, have the effect of making LCI's obligations thereunder materially more onerous (it being understood and agreed that any amendment, supplement or modification (i) that increases the amount of the obligations of LCI thereunder, (ii) that would permit the lenders thereunder to declare a default if LCI made any Cash Equity Contribution required of the Guarantors hereunder or (iii) that would permit the lenders thereunder to declare a default if LCI made net payments (net of all reimbursements from the other Guarantors) of not more than 25% of any Accelerated Payment Amount required of the Sponsors under the Keep-Well Agreement, shall be deemed material). "GAAP" shall mean the generally accepted accounting principles as in effect from time to time in the United Kingdom with respect to LCI and in the United States with respect to the other Guarantors, as the case may be. "Guaranteed Obligations" means the obligations of the Guarantors under Section 2 of this Completion Guaranty. "Insolvency Proceeding" shall mean any case or proceeding, voluntary or involuntary, under the Bankruptcy Code, or any similar existing or future law of any jurisdiction, 3 foreign, state or federal, relating to bankruptcy, insolvency, reorganization or relief of debtors. "Leases" means, collectively, all agreements relating to the use, occupancy and possession of space with respect to the Main Project entered into by the Borrower and a tenant. "LSE" means the London Stock Exchange Limited. "Material" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of a Guarantor and its Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, operations, affairs, financial conditions, assets or properties of a Guarantor and its Subsidiaries taken as a whole, or (b) the ability of a Guarantor to perform its Guaranteed Obligations or (c) the validity or enforceability of this Completion Guaranty. "Material Subsidiary" shall mean each of the Subsidiaries of LCI that are party to that certain Subsidiary Guaranty dated as of June 30, 1997 guaranteeing the obligations of LCI under the Note Agreements. Each Material Subsidiary of LCI as of the date hereof is listed on Schedule 2 hereof. "Note Agreements" shall mean the several identical Note Purchase Agreements dated as of June 30, 1997 among LCI and the purchasers named therein relating to LCI's $50,000,000 aggregate principal amount of 7.74% Guaranteed Senior Notes due 2004 and as the same may be modified by amendments that would not, in the aggregate, have the effect of making LCI's obligations thereunder materially more onerous (it being understood and agreed that any amendment, supplement or modification (i) that increases the amount of the obligations of LCI thereunder, (ii) that would permit the lenders thereunder to declare a default if LCI made any Cash Equity Contribution required of the Guarantors hereunder or (iii) that would permit the lenders thereunder to declare a default if LCI made net payments (net of all reimbursements from the other Guarantors) of not more than 25% of any Accelerated Payment Amount required of the Sponsors under the Keep-Well Agreement, shall be deemed material). "Wholly-Owned Subsidiary" shall mean, at any time, any Subsidiary one hundred percent (100%) of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Guarantors and such Guarantor's Wholly-Owned Subsidiaries at such time. 4 2. Guaranty of Completion and Performance. The Guarantors, jointly and severally, absolutely, unconditionally and irrevocably, on the terms and subject to the conditions set forth herein, guarantee to the Lenders: (i) that the Borrower shall (A) prosecute the Work and the construction of the Main Project to Final Completion with due diligence and continuity, in an expeditious and first-class workmanlike manner, (B) cause the Work and the construction of the Main Project to be performed and the Main Project to be constructed, equipped and completed in compliance with the Plans and Specifications in all material respects and in compliance in all material respects with the provisions of the Loan Documents, the other Operative Agreements, all Environmental Laws and all Legal Requirements, and (C) correct or cause to be corrected as soon as possible any material defect in the Main Project and the Work (including, without limitation, any material defect in workmanship or quality of construction or materials) or any material departure or variation from the Final Plans and Specifications not made pursuant to Change Orders approved in writing by the Administrative Agent, the Construction Consultant, the Architect of Record and any of the Governmental Instrumentalities whose approval is required; and (ii) that the Borrower shall punctually pay and discharge (A) any and all costs, expenses and liabilities incurred by the Borrower for or in connection with the Final Completion of the Work and the Main Project, (B) all claims and demands for labor, materials and services incurred by the Borrower for or in connection with the Final Completion of the Work and the Main Project which are or may become due and payable, or, if unpaid, are or may become Liens on the Site or any portion thereof owned by the Borrower, (C) all payments to be made for work to be performed by the Borrower under Leases or under the Operative Documents for Tenant Improvements, (D) Impositions and premiums for the insurance required by the Loan Documents prior to the Conversion Date, (E) all interest accruing on the Bank Credit Facility during construction and prior to the Final Completion of the Work and the Main Project, and (F) the obligations of the Borrower to keep the Bank Credit Facility In Balance; and (iii) that the Borrower shall complete the Work and construction of the Main Project Lien free and that the Main Project shall be and remain free and clear of all Liens arising from the furnishing of materials, labor or services for or in connection with the Work and the Main Project; and (iv) that the Borrower shall provide the expertise necessary to supervise construction of the Main Project and the Final Completion of the Work at no cost to the Lenders or the Administrative Agent; and (v) that in the event the Guarantors hereunder shall fail or refuse to pay or perform the Guaranteed Obligations under this Completion Guaranty, the Lenders may pay or perform or cause the payment and performance of the Guaranteed Obligations of the 5 Guarantors hereunder in which case the Guarantors, upon demand by the Lenders, shall pay any and all costs, expenses and liabilities for such costs and expenses in connection with the Final Completion of the Main Project, or cause any Lien in connection with the Final Completion thereof or any claim or demand for the payment of the cost of the Final Completion of the Main Project to be bonded, discharged, released or paid, shall reimburse the Lenders for all sums paid and all costs, expenses or liabilities incurred by the Lenders in connection therewith; and (vi) that the Guarantors shall pay the Enforcement Costs. 3. Payment Provisions. All payments required to be made by the Guarantors pursuant to Section 2 shall be made subject to the following terms: (a) The Guarantors shall make cash payments in the amounts required under Section 2 into an interest-bearing deposit account designated and controlled exclusively by the Disbursement Agent (the "Guaranty Deposit Account") in accordance with the Borrower Collateral Account Agreement in which the Disbursement Agent is hereby granted a security interest for the benefit of the Lenders. The Guaranty Deposit Account is intended to be a "deposit account" for the purposes of Nevada Revised Statutes ("NRS") 40.430.4(g) and Section 9301(g) of the California Uniform Commercial Code. Such funds shall be held in the Guaranty Deposit Account as additional collateral for the Obligations under the Credit Agreement and the other Loan Documents; provided that, if requested by the Guarantors, such funds shall be applied to payment of the Guaranteed Obligations. (b) The cash payments into the Guaranty Deposit Account and the funds therein are for the purpose of paying the Guaranteed Obligations under this Completion Guaranty and shall be free and clear of any third party claims thereto, including any claims by the Borrower as a third party beneficiary under this Completion Guaranty. The Guarantors and the Administrative Agent on behalf of the Lenders specifically agree that the Borrower is not an intended third party beneficiary to this Completion Guaranty and that the Borrower nor any other Person which is not party to this Completion Guaranty (other than successors and assigns of the Lenders, the Administrative Agent, the Documentation Agent and the Syndication Agent) has no rights under this Completion Guaranty. 4. Continuation of Guaranty. In the event that the Obligations of the Borrower under the Credit Agreement shall be accelerated pursuant to the provisions of Section 8.1 thereof, this Guaranty shall continue to be in full force and effect. Subject to the provisions of Section 10 hereof, upon the indefeasible payment and performance of the Guaranteed Obligations by the Guarantors, this Completion Guaranty shall terminate. All amounts received by the Administrative Agent hereunder shall be applied by it to the payment of the Guaranteed Obligations and in accordance with the Loan Documents. 6 5. Proof of Damages. If the Guarantors shall at any time or from time to time fail to perform or comply with any of the Guaranteed Obligations contained herein and if for any reason the Lenders have failed to receive when due and payable the payment of interest or any other amount payable by the Guarantors under this Completion Guaranty, then in each such case (i) it shall be assumed conclusively without necessity of proof that such failure by the Guarantors was the sole and direct cause of the Lenders failing to receive such payment when due ( to the extent of the failure of the Guarantors to perform the Guaranteed Obligations contained herein) irrespective of any other contributing or intervening cause whatsoever, and (ii) the Guarantors further irrevocably waive to the fullest extent permitted by law any right or defense the Guarantors may have to cause the Lenders to prove the cause or amount of such damages or to mitigate the same. 6. Rights of the Administrative Agent. Each Guarantor authorizes the Administrative Agent, on behalf of the Lenders, to perform any or all of the following acts at any time in their sole discretion, all without notice to the Guarantors and without affecting the payment and performance of the Guaranteed Obligations by the Guarantors: (a) The Administrative Agent and the Lenders may alter any terms of the Loan Documents to which the Guarantors are not a party, including renewing, compromising, extending, enforcing or accelerating, or otherwise changing the time for payment of, or increasing or decreasing the rate of interest on, the Loans or any part of them or increasing or decreasing the amount of the Loans or any other fees payable under the Loan Documents. (b) The Administrative Agent and the Lenders may take and hold security for the Loans, the Letters of Credit and the Borrower's other obligations under the Credit Agreement, the Sponsors' obligations under the Keep-Well Agreement and the Guaranteed Obligations under this Completion Guaranty, accept additional or substituted security for any of the foregoing, and subordinate, exchange, enforce, waive, release, compromise, fail to perfect and sell or otherwise dispose of any such security. (c) The Administrative Agent and the Lenders may direct the order and manner of any sale of all or any part of any security now or later to be held for the Loans, the Letters of Credit, this Completion Guaranty or any of the other Loan Documents, and may also bid at any such sale. (d) The Administrative Agent and the Lenders may apply any payments or recoveries from the Borrower, any Guarantor, any Sponsor or any other source, and any proceeds of any security, to the Borrower's obligations under the Loan Documents and/or the Guaranteed Obligations under this Completion Guaranty in such manner, order and priority as they may elect, whether or not those 7 Guaranteed Obligations are supported by this Completion Guaranty or secured at the time of the application. (e) The Administrative Agent and the Lenders may release the Borrower of its liability for the Obligations under the Credit Agreement or any portion thereof. (f) The Administrative Agent and the Lenders may substitute, add or release any one or more Guarantors or endorsers. (g) In addition to the Obligations under the Credit Agreement, the Administrative Agent and the Lenders may extend other credit to the Borrower, its Affiliates and any of the Guarantors and any of the Sponsors or their respective Affiliates and may take and hold security for the credit so extended, all without affecting the Guarantors' liability under this Completion Guaranty. (h) The Administrative Agent and the Lenders may change the terms or conditions of disbursement of the Loans or the issuance of the Letters of Credit. (i) The Administrative Agent and the Lenders may advance additional funds to the Borrower for any purpose. 7. Completion Guaranty to be Absolute. The Guarantors expressly agree that for as long as the Credit Agreement remains in effect or any of the Obligations under the Credit Agreement remain outstanding, the Guarantors shall not be released from the Guaranteed Obligations hereunder by or because of: (a) Any act or event which might otherwise discharge, reduce, limit or modify the Guaranteed Obligations; (b) Any waiver, extension, modification, forbearance, delay or other act or omission of the Administrative Agent or the Lenders, or any failure to proceed promptly or otherwise as against the Borrower, any Sponsor, any Guarantor or any security; (c) Any action, omission or circumstance which might increase the likelihood that the Guarantors may be called upon to perform under this Completion Guaranty or which might affect the rights or remedies of the Guarantors as against the Borrower or any Guarantor; or (d) Any dealings occurring at any time between the Borrower, the Guarantors, the Administrative Agent, the Syndication Agent, the Documentation Agent or any Lender, whether relating to the Loans, the Letters of Credit or otherwise. 8 The Guarantors hereby expressly waive and surrender any defense to their liability under this Completion Guaranty based upon any of the foregoing acts, omissions, agreements, waivers or matters. It is the purpose and intent of this Completion Guaranty that the Guaranteed Obligations shall be absolute and unconditional under any and all circumstances. 8. Guarantors' Waivers. The Guarantors waive: (a) All statutes of limitations as a defense to any action or proceeding brought against the Guarantors by the Administrative Agent or any Lender, to the fullest extent permitted by law; (b) Any right they may have to require the Administrative Agent or the Lenders to proceed against the Borrower or any of the Sponsors, proceed against or exhaust any security held from the Borrower or any of the Sponsors, or pursue any other remedy in their power to pursue; (c) Any defense based on any claim that the Guaranteed Obligations exceed or are more burdensome than those of the Borrower; (d) Any defense based on: (i) any legal disability of the Borrower, (ii) any release, discharge, modification, impairment or limitation of the liability of the Borrower and/or the Guarantors under the Loan Documents from any cause, whether consented to by the Administrative Agent or any Lender or arising by operation of law or from any Insolvency Proceeding, (iii) any rejection or disaffirmance of the Loans or any security held for the Loans, in any Insolvency Proceeding and (iv) the Guarantors' rights under NRS 104.3605, the Guarantors specifically agreeing that this clause (iv) shall constitute a waiver of discharge under NRS 104.3605; (e) Any defense based on any action taken or omitted (other than gross negligence or willful misconduct) by the Administrative Agent or any Lender in any Insolvency Proceeding involving the Borrower or any of the Sponsors, including any election to have a claim allowed as being secured, partially secured or unsecured, any extension of credit by the Administrative Agent or any Lender to the Borrower in any Insolvency Proceeding, and the taking and holding by the Administrative Agent or any Lender of any security for any such extension of credit; (f) All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of acceptance of this Completion Guaranty and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind; 9 (g) Any defense based on or arising out of any defense that the Borrower may have to the payment or performance of the Obligations under the Credit Agreement or any portion of such Obligations; and (h) Any defense or benefit based on NRS 40.430 and judicial decisions relating thereto and NRS 40.451 et seq. and judicial decisions relating thereto, the Guarantors agreeing that the waiver in this paragraph (h) is intended to take advantage of the two (2) waivers permitted by NRS 40.495 (1) and (2) to the maximum extent permitted. 9. Waivers of Subrogation and Other Rights. (a) Upon the occurrence of any Event of Default, the Administrative Agent in its sole discretion, without prior notice to or consent of the Guarantors, may elect to: (i) foreclose either judicially or nonjudicially against any real or personal property security for the Obligations under the Loan Documents, (ii) accept a transfer of any such security in lieu of foreclosure, (iii) compromise or adjust the Loans or any part thereof or any of the Letters of Credit or make any other accommodation with the Borrower or any Guarantor, or (iv) exercise any other remedy against the Borrower, any Guarantor or any security. No such action by the Administrative Agent or any Lender shall release or limit the liability of the Guarantors, who shall remain liable under this Completion Guaranty after the action, even if the effect of the action is to deprive the Guarantors of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from the Borrower for any sums paid to the Administrative Agent or the Lenders, whether contractual or arising by operation of law or otherwise. The Guarantors expressly waive any defenses or benefits that may be derived from NRS Section 40.451, et seq. and judicial decisions relating thereto, or comparable provisions of Nevada law which are comparable to California Civil Procedure ss.ss. 580a, 580b, 580d, or 726 or comparable provisions of the laws of any other jurisdiction, and all other suretyship defenses they otherwise might or would have under Nevada law or other applicable law. The Guarantors expressly agree that under no circumstances shall they be deemed to have any right, title, interest or claim in or to any real or personal property to be held by the Administrative Agent or any Lender or any third party after any foreclosure or transfer in lieu of foreclosure of any security for the Obligations under the Credit Agreement. (b) Regardless of whether the Guarantors may have made any payments to the Administrative Agent or any Lender, the Guarantors hereby waive: (i) all rights of subrogation, all rights of indemnity, and any other rights to collect reimbursement from the Borrower for any sums paid to the Administrative Agent or any Lender, whether contractual or arising by operation of law (including the Bankruptcy Code) or otherwise, (ii) all rights to enforce any remedy that the Administrative 10 Agent or any Lender may have against the Borrower or any other Person, and (iii) all rights to participate in any security now or later to be held by the Administrative Agent or any Lender for the Obligations under the Credit Agreement. The waivers given in this Section 9(b) shall be effective until the Loans and all other Obligations under the Credit Agreement have been indefeasibly paid and performed in full and all Commitments have been terminated. (c) The Guarantors understand and acknowledge that if the Administrative Agent or any Lender forecloses judicially or nonjudicially against any real property security for the Obligations under the Loan Documents, that foreclosure could impair or destroy any ability that the Guarantors may have to seek reimbursement, contribution or indemnification from the Borrower or others based on any right the Guarantors may have of subrogation, reimbursement, contribution or indemnification for any amounts paid by the Guarantors under this Completion Guaranty. The Guarantors further understand and acknowledge that in the absence of this Section 9, such potential impairment or destruction of the Guarantors' rights, if any, may entitle the Guarantors to assert a defense to this Completion Guaranty. By executing this Completion Guaranty, the Guarantors freely, irrevocably and unconditionally: (i) waive and relinquish that defense and agree that the Guarantors will be fully liable under this Completion Guaranty even though the Administrative Agent of the Lenders may foreclose judicially or nonjudicially against any real property security for the Obligations under the Loan Documents; (ii) agree that the Guarantors will not assert that defense in any action or proceeding which the Administrative Agent or the Lenders may commence to enforce this Completion Guaranty; and (iii) acknowledge and agree that the Administrative Agent and the Lenders are relying on this waiver in making the Loans and issuing the Letters of Credit, and that this waiver is a material part of the consideration which they are receiving for making the Loans and issuing the Letters of Credit. 10. Revival and Reinstatement. If the Lenders are required to pay, return or restore to any of the Guarantors any amounts previously paid with respect to the Guaranteed Obligations because of any Insolvency Proceeding of any of the Guarantors, any stop notice or any other reason, to the extent that the source of such payment was a Cash Equity Contribution from the Guarantors or the payment of the Accelerated Payment Amount by the Guarantors pursuant to this Completion Guaranty, the Guaranteed Obligations shall be reinstated and revived and the rights of the Administrative Agent and the Lenders shall continue with regard to such amounts, as though they had never been paid. 11. Representations and Warranties. Each Guarantor hereby represents and warrants unto the Administrative Agent and each Lender as follows: 11 (a) The most recent audited consolidated balance sheet of LCI and ABH and their respective consolidated Subsidiaries (in the case of ABH, as of December 31, 1996 and in the case of LCI, as of March 30, 1997) and the related consolidated statements of earnings and stockholders' equity (or profit and loss in the case of LCI) and of cash flows for the fiscal year ended on such date, reported on by such Guarantor's independent public accountants, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly (or give a true and fair view of in the case of LCI) the consolidated financial condition of such Guarantor and its consolidated Subsidiaries as at such date, and the results of their operations (or consolidated profit and loss in the case of LCI) and their consolidated cash flows for the fiscal year then ended. The unaudited consolidated balance sheet of such Guarantor and its consolidated Subsidiaries as at September 30, 1997 and the related unaudited consolidated statements of earnings and of cash flows for the nine-month period (or, in the case of LCI, six month period) ended on such date, certified by an Authorized Representative of such Guarantor, are complete and correct and present fairly (or give a true and fair view of in the case of LCI) the consolidated financial condition of such Guarantor and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the nine-month period (or, in the case of LCI, six-month period) then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Authorized Representative, as the case may be, and as disclosed therein). (b) Since December 31, 1996, in the case of ABH and since March 30, 1997 in the case of the Trust, there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect. (c) Each of such Guarantor and its Subsidiaries (a) is duly organized, and, to the extent applicable, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate or other power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) to the extent applicable, is duly qualified as a foreign corporation or company or trust and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification and (d) is in compliance with all material Requirements of Law except where failure to comply with any of the foregoing could not individually or in the aggregate reasonably be expected to have a Material Adverse Effect. (d) Each of such Guarantors has the corporate or other power and authority, and the legal right, to make, deliver and perform this Completion Guaranty and to provide 12 the undertakings hereunder and has taken all necessary corporate or other action to authorize the execution, delivery and performance of this Completion Guaranty. No consent or authorization of, filing with or other act by or in respect of, any Governmental Instrumentality or any other Person is required to be obtained or made, as the case may be, by such Guarantor in connection with this Completion Guaranty or with the execution, delivery, performance, validity or enforceability of this Completion Guaranty by or against such Guarantor, except as has been obtained and remains in full force and effect on the date hereof. This Completion Guaranty has been duly executed and delivered on behalf of such Guarantor. This Completion Guaranty constitutes a legal, valid and binding obligation of such Guarantor enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). (e) Each Subsidiary Guarantor has the corporate power and authority, and the legal right, to make, deliver and perform the Subsidiary Guaranty and to provide the undertakings thereunder and has taken all necessary corporate action to authorize the execution, delivery and performance of the Subsidiary Guaranty. No consent or authorization of, filing with or other act by or in respect of, any Governmental Instrumentality or any other Person is required to be obtained or made, as the case may be, by such Subsidiary Guarantor in connection with the Subsidiary Guaranty or with the execution, delivery, performance, validity or enforceability of the Subsidiary Guaranty by or against such Subsidiary Guarantor, except as has been obtained and remains in full force and effect on the date hereof. The Subsidiary Guaranty has been duly executed and delivered on behalf of each Subsidiary Guarantor. The Subsidiary Guaranty constitutes a legal, valid and binding obligation of each Subsidiary Guarantor enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). (f) The execution, delivery and performance of this Completion Guaranty by the Guarantors and the execution, delivery and performance by the Subsidiary Guarantors of the Subsidiary Guaranty will not (i) violate any Legal Requirement or contractual obligation of such Guarantor or Subsidiary Guarantor, (ii) result in, or require, the creation or imposition of any Lien on any of its properties or revenues pursuant to any such Legal Requirement or contractual obligation or (iii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree or ruling of any court, arbitrator or Governmental Instrumentality applicable to such Guarantor or Subsidiary Guarantor. 13 (g) Schedule 3 contains (except as noted therein) complete and correct lists of each of LCI's and ABH's Subsidiaries (other than Dormant Subsidiaries), showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by such Guarantor and each other Subsidiary of such Guarantor. All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 3 as being owned by such Guarantor and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by such Guarantor or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 3). Each Subsidiary identified in Schedule 3 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, assets, debt service capacity, property or financial condition, operations or prospects of such Subsidiary. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. No Subsidiary identified in Schedule 3 is a party to, or otherwise subject to any legal restriction or any agreement (other than this Completion Guaranty, the agreements listed on Schedule 3 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to its Guarantor parent or any of such Guarantor's Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. (h) Except as disclosed in Schedule 4 there are no actions, suits or proceedings pending or, to the knowledge of any Guarantor, threatened against or affecting such Guarantor or any Subsidiary or any property of such Guarantor or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Instrumentality that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither any Guarantor nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Instrumentality or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Instrumentality, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 14 (i) Except as disclosed in Schedule 3-A, each Guarantor and its Subsidiaries have filed all material tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the non-payment of which could not reasonably be expected to have a Material Adverse Effect or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which such Guarantor or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. Each Guarantor knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of each Guarantor and its Subsidiaries in respect of governmental or other taxes for all fiscal periods are adequate. (j) Each Guarantor and its Subsidiaries have adequate and appropriate insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance) to the extent this is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated, except where the failure to so maintain insurance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (k) Each of LCI, ABH and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in clause (a) hereof or purported to have been acquired by such Guarantor or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Completion Guaranty. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. (l) Except as disclosed in Schedule 5, (i) each Guarantor and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (ii) to the best knowledge of each Guarantor, no product or such Guarantor infringes in any material respect on any license, permit, franchise, 15 authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (iii) to the best knowledge of each Guarantor, there is no Material violation by any Person of any right of such Guarantor or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by such Guarantor or any of its Subsidiaries. (m) Except as described therein, Schedule 6 sets forth a complete and correct list of all outstanding Indebtedness of each of LCI and ABH and its Subsidiaries as of September 30, 1997, since which date there has been no Material changes in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of such Guarantor or its Subsidiaries. Neither any such Guarantor nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of such Guarantor or such Subsidiary and no event or condition exists with respect to any Indebtedness of any such Guarantor or any Subsidiary in an aggregate principal amount in excess of $1,500,000 that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. Except as disclosed in Schedule 6, neither any such Guarantor nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 14(a). (n) Neither any Guarantor nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, or the Federal Power Act, as amended. (o) Neither any Guarantor nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against such Guarantor or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. (p) Each Guarantor's ownership interest in the Borrower as of the date hereof is set forth on Schedule 7. (q) LCI has delivered to the Administrative Agent true, correct and complete copies of all material documents, instruments, opinions and certificates with respect to the Existing Senior Debt. 16 12. Affirmative Covenants. Until all of the Guaranteed Obligations have been indefeasibly paid and performed, each Guarantor agrees as follows: (a) LCI shall furnish to the Administrative Agent the documentation required to be delivered pursuant to Section 12.1(i) and (ii)(a), (b), (c), (d) and (e) of the LCI Facilities Agreement, or the comparable provisions of any facilities agreement executed in substitution of, or as a replacement of, the LCI Facilities Agreement. (b) (i) ABH shall furnish to the Administrative Agent: (A) as soon as available, but in any event within 120 days after the end of each fiscal year of such Guarantor, a copy of the consolidated and consolidating balance sheet of such Guarantor and its consolidated Subsidiaries as at the end of such year and the related consolidated and consolidating statements of earnings and stockholders' equity and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by an independent certified public accountants of nationally recognized standing; and (B) as soon as available, but in any event not later than 60 days after the end of each of the first three quarterly periods of each fiscal year of such Guarantor, (A) the unaudited consolidated and consolidating balance sheet of such Guarantor and its consolidated Subsidiaries as at the end of such quarter and in comparative form the figures for the end of the previous fiscal year, (B) the unaudited consolidated and consolidating statement of earnings of such Guarantor and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, and in comparative form the figures for the previous year and (C) the consolidated and consolidating statement of cash flows of such Guarantor and its consolidated Subsidiaries for the portion of the fiscal year through the end of such quarter, and in comparative form the figures for the previous year, certified by an Authorized Representative of such Guarantor as being fairly stated in all material respects when considered in relation to the consolidated and consolidating financial statements of such Guarantor and its consolidated Subsidiaries (subject to normal year-end audit adjustments); all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods 17 (except as approved by such accountants or officer, as the case may be, and disclosed therein). (ii) The Trust shall furnish the Administrative Agent with all financial information, certificates, reports, and disclosures that the Trust is providing to any other creditor in connection with the Main Project, the Mall Project, and/or the Music Project at such time as such information is made available to such creditor. (c) LCI shall furnish to the Administrative Agent, concurrently with the delivery of the financial statements described in clause (a) above, a certificate of an Authorized Representative of LCI showing in reasonable detail the calculations demonstrating compliance with Section 12(g) of this Completion Guaranty for the fiscal period ending on such date. Each Guarantor shall furnish to the Administrative Agent within thirty days after the same are sent, copies of all financial statements and reports which such Guarantor sends to its stockholders, and within thirty days after the same are filed, copies of all financial statements and reports which such Guarantor may make to, or file with, the LSE, the Securities and Exchange Commission or any successor or analogous Governmental Instrumentality. Each Guarantor shall furnish to the Administrative Agent with reasonable promptness, such additional financial and other information as the Administrative Agent, on behalf of any Lender, may from time to time reasonably request. (d) ABH and LCI shall keep true and correct books of records and account in conformity with GAAP and all Requirements of Law; and permit the Administrative Agent: (i) No Event of Default -- if no Event of Default then exists, at the expense of such Administrative Agent and upon reasonable prior notice to such Guarantor, to visit the principal executive office of such Guarantor and to discuss the affairs, finances and accounts of such Guarantor and its Subsidiaries with such Guarantor's officers, all at such reasonable times and as often as may be reasonably requested in writing; and (ii) Event of Default -- if an Event of Default then exists, at the expense of such Guarantor to visit and inspect any of the offices of properties of such Guarantor or any Subsidiary, to examine their respective books and records and to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants, all at such reasonable times and as often as may be requested. A Guarantor shall not be under any obligation under this Completion Guaranty to provide information pursuant to the last sentence of Section 12(c) or pursuant to 18 this Section 12(d) if (i) disclosure of such information, on the written advice of such Guarantor's counsel provided to such Guarantor, would be prohibited by law or by decree of any Governmental Instrumentality or arbitral body or by the terms of any obligation of confidentiality contained in any agreement binding upon such Guarantor and not entered into in contemplation of this Section 12(d) or (ii) such information relates to the identity or personal details of any of the customers or clients of LCI or any of its Subsidiaries. In addition, LCI shall not be under any obligation under this Completion Guaranty to provide information pursuant to the last sentence of Section 12(c) or pursuant to Section 12(d) if LCI has been advised in writing by an investment or merchant bank in London, that the requested disclosure to the Administrative Agent or any Lender would require LCI to make public disclosure of such information to comply with its continuing obligations under the rules of the LSE or would otherwise be prohibited by such rules. If the Administrative Agent shall contest such written advice from the investment or merchant bank by itself providing advice in writing to the contrary from an investment or merchant bank in London, then LCI will obtain advice in writing from a senior official of the LSE as to whether the requested disclosure would require LCI to make public disclosure of such information to comply with any of such obligations or would otherwise be prohibited as aforesaid. Before seeking such advice from the LSE (either directly or through its listing sponsor), LCI will consult with the Administrative Agent and submit to the LSE such factual submissions and other representations that the Administrative Agent may provide to LCI for such purpose. The written advice of such senior official shall be conclusive as to the disclosure in question. (e) Each of LCI and ABH shall promptly give notice to the Administrative Agent (which shall promptly transmit such notice to each Lender) of: (i) any breach by such Guarantor of any of the Guaranteed Obligations hereunder or with respect to Existing Senior Debt; (ii) any (a) default or event of default under any contractual obligation of such Guarantor or any of its Subsidiaries or (b) litigation, investigation or proceeding which may exist at any time between such Guarantor or any of its Subsidiaries and any Governmental Instrumentality, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (iii) any material litigation or proceeding affecting such Guarantor or any of its Subsidiaries; and 19 (iv) any development or other event which could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this clause (e) shall be accompanied by a statement of a Authorized Representative of such Guarantor setting forth details of the occurrence referred to therein and stating what action such Guarantor or any of its Subsidiaries propose to take with respect thereto. (f) Each of ABH and LCI shall, in the aggregate, continue to own, directly or through one or more wholly-owned Subsidiaries, free of any Lien other than Liens in favor of the Administrative Agent and the Lenders, the same aggregate percentage of the capital stock of the Borrower as set forth on Schedule 7 hereof, subject to adjustment as provided in clause (k) in the definition of "Change in Control" in the Credit Agreement. (g) LCI covenants and agrees that (i) the ratio of Group Operating Profit to Net Interest Payable in respect of each 12 month period ending on the last day of each financial year and financial half year of the Group shall not be less than 2.5:1; (ii) the ratio of Consolidated Net Borrowings to Consolidated Net Worth shall not at any time exceed 1.5:1; and (iii) Consolidated Net Worth shall at all times be greater than (pounds)95,000,000, and that the finance director of LCI for the time being shall certify compliance or, as the case may be, non-compliance by LCI and the Group with each of the provisions referred to in paragraphs (i), (ii) and (iii) above at the same time as LCI shall furnish to the Administrative Agent the financial statements referred to in Section 12(a) provided that following receipt of any such certificate the Administrative Agent may in its absolute discretion require LCI to instruct its auditors for the time being to certify compliance or, as the case may be, non-compliance by LCI and the Group with each of the provisions referred to in paragraphs (i), (ii) and (iii) above and further that in the event of any changes in any of the accounting principles and bases upon which any of such financial statements are prepared, the financial covenants set out in this sub-clause shall be adjusted or otherwise amended so as to ensure that or, as nearly as possible that, following such changes the obligations, limitations and restrictions contained in such covenants shall, mutatis mutandis, have the same effect as if such changes had not been made and that the Administrative Agent shall be provided with all appropriate information and details that it may request in connection with such adjustments or amendments. 20 (h) Each of ABH and LCI will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (i) Each Guarantor will and will cause each of its Subsidiaries to maintain, with institutions it reasonably believes to be financially sound insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or similar business and similarly situated. (j) Each Guarantor will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in reasonably good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent a Guarantor from discontinuing the operation and maintenance of or the liquidation of any Dormant Subsidiary and shall not prevent a Guarantor or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and such Guarantor has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (k) Each Guarantor will and will cause each of its Subsidiaries to file all material tax returns required to be filed in any jurisdiction and to pay and discharge all taxes, assessments, governmental charges, or levies shown to be due and payable on such returns and all other taxes imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of such Guarantor or any Subsidiary, provided that neither a Guarantor nor any Subsidiary need to pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by such Guarantor or such Subsidiary on a timely basis in good faith in appropriate proceedings and such Guarantor or a Subsidiary has established adequate reserves therefor in 21 accordance with GAAP on the books of such Guarantor or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. (l) Each Guarantor will at all times preserve and keep in full force and effect its corporate or other existence. Except as allowed under the Note Agreements, each of ABH and LCI will at all times preserve and keep in full force and effect the corporate or other existence of each of its Subsidiaries (other than Dormant Subsidiaries or unless merged into such Guarantor or a Subsidiary) and all licenses, consents, certificates and authorizations of such Guarantor and its Subsidiaries unless, in the good faith judgment of such Guarantor, the termination of or failure to preserve and keep in full force and effect such corporate or other existence, licenses, consents, certificates and authorizations could not, individually or in the aggregate, have a Material Adverse Effect. (m) Each Guarantor will, and will cause each of its Subsidiaries to, keep proper books of record and account in accordance with GAAP as applied in the jurisdiction of its incorporation as such Guarantor may deem appropriate from time to time. (n) Neither ABH or LCI nor any Subsidiary will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by such Guarantor and its Subsidiaries would be materially changed from the general nature of the business engaged in by such Guarantor and its Subsidiaries as of the date hereof. (o) Promptly upon the determination that any Subsidiary of LCI has become a Material Subsidiary, LCI shall cause such Subsidiary to execute and deliver a joinder agreement for the Subsidiary Guaranty pursuant to which such Subsidiary shall become a party thereto and Subsidiary Guarantor thereunder. (p) The Trust covenants and agrees that the Trust will maintain a minimum fair market value of assets less liabilities of $100,000,000. 13. Consequences of Specified Events. If at any time prior to the indefeasible payment and performance of the Guaranteed Obligations (each of the following, a "Specified Event"), (a) LCI shall at any time fail to comply with the covenants set forth in Sections 12(f), 12(g), 12(o) or 14 hereof and to the extent such non-compliance is capable of being cured, such non-compliance shall not have been cured within twenty-five (25) days; or (b) any borrowed money for a sum in excess of (pounds)2,500,000 or the equivalent thereof in any other currency of LCI or any Material Subsidiary shall by reason of breach 22 or default become due and payable prior to its stated maturity or due date therefor or if any such borrowed money is not paid at the maturity thereof or due date therefor (or within any originally stated applicable grace period therefor) or, if payable on demand, is not paid on demand; or (c) LCI or any Material Subsidiary becomes insolvent or applies for or consents to or suffers the appointment of a liquidator, receiver, administrative receiver, administrator, guardian, encumbrancer, trustee in bankruptcy or similar official of the whole or any substantial part of its respective assets, business, property, revenues or undertaking (other than in any of such cases (except for the appointment of any administrator) for the purposes of a solvent reconstruction or amalgamation the terms of which have previously been approved by the Required Lenders) LCI or any Material Subsidiary takes any proceedings under any law for adjustment, deferment or rescheduling of its Indebtedness or any part thereof or makes or enters or any proposal is made to make or enter into a general assignment or arrangement (including, without limitation, any voluntary arrangement under part I of the Insolvency Act 1986) or composition with or for the benefit of its creditors or a moratorium shall be declared on any of its Indebtedness or any part thereof or any creditor of LCI or any Material Subsidiary exercises a contractual right to take over the financial management of LCI or any Material Subsidiary or LCI or any Material Subsidiary is deemed or shall become unable to pay its debts as defined in Section 123 Insolvency Act 1986 or LCI or any Material Subsidiary fails generally to pay its debts as and when they fall due or if the equivalent of any of the foregoing shall occur in relation to LCI or any Material Subsidiary under the laws of any jurisdiction to which it or any of its rights, property or assets are subject; or (d) a petition is presented (but only if such petition remains undischarged 90 days after presentation thereof) or a meeting is convened or an order is made or resolution is passed for or other action or proceedings or steps are taken with a view to the appointment of an administrator, winding-up, liquidation or dissolution of LCI or any Material Subsidiary or if the equivalent of any of the foregoing shall occur in relation to LCI or any Material Subsidiary under the laws of any jurisdiction to which it or any of its rights, property or assets are subject (other than in any of such cases (except for the appointment of any administrator) for the purposes of the winding up of a dormant member of the Group or a solvent reconstruction or amalgamation, in each case the terms of which have previously been approved by the Required Lenders), or LCI or any Material Subsidiary stops or threatens to stop payments generally or ceases or threatens to cease to carry on its business or a substantial part thereof or LCI or any Material Subsidiary merges, consolidates or amalgamates with or into any other company, corporation or entity in a transaction not otherwise permitted under the Facilities Agreement; or 23 (e) a distress, execution or other legal process is levied against any of the assets of LCI or any Material Subsidiary and is not discharged or paid out within 90 days, except where such distress, execution or other legal process is in the reasonable opinion of the Required Lenders being contested in good faith by LCI or the relevant Material Subsidiary or any analogous proceedings shall be commenced against LCI or any Material Subsidiary or its assets under the laws of any other jurisdiction; or (f) an encumbrancer takes possession or a receiver or an administrative receiver is appointed of the whole or any substantial part of the assets or undertaking of LCI or any Material Subsidiary or any analogous action shall be taken against LCI or any Material Subsidiary or its assets or undertaking under the laws of any jurisdiction; then, not later than five (5) days after such Specified Event, at the option of the Required Lenders, the provisions of Section 17 shall apply. 14. Negative Covenants. At all times prior to indefeasible payment and performance of the Guaranteed Obligations by the Guarantors hereunder, (a) Each of ABH and LCI will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset except: (i) Liens securing Existing Senior Debt; (ii) any Lien arising by operation of law which secures amounts not more than 45 days overdue or, if so overdue, are being contested on a timely basis in good faith and in appropriate proceedings; (iii) any Lien imposed on a Guarantor or any of its Subsidiaries in relation to its purchase of goods, products or supplies in the ordinary course of business; (iv) any rights of set-off in the normal course of trading or of any bank or financial institution or combination of accounts arising in favor of such bank or financial institution as a result of the day-to-day operation of banking arrangements, including without limitation, rights of set-off granted to such bank or financial institution in respect of the issuance of letters of credit, or as a result of any currency or interest rate hedging operations carried out in the ordinary course of business, in each case, provided that there is no agreement to confer a security interest; 24 (v) statutory Liens of landlords, Liens over goods or documents of title arising in the ordinary course of documentary credit transactions and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case, incurred in the ordinary course of business; (vi) Liens for taxes, assessments or other governmental charges which are not yet due and payable or the payment of which is not at the time required by Note Agreements; (vii) Liens incurred or deposits made in the ordinary course of business (A) in connection with workers' compensation, unemployment insurance and other types of social security or retirement benefits, or (B) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than capital leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; (viii)leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of business of a Guarantor and its Subsidiaries, provided that such Liens do not, in the aggregate, materially detract from the value of such property; (ix) any Lien renewing, extending or refunding any Lien permitted by clause (i), provided that (A) the principal amount of Indebtedness secured by such Lien immediately prior to such extension, renewal or refunding is not increased or the maturity thereof reduced, (B) such Lien is not extended to any other property and (C) immediately after such extension, renewal or refunding no Specified Event would exist; (x) any Lien securing the obligations of LCI under the Credit Facility and the obligations of any Subsidiary Guarantor under any Subsidiary Guarantee; (xi) any Lien not otherwise permitted by clauses (i) through (x) above, provided that on the date any Indebtedness secured by any such Lien, is created, incurred, assumed or guaranteed by such Guarantor or any Subsidiary, and immediately after giving effect thereto and to the concurrent retirement of any other Indebtedness, the sum of (A) the aggregate principal amount of all Indebtedness secured by Liens pursuant to this clause (xi) plus (B) all unsecured Indebtedness of such Guarantor and its Subsidiaries (excluding any unsecured Existing Senior Debt) that is 25 senior in any respect in right of payment to the obligations of such Guarantor hereunder, does not exceed 25% of the Consolidated Tangible Assets of such Guarantor as of such date; and (xii) any Lien set forth on Schedule 3, in the case of ABH. (b) Each of ABH and LCI will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any secured or unsecured Indebtedness (excluding (A) any Indebtedness secured by Liens pursuant to clauses (i) through (x) of Section 14(a) hereof and (B) any unsecured Existing Senior Debt but including an Indebtedness secured by Liens pursuant to clause (xi) of Section 14(a) hereof) if the aggregate amount of all such Indebtedness described in this clause (b) would exceed 25% of the Consolidated Tangible Assets of such Guarantor as of such date. (c) In the case of ABH only, declare, pay or make any dividend or distribution (in cash, property or obligations) on any shares of any class of interests (now or hereafter outstanding) of such Sponsor or on any warrants, options or other rights with respect to any class of interests (now or hereafter outstanding) of such Sponsor (other than dividends or distributions payable in its common interests or warrants to purchase its common interests or splitups or reclassifications of its interests into additional or other interests) or apply, or permit any of its Subsidiaries to apply, any of its funds, property or assets to the purchase, redemption, sinking fund or other retirement of, or agree or permit any of its Subsidiaries to purchase or redeem, any shares of any class of interests (now or hereafter outstanding) of such Sponsor, or warrants, options or other rights with respect to any shares of any class of interests (now or hereafter outstanding) of such Sponsor. 15. Payments Free and Clear of Taxes, etc. Each Guarantor hereby agrees that: (a) All payments by such Guarantor hereunder to the Borrower or to a Lender shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Lender's net income or receipts (such non-excluded items being called "Taxes"). In the event that any withholding or deduction from any payment to be made by a Guarantor hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then such Guarantor will (i) pay directly to the relevant authority the full amount required to be so withheld or deducted; 26 (ii) promptly forward to the Borrower or such Lender an official receipt or other documentation satisfactory to the Borrower or such Lender evidencing such payment to such authority; and (iii) pay to the Borrower or such Lender such additional amount or amounts ("Additional Amounts") as is necessary to ensure that the net amount actually received by the Borrower or such Lender will equal the full amount the Borrower or such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Borrower or any such Lender with respect to any payment received by the Borrower or such Lender hereunder, the Borrower or such Lender may pay such Taxes and the Guarantor will promptly pay such Additional Amounts (including any penalties, interest or expenses ) as is necessary in order that the net amount received by the Borrower or such Lender after the payment of such Taxes (including any Taxes on such Additional Amounts) shall equal the amount the Borrower or such Lender would have received had not such Taxes been asserted. Upon the request of any Guarantor, each Lender that is organized under the laws of a jurisdiction other than the United States or a State thereof (for purposes of this paragraph (k), a "Non-U.S. Lender") shall, prior to the date on which any payment is made hereunder (or in the case of a Lender that becomes a party to the Credit Agreement pursuant to Section 4.11 of the Credit Agreement or any Assignee Lender, before it becomes a party hereto) (i) execute and deliver to each Guarantor and the Administrative Agent one or more (as the Guarantors or the Administrative Agent may reasonably request) United States Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or documents (or successor forms or documents), appropriately completed, certifying in each case that such Lender or Assignee Lender is entitled to receive payments under this Completion Guaranty without deduction or withholding of any United States federal income taxes, and an applicable Internal Revenue Service Form W-8 or Form W-9 or successor applicable form (if required by law), as the case may be, to establish an exemption from United States backup withholding tax or (ii) if such Non-U.S. Lender is not a "bank" or other person described in Section 881 (c) (3) of the Code and cannot deliver either Form 4224 or Form 1001 pursuant to clause (a) above, execute and deliver to each Guarantor and the Administrative Agent one or more (as the Guarantors or the Administrative Agent may reasonably request) copies of the Tax Certificate, Form W-8 (or any successor form) and any other certificate or statement of exemption required under the Code or Treasury Regulations issued thereunder, appropriately completed, certifying that such Lender or Assignee Lender is entitled to receive payments under this Completion Guaranty without deduction or withholding of United States federal 27 income tax and establishing an exemption from United States backup withholding tax. All Lenders other than Non-U.S. Lenders shall, prior to the date on which any payment is made hereunder (or in the case of a Lender that becomes a party to the Credit Agreement pursuant to Section 4.11 of the Credit Agreement or is an Assignee Lender, before such Lender becomes a party hereto) execute and deliver to the Borrower and the Administrative Agent one or more copies (as the Borrower or Administrative Agent may reasonably request) of United States Internal Revenue Form W-9 or successor applicable form (if required by law), as the case may be, to establish exemption from United States backup withholding tax. Each Lender which undertakes to deliver to the Guarantors or the Administrative Agent a Tax Certificate, a Form 4224, Form 1001, Form W-8 or Form W-9 pursuant to the preceding paragraph shall further undertake to deliver to the Guarantors and the Administrative Agent two further copies of said Tax Certificate, Form 4224, Form 1001, Form W-8 or Form W-9 (if required by law), or successor applicable forms, or other manner of certification, as the case may be, on or before the date that such form expires or becomes obsolete or after the occurrence of an event requiring a change in the most recent form delivered by it to the Guarantors and the Administrative Agent, and such extensions or renewals thereof as may be reasonably requested by the Guarantors or Administrative Agent, certifying in the case of a Tax Certificate, Form 4224 or Form 1001 that such Lender is entitled to receive payments under this Completion Guaranty without deduction or withholding of any United States federal income taxes, unless in any case an event (including any change in treaty, law or regulation) has occurred prior to the date on which such delivery would otherwise be required which renders all forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Guarantors and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or Form W-9, establishing an exemption from backup withholding. (b) If the Guarantor fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Borrower or any Lender the required receipts or other required documentary evidence, the Guarantor shall indemnify the Borrower or such Lender for any incremental Taxes, interest or penalties that may become payable by the Borrower or such Lender as a result of any such failure. (c) In the event that an Additional Amount is paid by a Guarantor for the account of any Lender and such Lender is entitled to a refund of the Tax (a "Tax Refund") to which such payment is attributable, then such Lender shall take all reasonable steps which are necessary to obtain such Tax Refund, including filings such 28 forms, certificates, documents, applications or returns as may be required to obtain such Tax Refund. If such Lender subsequently receives such a Tax Refund, and such Lender is readily able to identify the Tax Refund as being attributable to the Tax with respect to which the Additional Amount was made, then such Lender shall reimburse such Guarantor such amount as such Lender shall determine acting in good faith to be the proportion of the Tax Refund, together with any interest received thereon, attributable to such Additional Amount as will leave such Lender after the reimbursement (including such interest) in no better or worse position than it would have been if the Additional Amount had not been required. (d) Without prejudice to the survival of any other agreement of the Guarantors hereunder, the agreements and obligations of the Guarantors contained in this Section 15 shall survive the payment in full of the principal of and interest on the Loans. 16. Judgment. Each Guarantor hereby agrees that: (a) If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder in United States Dollars into another currency, such Guarantor agrees, to the fullest extent permitted by law, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase United States Dollars with such other currency on the Business Day preceding that on which final judgment is given. (b) The obligation of each Guarantor in respect of any sum due from it to any Lender hereunder shall, notwithstanding any judgment in a currency other than United States Dollars, be discharged only to the extent that on the Business Day following receipt by such Lender of any sum adjudged to be so due in such other currency such Lender may, in accordance with normal banking procedures, purchase United States Dollars with such other currency; in the event that the United States Dollars so purchased are less that the sum originally due to such Lender in United States Dollars, the Guarantor, as a separate obligation and notwithstanding any such judgment, shall indemnify and hold harmless such Lender and such holder against such loss, and if the United States Dollars so purchased exceed the sum originally due to such Lender in United States Dollars, such Lender shall remit to such Guarantor such excess. 17. Breaches by Any Guarantor. If, at any time prior to the indefeasible payment and performance of the Guaranteed Obligations by the Guarantors hereunder, any of the Guarantors breaches the Guaranteed Obligations (after the expiration of applicable grace, notice and/or cure periods), then, at the option of the Required Lenders, an Event of Default shall exist under this Completion Guaranty and the other Loan Documents and 29 the Lenders, without any further notice to any of the Guarantors or any other Person, shall be entitled to exercise all rights and remedies available hereunder, under the other Loan Documents and at law and equity; provided, however, the Lenders may, at their option, commence collection proceedings against one or more of the Guarantors without declaring an Event of Default under the other Loan Documents. 18. Miscellaneous Provisions. (a) This Completion Guaranty is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. (b) This Completion Guaranty shall be binding upon the Guarantors and their permitted successors, transferees and assigns and shall inure to the benefit of and be enforceable by the Administrative Agent and each Lender and their respective successors, transferees and assigns; provided, however, that the Guarantors may not assign any of their Guaranteed Obligations hereunder without the prior written consent of the Required Lenders. (c) No amendment to or waiver of any provision of this Completion Guaranty, nor consent to any departure by any Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (d) All notices and other communications provided to any party hereto under this Completion Guaranty shall be in writing and addressed, delivered or transmitted to such party at its address or facsimile number set forth below or at such other address or facsimile number as may be designated by such party in a notice to the other parties. All such notices and communications shall be deemed to have been properly given if (x) hand delivered with receipt acknowledged by the recipient; (y) if mailed, upon the fifth Business Day after the date on which it is deposited in registered or certified mail, postage prepaid, return receipt requested or (z) if by Federal Express or other nationally-recognized express courier service with instructions to deliver on the following Business Day, on the next Business Day after delivery to such express courier service. Notices and other communications may also be properly given by facsimile but shall be deemed to be received upon automatic facsimile confirmation of receipt thereof by the intended recipient machine therefor with the original of such notice or communication to be given in the manner provided in the second sentence of this Section; provided, however, that the failure to deliver a copy in accordance with the second sentence of this paragraph (d) shall not invalidate the effectiveness of such facsimile notice. The address information for the parties is set forth below: 30 If to the Administrative Agent: The Bank of Nova Scotia 580 California Street, 21st Floor San Francisco, CA 94104 Attn: Alan W. Pendergast Telephone No(415) 986-1100 Facsimile No(415) 397-0791 If to the Trust: c/o Aladdin Holdings 280 Park Avenue 38th Floor New York, New York 10017 Attn: Ronald Dictrow Telephone No(212) 661-0700 Facsimile No(212) 661-0844 If to ABH: Aladdin Bazaar Holdings, LLC 831 Pilot Road Las Vegas, Nevada 89119 Attn: Jack Sommer Telephone No(702) 736-7114 Facsimile No(702) 736-7107 If to LCI: London Clubs International, plc 10 Brick Street London W1Y 8HO, England Attn: Linda M. Lillis Telephone No011-44-171-518-0000 Facsimile No011-44-171-493-6981 with a copy to: Ohrenstein & Brown, LLP 230 Park Avenue New York, New York 10169 Attn: Peter J. Kiernan, Esq. Telephone No(212)- 682-4500 Facsimile No(212)- 557-0910 and: Lionel, Sawyer & Collins 300 South 4th Street Suite 1700 Las Vegas, Nevada 89101 Attn: Greg Giordano, Esq. Telephone No(702)-383-8888 Facsimile No(702)-383-8845 31 (e) No failure on the part of the Administrative Agent or any Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. (f) Section captions used in this Completion Guaranty are for convenience of reference only, and shall not affect the construction of this Completion Guaranty. (g) Wherever possible each provision of this Completion Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Completion Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Completion Guaranty. (h) THIS COMPLETION GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. THIS COMPLETION GUARANTY AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR COMPLETION GUARANTIES, WRITTEN OR ORAL, WITH RESPECT HERETO. (i) ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS COMPLETION GUARANTY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, THE LENDERS OR THE GUARANTORS SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK IN THE CITY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PROPERTY MAY BE FOUND. THE GUARANTORS HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND 32 IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE GUARANTORS HEREBY IRREVOCABLY APPOINT CT CORPORATION SYSTEM (THE "PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, UNITED STATES, AS THEIR AGENT TO RECEIVE, ON THE GUARANTORS' BEHALF AND ON BEHALF OF THE GUARANTORS' PROPERTY, SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO THE GUARANTORS IN CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND THE GUARANTORS HEREBY IRREVOCABLY AUTHORIZE AND DIRECT THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON THEIR BEHALF. AS AN ALTERNATIVE METHOD OF SERVICE, THE GUARANTORS FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE GUARANTORS HEREBY EXPRESSLY AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE GUARANTORS HAVE OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO THEMSELVES OR THEIR PROPERTY, THE GUARANTORS HEREBY IRREVOCABLY WAIVE SUCH IMMUNITY IN RESPECT OF THE GUARANTEED OBLIGATIONS UNDER THIS COMPLETION GUARANTY AND THE OTHER LOAN DOCUMENTS. (j) THE GUARANTORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS COMPLETION GUARANTY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT OR THE 33 LENDERS OR THE GUARANTORS. THE GUARANTORS ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS ENTERING INTO THE CREDIT AGREEMENT. 34 IN WITNESS WHEREOF, the Guarantors have caused this Completion Guaranty to be duly executed and delivered by their officers thereunto duly authorized as of the date first above written. ALADDIN BAZAAR HOLDINGS, LLC By: /s/ Ron Dictrow ------------------------------ Ron Dictrow Title: Secretary, Treasurer Address: 280 Park Avenue New York, N.Y.10017 Attention: Ronald Dictrow Telecopy: 212-661-0844 THE TRUST UNDER ARTICLE SIXTH UNDER THE WILL OF SIGMUND SOMMER By: /s/ Viola Sommer ------------------------------ Viola Sommer Title: Trustee Address: 280 Park Avenue New York, N.Y. 10017 Attention: Ronald Dictrow Telecopy: 212-661-0844 By: /s/ Eugene Landsberg ------------------------------ Eugene Landsberg Title: Trustee Address: 280 Park Avenue New York, N.Y. 10017 Attention: Ronald Dictrow Telecopy: 212-661-0844 LONDON CLUBS INTERNATIONAL PLC By: /s/ G. Barry Hardy ------------------------------ G. Barry Hardy Title: Finance Director Address: 10 Brick Street London W1Y 8HQ England Attention: G. Barry Hardy Telecopy: 011-44-171-518-0174 35 SCHEDULE 1 Additional Defined Terms "Cash and Cash Equivalents" means: (a) cash in hand or at a bank and beneficially owned by LCI or a Subsidiary of LCI; (b) Sterling or Dollar denominated commercial paper maturing not more than nine months from the date of issue and rated A-1 or better by Standard & Poor's Corporation or P-1 or better by Moody's Investors Service, Inc.; (c) any deposit with, or acceptance maturing not more than one year after issue, accepted by, an authorized institution or an exempted institution within the meaning of the Banking Act 1987 which has a combined capital and surplus and undistributable profits of not less than (pounds)100,000,000 or by any bank, either of which shall have a long-term debt rating of A- or better by Standard & Poor's Corporation or A3 or better by Moody's Investors Service, Inc.; (d) Sterling or Dollar denominated debt securities having not more than one year until final maturity and listed on a recognized stock exchange or in respect of which there is an active trading market in London and rated at least Aa by Moody's Investors Service, Inc. or at least AA by Standard and Poor's Corporation; (e) direct obligations of the United States of America or any agency or instrumentality of the United States of America, the payment or guarantee of which constitutes a full faith and credit obligation of the United States of America, in each case maturing twelve months or less from the date of acquisition thereof; (f) gilt-edge securities issued directly, or unconditionally guaranteed, by the United Kingdom Treasury, in each case maturing twelve months or less from the date of acquisition thereof, legally and beneficially owned, free of Liens and freely accessible by LCI or any Subsidiary; or (g) short-term liquid debt securities which for the time being are rated at least AAA by Standard & Poor's Corporation or an equivalent rating by any other reputable, rating agency. "Consolidated Net Borrowings" means the aggregate outstanding principal amount of Indebtedness of the Group less Cash and Cash Equivalents. "Consolidated Net Worth" means, the aggregate of the amounts paid-up or credited as paid-up on LCI's issued share capital and the amount of the consolidated capital and revenue reserves of the Group (including, without limitation, any share premium account, merger reserve, capital redemption reserve, revaluation reserve and retained earnings) and any credit balance on LCI's consolidated profit and loss account all as shown by the latest consolidated financial statements of LCI delivered or to be delivered pursuant to this Completion Guaranty from time to time but after: (i) deducting any debit balance on such consolidated profit and loss account; (ii) deducting the net book value of all assets, after deducting any reserves applicable thereto, which would be treated as intangible under GAAP (excluding amounts attributable to acquisition goodwill, trademarks, trade names, service marks, brand names, copyrights, patents and similar property); (iii) deducting any amounts distributed or proposed to be distributed (other than to LCI or any other member of the Group) out of the profits accrued prior to the date of such financial statements to the extent that such distribution is not provided for therein; (iv) deducting all amounts attributable to minority interests, if any, in Subsidiaries of LCI; (v) excluding any sums set aside or otherwise reserved or provided for taxation; (vi) adding back any diminution due to the writing off or amortization of acquisition goodwill or the debiting of acquisition goodwill to any reserve; and (vii) making such adjustments to reflect any variations which shall have occurred since the date of such financial statements: (a) in the amounts paid up or credited as paid up on the issued share capital of LCI and the consolidated capital and revenue reserves of the Group; (b) to reflect any changes in generally accepted accounting principles and bases and the application of standards and practices since then as may be appropriate in the opinion of the auditors for the time being of LCI; and (c) in the interest of LCI in any other member of the Group. 2 "Group" means LCI and its subsidiaries. "Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation, (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof; provided that, the obligations of LCI under the Keep-Well Agreement to pay the Accelerated Payment Amount shall be treated at any time as a Guaranty of Indebtedness of the Borrower in an amount equal to 25% of the Accelerated Payment Amount at such time. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "Group Operating Profit" means, in respect of any period of the Group, (a) the consolidated profit of the Group for such period before crediting or deducting amounts attributable to extraordinary and exceptional items, all as determined in accordance with GAAP, plus (to the extent deducted in determining such consolidated profits), (b) all provisions for Taxes and (c) Net Interest Payable; in each case as determined from the relevant consolidated financial statements of LCI delivered or to be delivered pursuant to this Completion Guaranty for such period. "Indebtedness" with respect to any Person means, at any time, without duplication, 3 (a) its liabilities for borrowed money (excluding accounts payable in the ordinary course of business) and its redemption obligations upon and following the date of redemption in respect of mandatorily redeemable Preferred Stock; (b) its liabilities pursuant to any note purchase facility or the issue of bonds, notes, debentures, commercial paper, loan stock or similar instruments; (c) all actual (as opposed to contingent) reimbursement obligations (other than accounts payable in the ordinary course of business) in respect of any acceptance or documentary credit facilities; (d) its liabilities for the deferred purchase price of property, assets or services acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property, assets or services); (e) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases; (f) its liabilities in respect of the principal amount of any receivables sold or discounted to a third party to the extent of recourse to such Person or any of its Subsidiaries; (g) Swaps of such Person; and (h) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (h) hereof. Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (h) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "Subsidiary" means, as to any particular parent corporation, any corporation of which more than 50% (by number of votes) of the Voting Shares shall be owned, directly or indirectly, by such parent corporation; provided, however, that notwithstanding the foregoing, the term subsidiary shall, in any event, include any company or legal entity which is a "subsidiary" as defined in Section 736 of the Companies Act 1985, as amended by Section 144 of the Companies Act 1989, or as detailed in analogous legislation. "Swaps" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Completion Guaranty, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such 4 Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. "Taxes" means all present or future taxes, levies, imposts, duties, fees, assessments, deductions, withholdings or other governmental charges of any nature whatsoever and any liabilities with respect thereto, including any surcharge, penalties, additions to tax, fines or interest thereon, now or hereafter imposed, levied, collected withheld or assessed by any jurisdiction or by any political subdivision or taxing authority thereof or therein. 5 SCHEDULE 2 MATERIAL SUBSIDIARIES LONDON CLUBS HOLDINGS LIMITED LES AMBASSADEURS CLUB LIMITED RENDEZVOUS CLUB (LONDON) LIMITED PALM BEACH CLUB LIMITED SIX HAMILTON PLACE LIMITED BURLINGTON STREET SERVICES LIMITED ZEALCASTLE LIMITED CORBY LEISURE RETAIL DEVELOPMENTS LIMITED UNITLAW TRADING LIMITED LONDON PARK TOWER CLUB LIMITED PUBLICACE LIMITED LOMASBOND PROPERTIES LIMITED LONDON CLUBS (OVERSEAS) LIMITED DECBURY LIMITED GOLDEN NUGGET CLUB LIMITED LONDON CLUBS MANAGEMENT LIMITED THE SPORTSMAN CLUB LIMITED RITZ CLUB (LONDON) LIMITED SCHEDULE 3-A TAX LIABILITIES With respect to the Trust, none other than potential tax liability that may result from liabilities to which the Site is subject exceeding the tax basis of the Site. SCHEDULE 3 SUBSIDIARIES (other than Dormant Subsidiaries) ABH's Subsidiaries Name: Aladdin Bazaar, LLC State of Organization: Delaware ABH Ownership: 50% member In connection with the development of the Mall Project by Aladdin Bazaar, LLC ("Aladdin Bazaar"), if a guaranty, letter of credit or other form of credit enhancement is required to be obtained by the Trust or ABH in order to insure Aladdin Bazaar or any of its members that the Hotel/Casino will be completed and opened successfully, ABH will be permitted to convey up to 50% of its interest in Aladdin Bazaar to CS First Boston or any other institutional investor and pledge any of its remaining interest in Aladdin Bazaar to CS First Boston or to such other institutional investor providing financing for the development of the Mall Project. Furthermore, the Trust shall be entitled to pledge its membership interest in ABH to either or both of CS First Boston or such other institutional investor in connection with the financing of the Mall Project. London Clubs' Subsidiaries See attachment. SCHEDULE 4 LITIGATION Aronow, et al. v. Sommer, et al., Index No. 112618/95 (New York Sup. Ct.) Kanbar, et al. v. Aronow, et al., Index No. 600301/97 (New York Sup. Ct.) Sommer, et al. v. PMEC Associates and Co., et al., No. 88 Civ. 2537 (S.D.N.Y.) SCHEDULE 5 LICENSES, PERMITS, ETC. ABH See attachment. SCHEDULE 6 EXISTING INDEBTEDNESS Trust None. ABH and/or its Subsidiaries $30,000,000 contingent liability (see Schedule 3) London Clubs and/or its Subsidiaries See attachment. SCHEDULE 7 OWNERSHIP OF BORROWER Aladdin Bazaar Holdings, LLC Aladdin Bazaar Holdings, LLC has no ownership interest in Borrower. The Trust The Trust owns an indirect interest in Borrower through its ownership interests in the following entities: o The Trust owns a 95% membership interest in Aladdin Holdings, LLC (AHL). o AHL owns a 98.7% membership interest in Sommer Enterprises, LLC (Sommer Enterprises). o Sommer Enterprises owns a 47% membership interest in Aladdin Gaming Holdings, LLC (Holdings) and a 100% membership interest in Aladdin Gaming Enterprises, Inc. (Enterprises). Enterprises owns a 25% membership interest in Holdings. o Holdings owns 100% of the common membership interest and 100% of the Series A Preferred membership interest in the Borrower. LCI See chart attached hereto. Exhibit C To Credit Agreement GUARANTY OF PERFORMANCE AND COMPLETION THIS GUARANTY OF PERFORMANCE AND COMPLETION (this "Completion Guaranty"), dated as of February 26, 1998 is made by LONDON CLUBS INTERNATIONAL PLC, a company registered in England and Wales under company number 2862479 ("LCI"), THE TRUST UNDER ARTICLE SIXTH UNDER THE WILL OF SIGMUND SOMMER (the "Trust") and ALADDIN BAZAAR HOLDINGS, LLC, a Nevada limited liability company ("ABH"; ABH, the Trust and LCI are individually called a "Guarantor" and collectively called the "Guarantors"), in favor of each of the Administrative Agent and the Lenders and their respective successors, transferees and assigns. W I T N E S S E T H: WHEREAS, pursuant to a Credit Agreement, dated as of even date herewith (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among Aladdin Gaming, LLC, a Nevada limited liability company (the "Borrower"), the various lending institutions (individually a "Lender" and collectively the "Lenders") as are, or may from time to time become, parties thereto and The Bank of Nova Scotia as administrative agent (together with any successor(s) thereto in such capacity, the "Administrative Agent") for the Lenders, Merrill Lynch Capital Corporation as the syndication agent (together with any successor thereto in such capacity, the "Syndication Agent") and CIBC Oppenheimer Corp. as the documentation agent (together with any successor thereto in such capacity, the "Documentation Agent"), the Lenders have extended Commitments to make Loans to the Borrower and to issue Letters of Credit for the account of the Borrower; and WHEREAS, as a condition precedent to the effectiveness of the Credit Agreement, the Guarantors are required to execute and deliver this Completion Guaranty and certain subsidiaries of LCI (the "Subsidiary Guarantors") have agreed to fully and unconditionally guarantee the payment of LCI's obligations under this Completion Guaranty pursuant to a guaranty agreement of even date herewith (the "Subsidiary Guaranty"); and WHEREAS, the Guarantors have duly authorized the execution, delivery and performance of this Completion Guaranty and the Subsidiary Guarantors have duly authorized the execution, delivery and performance of the Subsidiary Guaranty; and WHEREAS, it is in the best interests of the Guarantors to execute this Completion Guaranty and the Subsidiary Guarantors to execute the Subsidiary Guaranty inasmuch as the Guarantors and the Subsidiary Guarantors will derive substantial direct and indirect benefits from the Loans made to the Borrower by the Lenders pursuant to the Credit Agreement and the Letters of Credit issued for the account of the Borrower under the Credit Agreement. NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and in order to induce the Lenders to make Loans to the Borrower and to issue Letters of Credit for the account of the Borrower pursuant to the Credit Agreement, the Guarantors agree, for the benefit of the Administrative Agent, the Syndication Agent and each Lender, as follows: 1. Definitions. Terms defined in the Credit Agreement and not otherwise defined in this Completion Guaranty shall have the meanings ascribed to them in the Credit Agreement. For the purposes of Section 12(g) and Section 13 hereof, the terms set forth on Schedule 1 hereto shall have the meanings ascribed thereto on such Schedule. As used in this Completion Guaranty, the following terms shall have the meanings respectively set forth after each: "Accelerated Payment Amount" shall have the meaning ascribed to such term in the Keep-Well Agreement. "Advance" shall have the meaning ascribed to such term in the Disbursement Agreement. "Bankruptcy Code" shall mean Title 11 of the United States Code as amended from time to time. "Cash Equity Contributions" shall mean cash contributions by the Guarantors to the Borrower in exchange for preferred interests of Holdings. "Consolidated Intangibles": at a particular date, all assets of a Guarantor and its consolidated Subsidiaries, determined on a consolidated basis, that would, in conformity with GAAP, be classified as intangible assets, including, without limitation, unamortized debt discount and expense, unamortized organization and reorganization expense, costs in excess of the fair market value of acquired companies, patents, trade or service marks, franchises, trade names, goodwill and, from and after June 30, 1997, the amount of all write-ups in the book value of assets resulting from any revaluation thereof. "Consolidated Tangible Assets": at a particular date, the amount equal to (a) the amount which would be included as assets on the consolidated balance sheet of a Guarantor and its consolidated Subsidiaries as at such date in accordance with GAAP minus (b) Consolidated Intangibles. "Dormant Subsidiary" means any Subsidiary of a Guarantor which has no operating assets or property and conducts no business. 2 "Enforcement Costs" means all reasonable out-of-pocket costs and expenses of the Lenders in connection with the enforcement of the rights and remedies of the Lenders under this Completion Guaranty and any amendment, waiver or consent relating hereto including, without limitation, reasonable attorneys' fees and costs and expenses, court costs and filing fees in addition to all other amounts due hereunder whether or not such Enforcement Costs are incurred in one or more proceedings. "Existing Senior Debt" shall mean all principal, premium (if any), interest and other amounts owing from time to time under (i) the Note Agreements and (ii) the Facilities Agreement, in either case as amended, supplemented or refinanced, from time to time, provided that the aggregate principal amount of the Note Agreements and the Facilities Agreement shall not be greater than the sum of (A) the maximum aggregate principal amount which could be outstanding under the Facilities Agreement and the Note Agreements in accordance with their terms as at the date hereof plus (B) 25% of Consolidated Net Assets of LCI; provided further, that the aggregate principal amount of the Existing Senior Debt in excess of the maximum aggregate principal amount which could be outstanding under the Facilities Agreement and the Note Agreements in accordance with their terms as at the date hereof shall be excluded from the parenthetical phrase of Section 14(b) hereof. "Facilities Agreement" shall mean that certain L65,000,000 Facilities Agreement (originally dated 24th May 1994 as amended and restated) among, inter alia, LCI, various banks and National Westminster PLC (the predecessor-in-interest to The Bank of Nova Scotia) as arranger and agent, as in effect on the date hereof and as the same may be modified by amendments that would not, in the aggregate, have the effect of making LCI's obligations thereunder materially more onerous (it being understood and agreed that any amendment, supplement or modification (i) that increases the amount of the obligations of LCI thereunder, (ii) that would permit the lenders thereunder to declare a default if LCI made any Cash Equity Contribution required of the Guarantors hereunder or (iii) that would permit the lenders thereunder to declare a default if LCI made net payments (net of all reimbursements from the other Guarantors) of not more than 25% of any Accelerated Payment Amount required of the Sponsors under the Keep-Well Agreement, shall be deemed material). "GAAP" shall mean the generally accepted accounting principles as in effect from time to time in the United Kingdom with respect to LCI and in the United States with respect to the other Guarantors, as the case may be. "Guaranteed Obligations" means the obligations of the Guarantors under Section 2 of this Completion Guaranty. "Insolvency Proceeding" shall mean any case or proceeding, voluntary or involuntary, under the Bankruptcy Code, or any similar existing or future law of any jurisdiction, 3 foreign, state or federal, relating to bankruptcy, insolvency, reorganization or relief of debtors. "Leases" means, collectively, all agreements relating to the use, occupancy and possession of space with respect to the Main Project entered into by the Borrower and a tenant. "LSE" means the London Stock Exchange Limited. "Material" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of a Guarantor and its Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, operations, affairs, financial conditions, assets or properties of a Guarantor and its Subsidiaries taken as a whole, or (b) the ability of a Guarantor to perform its Guaranteed Obligations or (c) the validity or enforceability of this Completion Guaranty. "Material Subsidiary" shall mean each of the Subsidiaries of LCI that are party to that certain Subsidiary Guaranty dated as of June 30, 1997 guaranteeing the obligations of LCI under the Note Agreements. Each Material Subsidiary of LCI as of the date hereof is listed on Schedule 2 hereof. "Note Agreements" shall mean the several identical Note Purchase Agreements dated as of June 30, 1997 among LCI and the purchasers named therein relating to LCI's $50,000,000 aggregate principal amount of 7.74% Guaranteed Senior Notes due 2004 and as the same may be modified by amendments that would not, in the aggregate, have the effect of making LCI's obligations thereunder materially more onerous (it being understood and agreed that any amendment, supplement or modification (i) that increases the amount of the obligations of LCI thereunder, (ii) that would permit the lenders thereunder to declare a default if LCI made any Cash Equity Contribution required of the Guarantors hereunder or (iii) that would permit the lenders thereunder to declare a default if LCI made net payments (net of all reimbursements from the other Guarantors) of not more than 25% of any Accelerated Payment Amount required of the Sponsors under the Keep-Well Agreement, shall be deemed material). "Wholly-Owned Subsidiary" shall mean, at any time, any Subsidiary one hundred percent (100%) of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Guarantors and such Guarantor's Wholly-Owned Subsidiaries at such time. 4 2. Guaranty of Completion and Performance. The Guarantors, jointly and severally, absolutely, unconditionally and irrevocably, on the terms and subject to the conditions set forth herein, guarantee to the Lenders: (i) that the Borrower shall (A) prosecute the Work and the construction of the Main Project to Final Completion with due diligence and continuity, in an expeditious and first-class workmanlike manner, (B) cause the Work and the construction of the Main Project to be performed and the Main Project to be constructed, equipped and completed in compliance with the Plans and Specifications in all material respects and in compliance in all material respects with the provisions of the Loan Documents, the other Operative Agreements, all Environmental Laws and all Legal Requirements, and (C) correct or cause to be corrected as soon as possible any material defect in the Main Project and the Work (including, without limitation, any material defect in workmanship or quality of construction or materials) or any material departure or variation from the Final Plans and Specifications not made pursuant to Change Orders approved in writing by the Administrative Agent, the Construction Consultant, the Architect of Record and any of the Governmental Instrumentalities whose approval is required; and (ii) that the Borrower shall punctually pay and discharge (A) any and all costs, expenses and liabilities incurred by the Borrower for or in connection with the Final Completion of the Work and the Main Project, (B) all claims and demands for labor, materials and services incurred by the Borrower for or in connection with the Final Completion of the Work and the Main Project which are or may become due and payable, or, if unpaid, are or may become Liens on the Site or any portion thereof owned by the Borrower, (C) all payments to be made for work to be performed by the Borrower under Leases or under the Operative Documents for Tenant Improvements, (D) Impositions and premiums for the insurance required by the Loan Documents prior to the Conversion Date, (E) all interest accruing on the Bank Credit Facility during construction and prior to the Final Completion of the Work and the Main Project, and (F) the obligations of the Borrower to keep the Bank Credit Facility In Balance; and (iii) that the Borrower shall complete the Work and construction of the Main Project Lien free and that the Main Project shall be and remain free and clear of all Liens arising from the furnishing of materials, labor or services for or in connection with the Work and the Main Project; and (iv) that the Borrower shall provide the expertise necessary to supervise construction of the Main Project and the Final Completion of the Work at no cost to the Lenders or the Administrative Agent; and (v) that in the event the Guarantors hereunder shall fail or refuse to pay or perform the Guaranteed Obligations under this Completion Guaranty, the Lenders may pay or perform or cause the payment and performance of the Guaranteed Obligations of the 5 Guarantors hereunder in which case the Guarantors, upon demand by the Lenders, shall pay any and all costs, expenses and liabilities for such costs and expenses in connection with the Final Completion of the Main Project, or cause any Lien in connection with the Final Completion thereof or any claim or demand for the payment of the cost of the Final Completion of the Main Project to be bonded, discharged, released or paid, shall reimburse the Lenders for all sums paid and all costs, expenses or liabilities incurred by the Lenders in connection therewith; and (vi) that the Guarantors shall pay the Enforcement Costs. 3. Payment Provisions. All payments required to be made by the Guarantors pursuant to Section 2 shall be made subject to the following terms: (a) The Guarantors shall make cash payments in the amounts required under Section 2 into an interest-bearing deposit account designated and controlled exclusively by the Disbursement Agent (the "Guaranty Deposit Account") in accordance with the Borrower Collateral Account Agreement in which the Disbursement Agent is hereby granted a security interest for the benefit of the Lenders. The Guaranty Deposit Account is intended to be a "deposit account" for the purposes of Nevada Revised Statutes ("NRS") 40.430.4(g) and Section 9301(g) of the California Uniform Commercial Code. Such funds shall be held in the Guaranty Deposit Account as additional collateral for the Obligations under the Credit Agreement and the other Loan Documents; provided that, if requested by the Guarantors, such funds shall be applied to payment of the Guaranteed Obligations. (b) The cash payments into the Guaranty Deposit Account and the funds therein are for the purpose of paying the Guaranteed Obligations under this Completion Guaranty and shall be free and clear of any third party claims thereto, including any claims by the Borrower as a third party beneficiary under this Completion Guaranty. The Guarantors and the Administrative Agent on behalf of the Lenders specifically agree that the Borrower is not an intended third party beneficiary to this Completion Guaranty and that the Borrower nor any other Person which is not party to this Completion Guaranty (other than successors and assigns of the Lenders, the Administrative Agent, the Documentation Agent and the Syndication Agent) has no rights under this Completion Guaranty. 4. Continuation of Guaranty. In the event that the Obligations of the Borrower under the Credit Agreement shall be accelerated pursuant to the provisions of Section 8.1 thereof, this Guaranty shall continue to be in full force and effect. Subject to the provisions of Section 10 hereof, upon the indefeasible payment and performance of the Guaranteed Obligations by the Guarantors, this Completion Guaranty shall terminate. All amounts received by the Administrative Agent hereunder shall be applied by it to the payment of the Guaranteed Obligations and in accordance with the Loan Documents. 6 5. Proof of Damages. If the Guarantors shall at any time or from time to time fail to perform or comply with any of the Guaranteed Obligations contained herein and if for any reason the Lenders have failed to receive when due and payable the payment of interest or any other amount payable by the Guarantors under this Completion Guaranty, then in each such case (i) it shall be assumed conclusively without necessity of proof that such failure by the Guarantors was the sole and direct cause of the Lenders failing to receive such payment when due ( to the extent of the failure of the Guarantors to perform the Guaranteed Obligations contained herein) irrespective of any other contributing or intervening cause whatsoever, and (ii) the Guarantors further irrevocably waive to the fullest extent permitted by law any right or defense the Guarantors may have to cause the Lenders to prove the cause or amount of such damages or to mitigate the same. 6. Rights of the Administrative Agent. Each Guarantor authorizes the Administrative Agent, on behalf of the Lenders, to perform any or all of the following acts at any time in their sole discretion, all without notice to the Guarantors and without affecting the payment and performance of the Guaranteed Obligations by the Guarantors: (a) The Administrative Agent and the Lenders may alter any terms of the Loan Documents to which the Guarantors are not a party, including renewing, compromising, extending, enforcing or accelerating, or otherwise changing the time for payment of, or increasing or decreasing the rate of interest on, the Loans or any part of them or increasing or decreasing the amount of the Loans or any other fees payable under the Loan Documents. (b) The Administrative Agent and the Lenders may take and hold security for the Loans, the Letters of Credit and the Borrower's other obligations under the Credit Agreement, the Sponsors' obligations under the Keep-Well Agreement and the Guaranteed Obligations under this Completion Guaranty, accept additional or substituted security for any of the foregoing, and subordinate, exchange, enforce, waive, release, compromise, fail to perfect and sell or otherwise dispose of any such security. (c) The Administrative Agent and the Lenders may direct the order and manner of any sale of all or any part of any security now or later to be held for the Loans, the Letters of Credit, this Completion Guaranty or any of the other Loan Documents, and may also bid at any such sale. (d) The Administrative Agent and the Lenders may apply any payments or recoveries from the Borrower, any Guarantor, any Sponsor or any other source, and any proceeds of any security, to the Borrower's obligations under the Loan Documents and/or the Guaranteed Obligations under this Completion Guaranty in such manner, order and priority as they may elect, whether or not those 7 Guaranteed Obligations are supported by this Completion Guaranty or secured at the time of the application. (e) The Administrative Agent and the Lenders may release the Borrower of its liability for the Obligations under the Credit Agreement or any portion thereof. (f) The Administrative Agent and the Lenders may substitute, add or release any one or more Guarantors or endorsers. (g) In addition to the Obligations under the Credit Agreement, the Administrative Agent and the Lenders may extend other credit to the Borrower, its Affiliates and any of the Guarantors and any of the Sponsors or their respective Affiliates and may take and hold security for the credit so extended, all without affecting the Guarantors' liability under this Completion Guaranty. (h) The Administrative Agent and the Lenders may change the terms or conditions of disbursement of the Loans or the issuance of the Letters of Credit. (i) The Administrative Agent and the Lenders may advance additional funds to the Borrower for any purpose. 7. Completion Guaranty to be Absolute. The Guarantors expressly agree that for as long as the Credit Agreement remains in effect or any of the Obligations under the Credit Agreement remain outstanding, the Guarantors shall not be released from the Guaranteed Obligations hereunder by or because of: (a) Any act or event which might otherwise discharge, reduce, limit or modify the Guaranteed Obligations; (b) Any waiver, extension, modification, forbearance, delay or other act or omission of the Administrative Agent or the Lenders, or any failure to proceed promptly or otherwise as against the Borrower, any Sponsor, any Guarantor or any security; (c) Any action, omission or circumstance which might increase the likelihood that the Guarantors may be called upon to perform under this Completion Guaranty or which might affect the rights or remedies of the Guarantors as against the Borrower or any Guarantor; or (d) Any dealings occurring at any time between the Borrower, the Guarantors, the Administrative Agent, the Syndication Agent, the Documentation Agent or any Lender, whether relating to the Loans, the Letters of Credit or otherwise. 8 The Guarantors hereby expressly waive and surrender any defense to their liability under this Completion Guaranty based upon any of the foregoing acts, omissions, agreements, waivers or matters. It is the purpose and intent of this Completion Guaranty that the Guaranteed Obligations shall be absolute and unconditional under any and all circumstances. 8. Guarantors' Waivers. The Guarantors waive: (a) All statutes of limitations as a defense to any action or proceeding brought against the Guarantors by the Administrative Agent or any Lender, to the fullest extent permitted by law; (b) Any right they may have to require the Administrative Agent or the Lenders to proceed against the Borrower or any of the Sponsors, proceed against or exhaust any security held from the Borrower or any of the Sponsors, or pursue any other remedy in their power to pursue; (c) Any defense based on any claim that the Guaranteed Obligations exceed or are more burdensome than those of the Borrower; (d) Any defense based on: (i) any legal disability of the Borrower, (ii) any release, discharge, modification, impairment or limitation of the liability of the Borrower and/or the Guarantors under the Loan Documents from any cause, whether consented to by the Administrative Agent or any Lender or arising by operation of law or from any Insolvency Proceeding, (iii) any rejection or disaffirmance of the Loans or any security held for the Loans, in any Insolvency Proceeding and (iv) the Guarantors' rights under NRS 104.3605, the Guarantors specifically agreeing that this clause (iv) shall constitute a waiver of discharge under NRS 104.3605; (e) Any defense based on any action taken or omitted (other than gross negligence or willful misconduct) by the Administrative Agent or any Lender in any Insolvency Proceeding involving the Borrower or any of the Sponsors, including any election to have a claim allowed as being secured, partially secured or unsecured, any extension of credit by the Administrative Agent or any Lender to the Borrower in any Insolvency Proceeding, and the taking and holding by the Administrative Agent or any Lender of any security for any such extension of credit; (f) All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of acceptance of this Completion Guaranty and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind; 9 (g) Any defense based on or arising out of any defense that the Borrower may have to the payment or performance of the Obligations under the Credit Agreement or any portion of such Obligations; and (h) Any defense or benefit based on NRS 40.430 and judicial decisions relating thereto and NRS 40.451 et seq. and judicial decisions relating thereto, the Guarantors agreeing that the waiver in this paragraph (h) is intended to take advantage of the two (2) waivers permitted by NRS 40.495 (1) and (2) to the maximum extent permitted. 9. Waivers of Subrogation and Other Rights. (a) Upon the occurrence of any Event of Default, the Administrative Agent in its sole discretion, without prior notice to or consent of the Guarantors, may elect to: (i) foreclose either judicially or nonjudicially against any real or personal property security for the Obligations under the Loan Documents, (ii) accept a transfer of any such security in lieu of foreclosure, (iii) compromise or adjust the Loans or any part thereof or any of the Letters of Credit or make any other accommodation with the Borrower or any Guarantor, or (iv) exercise any other remedy against the Borrower, any Guarantor or any security. No such action by the Administrative Agent or any Lender shall release or limit the liability of the Guarantors, who shall remain liable under this Completion Guaranty after the action, even if the effect of the action is to deprive the Guarantors of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from the Borrower for any sums paid to the Administrative Agent or the Lenders, whether contractual or arising by operation of law or otherwise. The Guarantors expressly waive any defenses or benefits that may be derived from NRS Section 40.451, et seq. and judicial decisions relating thereto, or comparable provisions of Nevada law which are comparable to California Civil Procedure Sections 580a, 580b, 580d, or 726 or comparable provisions of the laws of any other jurisdiction, and all other suretyship defenses they otherwise might or would have under Nevada law or other applicable law. The Guarantors expressly agree that under no circumstances shall they be deemed to have any right, title, interest or claim in or to any real or personal property to be held by the Administrative Agent or any Lender or any third party after any foreclosure or transfer in lieu of foreclosure of any security for the Obligations under the Credit Agreement. (b) Regardless of whether the Guarantors may have made any payments to the Administrative Agent or any Lender, the Guarantors hereby waive: (i) all rights of subrogation, all rights of indemnity, and any other rights to collect reimbursement from the Borrower for any sums paid to the Administrative Agent or any Lender, whether contractual or arising by operation of law (including the Bankruptcy Code) or otherwise, (ii) all rights to enforce any remedy that the 10 Administrative Agent or any Lender may have against the Borrower or any other Person, and (iii) all rights to participate in any security now or later to be held by the Administrative Agent or any Lender for the Obligations under the Credit Agreement. The waivers given in this Section 9(b) shall be effective until the Loans and all other Obligations under the Credit Agreement have been indefeasibly paid and performed in full and all Commitments have been terminated. (c) The Guarantors understand and acknowledge that if the Administrative Agent or any Lender forecloses judicially or nonjudicially against any real property security for the Obligations under the Loan Documents, that foreclosure could impair or destroy any ability that the Guarantors may have to seek reimbursement, contribution or indemnification from the Borrower or others based on any right the Guarantors may have of subrogation, reimbursement, contribution or indemnification for any amounts paid by the Guarantors under this Completion Guaranty. The Guarantors further understand and acknowledge that in the absence of this Section 9, such potential impairment or destruction of the Guarantors' rights, if any, may entitle the Guarantors to assert a defense to this Completion Guaranty. By executing this Completion Guaranty, the Guarantors freely, irrevocably and unconditionally: (i) waive and relinquish that defense and agree that the Guarantors will be fully liable under this Completion Guaranty even though the Administrative Agent of the Lenders may foreclose judicially or nonjudicially against any real property security for the Obligations under the Loan Documents; (ii) agree that the Guarantors will not assert that defense in any action or proceeding which the Administrative Agent or the Lenders may commence to enforce this Completion Guaranty; and (iii) acknowledge and agree that the Administrative Agent and the Lenders are relying on this waiver in making the Loans and issuing the Letters of Credit, and that this waiver is a material part of the consideration which they are receiving for making the Loans and issuing the Letters of Credit. 10. Revival and Reinstatement. If the Lenders are required to pay, return or restore to any of the Guarantors any amounts previously paid with respect to the Guaranteed Obligations because of any Insolvency Proceeding of any of the Guarantors, any stop notice or any other reason, to the extent that the source of such payment was a Cash Equity Contribution from the Guarantors or the payment of the Accelerated Payment Amount by the Guarantors pursuant to this Completion Guaranty, the Guaranteed Obligations shall be reinstated and revived and the rights of the Administrative Agent and the Lenders shall continue with regard to such amounts, as though they had never been paid. 11. Representations and Warranties. Each Guarantor hereby represents and warrants unto the Administrative Agent and each Lender as follows: 11 (a) The most recent audited consolidated balance sheet of LCI and ABH and their respective consolidated Subsidiaries (in the case of ABH, as of December 31, 1996 and in the case of LCI, as of March 30, 1997) and the related consolidated statements of earnings and stockholders' equity (or profit and loss in the case of LCI) and of cash flows for the fiscal year ended on such date, reported on by such Guarantor's independent public accountants, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly (or give a true and fair view of in the case of LCI) the consolidated financial condition of such Guarantor and its consolidated Subsidiaries as at such date, and the results of their operations (or consolidated profit and loss in the case of LCI) and their consolidated cash flows for the fiscal year then ended. The unaudited consolidated balance sheet of such Guarantor and its consolidated Subsidiaries as at September 30, 1997 and the related unaudited consolidated statements of earnings and of cash flows for the nine-month period (or, in the case of LCI, six month period) ended on such date, certified by an Authorized Representative of such Guarantor, are complete and correct and present fairly (or give a true and fair view of in the case of LCI) the consolidated financial condition of such Guarantor and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the nine-month period (or, in the case of LCI, six-month period) then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Authorized Representative, as the case may be, and as disclosed therein). (b) Since December 31, 1996, in the case of ABH and since March 30, 1997 in the case of the Trust, there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect. (c) Each of such Guarantor and its Subsidiaries (a) is duly organized, and, to the extent applicable, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate or other power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) to the extent applicable, is duly qualified as a foreign corporation or company or trust and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification and (d) is in compliance with all material Requirements of Law except where failure to comply with any of the foregoing could not individually or in the aggregate reasonably be expected to have a Material Adverse Effect. 12 (d) Each of such Guarantors has the corporate or other power and authority, and the legal right, to make, deliver and perform this Completion Guaranty and to provide the undertakings hereunder and has taken all necessary corporate or other action to authorize the execution, delivery and performance of this Completion Guaranty. No consent or authorization of, filing with or other act by or in respect of, any Governmental Instrumentality or any other Person is required to be obtained or made, as the case may be, by such Guarantor in connection with this Completion Guaranty or with the execution, delivery, performance, validity or enforceability of this Completion Guaranty by or against such Guarantor, except as has been obtained and remains in full force and effect on the date hereof. This Completion Guaranty has been duly executed and delivered on behalf of such Guarantor. This Completion Guaranty constitutes a legal, valid and binding obligation of such Guarantor enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). (e) Each Subsidiary Guarantor has the corporate power and authority, and the legal right, to make, deliver and perform the Subsidiary Guaranty and to provide the undertakings thereunder and has taken all necessary corporate action to authorize the execution, delivery and performance of the Subsidiary Guaranty. No consent or authorization of, filing with or other act by or in respect of, any Governmental Instrumentality or any other Person is required to be obtained or made, as the case may be, by such Subsidiary Guarantor in connection with the Subsidiary Guaranty or with the execution, delivery, performance, validity or enforceability of the Subsidiary Guaranty by or against such Subsidiary Guarantor, except as has been obtained and remains in full force and effect on the date hereof. The Subsidiary Guaranty has been duly executed and delivered on behalf of each Subsidiary Guarantor. The Subsidiary Guaranty constitutes a legal, valid and binding obligation of each Subsidiary Guarantor enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). (f) The execution, delivery and performance of this Completion Guaranty by the Guarantors and the execution, delivery and performance by the Subsidiary Guarantors of the Subsidiary Guaranty will not (i) violate any Legal Requirement or contractual obligation of such Guarantor or Subsidiary Guarantor, (ii) result in, or require, the creation or imposition of any Lien on any of its properties or revenues pursuant to any such Legal Requirement or contractual obligation or (iii) conflict with or result in a breach of any of the terms, conditions or 13 provisions of any order, judgment, decree or ruling of any court, arbitrator or Governmental Instrumentality applicable to such Guarantor or Subsidiary Guarantor. (g) Schedule 3 contains (except as noted therein) complete and correct lists of each of LCI's and ABH's Subsidiaries (other than Dormant Subsidiaries), showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by such Guarantor and each other Subsidiary of such Guarantor. All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 3 as being owned by such Guarantor and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by such Guarantor or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 3). Each Subsidiary identified in Schedule 3 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, assets, debt service capacity, property or financial condition, operations or prospects of such Subsidiary. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. No Subsidiary identified in Schedule 3 is a party to, or otherwise subject to any legal restriction or any agreement (other than this Completion Guaranty, the agreements listed on Schedule 3 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to its Guarantor parent or any of such Guarantor's Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. (h) Except as disclosed in Schedule 4 there are no actions, suits or proceedings pending or, to the knowledge of any Guarantor, threatened against or affecting such Guarantor or any Subsidiary or any property of such Guarantor or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Instrumentality that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither any Guarantor nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Instrumentality or is in violation of any applicable law, ordinance, rule or regulation (including without limitation 14 Environmental Laws) of any Governmental Instrumentality, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (i) Except as disclosed in Schedule 3-A, each Guarantor and its Subsidiaries have filed all material tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the non-payment of which could not reasonably be expected to have a Material Adverse Effect or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which such Guarantor or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. Each Guarantor knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of each Guarantor and its Subsidiaries in respect of governmental or other taxes for all fiscal periods are adequate. (j) Each Guarantor and its Subsidiaries have adequate and appropriate insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance) to the extent this is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated, except where the failure to so maintain insurance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (k) Each of LCI, ABH and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in clause (a) hereof or purported to have been acquired by such Guarantor or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Completion Guaranty. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. (l) Except as disclosed in Schedule 5, (i) each Guarantor and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks 15 and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (ii) to the best knowledge of each Guarantor, no product or such Guarantor infringes in any material respect on any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (iii) to the best knowledge of each Guarantor, there is no Material violation by any Person of any right of such Guarantor or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by such Guarantor or any of its Subsidiaries. (m) Except as described therein, Schedule 6 sets forth a complete and correct list of all outstanding Indebtedness of each of LCI and ABH and its Subsidiaries as of September 30, 1997, since which date there has been no Material changes in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of such Guarantor or its Subsidiaries. Neither any such Guarantor nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of such Guarantor or such Subsidiary and no event or condition exists with respect to any Indebtedness of any such Guarantor or any Subsidiary in an aggregate principal amount in excess of $1,500,000 that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. Except as disclosed in Schedule 6, neither any such Guarantor nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 14(a). (n) Neither any Guarantor nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, or the Federal Power Act, as amended. (o) Neither any Guarantor nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against such Guarantor or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. 16 (p) Each Guarantor's ownership interest in the Borrower as of the date hereof is set forth on Schedule 7. (q) LCI has delivered to the Administrative Agent true, correct and complete copies of all material documents, instruments, opinions and certificates with respect to the Existing Senior Debt. 12. Affirmative Covenants. Until all of the Guaranteed Obligations have been indefeasibly paid and performed, each Guarantor agrees as follows: (a) LCI shall furnish to the Administrative Agent the documentation required to be delivered pursuant to Section 12.1(i) and (ii)(a), (b), (c), (d) and (e) of the LCI Facilities Agreement, or the comparable provisions of any facilities agreement executed in substitution of, or as a replacement of, the LCI Facilities Agreement. (b) (i) ABH shall furnish to the Administrative Agent: (A) as soon as available, but in any event within 120 days after the end of each fiscal year of such Guarantor, a copy of the consolidated and consolidating balance sheet of such Guarantor and its consolidated Subsidiaries as at the end of such year and the related consolidated and consolidating statements of earnings and stockholders' equity and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by an independent certified public accountants of nationally recognized standing; and (B) as soon as available, but in any event not later than 60 days after the end of each of the first three quarterly periods of each fiscal year of such Guarantor, (A) the unaudited consolidated and consolidating balance sheet of such Guarantor and its consolidated Subsidiaries as at the end of such quarter and in comparative form the figures for the end of the previous fiscal year, (B) the unaudited consolidated and consolidating statement of earnings of such Guarantor and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, and in comparative form the figures for the previous year and (C) the consolidated and consolidating statement of cash flows of such Guarantor and its consolidated Subsidiaries for the portion of the fiscal year through the end of such quarter, and in comparative form the figures for the previous year, certified by an Authorized Representative of such Guarantor as being fairly stated in all material respects when considered in relation to the consolidated and consolidating financial statements of such 17 Guarantor and its consolidated Subsidiaries (subject to normal year-end audit adjustments); all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). (ii) The Trust shall furnish the Administrative Agent with all financial information, certificates, reports, and disclosures that the Trust is providing to any other creditor in connection with the Main Project, the Mall Project, and/or the Music Project at such time as such information is made available to such creditor. (c) LCI shall furnish to the Administrative Agent, concurrently with the delivery of the financial statements described in clause (a) above, a certificate of an Authorized Representative of LCI showing in reasonable detail the calculations demonstrating compliance with Section 12(g) of this Completion Guaranty for the fiscal period ending on such date. Each Guarantor shall furnish to the Administrative Agent within thirty days after the same are sent, copies of all financial statements and reports which such Guarantor sends to its stockholders, and within thirty days after the same are filed, copies of all financial statements and reports which such Guarantor may make to, or file with, the LSE, the Securities and Exchange Commission or any successor or analogous Governmental Instrumentality. Each Guarantor shall furnish to the Administrative Agent with reasonable promptness, such additional financial and other information as the Administrative Agent, on behalf of any Lender, may from time to time reasonably request. (d) ABH and LCI shall keep true and correct books of records and account in conformity with GAAP and all Requirements of Law; and permit the Administrative Agent: (i) No Event of Default -- if no Event of Default then exists, at the expense of such Administrative Agent and upon reasonable prior notice to such Guarantor, to visit the principal executive office of such Guarantor and to discuss the affairs, finances and accounts of such Guarantor and its Subsidiaries with such Guarantor's officers, all at such reasonable times and as often as may be reasonably requested in writing; and (ii) Event of Default -- if an Event of Default then exists, at the expense of such Guarantor to visit and inspect any of the offices of properties of 18 such Guarantor or any Subsidiary, to examine their respective books and records and to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants, all at such reasonable times and as often as may be requested. A Guarantor shall not be under any obligation under this Completion Guaranty to provide information pursuant to the last sentence of Section 12(c) or pursuant to this Section 12(d) if (i) disclosure of such information, on the written advice of such Guarantor's counsel provided to such Guarantor, would be prohibited by law or by decree of any Governmental Instrumentality or arbitral body or by the terms of any obligation of confidentiality contained in any agreement binding upon such Guarantor and not entered into in contemplation of this Section 12(d) or (ii) such information relates to the identity or personal details of any of the customers or clients of LCI or any of its Subsidiaries. In addition, LCI shall not be under any obligation under this Completion Guaranty to provide information pursuant to the last sentence of Section 12(c) or pursuant to Section 12(d) if LCI has been advised in writing by an investment or merchant bank in London, that the requested disclosure to the Administrative Agent or any Lender would require LCI to make public disclosure of such information to comply with its continuing obligations under the rules of the LSE or would otherwise be prohibited by such rules. If the Administrative Agent shall contest such written advice from the investment or merchant bank by itself providing advice in writing to the contrary from an investment or merchant bank in London, then LCI will obtain advice in writing from a senior official of the LSE as to whether the requested disclosure would require LCI to make public disclosure of such information to comply with any of such obligations or would otherwise be prohibited as aforesaid. Before seeking such advice from the LSE (either directly or through its listing sponsor), LCI will consult with the Administrative Agent and submit to the LSE such factual submissions and other representations that the Administrative Agent may provide to LCI for such purpose. The written advice of such senior official shall be conclusive as to the disclosure in question. (e) Each of LCI and ABH shall promptly give notice to the Administrative Agent (which shall promptly transmit such notice to each Lender) of: (i) any breach by such Guarantor of any of the Guaranteed Obligations hereunder or with respect to Existing Senior Debt; (ii) any (a) default or event of default under any contractual obligation of such Guarantor or any of 19 its Subsidiaries or (b) litigation, investigation or proceeding which may exist at any time between such Guarantor or any of its Subsidiaries and any Governmental Instrumentality, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (iii) any material litigation or proceeding affecting such Guarantor or any of its Subsidiaries; and (iv) any development or other event which could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this clause (e) shall be accompanied by a statement of a Authorized Representative of such Guarantor setting forth details of the occurrence referred to therein and stating what action such Guarantor or any of its Subsidiaries propose to take with respect thereto. (f) Each of ABH and LCI shall, in the aggregate, continue to own, directly or through one or more wholly-owned Subsidiaries, free of any Lien other than Liens in favor of the Administrative Agent and the Lenders, the same aggregate percentage of the capital stock of the Borrower as set forth on Schedule 7 hereof, subject to adjustment as provided in clause (k) in the definition of "Change in Control" in the Credit Agreement. (g) LCI covenants and agrees that (i) the ratio of Group Operating Profit to Net Interest Payable in respect of each 12 month period ending on the last day of each financial year and financial half year of the Group shall not be less than 2.5:1; (ii) the ratio of Consolidated Net Borrowings to Consolidated Net Worth shall not at any time exceed 1.5:1; and (iii) Consolidated Net Worth shall at all times be greater than L95,000,000, and that the finance director of LCI for the time being shall certify compliance or, as the case may be, non-compliance by LCI and the Group with each of the provisions referred to in paragraphs (i), (ii) and (iii) above at the same time as LCI shall furnish to the Administrative Agent the financial statements referred to in Section 12(a) provided that following receipt of any such certificate the Administrative Agent may in its absolute discretion require LCI to instruct its auditors for the time being to certify compliance or, as the case may be, non-compliance by LCI and the Group with each of the provisions referred to in paragraphs (i), (ii) and (iii) above and further that in the event of any changes in any of the accounting principles and bases upon which any of such financial 20 statements are prepared, the financial covenants set out in this sub-clause shall be adjusted or otherwise amended so as to ensure that or, as nearly as possible that, following such changes the obligations, limitations and restrictions contained in such covenants shall, mutatis mutandis, have the same effect as if such changes had not been made and that the Administrative Agent shall be provided with all appropriate information and details that it may request in connection with such adjustments or amendments. (h) Each of ABH and LCI will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (i) Each Guarantor will and will cause each of its Subsidiaries to maintain, with institutions it reasonably believes to be financially sound insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or similar business and similarly situated. (j) Each Guarantor will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in reasonably good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent a Guarantor from discontinuing the operation and maintenance of or the liquidation of any Dormant Subsidiary and shall not prevent a Guarantor or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and such Guarantor has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (k) Each Guarantor will and will cause each of its Subsidiaries to file all material tax returns required to be filed in any jurisdiction and to pay and discharge all taxes, assessments, governmental charges, or levies shown to be due and payable on such returns and all other taxes imposed on them or any of their properties, assets, 21 income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of such Guarantor or any Subsidiary, provided that neither a Guarantor nor any Subsidiary need to pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by such Guarantor or such Subsidiary on a timely basis in good faith in appropriate proceedings and such Guarantor or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of such Guarantor or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. (l) Each Guarantor will at all times preserve and keep in full force and effect its corporate or other existence. Except as allowed under the Note Agreements, each of ABH and LCI will at all times preserve and keep in full force and effect the corporate or other existence of each of its Subsidiaries (other than Dormant Subsidiaries or unless merged into such Guarantor or a Subsidiary) and all licenses, consents, certificates and authorizations of such Guarantor and its Subsidiaries unless, in the good faith judgment of such Guarantor, the termination of or failure to preserve and keep in full force and effect such corporate or other existence, licenses, consents, certificates and authorizations could not, individually or in the aggregate, have a Material Adverse Effect. (m) Each Guarantor will, and will cause each of its Subsidiaries to, keep proper books of record and account in accordance with GAAP as applied in the jurisdiction of its incorporation as such Guarantor may deem appropriate from time to time. (n) Neither ABH or LCI nor any Subsidiary will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by such Guarantor and its Subsidiaries would be materially changed from the general nature of the business engaged in by such Guarantor and its Subsidiaries as of the date hereof. (o) Promptly upon the determination that any Subsidiary of LCI has become a Material Subsidiary, LCI shall cause such Subsidiary to execute and deliver a joinder agreement for the Subsidiary Guaranty pursuant to which such Subsidiary shall become a party thereto and Subsidiary Guarantor thereunder. (p) The Trust covenants and agrees that the Trust will maintain a minimum fair market value of assets less liabilities of $100,000,000. 13. Consequences of Specified Events. If at any time prior to the indefeasible payment and performance of the Guaranteed Obligations (each of the following, a "Specified Event"), 22 (a) LCI shall at any time fail to comply with the covenants set forth in Sections 12(f), 12(g), 12(o) or 14 hereof and to the extent such non-compliance is capable of being cured, such non-compliance shall not have been cured within twenty-five (25) days; or (b) any borrowed money for a sum in excess of L2,500,000 or the equivalent thereof in any other currency of LCI or any Material Subsidiary shall by reason of breach or default become due and payable prior to its stated maturity or due date therefor or if any such borrowed money is not paid at the maturity thereof or due date therefor (or within any originally stated applicable grace period therefor) or, if payable on demand, is not paid on demand; or (c) LCI or any Material Subsidiary becomes insolvent or applies for or consents to or suffers the appointment of a liquidator, receiver, administrative receiver, administrator, guardian, encumbrancer, trustee in bankruptcy or similar official of the whole or any substantial part of its respective assets, business, property, revenues or undertaking (other than in any of such cases (except for the appointment of any administrator) for the purposes of a solvent reconstruction or amalgamation the terms of which have previously been approved by the Required Lenders) LCI or any Material Subsidiary takes any proceedings under any law for adjustment, deferment or rescheduling of its Indebtedness or any part thereof or makes or enters or any proposal is made to make or enter into a general assignment or arrangement (including, without limitation, any voluntary arrangement under part I of the Insolvency Act 1986) or composition with or for the benefit of its creditors or a moratorium shall be declared on any of its Indebtedness or any part thereof or any creditor of LCI or any Material Subsidiary exercises a contractual right to take over the financial management of LCI or any Material Subsidiary or LCI or any Material Subsidiary is deemed or shall become unable to pay its debts as defined in Section 123 Insolvency Act 1986 or LCI or any Material Subsidiary fails generally to pay its debts as and when they fall due or if the equivalent of any of the foregoing shall occur in relation to LCI or any Material Subsidiary under the laws of any jurisdiction to which it or any of its rights, property or assets are subject; or (d) a petition is presented (but only if such petition remains undischarged 90 days after presentation thereof) or a meeting is convened or an order is made or resolution is passed for or other action or proceedings or steps are taken with a view to the appointment of an administrator, winding-up, liquidation or dissolution of LCI or any Material Subsidiary or if the equivalent of any of the foregoing shall occur in relation to LCI or any Material Subsidiary under the laws of any jurisdiction to which it or any of its rights, property or assets are subject (other than in any of such cases (except for the appointment of any administrator) for the purposes of the winding up of a dormant member of the Group or a 23 solvent reconstruction or amalgamation, in each case the terms of which have previously been approved by the Required Lenders), or LCI or any Material Subsidiary stops or threatens to stop payments generally or ceases or threatens to cease to carry on its business or a substantial part thereof or LCI or any Material Subsidiary merges, consolidates or amalgamates with or into any other company, corporation or entity in a transaction not otherwise permitted under the Facilities Agreement; or (e) a distress, execution or other legal process is levied against any of the assets of LCI or any Material Subsidiary and is not discharged or paid out within 90 days, except where such distress, execution or other legal process is in the reasonable opinion of the Required Lenders being contested in good faith by LCI or the relevant Material Subsidiary or any analogous proceedings shall be commenced against LCI or any Material Subsidiary or its assets under the laws of any other jurisdiction; or (f) an encumbrancer takes possession or a receiver or an administrative receiver is appointed of the whole or any substantial part of the assets or undertaking of LCI or any Material Subsidiary or any analogous action shall be taken against LCI or any Material Subsidiary or its assets or undertaking under the laws of any jurisdiction; then, not later than five (5) days after such Specified Event, at the option of the Required Lenders, the provisions of Section 17 shall apply. 14. Negative Covenants. At all times prior to indefeasible payment and performance of the Guaranteed Obligations by the Guarantors hereunder, (a) Each of ABH and LCI will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset except: (i) Liens securing Existing Senior Debt; (ii) any Lien arising by operation of law which secures amounts not more than 45 days overdue or, if so overdue, are being contested on a timely basis in good faith and in appropriate proceedings; (iii) any Lien imposed on a Guarantor or any of its Subsidiaries in relation to its purchase of goods, products or supplies in the ordinary course of business; 24 (iv) any rights of set-off in the normal course of trading or of any bank or financial institution or combination of accounts arising in favor of such bank or financial institution as a result of the day-to-day operation of banking arrangements, including without limitation, rights of set-off granted to such bank or financial institution in respect of the issuance of letters of credit, or as a result of any currency or interest rate hedging operations carried out in the ordinary course of business, in each case, provided that there is no agreement to confer a security interest; (v) statutory Liens of landlords, Liens over goods or documents of title arising in the ordinary course of documentary credit transactions and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case, incurred in the ordinary course of business; (vi) Liens for taxes, assessments or other governmental charges which are not yet due and payable or the payment of which is not at the time required by Note Agreements; (vii) Liens incurred or deposits made in the ordinary course of business (A) in connection with workers' compensation, unemployment insurance and other types of social security or retirement benefits, or (B) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than capital leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; (viii) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of business of a Guarantor and its Subsidiaries, provided that such Liens do not, in the aggregate, materially detract from the value of such property; (ix) any Lien renewing, extending or refunding any Lien permitted by clause (i), provided that (A) the principal amount of Indebtedness secured by such Lien immediately prior to such extension, renewal or refunding is not increased or the maturity thereof reduced, (B) such Lien is not extended to any other property and (C) immediately after such extension, renewal or refunding no Specified Event would exist; (x) any Lien securing the obligations of LCI under the Credit Facility and the obligations of any Subsidiary Guarantor under any Subsidiary Guarantee; 25 (xi) any Lien not otherwise permitted by clauses (i) through (x) above, provided that on the date any Indebtedness secured by any such Lien, is created, incurred, assumed or guaranteed by such Guarantor or any Subsidiary, and immediately after giving effect thereto and to the concurrent retirement of any other Indebtedness, the sum of (A) the aggregate principal amount of all Indebtedness secured by Liens pursuant to this clause (xi) plus (B) all unsecured Indebtedness of such Guarantor and its Subsidiaries (excluding any unsecured Existing Senior Debt) that is senior in any respect in right of payment to the obligations of such Guarantor hereunder, does not exceed 25% of the Consolidated Tangible Assets of such Guarantor as of such date; and (xii) any Lien set forth on Schedule 3, in the case of ABH. (b) Each of ABH and LCI will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any secured or unsecured Indebtedness (excluding (A) any Indebtedness secured by Liens pursuant to clauses (i) through (x) of Section 14(a) hereof and (B) any unsecured Existing Senior Debt but including an Indebtedness secured by Liens pursuant to clause (xi) of Section 14(a) hereof) if the aggregate amount of all such Indebtedness described in this clause (b) would exceed 25% of the Consolidated Tangible Assets of such Guarantor as of such date. (c) In the case of ABH only, declare, pay or make any dividend or distribution (in cash, property or obligations) on any shares of any class of interests (now or hereafter outstanding) of such Sponsor or on any warrants, options or other rights with respect to any class of interests (now or hereafter outstanding) of such Sponsor (other than dividends or distributions payable in its common interests or warrants to purchase its common interests or splitups or reclassifications of its interests into additional or other interests) or apply, or permit any of its Subsidiaries to apply, any of its funds, property or assets to the purchase, redemption, sinking fund or other retirement of, or agree or permit any of its Subsidiaries to purchase or redeem, any shares of any class of interests (now or hereafter outstanding) of such Sponsor, or warrants, options or other rights with respect to any shares of any class of interests (now or hereafter outstanding) of such Sponsor. 15. Payments Free and Clear of Taxes, etc. Each Guarantor hereby agrees that: (a) All payments by such Guarantor hereunder to the Borrower or to a Lender shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but 26 excluding franchise taxes and taxes imposed on or measured by any Lender's net income or receipts (such non-excluded items being called "Taxes"). In the event that any withholding or deduction from any payment to be made by a Guarantor hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then such Guarantor will (i) pay directly to the relevant authority the full amount required to be so withheld or deducted; (ii) promptly forward to the Borrower or such Lender an official receipt or other documentation satisfactory to the Borrower or such Lender evidencing such payment to such authority; and (iii) pay to the Borrower or such Lender such additional amount or amounts ("Additional Amounts") as is necessary to ensure that the net amount actually received by the Borrower or such Lender will equal the full amount the Borrower or such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Borrower or any such Lender with respect to any payment received by the Borrower or such Lender hereunder, the Borrower or such Lender may pay such Taxes and the Guarantor will promptly pay such Additional Amounts (including any penalties, interest or expenses ) as is necessary in order that the net amount received by the Borrower or such Lender after the payment of such Taxes (including any Taxes on such Additional Amounts) shall equal the amount the Borrower or such Lender would have received had not such Taxes been asserted. Upon the request of any Guarantor, each Lender that is organized under the laws of a jurisdiction other than the United States or a State thereof (for purposes of this paragraph (k), a "Non-U.S. Lender") shall, prior to the date on which any payment is made hereunder (or in the case of a Lender that becomes a party to the Credit Agreement pursuant to Section 4.11 of the Credit Agreement or any Assignee Lender, before it becomes a party hereto) (i) execute and deliver to each Guarantor and the Administrative Agent one or more (as the Guarantors or the Administrative Agent may reasonably request) United States Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or documents (or successor forms or documents), appropriately completed, certifying in each case that such Lender or Assignee Lender is entitled to receive payments under this Completion Guaranty without deduction or withholding of any United States federal income taxes, and an applicable Internal Revenue Service Form W-8 or Form W-9 or successor applicable form (if required by law), as the case may be, to establish an exemption from United States backup withholding tax or (ii) if 27 such Non-U.S. Lender is not a "bank" or other person described in Section 881 (c) (3) of the Code and cannot deliver either Form 4224 or Form 1001 pursuant to clause (a) above, execute and deliver to each Guarantor and the Administrative Agent one or more (as the Guarantors or the Administrative Agent may reasonably request) copies of the Tax Certificate, Form W-8 (or any successor form) and any other certificate or statement of exemption required under the Code or Treasury Regulations issued thereunder, appropriately completed, certifying that such Lender or Assignee Lender is entitled to receive payments under this Completion Guaranty without deduction or withholding of United States federal income tax and establishing an exemption from United States backup withholding tax. All Lenders other than Non-U.S. Lenders shall, prior to the date on which any payment is made hereunder (or in the case of a Lender that becomes a party to the Credit Agreement pursuant to Section 4.11 of the Credit Agreement or is an Assignee Lender, before such Lender becomes a party hereto) execute and deliver to the Borrower and the Administrative Agent one or more copies (as the Borrower or Administrative Agent may reasonably request) of United States Internal Revenue Form W-9 or successor applicable form (if required by law), as the case may be, to establish exemption from United States backup withholding tax. Each Lender which undertakes to deliver to the Guarantors or the Administrative Agent a Tax Certificate, a Form 4224, Form 1001, Form W-8 or Form W-9 pursuant to the preceding paragraph shall further undertake to deliver to the Guarantors and the Administrative Agent two further copies of said Tax Certificate, Form 4224, Form 1001, Form W-8 or Form W-9 (if required by law), or successor applicable forms, or other manner of certification, as the case may be, on or before the date that such form expires or becomes obsolete or after the occurrence of an event requiring a change in the most recent form delivered by it to the Guarantors and the Administrative Agent, and such extensions or renewals thereof as may be reasonably requested by the Guarantors or Administrative Agent, certifying in the case of a Tax Certificate, Form 4224 or Form 1001 that such Lender is entitled to receive payments under this Completion Guaranty without deduction or withholding of any United States federal income taxes, unless in any case an event (including any change in treaty, law or regulation) has occurred prior to the date on which such delivery would otherwise be required which renders all forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Guarantors and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or Form W-9, establishing an exemption from backup withholding. 28 (b) If the Guarantor fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Borrower or any Lender the required receipts or other required documentary evidence, the Guarantor shall indemnify the Borrower or such Lender for any incremental Taxes, interest or penalties that may become payable by the Borrower or such Lender as a result of any such failure. (c) In the event that an Additional Amount is paid by a Guarantor for the account of any Lender and such Lender is entitled to a refund of the Tax (a "Tax Refund") to which such payment is attributable, then such Lender shall take all reasonable steps which are necessary to obtain such Tax Refund, including filings such forms, certificates, documents, applications or returns as may be required to obtain such Tax Refund. If such Lender subsequently receives such a Tax Refund, and such Lender is readily able to identify the Tax Refund as being attributable to the Tax with respect to which the Additional Amount was made, then such Lender shall reimburse such Guarantor such amount as such Lender shall determine acting in good faith to be the proportion of the Tax Refund, together with any interest received thereon, attributable to such Additional Amount as will leave such Lender after the reimbursement (including such interest) in no better or worse position than it would have been if the Additional Amount had not been required. (d) Without prejudice to the survival of any other agreement of the Guarantors hereunder, the agreements and obligations of the Guarantors contained in this Section 15 shall survive the payment in full of the principal of and interest on the Loans. 16. Judgment. Each Guarantor hereby agrees that: (a) If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder in United States Dollars into another currency, such Guarantor agrees, to the fullest extent permitted by law, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase United States Dollars with such other currency on the Business Day preceding that on which final judgment is given. (b) The obligation of each Guarantor in respect of any sum due from it to any Lender hereunder shall, notwithstanding any judgment in a currency other than United States Dollars, be discharged only to the extent that on the Business Day following receipt by such Lender of any sum adjudged to be so due in such other currency such Lender may, in accordance with normal banking procedures, purchase United States Dollars with such other currency; in the event that the United States Dollars so purchased are less that the sum originally due to such Lender in United States Dollars, the Guarantor, as a separate obligation and 29 notwithstanding any such judgment, shall indemnify and hold harmless such Lender and such holder against such loss, and if the United States Dollars so purchased exceed the sum originally due to such Lender in United States Dollars, such Lender shall remit to such Guarantor such excess. 17. Breaches by Any Guarantor. If, at any time prior to the indefeasible payment and performance of the Guaranteed Obligations by the Guarantors hereunder, any of the Guarantors breaches the Guaranteed Obligations (after the expiration of applicable grace, notice and/or cure periods), then, at the option of the Required Lenders, an Event of Default shall exist under this Completion Guaranty and the other Loan Documents and the Lenders, without any further notice to any of the Guarantors or any other Person, shall be entitled to exercise all rights and remedies available hereunder, under the other Loan Documents and at law and equity; provided, however, the Lenders may, at their option, commence collection proceedings against one or more of the Guarantors without declaring an Event of Default under the other Loan Documents. 18. Miscellaneous Provisions. (a) This Completion Guaranty is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. (b) This Completion Guaranty shall be binding upon the Guarantors and their permitted successors, transferees and assigns and shall inure to the benefit of and be enforceable by the Administrative Agent and each Lender and their respective successors, transferees and assigns; provided, however, that the Guarantors may not assign any of their Guaranteed Obligations hereunder without the prior written consent of the Required Lenders. (c) No amendment to or waiver of any provision of this Completion Guaranty, nor consent to any departure by any Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (d) All notices and other communications provided to any party hereto under this Completion Guaranty shall be in writing and addressed, delivered or transmitted to such party at its address or facsimile number set forth below or at such other address or facsimile number as may be designated by such party in a notice to the other parties. All such notices and communications shall be deemed to have been properly given if (x) hand delivered with receipt acknowledged by the recipient; (y) if mailed, upon the fifth Business Day after the date on which it is deposited in registered or certified mail, postage prepaid, return receipt requested or (z) if 30 by Federal Express or other nationally-recognized express courier service with instructions to deliver on the following Business Day, on the next Business Day after delivery to such express courier service. Notices and other communications may also be properly given by facsimile but shall be deemed to be received upon automatic facsimile confirmation of receipt thereof by the intended recipient machine therefor with the original of such notice or communication to be given in the manner provided in the second sentence of this Section; provided, however, that the failure to deliver a copy in accordance with the second sentence of this paragraph (d) shall not invalidate the effectiveness of such facsimile notice. The address information for the parties is set forth below: If to the Administrative Agent: The Bank of Nova Scotia 580 California Street, 21st Floor San Francisco, CA 94104 Attn: Alan W. Pendergast Telephone No.: (415) 986-1100 Facsimile No.: (415) 397-0791 If to the Trust: c/o Aladdin Holdings 280 Park Avenue 38th Floor New York, New York 10017 Attn: Ronald Dictrow Telephone No.: (212) 661-0700 Facsimile No.: (212) 661-0844 If to ABH: Aladdin Bazaar Holdings, LLC 831 Pilot Road Las Vegas, Nevada 89119 Attn: Jack Sommer Telephone No.: (702) 736-7114 Facsimile No.: (702) 736-7107 If to LCI: London Clubs International, plc 10 Brick Street London W1Y 8HO, England Attn: Linda M. Lillis Telephone No.: 011-44-171-518-0000 Facsimile No.: 011-44-171-493-6981 31 with a copy to: Ohrenstein & Brown, LLP 230 Park Avenue New York, New York 10169 Attn: Peter J. Kiernan, Esq. Telephone No.: (212)- 682-4500 Facsimile No.: (212)- 557-0910 and: Lionel, Sawyer & Collins 300 South 4th Street Suite 1700 Las Vegas, Nevada 89101 Attn: Greg Giordano, Esq. Telephone No.: (702)-383-8888 Facsimile No.: (702)-383-8845
(e) No failure on the part of the Administrative Agent or any Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. (f) Section captions used in this Completion Guaranty are for convenience of reference only, and shall not affect the construction of this Completion Guaranty. (g) Wherever possible each provision of this Completion Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Completion Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Completion Guaranty. (h) THIS COMPLETION GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. THIS COMPLETION GUARANTY AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR COMPLETION GUARANTIES, WRITTEN OR ORAL, WITH RESPECT HERETO. (i) ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS COMPLETION GUARANTY, OR 32 ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, THE LENDERS OR THE GUARANTORS SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK IN THE CITY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PROPERTY MAY BE FOUND. THE GUARANTORS HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE GUARANTORS HEREBY IRREVOCABLY APPOINT CT CORPORATION SYSTEM (THE "PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, UNITED STATES, AS THEIR AGENT TO RECEIVE, ON THE GUARANTORS' BEHALF AND ON BEHALF OF THE GUARANTORS' PROPERTY, SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO THE GUARANTORS IN CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND THE GUARANTORS HEREBY IRREVOCABLY AUTHORIZE AND DIRECT THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON THEIR BEHALF. AS AN ALTERNATIVE METHOD OF SERVICE, THE GUARANTORS FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE GUARANTORS HEREBY EXPRESSLY AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE GUARANTORS HAVE OR HEREAFTER MAY ACQUIRE ANY 33 IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO THEMSELVES OR THEIR PROPERTY, THE GUARANTORS HEREBY IRREVOCABLY WAIVE SUCH IMMUNITY IN RESPECT OF THE GUARANTEED OBLIGATIONS UNDER THIS COMPLETION GUARANTY AND THE OTHER LOAN DOCUMENTS. (j) THE GUARANTORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS COMPLETION GUARANTY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT OR THE LENDERS OR THE GUARANTORS. THE GUARANTORS ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS ENTERING INTO THE CREDIT AGREEMENT. 34 IN WITNESS WHEREOF, the Guarantors have caused this Completion Guaranty to be duly executed and delivered by their officers thereunto duly authorized as of the date first above written. ALADDIN BAZAAR HOLDINGS, LLC By: -------------------------- Title: Address: ----------------------- -------------------------------- Attention: ---------------------- Telecopy: ---------------------- THE TRUST UNDER ARTICLE SIXTH UNDER THE WILL OF SIGMUND SOMMER By: --------------------------- Title: Trustee Address: ---------------------- -------------------------------- Attention: ---------------------- Telecopy: ---------------------- By: --------------------------- Title: Trustee Address: ---------------------- -------------------------------- Attention: ----------------------- Telecopy: ----------------------- LONDON CLUBS INTERNATIONAL PLC By: ----------------------------- Title: Address: 10 Brick Street London W1Y 8HQ England Attention: ------------------------- 35 Telecopy: ------------------------- 36 SCHEDULE 1 Additional Defined Terms "Cash and Cash Equivalents" means: (a) cash in hand or at a bank and beneficially owned by LCI or a Subsidiary of LCI; (b) Sterling or Dollar denominated commercial paper maturing not more than nine months from the date of issue and rated A-1 or better by Standard & Poor's Corporation or P-1 or better by Moody's Investors Service, Inc.; (c) any deposit with, or acceptance maturing not more than one year after issue, accepted by, an authorized institution or an exempted institution within the meaning of the Banking Act 1987 which has a combined capital and surplus and undistributable profits of not less than L100,000,000 or by any bank, either of which shall have a long-term debt rating of A- or better by Standard & Poor's Corporation or A3 or better by Moody's Investors Service, Inc.; (d) Sterling or Dollar denominated debt securities having not more than one year until final maturity and listed on a recognized stock exchange or in respect of which there is an active trading market in London and rated at least Aa by Moody's Investors Service, Inc. or at least AA by Standard and Poor's Corporation; (e) direct obligations of the United States of America or any agency or instrumentality of the United States of America, the payment or guarantee of which constitutes a full faith and credit obligation of the United States of America, in each case maturing twelve months or less from the date of acquisition thereof; (f) gilt-edge securities issued directly, or unconditionally guaranteed, by the United Kingdom Treasury, in each case maturing twelve months or less from the date of acquisition thereof, legally and beneficially owned, free of Liens and freely accessible by LCI or any Subsidiary; or (g) short-tem liquid debt securities which for the time being are rated at least AAA by Standard & Poor's Corporation or an equivalent rating by any other reputable, rating agency. "Consolidated Net Borrowings" means the aggregate outstanding principal amount of Indebtedness of the Group less Cash and Cash Equivalents. "Consolidated Net Worth" means, the aggregate of the amounts paid-up or credited as paid-up on LCI's issued share capital and the amount of the consolidated capital and revenue reserves of the Group (including, without limitation, any share premium account, merger reserve, capital redemption reserve, revaluation reserve and retained earnings) and any credit balance on LCI's consolidated profit and loss account all as shown by the latest consolidated financial statements of LCI delivered or to be delivered pursuant to this Completion Guaranty from time to time but after: (i) deducting any debit balance on such consolidated profit and loss account; (ii) deducting the net book value of all assets, after deducting any reserves applicable thereto, which would be treated as intangible under GAAP (excluding amounts attributable to acquisition goodwill, trademarks, trade names, service marks, brand names, copyrights, patents and similar property); (iii) deducting any amounts distributed or proposed to be distributed (other than to LCI or any other member of the Group) out of the profits accrued prior to the date of such financial statements to the extent that such distribution is not provided for therein; (iv) deducting all amounts attributable to minority interests, if any, in Subsidiaries of LCI; (v) excluding any sums set aside or otherwise reserved or provided for taxation; (vi) adding back any diminution due to the writing off or amortization of acquisition goodwill or the debiting of acquisition goodwill to any reserve; and (vii) making such adjustments to reflect any variations which shall have occurred since the date of such financial statements: (a) in the amounts paid up or credited as paid up on the issued share capital of LCI and the consolidated capital and revenue reserves of the Group; (b) to reflect any changes in generally accepted accounting principles and bases and the application of standards and practices since then as may be appropriate in the opinion of the auditors for the time being of LCI; and 2 (c) in the interest of LCI in any other member of the Group. "Group" means LCI and its subsidiaries. "Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation, (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof; provided that, the obligations of LCI under the Keep-Well Agreement to pay the Accelerated Payment Amount shall be treated at any time as a Guaranty of Indebtedness of the Borrower in an amount equal to 25% of the Accelerated Payment Amount at such time. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "Group Operating Profit" means, in respect of any period of the Group, (a) the consolidated profit of the Group for such period before crediting or deducting amounts attributable to extraordinary and exceptional items, all as determined in accordance with GAAP, plus (to the extent deducted in determining such consolidated profits), (b) all provisions for Taxes and (c) Net Interest Payable; in each case as determined from the relevant consolidated financial statements of LCI delivered or to be delivered pursuant to this Completion Guaranty for such period. "Indebtedness" with respect to any Person means, at any time, without duplication, 3 (a) its liabilities for borrowed money (excluding accounts payable in the ordinary course of business) and its redemption obligations upon and following the date of redemption in respect of mandatorily redeemable Preferred Stock; (b) its liabilities pursuant to any note purchase facility or the issue of bonds, notes, debentures, commercial paper, loan stock or similar instruments; (c) all actual (as opposed to contingent) reimbursement obligations (other than accounts payable in the ordinary course of business) in respect of any acceptance or documentary credit facilities; (d) its liabilities for the deferred purchase price of property, assets or services acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property, assets or services); (e) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases; (f) its liabilities in respect of the principal amount of any receivables sold or discounted to a third party to the extent of recourse to such Person or any of its Subsidiaries; (g) Swaps of such Person; and (h) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (h) hereof. Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (h) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "Subsidiary" means, as to any particular parent corporation, any corporation of which more than 50% (by number of votes) of the Voting Shares shall be owned, directly or indirectly, by such parent corporation; provided, however, that notwithstanding the foregoing, the term subsidiary shall, in any event, include any company or legal entity which is a "subsidiary" as defined in Section 736 of the Companies Act 1985, as amended by Section 144 of the Companies Act 1989, or as detailed in analogous legislation. "Swaps" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Completion Guaranty, the amount of the obligation under any Swap shall be the amount 4 determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. "Taxes" means all present or future taxes, levies, imposts, duties, fees, assessments, deductions, withholdings or other governmental charges of any nature whatsoever and any liabilities with respect thereto, including any surcharge, penalties, additions to tax, fines or interest thereon, now or hereafter imposed, levied, collected withheld or assessed by any jurisdiction or by any political subdivision or taxing authority thereof or therein. 5 SCHEDULE 2 MATERIAL SUBSIDIARIES LONDON CLUBS HOLDINGS LIMITED LES AMBASSADEURS CLUB LIMITED RENDEZVOUS CLUB (LONDON) LIMITED PALM BEACH CLUB LIMITED SIX HAMILTON PLACE LIMITED BURLINGTON STREET SERVICES LIMITED ZEALCASTLE LIMITED CORBY LEISURE RETAIL DEVELOPMENTS LIMITED UNITLAW TRADING LIMITED LONDON PARK TOWER CLUB LIMITED PUBLICACE LIMITED LOMASBOND PROPERTIES LIMITED LONDON CLUBS (OVERSEAS) LIMITED DECBURY LIMITED GOLDEN NUGGET CLUB LIMITED LONDON CLUBS MANAGEMENT LIMITED THE SPORTSMAN CLUB LIMITED RITZ CLUB (LONDON) LIMITED SCHEDULE 3-A TAX LIABILITIES With respect to the Trust, none other than potential tax liability that may result from liabilities to which the Site is subject exceeding the tax basis of the Site. SCHEDULE 3 SUBSIDIARIES (other than Dormant Subsidiaries) ABH's Subsidiaries Name: Aladdin Bazaar, LLC State of Organization: Delaware ABH Ownership: 50% member In connection with the development of the Mall Project by Aladdin Bazaar, LLC ("Aladdin Bazaar"), if a guaranty, letter of credit or other form of credit enhancement is required to be obtained by the Trust or ABH in order to insure Aladdin Bazaar or any of its members that the Hotel/Casino will be completed and opened successfully, ABH will be permitted to convey up to 50% of its interest in Aladdin Bazaar to CS First Boston or any other institutional investor and pledge any of its remaining interest in Aladdin Bazaar to CS First Boston or to such other institutional investor providing financing for the development of the Mall Project. Furthermore, the Trust shall be entitled to pledge its membership interest in ABH to either or both of CS First Boston or such other institutional investor in connection with the financing of the Mall Project. London Clubs' Subsidiaries See attachment. SCHEDULE 4 LITIGATION Aronow, et al. v. Sommer, et al., Index No. 112618/95 (New York Sup. Ct.) Kanbar, et al. v. Aronow, et al., Index No. 600301/97 (New York Sup. Ct.) Sommer, et al. v. PMEC Associates and Co., et al., No. 88 Civ. 2537 (S.D.N.Y.) SCHEDULE 5 LICENSES, PERMITS, ETC. ABH See attachment. SCHEDULE 6 EXISTING INDEBTEDNESS Trust None. ABH and/or its Subsidiaries $30,000,000 contingent liability (see Schedule 3) London Clubs and/or its Subsidiaries See attachment. SCHEDULE 7 OWNERSHIP OF BORROWER Aladdin Bazaar Holdings, LLC Aladdin Bazaar Holdings, LLC has no ownership interest in Borrower. The Trust The Trust owns an indirect interest in Borrower through its ownership interests in the following entities: - - The Trust owns a 95% membership interest in Aladdin Holdings, LLC (AHL). - AHL owns a 98.7% membership interest in Sommer Enterprises, LLC (Sommer Enterprises). - Sommer Enterprises owns a 47% membership interest in Aladdin Gaming Holdings, LLC (Holdings) and a 100% membership interest in Aladdin Gaming Enterprises, Inc. (Enterprises). Enterprises owns a 25% membership interest in Holdings. - Holdings owns 100% of the common membership interest and 100% of the Series A Preferred membership interest in the Borrower. LCI See chart attached hereto. EX-10.15 12 EXHIBIT 10.15 KEEP-WELL AGREEMENT Keep-Well Agreement KEEP-WELL AGREEMENT THIS KEEP-WELL AGREEMENT (this "Agreement"), dated as of February 26, 1998 is made by LONDON CLUBS INTERNATIONAL PLC, a company registered in England and Wales under company number 2862479 ("LCI"), ALADDIN BAZAAR HOLDINGS, LLC, a Nevada limited liability company ("ABH") and ALADDIN HOLDINGS, LLC, a Delaware limited liability company ("AHL"; AHL, ABH and LCI are individually called a "Sponsor" and collectively called the "Sponsors"), in favor of each of the Administrative Agent and the Lenders and their respective successors, transferees and assigns. W I T N E S S E T H: WHEREAS, pursuant to a Credit Agreement, dated as of even date herewith (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among Aladdin Gaming, LLC, a Nevada limited liability company (the "Borrower"), the various lending institutions (individually a "Lender" and collectively the "Lenders") as are, or may from time to time become, parties thereto and The Bank of Nova Scotia as administrative agent (together with any successor(s) thereto in such capacity, the "Administrative Agent") for the Lenders, Merrill Lynch Capital Corporation as the syndication agent (together with any successor thereto in such capacity, the "Syndication Agent") and CIBC Oppenheimer Corp. as the documentation agent (together with any successor thereto in such capacity, the "Documentation Agent") the Lenders have extended Commitments to make Loans to the Borrower and to issue Letters of Credit for the account of the Borrower; and WHEREAS, as a condition precedent to the effectiveness of the Credit Agreement, the Sponsors are required to execute and deliver this Agreement and certain subsidiaries of LCI (the "Subsidiary Guarantors") have agreed to fully and unconditionally guarantee the payment of LCI's obligations under this Agreement pursuant to a guaranty agreement of even date herewith (the "Subsidiary Guaranty"); and WHEREAS, the Sponsors have duly authorized the execution, delivery and performance of this Agreement and the Subsidiary Guarantors have duly authorized the execution, delivery and performance of the Subsidiary Guaranty; and WHEREAS, it is in the best interests of the Sponsors to execute this Agreement and the Subsidiary Guarantors to execute the Subsidiary Guaranty inasmuch as the Sponsors and the Subsidiary Guarantors will derive substantial direct and indirect benefits from the Loans made to the Borrower by the Lenders pursuant to the Credit Agreement and the Letters of Credit issued for the account of the Borrower under the Credit Agreement; NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and in order to induce the Lenders to make Loans to the Borrower and to issue Letters of Credit for the account of the Borrower pursuant to the Credit Agreement, the Sponsors agree, for the benefit of the Administrative Agent, the Syndication Agent and each Lender, as follows: 1. Definitions. Terms defined in the Credit Agreement and not otherwise defined in this Agreement shall have the meanings ascribed to them in the Credit Agreement. For the purposes of Section 12(g) and Section 13 hereof, the terms set forth on Schedule 2 hereto shall have the meanings ascribed thereto on such Schedule. As used in this Agreement, the following terms shall have the meanings respectively set forth after each: "Accelerated Payment Amount" shall mean, as of any date, an amount equal to the sum of (a) the product of (i) $7,500,000 times (ii) the number of scheduled quarterly amortization payments remaining under the Credit Agreement (which have not been paid by or on behalf of the Borrower) plus (b) any accrued and unpaid amounts owed by the Sponsors under the provisions of Sections 2 and 3 hereof; provided that at no time shall the Accelerated Payment Amount exceed the lesser of (x) the outstanding Obligations at such time of the Borrower under the Credit Agreement and (y) $150,000,000 plus amounts owed under clause (b) above minus the product of (A) $7,500,000 times (B) the number of complete calendar quarters that have elapsed since the Keep-Well Reduction Date. 2 "Bankruptcy Code" shall mean Title 11 of the United States Code as amended from time to time. "Cash Equity Contributions" shall mean cash contributions by the Sponsors to the Borrower in exchange for preferred interests of Holdings. "Consolidated Intangibles": at a particular date, all assets of a Sponsor and its consolidated Subsidiaries, determined on a consolidated basis, that would, in conformity with GAAP, be classified as intangible assets, including, without limitation, unamortized debt discount and expense, unamortized organization and reorganization expense, costs in excess of the fair market value of acquired companies, patents, trade or service marks, franchises, trade names, goodwill and, from and after June 30, 1997, the amount of all write-ups in the book value of assets resulting from any revaluation thereof. "Consolidated Tangible Assets": at a particular date, the amount equal to (a) the amount which would be included as assets on the consolidated balance sheet of a Sponsor and its consolidated Subsidiaries as at such date in accordance with GAAP minus (b) Consolidated Intangibles. "Dormant Subsidiary" means any Subsidiary of a Sponsor which has no operating assets or property and conducts no business. "Environmental Laws" means any and all statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. 3 "Existing Senior Debt" shall mean all principal, premium (if any), interest and other amounts owing from time to time under (i) the Note Agreements and (ii) the Facilities Agreement, in either case as amended, supplemented or refinanced, from time to time, provided that the aggregate principal amount of the Note Agreements and the Facilities Agreement shall not be greater than the sum of (A) the maximum aggregate principal amount which could be outstanding under the Facilities Agreement and the Note Agreements in accordance with their terms as at the date hereof plus (B) 25% of Consolidated Net Assets of LCI; provided further, that the aggregate principal amount of the Existing Senior Debt in excess of the maximum aggregate principal amount which could be outstanding under the Facilities Agreement and the Note Agreements in accordance with their terms as at the date hereof shall be excluded from the parenthetical phrase of Section 14(b) hereof. "Facilities Agreement" shall mean that certain (pound)65,000,000 Facilities Agreement (originally dated 24th May 1994 as amended and restated) among, inter alia, LCI, various banks and National Westminster PLC (the predecessor-in-interest to The Bank of Nova Scotia) as arranger and agent, as in effect on the date hereof and as the same may be modified by amendments that would not, in the aggregate, have the effect of making LCI's obligations thereunder materially more onerous (it being understood and agreed that any amendment, supplement or modification (i) that increases the amount of the obligations of LCI thereunder, (ii) that would permit the lenders thereunder to declare a default if LCI made any Cash Equity Contribution required of the Sponsors hereunder or (iii) that would permit the lenders thereunder to declare a default if LCI made net payments (net of all reimbursements from the other Sponsors) of not more than 25% of any Accelerated Payment Amount required of the Sponsors hereunder, shall be deemed material). "GAAP" shall mean the generally accepted accounting principles as in effect from time to time in the United Kingdom with respect to LCI and in the United States with respect to the other Sponsors, as the case may be. "Insolvency Proceeding" shall mean any case or proceeding, voluntary or involuntary, under the Bankruptcy Code, or any similar existing or future 4 law of any jurisdiction, foreign, state or federal, relating to bankruptcy, insolvency, reorganization or relief of debtors. "Keep-Well Reduction Date" shall mean the date which is six calendar quarters after the Conversion Date. "Keep-Well Termination Date" shall mean the earliest of (i) the day on which full and indefeasible payment of the Obligations of the Borrower under the Credit Agreement has been made to reduce the Commitments of the Lenders thereunder to $145,000,000 or less, (ii) the last day of the period of six consecutive fiscal quarters from and after the Conversion Date during which the Borrower shall have satisfied each of the financial covenants set forth in the Credit Agreement (without giving effect to any payments to or investments by the Sponsors in or for the benefit of the Borrower), (iii) the date on which both of the following shall have been satisfied: (a) construction of the Aladdin Hotel and Casino and renovation of the Theatre has been completed in accordance with all terms of the Credit Agreement and (b) the Commitments and the aggregate outstanding principal amount of the Obligations under the Credit Agreement shall have been reduced to an amount not in excess of the amount specified for such date on Schedule 1 hereto, (iv) the date on which the Sponsors shall have made full payment of the Accelerated Payment Amount described under Section 4 below or (v) in the case of LCI only, the date on which it shall have made full payment of the Accelerated Payment Amount described under Section 13 below. "LSE" means the London Stock Exchange Limited. "Material" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of a Sponsor and its Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, operations, affairs, financial conditions, assets or properties of a Sponsor and its Subsidiaries taken as a whole, or (b) the ability of a Sponsor to perform its obligations under this Agreement or (c) the validity or enforceability of this Agreement. 5 "Material Subsidiary" shall mean each of the Subsidiaries of LCI that are party to that certain Subsidiary Guaranty dated as of June 30, 1997 guaranteeing the obligations of LCI under the Note Agreements. Each Material Subsidiary of LCI as of the date hereof is listed on Schedule 3 hereof. "Minimum Fixed Charge Coverage Ratio" shall have the meaning ascribed thereto in the Credit Agreement. "Note Agreements" shall mean the several identical Note Purchase Agreements dated as of June 30, 1997 among LCI and the purchasers named therein relating to LCI's $50,000,000 aggregate principal amount of 7.74% Guaranteed Senior Notes due 2004 and as the same may be modified by amendments that would not, in the aggregate, have the effect of making LCI's obligations thereunder materially more onerous (it being understood and agreed that any amendment, supplement or modification (i) that increases the amount of the obligations of LCI thereunder, (ii) that would permit the lenders thereunder to declare a default if LCI made any Cash Equity Contribution required of the Sponsors hereunder or (iii) that would permit the lenders thereunder to declare a default if LCI made net payments (net of all reimbursements from the other Sponsors) of not more than 25% of any Accelerated Payment Amount required of the Sponsors hereunder, shall be deemed material). "Wholly-Owned Subsidiary"shall mean, at any time, any Subsidiary one hundred percent (100%) of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Sponsors and such Sponsor's Wholly-Owned Subsidiaries at such time. 2. Keep-Well Agreement. From and after the Conversion Date through, but terminating on, the Keep-Well Termination Date, whether before or after the commencement of any Insolvency Proceeding, if the Borrower fails to comply with the Minimum Fixed Charge Coverage Ratio specified therefor in Section 7.2.4(e) of the Credit Agreement as of the end of any fiscal quarter, the Sponsors shall make or cause to be made Cash Equity 6 Contributions to the Borrower in an amount which, when added to the Borrower's EBITDA for the four quarter period ending on the last day of such fiscal quarter, will result in the Borrower being in compliance with the Minimum Fixed Charge Coverage Ratio. The Sponsors shall make the Cash Equity Contributions required hereby not later than ten (10) Business Days following the earlier of the date on which the Borrower delivers the quarterly financial statements of the Borrower and its Subsidiaries to the Administrative Agent pursuant to Section 7.1.1 of the Credit Agreement or the date such statements are required to be delivered pursuant to said Section. Notwithstanding the foregoing provisions of this Section 2, in no event shall the aggregate Cash Equity Contributions required to be made by the Sponsors under this Section 2 in any fiscal year of the Borrower exceed $30,000,000. The $30,000,000 annual limitation on Cash Equity Contributions shall not apply to, or in any way limit, any obligation of the Sponsors to pay the Accelerated Payment Amount. Cash Equity Contributions made under the Completion Guaranty will not count for purposes of this Agreement, and vice versa. The obligations of the Sponsors under this Section 2 and under Sections 3 and 4 below are joint and several. 3. Payment Provisions. All payments required to be made by the Sponsors pursuant to Section 2 shall be made subject to the following terms: (a) The Sponsors shall make cash payments in the amounts calculated under Section 2 into an interest-bearing deposit account designated and controlled exclusively by the Administrative Agent (the "Deposit Account") in which the Administrative Agent is hereby granted a security interest for the benefit of the Lenders. The Deposit Account is intended to be a "deposit account" for the purposes of Nevada Revised Statutes ("NRS") 40.430.4(g) and Section 9301(g) of the California Uniform Commercial Code. Such funds shall be held in the Deposit Account as additional collateral for the Obligations under the 7 Credit Agreement and the other Loan Documents; provided that, if requested by the Borrower, such funds (i) shall be applied to payment of the Obligations and/or (ii) shall be applied, with the approval of the Required Lenders (which shall not be unreasonably withheld), to the payment of such other obligations of the Borrower incurred in the ordinary course for the acquisition of goods or services which have enhanced or maintained the value of the collateral covered by the Loan Documents. (b) The cash payments into the Deposit Account and the funds therein shall be free and clear of any third party claims thereto, including any claims by the Borrower as a third party beneficiary under this Agreement. The Sponsors and the Administrative Agent on behalf of the Lenders specifically agree that the Borrower is not an intended third party beneficiary to this Agreement and that the Borrower nor any other Person which is not party to this Agreement (other than successors and assigns of the Lenders, the Administrative Agent, the Documentation Agent and the Syndication Agent) has no rights under this Agreement. (c) If, notwithstanding Section 3(a) or 3(b) above, the Borrower asserts (in an Insolvency Proceeding or otherwise) that it holds the right under this Agreement to have Cash Equity Contributions made to it directly or that funds in the Deposit Account deposited pursuant to Section 3(a) are not collateral solely for the Obligations under the Credit Agreement, then this Agreement shall automatically become a continuing unconditional guaranty by the Sponsors of the full and timely payment when due of the Obligations under the Credit Agreement to the extent and in the amount of the (i) Cash Equity Contributions that the Borrower asserts should have been or should be paid to it directly or (ii) funds in the Deposit Account to the extent that the Borrower asserts that such funds are not collateral solely for the Obligations under the Credit Agreement, as the case may be. 4. Payment Provisions in the Event of Acceleration. In the event that the Obligations of the Borrower under the Credit Agreement shall be accelerated 8 pursuant to the provisions of Section 8.2 or 8.3 thereof, the Sponsors guarantee and agree to pay the Accelerated Payment Amount to the Administrative Agent for the benefit of the Lenders not later than forty (40) days following the date of such acceleration. Subject to the provisions of Section 10 hereof, upon the receipt by the Administrative Agent of full and indefeasible payment of the Accelerated Payment Amount, the obligations of the Sponsors under this Agreement shall terminate. The Accelerated Payment Amount shall be applied by the Administrative Agent to the payment of the Borrower's Obligations under the Credit Agreement. 5. Proof of Damages. If the Sponsors shall at any time or from time to time fail to perform or comply with any of their obligations contained herein and if for any reason the Lenders have failed to receive when due and payable (whether at stated maturity, by acceleration, or otherwise) the payment of all or any part of principal or interest or any other amount payable by the Borrower under the Credit Agreement, then in each such case (i) it shall be assumed conclusively without necessity of proof that such failure by the Sponsors was the sole and direct cause of the Lenders failing to receive such payment when due ( to the extent of the failure of the Sponsors to perform their obligations contained herein) irrespective of any other contributing or intervening cause whatsoever, and (ii) the Sponsors further irrevocably waive to the fullest extent permitted by law any right or defense the Sponsors may have to cause the Lenders to prove the cause or amount of such damages or to mitigate the same. 6. Rights of the Administrative Agent. Each Sponsor authorizes the Administrative Agent on behalf of the Lenders to perform any or all of the following acts at any time in their sole discretion, all without notice to the Sponsors and without affecting the Sponsors' obligations under this Agreement: (a) The Administrative Agent and the Lenders may alter any terms of the Loan Documents to which the Sponsors are not a party, including renewing, compromising, extending, enforcing or accelerating, or otherwise changing the time for payment of, or increasing or decreasing the rate of interest on, the Loans or any part of them or 9 increasing or decreasing the amount of the Loans or any other fees payable under the Loan Documents. (b) The Administrative Agent and the Lenders may take and hold security for the Loans, the Letters of Credit and the Borrower's other obligations under the Credit Agreement, the Guarantors' obligations under the Completion Guaranty and this Agreement, accept additional or substituted security for either, and subordinate, exchange, enforce, waive, release, compromise, fail to perfect and sell or otherwise dispose of any such security. (c) The Administrative Agent and the Lenders may direct the order and manner of any sale of all or any part of any security now or later to be held for the Loans, the Letters of Credit, this Agreement or any of the other Loan Documents, and may also bid at any such sale. (d) The Administrative Agent and the Lenders may apply any payments or recoveries from the Borrower, any Sponsor, any Guarantor or any other source, and any proceeds of any security, to the Borrower's obligations under the Loan Documents and/or the Guarantors' obligations under the Completion Guaranty in such manner, order and priority as they may elect, whether or not those obligations are supported by this Agreement or secured at the time of the application. (e) The Administrative Agent and the Lenders may release the Borrower of its liability for the Obligations under the Credit Agreement or any portion thereof. (f) The Administrative Agent and the Lenders may substitute, add or release any one or more Guarantors or endorsers. (g) In addition to the Obligations under the Credit Agreement, the Administrative Agent and the Lenders may extend other credit to the Borrower, its Affiliates and any of the Sponsors or their respective Affiliates and may take and hold security for the credit so extended, all without affecting the Sponsors' liability under this Agreement. 10 (h) The Administrative Agent and the Lenders may change the terms or conditions of disbursement of the Loans or the issuance of the Letters of Credit. (i) The Administrative Agent and the Lenders may advance additional funds to the Borrower for any purpose. 7. Agreement to be Absolute. The Sponsors expressly agree that for as long as the Credit Agreement remains in effect or any of the Obligations under the Credit Agreement remain outstanding, the Sponsors shall not be released from their obligations hereunder by or because of: (a) Any act or event which might otherwise discharge, reduce, limit or modify the Sponsors' obligations under this Agreement; (b) Any waiver, extension, modification, forbearance, delay or other act or omission of the Administrative Agent or the Lenders, or any failure to proceed promptly or otherwise as against the Borrower, any Sponsor, any Guarantor or any security; (c) Any action, omission or circumstance which might increase the likelihood that the Sponsors may be called upon to perform under this Agreement or which might affect the rights or remedies of the Sponsors as against the Borrower or any Guarantor; or (d) Any dealings occurring at any time between the Borrower, the Guarantors, the Administrative Agent, the Syndication Agent, the Documentation Agent or any Lender, whether relating to the Loans, the Letters of Credit or otherwise. The Sponsors hereby expressly waive and surrender any defense to their liability under this Agreement based upon any of the foregoing acts, omissions, agreements, waivers or matters. It is the purpose and intent of this Agreement that the obligations of the Sponsors under it shall be absolute and unconditional under any and all circumstances. 11 8. Sponsors' Waivers. The Sponsors waive: (a) All statutes of limitations as a defense to any action or proceeding brought against the Sponsors by the Administrative Agent or any Lender, to the fullest extent permitted by law; (b) Any right they may have to require the Administrative Agent or the Lenders to proceed against the Borrower or any of the Guarantors, proceed against or exhaust any security held from the Borrower or any of the Guarantors, or pursue any other remedy in their power to pursue; (c) Any defense based on any claim that the Sponsors' obligations exceed or are more burdensome than those of the Borrower; (d) Any defense based on: (i) any legal disability of the Borrower, (ii) any release, discharge, modification, impairment or limitation of the liability of the Borrower and/or the Guarantors under the Loan Documents from any cause, whether consented to by the Administrative Agent or any Lender or arising by operation of law or from any Insolvency Proceeding, (iii) any rejection or disaffirmance of the Loans or any security held for the Loans, in any Insolvency Proceeding and (iv) the Sponsors' rights under NRS 104.3605, the Sponsors specifically agreeing that this clause (iv) shall constitute a waiver of discharge under NRS 104.3605; (e) Any defense based on any action taken or omitted (other than gross negligence or willful misconduct) by the Administrative Agent or any Lender in any Insolvency Proceeding involving the Borrower or any of the Guarantors, including any election to have a claim allowed as being secured, partially secured or unsecured, any extension of credit by the Administrative Agent or any Lender to the Borrower in any Insolvency Proceeding, and the taking and holding by the Administrative Agent or any Lender of any security for any such extension of credit; 12 (f) All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of acceptance of this Agreement and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind; (g) Any defense based on or arising out of any defense that the Borrower may have to the payment or performance of the Obligations under the Credit Agreement or any portion of such Obligations; and (h) Any defense or benefit based on NRS 40.430 and judicial decisions relating thereto and NRS 40.451 et seq. and judicial decisions relating thereto, the Sponsors agreeing that the waiver in this paragraph (h) is intended to take advantage of the two (2) waivers permitted by NRS 40.495 (1) and (2) to the maximum extent permitted. 9. Waivers of Subrogation and Other Rights. (a) Upon the occurrence of any Event of Default, the Administrative Agent in its sole discretion, without prior notice to or consent of the Sponsors, may elect to: (i) foreclose either judicially or nonjudicially against any real or personal property security for the Obligations under the Loan Documents, (ii) accept a transfer of any such security in lieu of foreclosure, (iii) compromise or adjust the Loans or any part thereof or any of the Letters of Credit or make any other accommodation with the Borrower or any Guarantor, or (iv) exercise any other remedy against the Borrower, any Guarantor or any security. No such action by the Administrative Agent or any Lender shall release or limit the liability of the Sponsors, who shall remain liable under this Agreement after the action, even if the effect of the action is to deprive the Sponsors of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from the Borrower for any sums paid to the Administrative Agent or the Lenders, whether contractual or arising by operation of law or otherwise. The Sponsors expressly waive any defenses or benefits that may be derived from NRS Section 40.451, et seq. and judicial decisions relating thereto, or comparable provisions 13 of Nevada law which are comparable to California Civil Procedure ss.ss. 580a, 580b, 580d, or 726 or comparable provisions of the laws of any other jurisdiction, and all other suretyship defenses they otherwise might or would have under Nevada law or other applicable law. The Sponsors expressly agree that under no circumstances shall they be deemed to have any right, title, interest or claim in or to any real or personal property to be held by the Administrative Agent or any Lender or any third party after any foreclosure or transfer in lieu of foreclosure of any security for the Obligations under the Credit Agreement. (b) Regardless of whether the Sponsors may have made any payments to the Administrative Agent or any Lender, the Sponsors hereby waive: (i) all rights of subrogation, all rights of indemnity, and any other rights to collect reimbursement from the Borrower for any sums paid to the Administrative Agent or any Lender, whether contractual or arising by operation of law (including the Bankruptcy Code) or otherwise, (ii) all rights to enforce any remedy that the Administrative Agent or any Lender may have against the Borrower or any other Person, and (iii) all rights to participate in any security now or later to be held by the Administrative Agent or any Lender for the Obligations under the Credit Agreement. The waivers given in this Section 9(b) shall be effective until the Loans and all other Obligations under the Credit Agreement have been indefeasibly paid and performed in full and all Commitments have been terminated. (c) The Sponsors understand and acknowledge that if the Administrative Agent or any Lender forecloses judicially or nonjudicially against any real property security for the Obligations under the Loan Documents, that foreclosure could impair or destroy any ability that the Sponsors may have to seek reimbursement, contribution or indemnification from the Borrower or others based on any right the Sponsors may have of subrogation, reimbursement, contribution or indemnification for any amounts paid by the Sponsors under this Agreement. The Sponsors further understand and acknowledge that in the absence of this Section 9, such potential impairment or destruction of the 14 Sponsors' rights, if any, may entitle the Sponsors to assert a defense to this Agreement. By executing this Agreement, the Sponsors freely, irrevocably and unconditionally: (i) waive and relinquish that defense and agree that the Sponsors will be fully liable under this Agreement even though the Administrative Agent of the Lenders may foreclose judicially or nonjudicially against any real property security for the Obligations under the Loan Documents; (ii) agree that the Sponsors will not assert that defense in any action or proceeding which the Administrative Agent or the Lenders may commence to enforce this Agreement; and (iii) acknowledge and agree that the Administrative Agent and the Lenders are relying on this waiver in making the Loans and issuing the Letters of Credit, and that this waiver is a material part of the consideration which they are receiving for making the Loans and issuing the Letters of Credit. 10. Revival and Reinstatement. If the Lenders are required to pay, return or restore to the Borrower or any other person any amounts previously paid on the Loans or the Letters of Credit because of any Insolvency Proceeding of the Borrower, any stop notice or any other reason, to the extent that the source of such payment was a Cash Equity Contribution from the Sponsors or the payment of the Accelerated Payment Amount by the Sponsors pursuant to this Agreement, the obligations of the Sponsors shall be reinstated and revived and the rights of the Administrative Agent and the Lenders shall continue with regard to such amounts, as though they had never been paid. 11. Representations and Warranties. Each Sponsor hereby represents and warrants unto the Administrative Agent and each Lender as follows: (a) The most recent audited consolidated balance sheet of such Sponsor and its consolidated Subsidiaries (in the case of AHL, as of December 31, 1996, in the case of LCI, as of March 30, 1997 and in the case of ABH, as of December 31, 1997 and the related consolidated statements of earnings and stockholders' equity (or profit and loss in the case of LCI) and of cash flows for the fiscal year ended on such date, reported on by such Sponsor's independent public 15 accountants, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly (or give a true and fair view of in the case of LCI) the consolidated financial condition of such Sponsor and its consolidated Subsidiaries as at such date, and the results of their operations (or consolidated profit and loss in the case of LCI) and their consolidated cash flows for the fiscal year then ended. The unaudited consolidated balance sheet of such Sponsor and its consolidated Subsidiaries as at September 30, 1997 and the related unaudited consolidated statements of earnings and of cash flows for the nine-month period (or, in the case of LCI, six month period) ended on such date, certified by an Authorized Representative of such Sponsor, are complete and correct and present fairly (or give a true and fair view of in the case of LCI) the consolidated financial condition of such Sponsor and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the nine-month period (or, in the case of LCI, six-month period) then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Authorized Representative, as the case may be, and as disclosed therein). (b) Since December 31, 1996, in the case of AHL, since March 30, 1997, in the case of LCI, and since December 31, 1997, in the case of ABH, there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect. (c) Each of such Sponsor and its Subsidiaries (a) is duly organized, and, to the extent applicable, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) to the extent applicable, is duly qualified as a foreign corporation or company and in good standing under the laws of each jurisdiction where its ownership, lease 16 or operation of property or the conduct of its business requires such qualification and (d) is in compliance with all material Requirements of Law except where failure to comply with any of the foregoing could not individually or in the aggregate reasonably be expected to have a Material Adverse Effect. (d) Each of such Sponsors has the corporate power and authority, and the legal right, to make, deliver and perform this Agreement and to provide the undertakings hereunder and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement. No consent or authorization of, filing with or other act by or in respect of, any Governmental Instrumentality or any other Person is required to be obtained or made, as the case may be, by such Sponsor in connection with this Agreement or with the execution, delivery, performance, validity or enforceability of this Agreement by or against such Sponsor, except as has been obtained and remains in full force and effect on the date hereof. This Agreement has been duly executed and delivered on behalf of such Sponsor. This Agreement constitutes a legal, valid and binding obligation of such Sponsor enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). (e) Each Subsidiary Guarantor has the corporate power and authority, and the legal right, to make, deliver and perform the Subsidiary Guaranty and to provide the undertakings thereunder and has taken all necessary corporate action to authorize the execution, delivery and performance of the Subsidiary Guaranty. No consent or authorization of, filing with or other act by or in respect of, any Governmental Instrumentality or any other Person is required to be obtained or made, as the case may be, by such Subsidiary Guarantor in connection with the Subsidiary Guaranty or with the execution, delivery, performance, validity or enforceability of the Subsidiary Guaranty by or against such Subsidiary Guarantor, except as has been obtained and remains 17 in full force and effect on the date hereof. The Subsidiary Guaranty has been duly executed and delivered on behalf of each Subsidiary Guarantor. The Subsidiary Guaranty constitutes a legal, valid and binding obligation of each Subsidiary Guarantor enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). (f) The execution, delivery and performance of this Agreement by the Sponsors and the execution, delivery and performance by the Subsidiary Guarantors of the Subsidiary Guaranty will not (i) violate any Legal Requirement or contractual obligations of such Sponsor or Subsidiary Guarantor, (ii) result in, or require, the creation or imposition of any Lien on any of its properties or revenues pursuant to any such Legal Requirement or contractual obligations or (iii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree or ruling of any court, arbitrator or Governmental Instrumentality applicable to such Sponsor or Subsidiary Guarantor. (g) Schedule 4 contains (except as noted therein) complete and correct lists of each Sponsor's Subsidiaries (other than Dormant Subsidiaries), showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by each Sponsor and each other Subsidiary of such Sponsor. All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 4 as being owned by a Sponsor and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by such Sponsor or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 4). Each Subsidiary identified in Schedule 4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified 18 as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, assets, debt service capacity, property or financial condition, operations or prospects of such Subsidiary. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. No Subsidiary identified in Schedule 4 is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to its Sponsor parent or any of such Sponsor's Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. (h) Except as disclosed in Schedule 5 there are no actions, suits or proceedings pending or, to the knowledge of any Sponsor, threatened against or affecting such Sponsor or any Subsidiary or any property of such Sponsor or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Instrumentality that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither any Sponsor nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Instrumentality or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Instrumentality, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 19 (i) Except as disclosed in Schedule 5-A, each Sponsor and its Subsidiaries have filed all material tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the non-payment of which could not reasonably be expected to have a Material Adverse Effect or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which such Sponsor or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. Each Sponsor knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of each Sponsor and its Subsidiaries in respect of governmental or other taxes for all fiscal periods are adequate. (j) Each Sponsor and its Subsidiaries have adequate and appropriate insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self- insurance) to the extent this is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated, except where the failure to so maintain insurance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (k) Each Sponsor and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in clause (a) hereof or purported to have been acquired by such Sponsor or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are 20 Material are valid and subsisting and are in full force and effect in all material respects. (l) Except as disclosed in Schedule 6, (i) each Sponsor and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (ii) to the best knowledge of each Sponsor, no product or such Sponsor infringes in any material respect on any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (iii) to the best knowledge of each Sponsor, there is no Material violation by any Person of any right of such Sponsor or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by such Sponsor or any of its Subsidiaries. (m) Except as described therein, Schedule 7 sets forth a complete and correct list of all outstanding Indebtedness of each Sponsor and its Subsidiaries as of September 30, 1997, since which date there has been no Material changes in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of such Sponsor or its Subsidiaries. Neither any Sponsor nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of such Sponsor or such Subsidiary and no event or condition exists with respect to any Indebtedness of any Sponsor or any Subsidiary in an aggregate principal amount in excess of $1,500,000 that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable 21 before its stated maturity or before its regularly scheduled dates of payment. Except as disclosed in Schedule 7, neither any Sponsor nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 14(a). (n) Neither any Sponsor nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, or the Federal Power Act, as amended. (o) Neither any Sponsor nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against such Sponsor or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. (p) Each Sponsor's ownership interest in the Borrower as of the date hereof is set forth on Schedule 8. (q) LCI has delivered to the Administrative Agent true, correct and complete copies of all material documents, instruments, opinions and certificates with respect to the Existing Senior Debt. 12. Affirmative Covenants. Until the Keep-Well Termination Date, each Sponsor agrees as follows: (a) LCI shall furnish to the Administrative Agent the documentation required to be delivered pursuant to Section 12.1(i) and (ii)(a), (b), (c), (d) and (e) of the LCI Facilities Agreement, or the comparable provisions of any facilities agreement executed in substitution of, or as a replacement of, the LCI Facilities Agreement. 22 (b) AHL and ABH shall furnish to the Administrative Agent: (i) as soon as available, but in any event within 120 days after the end of each fiscal year of such Sponsor, a copy of the consolidated and consolidating balance sheet of such Sponsor and its consolidated Subsidiaries as at the end of such year and the related consolidated and consolidating statements of earnings and stockholders' equity and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by an independent certified public accountants of nationally recognized standing; and (ii) as soon as available, but in any event not later than 60 days after the end of each of the first three quarterly periods of each fiscal year of such Sponsor, (A) the unaudited consolidated and consolidating balance sheet of such Sponsor and its consolidated Subsidiaries as at the end of such quarter and in comparative form the figures for the end of the previous fiscal year, (B) the unaudited consolidated and consolidating statement of earnings of such Sponsor and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, and in comparative form the figures for the previous year and (C) the consolidated and consolidating statement of cash flows of such Sponsor and its consolidated Subsidiaries for the portion of the fiscal year through the end of such quarter, and in comparative form the figures for the previous year, certified by an Authorized Representative of such Sponsor as being fairly stated in all material respects when considered in relation to the consolidated and consolidating financial statements of such Sponsor and its consolidated Subsidiaries (subject to normal year-end audit adjustments); 23 all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). (c) LCI shall furnish to the Administrative Agent, concurrently with the delivery of the financial statements described in clause (a) above, a certificate of a Authorized Representative of LCI showing in reasonable detail the calculations demonstrating compliance with Section 12(g) of this Agreement for the fiscal period ending on such date. Each Sponsor shall furnish to the Administrative Agent within thirty days after the same are sent, copies of all financial statements and reports which such Sponsor sends to its stockholders, and within thirty days after the same are filed, copies of all financial statements and reports which such Sponsor may make to, or file with, the LSE, the Securities and Exchange Commission or any successor or analogous Governmental Instrumentality. Each Sponsor shall furnish to the Administrative Agent with reasonable promptness, such additional financial and other information as the Administrative Agent, on behalf of any Lender, may from time to time reasonably request. (d) Each Sponsor shall keep true and correct books of records and account in conformity with GAAP and all Requirements of Law; and permit the Administrative Agent: (i) No Event of Default -- if no Event of Default then exists, at the expense of such Administrative Agent and upon reasonable prior notice to such Sponsor, to visit the principal executive office of such Sponsor and to discuss the affairs, finances and accounts of such Sponsor and its Subsidiaries with such Sponsor's officers, all at such reasonable times and as often as may be reasonably requested in writing; and 24 (ii) Event of Default -- if an Event of Default then exists, at the expense of such Sponsor to visit and inspect any of the offices of properties of such Sponsor or any Subsidiary, to examine their respective books and records and to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants, all at such reasonable times and as often as may be requested. A Sponsor shall not be under any obligation under this Agreement to provide information pursuant to the last sentence of Section 12(c) or pursuant to this Section 12(d) if (i) disclosure of such information, on the written advice of such Sponsor's counsel provided to such Sponsor, would be prohibited by law or by decree of any Governmental Instrumentality or arbitral body or by the terms of any obligation of confidentiality contained in any agreement binding upon such Sponsor and not entered into in contemplation of this Section 12(d) or (ii) such information relates to the identity or personal details of any of the customers or clients of LCI or any of its Subsidiaries. In addition, LCI shall not be under any obligation under this Agreement to provide information pursuant to the last sentence of Section 12(c) or pursuant to Section 12(d) if LCI has been advised in writing by an investment or merchant bank in London, that the requested disclosure to the Administrative Agent or any Lender would require LCI to make public disclosure of such information to comply with its continuing obligations under the rules of the LSE or would otherwise be prohibited by such rules. If the Administrative Agent shall contest such written advice from the investment or merchant bank by itself providing advice in writing to the contrary from an investment or merchant bank in London, then LCI will obtain advice in writing from a senior official of the LSE as to whether the requested disclosure would require LCI to make public disclosure of such information to comply with any of such obligations or would otherwise be prohibited as aforesaid. Before seeking such advice from the LSE (either directly or through its listing sponsor), LCI will 25 consult with the Administrative Agent and submit to the LSE such factual submissions and other representations that the Administrative Agent may provide to LCI for such purpose. The written advice of such senior official shall be conclusive as to the disclosure in question. (e) Each Sponsor shall promptly give notice to the Administrative Agent (which shall promptly transmit such notice to each Lender) of: (i) any breach by such Sponsor of any of its obligations hereunder or with respect to Existing Senior Debt; (ii) any (a) default or event of default under any contractual obligation of such Sponsor or any of its Subsidiaries or (b) litigation, investigation or proceeding which may exist at any time between such Sponsor or any of its Subsidiaries and any Governmental Instrumentality, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (iii) any material litigation or proceeding affecting such Sponsor or any of its Subsidiaries; and (iv) any development or other event which could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this clause (e) shall be accompanied by a statement of a Authorized Representative of such Sponsor setting forth details of the occurrence referred to therein and stating what action such Sponsor or any of its Subsidiaries propose to take with respect thereto. (f) LCI shall, in the aggregate, continue to own, directly or through one or more wholly-owned Subsidiaries, free of any Lien other than Liens in favor of the Administrative Agent and the Lenders, the same aggregate percentage of the capital stock of the Borrower as set forth on Schedule 8 hereof, subject to adjustment as provided in clause (k) 26 of the definition of the term "Change in Control" in the Credit Agreement. (g) LCI covenants and agrees that (i) the ratio of Group Operating Profit to Net Interest Payable in respect of each 12 month period ending on the last day of each financial year and financial half year of the Group shall not be less than 2.5:1; (ii) the ratio of Consolidated Net Borrowings to Consolidated Net Worth shall not at any time exceed 1.5:1; and (iii) Consolidated Net Worth shall at all times be greater than (pound)95,000,000, and that the finance director of LCI for the time being shall certify compliance or, as the case may be, non-compliance by LCI and the Group with each of the provisions referred to in paragraphs (i), (ii) and (iii) above at the same time as LCI shall furnish to the Administrative Agent the financial statements referred to in Section 12(a) provided that following receipt of any such certificate the Administrative Agent may in its absolute discretion require LCI to instruct its auditors for the time being to certify compliance or, as the case may be, non-compliance by LCI and the Group with each of the provisions referred to in paragraphs (i), (ii) and (iii) above and further that in the event of any changes in any of the accounting principles and bases upon which any of such financial statements are prepared, the financial covenants set out in this sub-clause shall be adjusted or otherwise amended so as to ensure that or, as nearly as possible that, following such changes the obligations, limitations and restrictions contained in such covenants shall, mutatis mutandis, have the same effect as if such changes had not been made and that the Administrative Agent shall be provided with all appropriate information and details that it may request in connection with such adjustments or amendments. 27 (h) Each Sponsor will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (i) Each Sponsor will and will cause each of its Subsidiaries to maintain, with institutions it reasonably believes to be financially sound insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or similar business and similarly situated. (j) Each Sponsor will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in reasonably good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent a Sponsor from discontinuing the operation and maintenance of or the liquidation of any Dormant Subsidiary and shall not prevent a Sponsor or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and such Sponsor has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 28 (k) Each Sponsor will and will cause each of its Subsidiaries to file all material tax returns required to be filed in any jurisdiction and to pay and discharge all taxes, assessments, governmental charges, or levies shown to be due and payable on such returns and all other taxes imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of such Sponsor or any Subsidiary, provided that neither a Sponsor nor any Subsidiary need to pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by such Sponsor or such Subsidiary on a timely basis in good faith in appropriate proceedings and such Sponsor or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of such Sponsor or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. (l) Each Sponsor will at all times preserve and keep in full force and effect its corporate or other existence. Except as allowed under the Note Agreements, each Sponsor will at all times preserve and keep in full force and effect the corporate or other existence of each of its Subsidiaries (other than Dormant Subsidiaries or unless merged into such Sponsor or a Subsidiary) and all licenses, consents, certificates and authorizations of such Sponsor and its Subsidiaries unless, in the good faith judgment of such Sponsor, the termination of or failure to preserve and keep in full force and effect such corporate or other existence, licenses, consents, certificates and authorizations could not, individually or in the aggregate, have a Material Adverse Effect. (m) Each Sponsor will, and will cause each of its Subsidiaries to, keep proper books of record and account in accordance with GAAP as applied in the jurisdiction of its incorporation as such Sponsor may deem appropriate from time to time. 29 (n) Neither any Sponsor nor any Subsidiary will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by such Sponsor and its Subsidiaries would be materially changed from the general nature of the business engaged in by such Sponsor and its Subsidiaries as of the date hereof. (o) Promptly upon the determination that any Subsidiary of LCI has become a Material Subsidiary, LCI shall cause such Subsidiary to execute and deliver a joinder agreement for the Subsidiary Guaranty pursuant to which such Subsidiary shall become a party thereto and Subsidiary Guarantor thereunder. 13. Consequences of Specified Events. If at any time prior to the Keep-Well Termination Date (each of the following, a "Specified Event"), (a) LCI shall at any time fail to comply with the covenants set forth in Sections 12(f), 12(g), 12(o) or 14 hereof and to the extent such non-compliance is capable of being cured, such non-compliance shall not have been cured within twenty-five (25) days; or (b) any borrowed money for a sum in excess of (pound)2,500,000 or the equivalent thereof in any other currency of LCI or any Material Subsidiary shall by reason of breach or default become due and payable prior to its stated maturity or due date therefor or if any such borrowed money is not paid at the maturity thereof or due date therefor (or within any originally stated applicable grace period therefor) or, if payable on demand, is not paid on demand; or (c) LCI or any Material Subsidiary becomes insolvent or applies for or consents to or suffers the appointment of a liquidator, receiver, administrative receiver, administrator, guardian, encumbrancer, trustee in bankruptcy or similar official of the whole or any substantial part of its respective assets, business, property, revenues or undertaking (other than in any of such cases (except for the appointment of any administrator) for the purposes of a solvent reconstruction or 30 amalgamation the terms of which have previously been approved by the Required Lenders) LCI or any Material Subsidiary takes any proceedings under any law for adjustment, deferment or rescheduling of its Indebtedness or any part thereof or makes or enters or any proposal is made to make or enter into a general assignment or arrangement (including, without limitation, any voluntary arrangement under part I of the Insolvency Act 1986) or composition with or for the benefit of its creditors or a moratorium shall be declared on any of its Indebtedness or any part thereof or any creditor of LCI or any Material Subsidiary exercises a contractual right to take over the financial management of LCI or any Material Subsidiary or LCI or any Material Subsidiary is deemed or shall become unable to pay its debts as defined in Section 123 Insolvency Act 1986 or LCI or any Material Subsidiary fails generally to pay its debts as and when they fall due or if the equivalent of any of the foregoing shall occur in relation to LCI or any Material Subsidiary under the laws of any jurisdiction to which it or any of its rights, property or assets are subject; or (d) a petition is presented (but only if such petition remains undischarged 90 days after presentation thereof) or a meeting is convened or an order is made or resolution is passed for or other action or proceedings or steps are taken with a view to the appointment of an administrator, winding-up, liquidation or dissolution of LCI or any Material Subsidiary or if the equivalent of any of the foregoing shall occur in relation to LCI or any Material Subsidiary under the laws of any jurisdiction to which it or any of its rights, property or assets are subject (other than in any of such cases (except for the appointment of any administrator) for the purposes of the winding up of a dormant member of the Group or a solvent reconstruction or amalgamation, in each case the terms of which have previously been approved by the Required Lenders), or LCI or any Material Subsidiary stops or threatens to stop payments generally or ceases or threatens to cease to carry on its business or a substantial part thereof or LCI or any Material Subsidiary merges, consolidates or amalgamates with or into 31 any other company, corporation or entity in a transaction not otherwise permitted under the Facilities Agreement; or (e) a distress, execution or other legal process is levied against any of the assets of LCI or any Material Subsidiary and is not discharged or paid out within 90 days, except where such distress, execution or other legal process is in the reasonable opinion of the Required Lenders being contested in good faith by LCI or the relevant Material Subsidiary or any analogous proceedings shall be commenced against LCI or any Material Subsidiary or its assets under the laws of any other jurisdiction; or (f) an encumbrancer takes possession or a receiver or an administrative receiver is appointed of the whole or any substantial part of the assets or undertaking of LCI or any Material Subsidiary or any analogous action shall be taken against LCI or any Material Subsidiary or its assets or undertaking under the laws of any jurisdiction; then, not later than five (5) days after such Specified Event, LCI shall pay the Accelerated Payment Amount to the Administrative Agent for the benefit of the Lenders. The Accelerated Payment Amount shall be applied by the Administrative Agent to the payment of the Borrower's Obligations under the Credit Agreement. 14. Negative Covenants. At all times prior to the Keep-Well Termination Date, (a) Each Sponsor will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset except: (i) Liens securing Existing Senior Debt; (ii) any Lien arising by operation of law which secures amounts not more than 45 days overdue or, if so overdue, are being 32 contested on a timely basis in good faith and in appropriate proceedings; (iii) any Lien imposed on a Sponsor or any of its Subsidiaries in relation to its purchase of goods, products or supplies in the ordinary course of business; (iv) any rights of set-off in the normal course of trading or of any bank or financial institution or combination of accounts arising in favor of such bank or financial institution as a result of the day-to-day operation of banking arrangements, including without limitation, rights of set-off granted to such bank or financial institution in respect of the issuance of letters of credit, or as a result of any currency or interest rate hedging operations carried out in the ordinary course of business, in each case, provided that there is no agreement to confer a security interest; (v) statutory Liens of landlords, Liens over goods or documents of title arising in the ordinary course of documentary credit transactions and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case, incurred in the ordinary course of business; (vi) Liens for taxes, assessments or other governmental charges which are not yet due and payable or the payment of which is not at the time required by Note Agreements; (vii) Liens incurred or deposits made in the ordinary course of business (A) in connection with workers' compensation, unemployment insurance and other types of social security or retirement benefits, or (B) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases (other than capital leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; 33 (viii) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of business of a Sponsor and its Subsidiaries, provided that such Liens do not, in the aggregate, materially detract from the value of such property; (ix) any Lien renewing, extending or refunding any Lien permitted by clause (i), provided that (A) the principal amount of Indebtedness secured by such Lien immediately prior to such extension, renewal or refunding is not increased or the maturity thereof reduced, (B) such Lien is not extended to any other property and (C) immediately after such extension, renewal or refunding no Specified Event would exist; (x) any Lien securing the obligations of LCI under this Agreement, the Credit Facility and the obligations of any Subsidiary Guarantor under any Subsidiary Guarantee; (xi) any Lien not otherwise permitted by clauses (i) through (x) above, provided that on the date any Indebtedness secured by any such Lien, is created, incurred, assumed or guaranteed by such Sponsor or any Subsidiary, and immediately after giving effect thereto and to the concurrent retirement of any other Indebtedness, the sum of (A) the aggregate principal amount of all Indebtedness secured by Liens pursuant to this clause (xi) plus (B) all unsecured Indebtedness of such Sponsor and its Subsidiaries (excluding any unsecured Existing Senior Debt) that is senior in any respect in right of payment to the obligations of such Sponsor hereunder, does not exceed 25% of the Consolidated Tangible Assets of such Sponsor as of such date; and (xii) any Lien set forth on Schedule 3, in the case of ABH. (b) Each Sponsor will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any secured or unsecured Indebtedness that is senior in any respect in right 34 of payment to the obligations of such Sponsor hereunder (excluding (A) any Indebtedness secured by Liens pursuant to clauses (i) through (x) of Section 14(a) hereof and (B) any unsecured Existing Senior Debt but including any Indebtedness secured by Liens pursuant to clause (xi) of Section 14(a) hereof) if the aggregate amount of all such senior Indebtedness described in this clause (b) would exceed 25% of the Consolidated Tangible Assets of such Sponsor as of such date. (c) In the case of ABH and AHL only, declare, pay or make any dividend or distribution (in cash, property or obligations) on any shares of any class of interests (now or hereafter outstanding) of such Sponsor or on any warrants, options or other rights with respect to any interests in any class of interests (now or hereafter outstanding) of such Sponsor (other than dividends or distributions payable in its common interests or warrants to purchase its common interests or splitups or reclassifications of its interests into additional or other interests) or apply, or permit any of its Subsidiaries to apply, any of its funds, property or assets to the purchase, redemption, sinking fund or other retirement of, or agree or permit any of its Subsidiaries to purchase or redeem, any shares of any class of interests (now or hereafter outstanding) of such Sponsor, or warrants, options or other rights with respect to any shares of any class of interests (now or hereafter outstanding) of such Sponsor. 15. Payments Free and Clear of Taxes, etc. Each Sponsor hereby agrees that: (a) All payments by such Sponsor hereunder to the Borrower or to a Lender shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes imposed on or measured by any Lender's net income or receipts (such non-excluded items being called "Taxes"). In the event that any withholding or deduction from any payment to be made by a Sponsor hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then such Sponsor will 35 (i) pay directly to the relevant authority the full amount required to be so withheld or deducted; (ii) promptly forward to the Borrower or such Lender an official receipt or other documentation satisfactory to the Borrower or such Lender evidencing such payment to such authority; and (iii) pay to the Borrower or such Lender such additional amount or amounts ("Additional Amounts") as is necessary to ensure that the net amount actually received by the Borrower or such Lender will equal the full amount the Borrower or such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Borrower or any such Lender with respect to any payment received by the Borrower or such Lender hereunder, the Borrower or such Lender may pay such Taxes and the Sponsor will promptly pay such Additional Amounts (including any penalties, interest or expenses ) as is necessary in order that the net amount received by the Borrower or such Lender after the payment of such Taxes (including any Taxes on such Additional Amounts) shall equal the amount the Borrower or such Lender would have received had not such Taxes been asserted. Upon the request of any Sponsor, each Lender that is organized under the laws of a jurisdiction other than the United States or a State thereof (for purposes of this paragraph (k), a "Non-U.S. Lender") shall, prior to the date on which any payment is made hereunder (or in the case of a Lender that becomes a party to the Credit Agreement pursuant to Section 4.11 of the Credit Agreement or any Assignee Lender, before it becomes a party hereto) (i) execute and deliver to each Sponsor and the Administrative Agent one or more (as the Sponsors or the Administrative Agent may reasonably request) United States Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or documents (or successor forms or documents), appropriately completed, certifying in each case that such Lender or Assignee Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, 36 and an applicable Internal Revenue Service Form W-8 or Form W-9 or successor applicable form (if required by law), as the case may be, to establish an exemption from United States backup withholding tax or (ii) if such Non-U.S. Lender is not a "bank" or other person described in Section 881 (c) (3) of the Code and cannot deliver either Form 4224 or Form 1001 pursuant to clause (a) above, execute and deliver to each Sponsor and the Administrative Agent one or more (as the Sponsors or the Administrative Agent may reasonably request) copies of the Tax Certificate, Form W-8 (or any successor form) and any other certificate or statement of exemption required under the Code or Treasury Regulations issued thereunder, appropriately completed, certifying that such Lender or Assignee Lender is entitled to receive payments under this Agreement without deduction or withholding of United States federal income tax and establishing an exemption from United States backup withholding tax. All Lenders other than Non-U.S. Lenders shall, prior to the date on which any payment is made hereunder (or in the case of a Lender that becomes a party to the Credit Agreement pursuant to Section 4.11 of the Credit Agreement or is an Assignee Lender, before such Lender becomes a party hereto) execute and deliver to the Borrower and the Administrative Agent one or more copies (as the Borrower or Administrative Agent may reasonably request) of United States Internal Revenue Form W-9 or successor applicable form (if required by law), as the case may be, to establish exemption from United States backup withholding tax. Each Lender which undertakes to deliver to the Sponsors or the Administrative Agent a Tax Certificate, a Form 4224, Form 1001, Form W-8 or Form W-9 pursuant to the preceding paragraph shall further undertake to deliver to the Sponsors and the Administrative Agent two further copies of said Tax Certificate, Form 4224, Form 1001, Form W-8 or Form W-9 (if required by law), or successor applicable forms, or other manner of certification, as the case may be, on or before the date that such form expires or becomes obsolete or after the occurrence of an event requiring a change in the most recent form delivered by it to the Sponsors and the Administrative Agent, and such extensions or renewals thereof as may be reasonably requested by the Sponsors or Administrative Agent, certifying in the 37 case of a Tax Certificate, Form 4224 or Form 1001 that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless in any case an event (including any change in treaty, law or regulation) has occurred prior to the date on which such delivery would otherwise be required which renders all forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Sponsors and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or Form W-9, establishing an exemption from backup withholding. (b) If the Sponsor fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Borrower or any Lender the required receipts or other required documentary evidence, the Sponsor shall indemnify the Borrower or such Lender for any incremental Taxes, interest or penalties that may become payable by the Borrower or such Lender as a result of any such failure. (c) In the event that an Additional Amount is paid by a Sponsor for the account of any Lender and such Lender is entitled to a refund of the Tax (a "Tax Refund") to which such payment is attributable, then such Lender shall take all reasonable steps which are necessary to obtain such Tax Refund, including filings such forms, certificates, documents, applications or returns as may be required to obtain such Tax Refund. If such Lender subsequently receives such a Tax Refund, and such Lender is readily able to identify the Tax Refund as being attributable to the Tax with respect to which the Additional Amount was made, then such Lender shall reimburse such Sponsor such amount as such Lender shall determine acting in good faith to be the proportion of the Tax Refund, together with any interest received thereon, attributable to such Additional Amount as will leave such Lender after the reimbursement (including such interest) in no better or worse position than it would have been if the Additional Amount had not been required. 38 (d) Without prejudice to the survival of any other agreement of the Sponsors hereunder, the agreements and obligations of the Sponsors contained in this Section 15 shall survive the payment in full of the principal of and interest on the Loans. 16. Judgment. Each Sponsor hereby agrees that: (a) If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder in United States Dollars into another currency, such Sponsor agrees, to the fullest extent permitted by law, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase United States Dollars with such other currency on the Business Day preceding that on which final judgment is given. (b) The obligation of each Sponsor in respect of any sum due from it to any Lender hereunder shall, notwithstanding any judgment in a currency other than United States Dollars, be discharged only to the extent that on the Business Day following receipt by such Lender of any sum adjudged to be so due in such other currency such Lender may, in accordance with normal banking procedures, purchase United States Dollars with such other currency; in the event that the United States Dollars so purchased are less that the sum originally due to such Lender in United States Dollars, the Sponsor, as a separate obligation and notwithstanding any such judgment, shall indemnify and hold harmless such Lender and such holder against such loss, and if the United States Dollars so purchased exceed the sum originally due to such Lender in United States Dollars, such Lender shall remit to such Sponsor such excess. 17. Agreement to Subordinate. Notwithstanding anything to the contrary in this Agreement, the Administrative Agent and each Lender, for itself and for its successors assigns, agrees that it shall become party to an Intercreditor Deed with terms substantially as described in the form of Schedule 9 hereto. The payment of all sums payable by LCI hereunder shall be subordinated in right of payment to the extent and in the manner provided in such Intercreditor Deed. 39 18. Miscellaneous Provisions. (a) This Agreement is a Loan Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. (b) This Agreement shall be binding upon the Sponsors and their permitted successors, transferees and assigns and shall inure to the benefit of and be enforceable by the Administrative Agent and each Lender and their respective successors, transferees and assigns; provided, however, that the Sponsors may not assign any of their obligations hereunder without the prior written consent of the Required Lenders. (c) No amendment to or waiver of any provision of this Agreement, nor consent to any departure by any Sponsor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (d) All notices and other communications provided to any party hereto under this Agreement shall be in writing and addressed, delivered or transmitted to such party at its address or facsimile number set forth below or at such other address or facsimile number as may be designated by such party in a notice to the other parties. All such notices and communications shall be deemed to have been properly given if (x) hand delivered with receipt acknowledged by the recipient; (y) if mailed, upon the fifth Business Day after the date on which it is deposited in registered or certified mail, postage prepaid, return receipt requested or (z) if by Federal Express or other nationally-recognized express courier service with instructions to deliver on the following Business Day, on the next Business Day after delivery to such express courier service. Notices and other communications may also be properly given by facsimile but shall be deemed to be received upon automatic facsimile confirmation of receipt thereof by the intended recipient machine therefor with the 40 original of such notice or communication to be given in the manner provided in the second sentence of this Section; provided, however, that the failure to deliver a copy in accordance with the second sentence of this paragraph (d) shall not invalidate the effectiveness of such facsimile notice. The address information for the parties is set forth below: If to the Administrative Agent: The Bank of Nova Scotia 580 California Street, 21st Floor San Francisco, CA 94104 Attn: Alan W. Pendergast Telephone No.: (415) 986-1100 Facsimile No.: (415) 397-0791 If to ABH: Aladdin Bazaar Holdings, LLC 831 Pilot Road Las Vegas, Nevada 89119 Attn: Jack Sommer Telephone No.: (702) 736-7114 Facsimile No.: (702) 736-7107 If to AHL: Aladdin Holdings, LLC 831 Pilot Road Las Vegas, Nevada 89119 Attn: Jack Sommer Telephone No.: (702) 736-7114 Facsimile No.: (702) 736-7107 If to LCI: London Clubs International, plc 10 Brick Street London W1Y 8HO, England Attn: Linda M. Lillis Telephone No.: 011-44-171-518-0000 Facsimile No.: 011-44-171-493-6981 41 with a copy to: Ohrenstein & Brown, LLP 230 Park Avenue New York, New York 10169 Attn: Peter J. Kiernan, Esq. Telephone No.: (212)- 682-4500 Facsimile No.: (212)- 557-0910 and: Lionel, Sawyer & Collins 300 South 4th Street Suite 1700 Las Vegas, Nevada 89101 Attn: Greg Giordano, Esq. Telephone No.: (702)-383-8888 Facsimile No.: (702)-383-8845 (e) No failure on the part of the Administrative Agent or any Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. (f) Section captions used in this Agreement are for convenience of reference only, and shall not affect the construction of this Agreement. (g) Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. (h) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES 42 HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT HERETO. (i) ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, THE LENDERS OR THE SPONSORS SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK IN THE CITY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PROPERTY MAY BE FOUND. THE SPONSORS HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN THE CITY OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE SPONSORS HEREBY IRREVOCABLY APPOINT CT CORPORATION SYSTEM (THE "PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, UNITED STATES, AS THEIR AGENT TO RECEIVE, ON THE SPONSORS' BEHALF AND ON BEHALF OF THE SPONSORS' PROPERTY, SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. SUCH SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO THE SPONSORS IN CARE OF THE PROCESS AGENT AT 43 THE PROCESS AGENT'S ABOVE ADDRESS, AND THE SPONSORS HEREBY IRREVOCABLY AUTHORIZE AND DIRECT THE PROCESS AGENT TO ACCEPT SUCH SERVICE ON THEIR BEHALF. AS AN ALTERNATIVE METHOD OF SERVICE, THE SPONSORS FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE SPONSORS HEREBY EXPRESSLY AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE SPONSORS HAVE OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO THEMSELVES OR THEIR PROPERTY, THE SPONSORS HEREBY IRREVOCABLY WAIVE SUCH IMMUNITY IN RESPECT OF THEIR OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. (j) THE SPONSORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT OR THE LENDERS OR THE SPONSORS. THE SPONSORS ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR 44 THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS ENTERING INTO THE CREDIT AGREEMENT. 45 IN WITNESS WHEREOF, the Sponsors have caused this Agreement to be duly executed and delivered by their officers thereunto duly authorized as of the date first above written. ALADDIN HOLDINGS, LLC By: /s/ Ronald Dictrow ------------------------------- Ronald Dictrow Title: Secretary, Treasurer Address: 280 Park Avenue New York, N.Y. 10017 Attention: Ronald Dictrow Telecopy: 212-661-0844 ALADDIN BAZAAR HOLDINGS, LLC By: /s/ Ronald Dictrow ------------------------------- Ronald Dictrow Title: Secretary, Treasurer Address: 280 Park Avenue New York, N.Y. 10017 Attention: Ronald Dictrow Telecopy: 212-661-0844 LONDON CLUBS INTERNATIONAL PLC By: /s/ G. Barry Hardy ------------------------------- G. Barry Hardy Title: Finance Director Address: 30 Burlington Street London W1X 2LN England Attention: G. Barry Hardy Telecopy: 011-44-171-518-0174 46 SCHEDULE 1 - -------------------------------------------------------------------------------- DATE AGGREGATE PRINCIPAL OUTSTANDING ($ Millions) - -------------------------------------------------------------------------------- Conversion Date $285.0 - -------------------------------------------------------------------------------- End of First Quarter following Conversion Date $277.5 - -------------------------------------------------------------------------------- End of Second Quarter thereafter $270.0 - -------------------------------------------------------------------------------- End of Third Quarter thereafter $262.5 - -------------------------------------------------------------------------------- End of Fourth Quarter thereafter $255.0 - -------------------------------------------------------------------------------- End of Fifth Quarter thereafter $247.5 - -------------------------------------------------------------------------------- End of Sixth Quarter thereafter $240.0 - -------------------------------------------------------------------------------- End of Seventh Quarter thereafter $232.5 - -------------------------------------------------------------------------------- End of Eighth Quarter thereafter $225.0 - -------------------------------------------------------------------------------- End of Ninth Quarter thereafter $217.5 - -------------------------------------------------------------------------------- End of Tenth Quarter thereafter $210.0 - -------------------------------------------------------------------------------- End of Eleventh Quarter thereafter $202.5 - -------------------------------------------------------------------------------- End of Twelfth Quarter thereafter $195.0 - -------------------------------------------------------------------------------- End of Thirteenth Quarter thereafter $187.5 - -------------------------------------------------------------------------------- End of Fourteenth Quarter thereafter $180.0 - -------------------------------------------------------------------------------- End of Fifteenth Quarter thereafter $172.5 - -------------------------------------------------------------------------------- End of Sixteenth Quarter thereafter $165.0 - -------------------------------------------------------------------------------- End of Seventeenth Quarter thereafter $157.5 - -------------------------------------------------------------------------------- End of Eighteenth Quarter thereafter $150.0 - -------------------------------------------------------------------------------- End of Nineteenth Quarter thereafter $150.0 - -------------------------------------------------------------------------------- End of Twentieth Quarter thereafter $145.0 - -------------------------------------------------------------------------------- 47 SCHEDULE 2 Additional Defined Terms "Cash and Cash Equivalents" means: (a) cash in hand or at a bank and beneficially owned by LCI or a Subsidiary of LCI; (b) Sterling or Dollar denominated commercial paper maturing not more than nine months from the date of issue and rated A-1 or better by Standard & Poor's Corporation or P-1 or better by Moody's Investors Service, Inc.; (c) any deposit with, or acceptance maturing not more than one year after issue, accepted by, an authorized institution or an exempted institution within the meaning of the Banking Act 1987 which has a combined capital and surplus and undistributable profits of not less than (pound)100,000,000 or by any bank, either of which shall have a long-term debt rating of A- or better by Standard & Poor's Corporation or A3 or better by Moody's Investors Service, Inc.; (d) Sterling or Dollar denominated debt securities having not more than one year until final maturity and listed on a recognized stock exchange or in respect of which there is an active trading market in London and rated at least Aa by Moody's Investors Service, Inc. or at least AA by Standard and Poor's Corporation; (e) direct obligations of the United States of America or any agency or instrumentality of United States of America, the payment or guarantee of which constitutes a full faith and credit obligation of the United States of America, in each case maturing twelve months or less from the date of acquisition thereof; (f) gilt-edge securities issued directly, or unconditionally guaranteed, by the United Kingdom Treasury, in each case maturing twelve months or less from the date of acquisition thereof, legally and beneficially owned, free of Liens and freely accessible by LCI or any Subsidiary; or (g) short-tem liquid debt securities which for the time being are rated at least AAA by Standard & Poor's Corporation or an equivalent rating by any other reputable, rating agency. "Consolidated Net Borrowings" means the aggregate outstanding principal amount of Indebtedness of the Group less Cash and Cash Equivalents. "Consolidated Net Worth" means, the aggregate of the amounts paid-up or credited as paid-up on LCI's issued share capital and the amount of the consolidated capital and revenue reserves of the Group (including, without limitation, any share premium account, merger reserve, capital redemption reserve, revaluation reserve and retained earnings) and any credit balance on LCI's consolidated profit and loss account all as shown by the latest consolidated financial statements of LCI delivered or to be delivered pursuant to the Keep-Well Agreement from time to time but after: (i) deducting any debit balance on such consolidated profit and loss account; (ii) deducting the net book value of all assets, after deducting any reserves applicable thereto, which would be treated as intangible under GAAP (excluding amounts attributable to acquisition goodwill, trademarks, trade names, service marks, brand names, copyrights, patents and similar property); (iii) deducting any amounts distributed or proposed to be distributed (other than to LCI or any other member of the Group) out of the profits accrued prior to the date of such financial statements to the extent that such distribution is not provided for therein; (iv) deducting all amounts attributable to minority interests, if any, in Subsidiaries of LCI; (v) excluding any sums set aside or otherwise reserved or provided for taxation; 2 (vi) adding back any diminution due to the writing off or amortization of acquisition goodwill or the debiting of acquisition goodwill to any reserve; and (vii) making such adjustments to reflect any variations which shall have occurred since the date of such financial statements: (a) in the amounts paid up or credited as paid up on the issued share capital of LCI and the consolidated capital and revenue reserves of the Group; (b) to reflect any changes in generally accepted accounting principles and bases and the application of standards and practices since then as may be appropriate in the opinion of the auditors for the time being of LCI; and (c) in the interest of LCI in any other member of the Group. "Group" means LCI and its subsidiaries. "Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation, (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or 3 obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. provided that, the obligations of LCI under the Keep-Well Agreement to pay the Accelerated Payment Amount shall be treated at any time as a Guaranty of Indebtedness of the Borrower in an amount equal to 25% of the Accelerated Payment Amount at such time. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "Group Operating Profit" means, in respect of any period of the Group, (a) the consolidated profit of the Group for such period before crediting or deducting amounts attributable to extraordinary and exceptional items, all as determined in accordance with GAAP, plus (to the extent deducted in determining such consolidated profits), (b) all provisions for Taxes and (c) Net Interest Payable; in each case as determined from the relevant consolidated financial statements of LCI deliver or to be delivered pursuant to the Keep-Well Agreement for such period. "Indebtedness" with respect to any Person means, at any time, without duplication, (a) its liabilities for borrowed money (excluding accounts payable in the ordinary course of business) and its redemption obligations upon and following the date of redemption in respect of mandatorily redeemable Preferred Stock; (b) its liabilities pursuant to any note purchase facility or the issue of bonds, notes, debentures, commercial paper, loan stock or similar instruments; 4 (c) all actual (as opposed to contingent) reimbursement obligations (other than accounts payable in the ordinary course of business) in respect of any acceptance or documentary credit facilities; (d) its liabilities for the deferred purchase price of property, assets or services acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property, assets or services); (e) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases; (f) its liabilities in respect of the principal amount of any receivables sold or discounted to a third party to the extent of recourse to such Person or any of its Subsidiaries; (g) Swaps of such Person; and (h) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (h) hereof. Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (h) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "Net Interest Payable" means in respect of any period of the Group, the aggregate amount of the interest, commission, fees and other finance charges of whatsoever nature (including, without limitation, arrangement fees, commitment or non-utilization fees, agency fees, monitoring fees and any interest in respect of Capital Leases) incurred by each member of the Group less all interest payments received by each member of the Group including interest received in respect of Cash and Cash Equivalents of the Group and similar income received during such period. In each case as determined from the relevant consolidated financial statements of LCI delivered or to be delivered pursuant to this Agreement for such period. 5 "Subsidiary" means, as to any particular parent corporation, any corporation of which more than 50% (by number of votes) of the Voting Shares shall be owned, directly or indirectly, by such parent corporation; provided, however, that notwithstanding the foregoing, the term subsidiary shall, in any event, include any company or legal entity which is a "subsidiary" as defined in Section 736 of the Companies Act 1985, as amended by Section 144 of the Companies Act 1989, or as detailed in analogous legislation. "Swaps" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of the Keep-Well Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. "Taxes" means all present or future taxes, levies, imposts, duties, fees, assessments, deductions, withholdings or other governmental charges of any nature whatsoever and any liabilities with respect thereto, including any surcharge, penalties, additions to tax, fines or interest thereon, now or hereafter imposed, levied, collected withheld or assessed by any jurisdiction or by any political subdivision or taxing authority thereof or therein. 6 SCHEDULE 3 MATERIAL SUBSIDIARIES LONDON CLUBS HOLDINGS LIMITED LONDON AMBASSADEURS CLUB LIMITED RENDEZVOUS CLUB (LONDON) LIMITED PALM BEACH CLUB LIMITED SIX HAMILTON PLACE LIMITED BURLINGTON STREET SERVICES LIMITED ZEALCASTLE LIMITED CORBY LEISURE RETAIL DEVELOPMENTS LIMITED UNITLAW TRADING LIMITED LONDON PARK TOWER CLUB LIMITED PUBLICACE LIMITED LOMASBOND PROPERTIES LIMITED LONDON CLUBS (OVERSEAS) LIMITED DECBURY LIMITED GOLDEN NUGGET CLUB LIMITED LONDON CLUBS MANAGEMENT LIMITED THE SPORTSMAN CLUB LIMITED RITZ CLUB (LONDON) LIMITED SCHEDULE 4 SUBSIDIARIES (other than Dormant Subsidiaries) ABH's Subsidiaries Name: Aladdin Bazaar, LLC State or Organization: Delaware ABH Ownership: 50% member In connection with the development of the Mall Project by Aladdin Bazaar, LLC ("Aladdin Bazaar"), if a guaranty, letter of credit or other form of credit enhancement is required to be obtained by the Trust or ABH in order to insure Aladdin Bazaar or any of its members that the Hotel/Casino will be completed and opened successfully, ABH will be permitted to convey up to 50% of its interest in Aladdin Bazaar to CS First Boston or any other institutional investor and pledge any of its remaining interest in Aladdin Bazaar to such credit enhancer or to any financial institution providing financing for the development of the Mall Project. Furthermore, the Trust shall be entitled to pledge its membership interest in ABH to either or both of a credit enhancer or financing source in connection with the Mall Project. Aladdin Holdings, LLC (AHL) Name: Sommer Enterprises, LLC (SE) State of Organization: Nevada Ownership: SE owns a 98.7% membership interest in AHL Name: Aladdin Gaming Enterprises, Inc. (AGE) State of Organization: Nevada Ownership: SE owns 100% of the issued and outstanding Class A Voting Common Stock of AGE SE owns 100% of the issued and outstanding Class B Non-Voting Common Stock of AGE Name: Aladdin Gaming Holdings, LLC (ABH) State or Organization: Nevada Ownership: AGE owns a 25% common interest in ABH SE owns a 47% common interest in ABH Name: Aladdin Capital Corp. (Capital) State or Organization: Nevada Ownership: ABH owns 100% of the issued and outstanding common stock of Capital Name: Aladdin Gaming, LLC (Gaming) State or Organization: Nevada Ownership: ABH owns 100% of the issued and outstanding Common Shares of Gaming ABH owns 100% of the issued and outstanding Series A Preferred Shares of Gaming Name: Aladdin Music Holdings, LLC (ABH) State or Organization: Nevada Ownership: Aladdin owns a 100% common interest in ABH Name: Aladdin Music, LLC State or Organization: Nevada Ownership: ABH owns a 100% common interest in ABH London Clubs' Subsidiaries See attachment. SCHEDULE 5 LITIGATION Aronow, et al. v. Sommer, et al., Index No. 112618/95 (New York Sup. Ct.) Kanbar, et al. v. Aronow, et al., Index No. 600301/97 (New York Sup. Ct.) Sommer, et al. v. PMEC Associates and Co., et al., No. 88 Civ. 2537 (S.D.N.Y.) SCHEDULE 5A TAX LIABILITIES None. SCHEDULE 6 LICENSES, PERMITS, ETC. ABH and AHL See attachment. SCHEDULE 7 EXISTING INDEBTEDNESS Outstanding Indebtedness of ABH and/or its Subsidiaries $30,000,000 contingent liability (see Schedule 4) Outstanding Indebtedness of AHL and/or its Subsidiaries $65,000,000.00 loan to AHL from Credit Suisse First Boston and Sun America to be paid off in full at closing. LCI and/or its Subsidiaries See attachment. SCHEDULE 8 OWNERSHIP OF BORROWER See chart attached hereto. SCHEDULE 9 Terms of Intercreditor Deed The Intercreditor Deed shall provide as follows: 1. The banks under the Facilities Agreement (or the Agent Bank on their behalf), the holders of the Notes issued under any Note Agreements, the Lenders, the Administrative Agent, the Subsidiary Guarantors and LCI shall be party to the Deed. Any transferees or assignees of such parties shall be required to execute and deliver a deed of accession. 2. In any fiscal year of the Borrower, the Lenders will have an unsubordinated right to receive a maximum of net payments (net of all reimbursements from the other Sponsors) of $37.5 million from LCI. 3. In any insolvency, liquidation or winding-up proceeding of LCI or any Subsidiary Guarantor, the banks under the Facilities Agreement and the holders of the Notes issued under the Note Agreements (the "Senior Creditors") shall be entitled to receive payment in full of all amounts due to them from LCI or any such Subsidiary Guarantor, as the case may be, under the terms of the Facilities Agreement, the Note Agreements or any guarantee thereof by such Subsidiary Guarantor prior to the Lenders or the Administrative Agent receiving any payment. 4. If the Lenders receive any payment to which they are not entitled, they will hold such payments in trust for the benefit of the Senior Creditors. 5. The Deed shall be governed by English law. EX-10.17 13 AMENDMENT #1 TO DESIGN/BUILD CONTRACT DTD 1/21/98 Amendment No. 1 to Design/Build Contract ALADDIN HOLDINGS, LLC 2810 West Charleston Blvd., Ste. F-58 Las Vegas, Nevada 89102 (702) 870-1234 AMENDMENT NO. 1 This Amendment No. 1 is entered into this 21st day of January, 1998 by and between Aladdin Holdings, LLC and Fluor Daniel, Inc. WHEREAS, on December 4, 1997, the parties executed a Contract for the design and construction of the Aladdin Hotel & Casino, related retail and underground parking (the "Project"); WHEREAS, the parties now desire to amend said Contract in certain particulars; NOW, THEREFORE, for good and valuable consideration the receipt of which is acknowledged, the parties agree as follows to: Amend article 4.1 of the Contact in the following respects: 1) 4.1 Guaranteed Maximum Price. Design/Builder shall be paid on a Guaranteed Maximum Price ("GMP") basis as described in Attachment G. Subject to additions and deductions which may be made in accordance with the Contract Documents, Design/Builder agrees that the total costs payable by Owner for the Work described in Attachments A and E shall not exceed a Guaranteed Maximum Price of Two Hundred Sixty-Seven Million Dollars ($267,000,000.00), as set forth in Attachment G. Design/Builder agrees to honor the GMP provided that the Notice to Proceed is received on or before February 15, 1998. In the event that the Notice to Proceed is not received on or before February 15, 1998, Design/Builder reserves the right to revise the GMP. In the event that the Notice to Proceed is not received on or before March 1, 1998, Design/Builder may terminate this Contract without any further obligation. Except as specifically set forth above, all other terms and conditions of the Contract remain unchanged. FLUOR DANIEL, INC. ALADDIN HOLDINGS, LLC, a Delaware Limited Liability Company By: /s/ Bob McNamara By: ALADDIN MANAGEMENT CORP., --------------------------- a Nevada Corporation, its Manager Title: Vice President -------------------------- Date: January 21, 1998 By: /s/ Ronald Dictrow --------------------------- --------------------- Ronald Dictrow Chief Financial Officer and Treasurer EX-10.18 14 AMENDMENT #2 TO DESIGN/BUILD CONTRACT DTD 1/28/98 January 28, 1998 MARSHALL Aladdin Gaming, LLC 280 Park Avenue New York, NY 10017 Attention: Mr. Ronald Dictrow Reference: Aladdin Hotel & Casino Mixed Use Development Project Fluor Daniel Job No. 64207400 Subject: Amendment 2 of the Contract and Amendment 5 of the Letter of Agreement Gentlemen, This will confirm our agreement to amend the Contract and Letter of Agreement to extend the February 15, 1998 date to February 27, 1998. All other terms and condition will remain the same. If you have any questions concerning this matter, please contact me anytime. Very truly yours, /s/ Larry Kossinger Larry Kossinger Senior Project Director Attachments: 1. Amendment #2 2. Amendment #5 cc: Mr. Robert Accordi, Tishman, NY, NY Mr. Curtis Culver, FD, Sugarland, TX Mr. Bob Fratti, ADP-FD of NV Mr. Peter Goetz, Goetz, Fitzpatrick, Cartione, Eiseman, Finegan & Rubin, LLP, NY, NY Mr. Bob McNamara, ADPM, Rumford, RI File EX-10.19 15 FLUOR GUARANTY DTD 12/4/97 ATTACHMENT N(3) PARENT COMPANY GUARANTEE This Agreement (hereinafter called the "Guarantee") made this 4th day of December 1997 between FLUOR CORPORATION (hereinafter called "GUARANTOR") of the first part and ALADDIN GAMING LLC (hereinafter called "OWNER"), of the second part, W I T N E S S E T H: In consideration of Owner entering into an Agreement for Design/Build Services dated December 4, 1997 for the Aladdin Hotel & Casino (hereinafter called the "AGREEMENT") with GUARANTOR's subsidiary Fluor Daniel, Inc. (hereinafter called "CONTRACTOR"), the GUARANTOR hereby covenants and agrees as follows: 1. GUARANTOR guarantees the performance by CONTRACTOR of all CONTRACTOR's obligations under the AGREEMENT. This Guarantee shall take effect as an absolute, irrevocable and continuing guarantee. 2. If CONTRACTOR fails to perform any of its obligations under the AGREEMENT, or commits any breach thereof, GUARANTOR shall immediately: (i) take such steps as may be necessary to have CONTRACTOR perform all CONTRACTOR's obligations under the AGREEMENT, or remedy any breach thereof; or (ii) take such steps as may be necessary itself, or through a third party other than CONTRACTOR, to perform all of CONTRACTOR's obligations under the AGREEMENT, or to remedy any breach thereof. 3. If GUARANTOR fails at any time to perform any obligations under this Guarantee after written demand having been made by OWNER, OWNER may, wtihout the need to give further notice thereof to GUARANTOR, perform itself, or have any third party perform, any such obligations and GUARANTOR shall indemnify OWNER from and against any and all losses, damages, costs and expenses which may be incurred by OWNER by reason of or in connection with any such failure, including without limitation any and all costs incurred by OWNER in so performing or so having performed, such obligations. 4. GUARANTOR, shall not in any way be released from any of its obligtions arising under this Guarantee by: (i) termination of the AGREEMENT; (ii) alterations to the terms of the AGREEMENT; or (iii) forbearance or forgiveness in respect of any matter or thing concerning the CONTRACTOR on the part of OWNER or CONTRACTOR. 5. The rights and remedies of OWNER arising under this Guarantee shall operate independently of any rights and remedies OWNER may have arising under any other agreement (including without limitation the AGREEMENT) and OWNER shall not be required to proceed first or at all against CONTRACTOR or any other person before enforcing the terms of the Guarantee. 6. The liability of GUARANTOR under this Guarantee shall not be greater than those of CONTRACTOR under the AGREEMENT. 7. This Guarantee shall in all respects be construed and interpreted and shall operate in accordance with the laws of the state governing the AGREEMENT. IT WITNESS WHEREOF, the Parties to this Guarantee have caused this Guarantee to be executed by their duly authorized representatives the day and year first above written. FLUOR CORPORATION By: /s/ L. N. Fisher ---------------- Name: L. N. Fisher Title: Senior Vice President - Law and Secretary EX-10.20 16 SITE WORK DEVELOPMENT AND CONSTRUCTION AGMT Site Work, Development and Construction Agreement SITE WORK DEVELOPMENT AND CONSTRUCTION AGREEMENT by and among ALADDIN GAMING, LLC, a Nevada limited liability company "Aladdin Gaming" and ALADDIN HOLDINGS, LLC, a Delaware limited liability company "Holdings" and ALADDIN BAZAAR, LLC, a Delaware limited liability company "Bazaar Company" TABLE OF CONTENTS Page RECITALS.....................................................................1 ARTICLE I DEFINITIONS......................................................2 ARTICLE II DEMOLITION WORK AND SITE WORK....................................9 2.1 Performance of Demolition Work...................................9 2.2 Site Work Approvals..............................................9 ARTICLE III CONSTRUCTION OF IMPROVEMENTS....................................10 3.1 Bazaar Plans and Improvements...................................10 3.2 Aladdin Plans and Improvements..................................10 3.3 Conditions Precedent............................................11 3.4 Approval of Construction Schedule...............................11 ARTICLE IV CONSTRUCTION OBLIGATIONS AND COVENANTS...................................................11 4.1 Construction Standards..........................................11 4.2 Insurance.......................................................13 4.3 Indemnification.................................................13 4.4 Waiver of Subrogation...........................................13 4.5 Reimbursement Obligations.......................................14 4.6 Remedies and Self-Help Cure.....................................14 ARTICLES V and VI [INTENTIONALLY DELETED].................................15 ARTICLE VII EXERCISE OF APPROVAL RIGHTS....................................15 ARTICLE VIII DISPUTE RESOLUTION PROCEDURES.................................15 8.1 Arbitration.....................................................15 8.3 Fees and Costs..................................................16 ARTICLE IX FORCE MAJEURE.............................................17 9.1 Force Majeure...................................................17 9.2 Notice..........................................................17 ARTICLE X MISCELLANEOUS PROVISIONS........................................17 10.1 Attorneys' Fees.................................................17 10.2 Notice..........................................................17 i Page 10.3 Mortgagee Notice Provisions.....................................19 10.4 Amendment.......................................................20 10.5 No Third Party Beneficiaries....................................20 10.6 Counterparts....................................................20 10.7 Governing Law...................................................20 10.8 Waivers.........................................................21 10.9 Assignment......................................................21 10.10 Successors and Assigns..........................................21 10.11 Further Assurances..............................................21 10.12 Title and Headings..............................................21 10.13 Pronouns........................................................21 10.14 Severability....................................................21 10.15 Drafting Ambiguities............................................22 10.16 Entire Agreement................................................22 10.17 Conflicts with REA..............................................22 10.19 Recording Memorandum and Termination of Agreement...............22 ii SITE WORK DEVELOPMENT AND CONSTRUCTION AGREEMENT THIS SITE WORK DEVELOPMENT AND CONSTRUCTION AGREEMENT ("Agreement") is entered into as of this 26th day of February, 1998, by and among Aladdin Gaming, LLC, a Nevada limited liability company ("Aladdin Gaming"), Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings") and Aladdin Bazaar, LLC, a Delaware limited liability company ("Bazaar Company"), with reference to the following recitals: R E C I T A L S A. Aladdin Gaming is the owner of that certain real property generally located at 3667 Las Vegas Boulevard South in Clark County, Nevada, which is more particularly described on Exhibit "A-1" attached hereto (the "Site"). B. Pursuant to a lease agreement (the "Bazaar Lease"), Aladdin Gaming will lease to Bazaar Company that portion of the Site more particularly described on Exhibit "A-2" attached hereto (the "Bazaar Site") on which Bazaar Company shall construct an enclosed themed entertainment shopping center consisting of approximately 726,000 square feet of gross building area, including approximately 462,000 retail gross leasable area at particular elevations of the Aladdin Improvements (the "Retail Facility"), as well as a multi-level parking structure for approximately 4,800 motor vehicles, and additional surface-level parking facilities beneath and adjacent to the Retail Facility for approximately 364 motor vehicles (collectively, the "Common Parking Area"), all as shown on the Plans which are described on Exhibit "B" attached hereto. The Retail Facility and the Common Parking Area are hereinafter referred to collectively as the "Bazaar Improvements". C. On that portion of the Site that does not include the Bazaar Site, the Music Site or the Energy Site (the "Aladdin Site") (more particularly described on Exhibit "A-3" attached hereto), the Aladdin Parties shall demolish or cause to be demolished portions of, and shall renovate, expand and construct or cause to be renovated, expanded and constructed, the hotel-casino commonly known as the "Aladdin Hotel and Casino" containing approximately 2,600 rooms and an approximately 100,000 square foot casino, together with related and physically attached facilities (the "Aladdin Hotel and Casino"), and including parking facilities beneath the Aladdin Hotel and Casino for approximately 500 motor vehicles (collectively, the "Aladdin Parking Area"), all as shown on the Plans. The Aladdin Hotel and Casino and the Aladdin Parking Area are hereinafter referred to collectively as the "Aladdin Improvements". D. Aladdin Gaming has leased to Energy Company a portion of the Site (the "Energy Site") (more particularly described on Exhibit "A-5" hereto") pursuant to a lease agreement dated as of December 3, 1997, pursuant to which Energy Company is obligated to construct and operate a central energy plant (the "Central Energy Plant") for the cogeneration of electricity, chilled and hot water to the Site and the distribution of electricity, chilled water and hot water to the Site. Pursuant to a lease agreement (the "Music Lease"), Aladdin Gaming has leased to Aladdin Music approximately 4.75 acres located on the corner of Audrie Street and Harmon Avenue (the "Music Site") (as more particularly described on Exhibit "A-4" hereto), to permit the construction and operation of a second hotel and casino facility consisting of certain related and physically attached facilities, including a hotel containing approximately 1,000 rooms and an approximately 50,000 square foot casino (the "Music Hotel"). E. The Site currently has certain improvements, including portions of the Aladdin Hotel and Casino, from which asbestos must be removed or abated or which will be demolished, razed and removed (collectively, the "Demolition Work") by the Aladdin Parties pursuant to the terms of this Agreement and as shown on Exhibit "C" hereto. Thereafter, pursuant to the terms hereof, the Site will be prepared by the Aladdin Parties with certain Infrastructure Improvements and related work all as specified in the Site Work Plans (collectively, the "Site Work") so as to then permit the development and construction of the Bazaar Improvements by Bazaar Company and the Aladdin Improvements by the Aladdin Parties. The Bazaar Improvements, the Aladdin Improvements, the Central Energy Plant and the Music Hotel are sometimes hereinafter collectively referred to as the "Redeveloped Aladdin". F. Holdings has entered into an agreement with the County of Clark, State of Nevada (the "County") dated March 18, 1997 (the "DPW Agreement") which permits Aladdin Gaming and/or its assignees to perform the Demolition Work and a portion of the Site Work prior to the issuance of any building permits. G. The development, construction and operation of the Redeveloped Aladdin shall be conducted in accordance with and subject to the provisions and requirements of that certain Construction, Operation and Reciprocal Easement Agreement to be entered into concurrently herewith by and among Aladdin Gaming, Aladdin Music, and Bazaar Company, among others (the "REA"). H. The parties to this Agreement desire to set forth their respective rights, duties and obligations with respect to the Demolition Work and the Site Work and their subsequent development and construction obligations with respect to the Redeveloped Aladdin. NOW, THEREFORE, incorporating and with reference to the foregoing recitals and in consideration of the mutual promises, representations and covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the following particular meanings: Affiliate. "Affiliate" means a Person that Controls, is directly or indirectly Controlled by, or is under common ownership or Control with, another Person. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, Bazaar Company shall not be considered to 2 be an Affiliate of Aladdin Gaming, Holdings or any Affiliates thereof, and Aladdin Gaming and Holdings shall not be considered to be Affiliates of Bazaar Company or any Affiliates thereof, notwithstanding the fact that an Affiliate of Aladdin Gaming and Holdings holds a fifty percent (50%) membership interest in Bazaar Company. Agreement. "Agreement" means this Site Work Development and Construction Agreement, as amended from time to time. Aladdin Gaming. "Aladdin Gaming" is defined in the introductory paragraph of this Agreement. Aladdin Hotel and Casino. "Aladdin Hotel and Casino" is defined in Recital C of this Agreement. Aladdin Improvements. "Aladdin Improvements" is defined in Recital C of this Agreement and includes the Buildings, Separate Utility Lines, Common Utility Lines and truck loading docks and access areas, turn-around and loading/delivery areas, storage racks, delivery elevators and related facilities, constructed and installed on the Aladdin Site, including any present or future construction or alteration thereof from time to time. Aladdin Music. "Aladdin Music" means Aladdin Music, LLC, a Nevada limited liability company. Aladdin Parking Area. "Aladdin Parking Area" is defined in Recital C of this Agreement and shall mean that portion of the Aladdin Improvements for the shared use of the Redeveloped Aladdin and all of its Permittees in connection with the parking, passage and loading of motor vehicles, together with related improvements which are at any time constructed in connection therewith, including driveways, pedestrian sidewalks, walkways and stairways, escalators, elevators, light standards, directional signs, curbs and landscaping within and adjacent to areas used for such shared parking, passage and loading, underneath the Aladdin Hotel and Casino for the use of the Aladdin Parties and their respective Permittees, in each case and to the extent indicated on Exhibit "B". Aladdin Parties. "Aladdin Parties" shall mean, collectively, Aladdin Gaming and Holdings, each of which shall be jointly and severally liable for the obligations and responsibilities of the other hereunder. Aladdin Plans. "Aladdin Plans" is defined in Section 3.2(a) of this Agreement. Aladdin Site. "Aladdin Site" is defined in Recital C of this Agreement. Bazaar Company. "Bazaar Company" is defined in the introductory paragraph of this Agreement. Bazaar Improvements. "Bazaar Improvements" is defined in Recital B of this Agreement and includes the Buildings, Separate Utility Lines, Common Utility Lines and truck loading docks 3 and access areas, turn-around and loading/delivery areas, storage racks, delivery elevators and related facilities, constructed and installed on the Bazaar Site, including any present or future construction or alteration thereof from time to time. Bazaar Lease. "Bazaar Lease" is defined in Recital B of this Agreement, and includes any amendments thereof from time to time. Bazaar Plans. "Bazaar Plans" is defined in Section 3.1(a) of this Agreement. Bazaar Site. "Bazaar Site" is defined in Recital B of this Agreement. Building. "Building" shall mean all portions of the buildings and structures, as altered or restored, that exist or are constructed from time to time on a party's Tract, including the Shell and Facade. Central Energy Plant. "Central Energy Plant" is defined in Recital D of this Agreement and shall mean that facility by and through which the Energy Company will generate and distribute electricity, hot water and chilled water sufficient to service the power, heating, ventilating and air conditioning requirements of the Redeveloped Aladdin pursuant to the Energy Company Agreement. CIP. "CIP" shall mean the "Controlled Insurance Program" as defined and set forth in the Design/Build Contract. Claim. "Claim" is defined in Section 4.3(a) of this Agreement. Common Parking Area. "Common Parking Area" is defined in Recital B of this Agreement and shall mean that portion of the Bazaar Improvements for the shared use of the Redeveloped Aladdin and all of its Permittees in connection with the parking, passage and loading of motor vehicles, together with related improvements which are at any time constructed in connection therewith including driveways, pedestrian sidewalks, walkways and stairways, escalators, elevators, light standards, directional signs, curbs and landscaping within and adjacent to areas used for such shared parking, passage and loading, in each case to the extent indicated on Exhibit "B". Common Utility Lines. "Common Utility Lines" shall mean all utility lines, connections and facilities or portions thereof that extend to a particular point of delivery to a particular Tract designated on the Plans attached hereto as Exhibit "B", installed for the common use and benefit of all Buildings and Tracts comprising the Redeveloped Aladdin for the transmission of domestic water, fire protection water, storm drainage, and sanitary sewage, which the Aladdin Parties shall install pursuant to this Agreement and which shall be maintained, repaired and restored as set forth in the REA. Concerned Party, Concerned Parties. "Concerned Party" and "Concerned Parties" are defined in Section 8.1(a) of this Agreement. Construction Schedule. "Construction Schedule" shall mean that time schedule in reasonable 4 detail attached hereto as Schedule 1 (as amended from time to time pursuant hereto) indicating certain key, threshold dates for the construction and completion of the Demolition Work, Site Work, the Bazaar Improvements, the Aladdin Improvements, the Music Hotel, and the Central Energy Plant, including the First Scheduled Opening Date and the Second Scheduled Opening Date, and 5 changes to which and further refinements of which the parties must agree in accordance with Section 3.4 of this Agreement. Control. "Control" shall mean ownership of a Person or party in excess of 50% and/or the power, exercisable jointly or severally, to manage and direct a Person through the direct or indirect ownership of partnership interest, stock, trust powers, or other beneficial interests and/or management or voting rights. County. "County" is defined in Recital F of this Agreement. Cure. At such time as a Person is in Default and has received a demand for correction of such Default, such Person and its Mortgagee shall be permitted thirty (30) days or such other amount of time specified herein within which to render remedial performance sufficient to correct said Default, which correction shall be a "Cure." Whenever a Default is not capable of Cure within the specified period, a Defaulting Party (or its Mortgagee) shall be deemed to have Cured the Default if it shall have commenced Cure within the specified time period and shall have prosecuted and pursued the Cure continuously and diligently thereafter to completion. Default, Defaulting Party. "Default" shall mean a party's breach or violation of any of covenants, terms or obligations set forth in this Agreement. "Defaulting Party" shall mean the party in Default. Demolition Work. "Demolition Work" is defined in Recital E of this Agreement. Design/Build Contract. "Design/Build Contract" shall mean that certain Contract between Aladdin Gaming and Fluor Daniel, Inc. for Design/Build Services dated as of December 4, 1997. Dispute. "Dispute" is defined in Section 8.1(a) of this Agreement. Dispute Resolution Procedures. "Dispute Resolution Procedures" means those procedures for resolving disputes among the parties set forth in Article VIII of this Agreement. DPW Agreement. "DPW Agreement" is defined in Recital F of this Agreement. Energy Company. "Energy Company" means Northwind Las Vegas, LLC, a Nevada limited liability company. Energy Company Agreement. "Energy Company Agreement" shall have the meaning ascribed to it in the REA. Energy Company Utility Lines. "Energy Company Utility Lines" shall mean all utility lines, connections and facilities or portions thereof that extend to a particular point of delivery to a particular Tract designated on the Plans attached hereto as Exhibit "B", installed for the common use and benefit of all Buildings and Tracts comprising the Redeveloped Aladdin for the transmission of chilled water, hot water and electricity, which shall be installed and maintained by the Energy 6 Company pursuant to the Energy Company Agreement. Energy Site. "Energy Site" is defined in Recital D of this Agreement. Excuse. "Excuse" means (a) the occurrence of an event of force majeure pursuant to Article IX that interferes with a party's ability to perform its obligations under this Agreement, or (b) the Default of the other party with respect to its construction or restoration covenants set forth herein and in the REA, to the extent that such Default interferes with a non-Defaulting Party's ability to perform its obligations under this Agreement, which force majeure event or which Default shall result in the temporary relief of the interfered-with or non-Defaulting Party (as applicable) from its duty to construct or restore, as applicable, for so long as such force majeure event continues or such Defaulting Party has not Cured its Default. Facade. "Facade" shall mean the facia or front portions of the Buildings constituting the Aladdin Hotel and Casino that face Las Vegas Boulevard, as more specifically described in the Plans attached hereto as Exhibit "B". First Scheduled Opening Date. "First Scheduled Opening Date" shall mean the date by which the Aladdin Improvements and the Bazaar Improvements are scheduled to be first opened for business to the public, which shall mean that (a) all certificates of occupancy for the Aladdin Hotel and Casino, the Common Parking Area, the Aladdin Parking Area, the Retail Facility and the Central Energy Plant shall have been issued by the County, (b) with respect to the Aladdin Hotel and Casino, all design and construction work in the casino has been substantially completed, the casino is fully operational, substantially all Salle Privee Facilities are open, and substantially all of the public areas (other than convention and meeting rooms) of the Aladdin Hotel and Casino are open; (c) the Common Parking Area and the Aladdin Parking Area are fully operational; (d) with respect to the Retail Facility, all of Bazaar Company's design and construction work in the Retail Facility, including substantially all of the public areas, has been substantially completed and the same is open; and (e) the Central Energy Plant is fully operational or utilities are available for use by the parties from an alternative source. The First Scheduled Opening Date shall be set forth in the Construction Schedule. Notwithstanding this fact, thirteen (13) months prior to the date set forth in the Construction Schedule, the parties hereto, in their reasonable discretion, shall confirm and establish the First Scheduled Opening Date and thereafter, subject only to an Excuse, the First Scheduled Opening Date shall not be changed unless all parties, each in its sole and absolute discretion, agrees to such change. Indemnitor. "Indemnitor" is defined in Section 4.3(a) of this Agreement. Infrastructure Improvements. "Infrastructure Improvements" means those off-site and on-site infrastructure improvements as more specifically described on the Site Work Plans attached as Exhibit "D" installed, made, constructed, restored or relocated by the Aladdin Parties in order to prepare the Site for the development and construction of the Redeveloped Aladdin, and for ongoing operation as required by the DPW Agreement, the Traffic Study and the County, including, without limitation, grading, pad preparation, streets (including, without limitation, the realignment of Harmon Avenue, if and to the extent the County requires the completion of such realignment), 7 roadways, driveways, walkways, sidewalks, curbs, bridges, turning lanes, traffic control devices, traffic signals, traffic mitigation measures, water drainage and flood control mitigation measures, street lights, driveway and walkway lights, Building lights (including lighting and ceilings that are underneath the Retail Facility), signage, landscaping, pedestrian bridges, tunnels and overpasses and preparation for the installation of utilities. LLC Agreement. "LLC Agreement" shall mean that certain Limited Liability Company Agreement of Bazaar Company dated September 3, 1997, by and between TH Bazaar Centers, Inc., a Delaware corporation, and Aladdin Bazaar Holdings, LLC, a Nevada limited liability company, as amended on October 16, 1997, and from time to time. Mortgage; Mortgagor; Mortgagee. "Mortgage" shall mean an indenture of mortgage, deed of trust encumbering all or a portion of the interest of a party ("Mortgagor") in its Tract. "Mortgagee" shall mean either the trustee and beneficiary/mortgagee, individually or collectively as appropriate, under a Mortgage. Music Hotel. "Music Hotel" is defined in Recital D of this Agreement. Music Lease. "Music Lease" is defined in Recital D of this Agreement. Music Site. "Music Site" is defined in Recital D of this Agreement. NRS. "NRS" means the Nevada Revised Statutes, as currently in effect and as amended from time to time. Permits. "Permits" means those approvals, licenses, permits, variances, entitlements and certificates of occupancy relating to or required for the Demolition Work, the Site Work and the construction of the Aladdin Improvements and the Bazaar Improvements, as the case may be, including but not limited to those set forth on Schedule 2 hereto, which shall be obtained by the Aladdin Parties or Bazaar Company (with respect to the Bazaar Improvements), as appropriate, at such parties' sole cost and expense. Permittee. "Permittee" shall mean any Person from time to time entitled by the parties hereto to use, occupy or visit the Redeveloped Aladdin under any lease, sublease, deed or other instrument or arrangement, and its respective officers, directors, employees, representatives, agents, partners, members, managers, agents, architects, engineers, contractors, customers, visitors, invitees, tenants, subtenants, licenses and concessionaires, including, without limitation, the Project Architect/Engineer and the Project Contractor and their authorized agents and employees. Person. "Person" shall mean an individual, fiduciary, trust, partnership, limited-liability company, firm, association and corporation, or any other form of business or governmental entity. Plans. "Plans" shall mean collectively, the Aladdin Plans and the Bazaar Plans described on Exhibit "B" attached hereto, which shall be those certain drawings and plans to include schematics, preliminary and working drawings, designs, specifications, criteria and progress reports, as amended 8 and revised from time to time (including during construction), with respect to the design, development and construction of the Aladdin Improvements and the Bazaar Improvements, which changes must be approved by the parties in accordance with Sections 3.1 and 3.2 of this Agreement and by the County in connection with the issuance of building permits and certificates of occupancy. The parties understand that the Plans shall be in final "as-built" form only at or after the completion of all work thereunder. The Plans shall include and reflect, without limitation, all plans and specifications for Buildings, Utility Lines, exterior and accent lighting, vehicle and pedestrian access, setback requirements, and the like. Pro Forma Budget. "Pro Forma Budget" shall mean that certain pro forma budget attached hereto as Schedule 3 prepared by the Aladdin Parties identifying the costs to be incurred by the Aladdin Parties for the Site Work. Project Architect/Engineer. "Project Architect/Engineer" shall have the meaning ascribed to it in the REA. Project Contractor. "Project Contractor" shall have the meaning ascribed to it in the REA. REA. "REA" is defined in Recital G of this Agreement. Redeveloped Aladdin. "Redeveloped Aladdin" is defined in Recital E of this Agreement. Reimbursement Obligation. "Reimbursement Obligation" is defined in Section 4.5(a) of this Agreement. Retail Facility. "Retail Facility" is defined in Recital B of this Agreement. Salle Privee Facilities. "Salle Privee Facilities" shall mean that separate 15,000 square foot luxurious gaming section of the Aladdin Hotel and Casino operated by London Clubs which is intended to cater to wealthy clientele. Second Scheduled Opening Date. "Second Scheduled Opening Date" shall mean that date by which the Music Hotel is scheduled to be first opened for business to the public, which shall mean that (a) all certificates of occupancy for the Music Hotel shall have been issued by the County, and (b) all design and construction work in the casino area of the Music Hotel has been completed, the casino is fully operational and guest rooms are ready to be occupied by guests. The Second Scheduled Opening Date shall in no event be later than the later of (i) six (6) months after the First Scheduled Opening Date and (ii) November 1, 2000. Separate Utility Lines. "Separate Utility Lines" shall mean all utility lines, connections and facilities or portions thereof that extend to a particular point of delivery to a particular Tract designated on the Plans attached hereto as Exhibit "B", installed for the sole and exclusive use and benefit of any Buildings, Tracts or portions thereof comprising the Redeveloped Aladdin for the transmission of electrical power, natural gas, chilled water, hot water, domestic water, fire protection water, storm drainage, sanitary sewage, telephone service, cable television service, and other 9 telecommunication services, which the party requiring and benefitting from the use of such Separate Utility Lines shall install, and which shall be maintained, repaired and restored as set forth in the REA. Shell. "Shell" shall mean the Buildings without interior finish that will constitute the Retail Facility and the Aladdin Hotel and Casino, built by the Project Contractor, as more specifically described on Exhibit "B". Site. "Site" is defined in Recital A of this Agreement. Site Work. "Site Work" is defined in Recital E of this Agreement and is shown on the Site Work Plans, and includes all Infrastructure Improvements, as well as the installation and construction of all above- and below-ground footings, girders, columns, braces, load-bearing walls, foundations and standard structural support elements necessary for the construction, support, structural integrity, enclosure and operation of Buildings and other improvements constituting the Redeveloped Aladdin except for the Music Hotel and the Central Energy Plant, and any replacement, substitution or modification thereof, all of which shall be designed, installed and constructed by the Aladdin Parties, at their sole cost and expense. Site Work Plans. "Site Work Plans" shall mean those certain drawings and plans to include schematics, preliminary and working drawings, designs, specifications, criteria and progress reports, as amended and revised from time to time (including during the Site Work in accordance with Section 2.2 hereof), with respect to the Site Work, described on Exhibit "D" hereto, and shall include and reflect, without limitation, easements for the installation, use, maintenance, repair, replacement, relocation, restoration and/or removal of all Site Work. Tract. "Tract" shall mean the Buildings, land and/or air space comprising the Bazaar Site, the Music Site, the Energy Site or the Aladdin Site, as applicable, together with all other improvements of a party now or hereafter located thereon. Traffic Study. "Traffic Study" means the traffic impact mitigation plan approved by the Board of County Commissioners of the County with respect to the Redeveloped Aladdin. Utility Lines. "Utility Lines" shall mean all Common Utility Lines, Separate Utility Lines and Utility Company Utility Lines. ARTICLE II DEMOLITION WORK AND SITE WORK 2.1 Performance of Demolition Work. Following the issuance of all Permits, including those identified on Schedule 2, as are required to perform the Demolition Work, the Aladdin Parties, at their sole cost and expense, shall commence the Demolition Work and shall complete same in accordance with the Construction Schedule. 2.2 Site Work Approvals. 10 (a) The most current Site Work Plans are identified on Exhibit "D". The Aladdin Parties, at their sole cost and expense, shall prepare or cause to be prepared and shall provide Bazaar Company with copies of all revised Site Work Plans as soon as prepared by the Project Architect/Engineer and in no event on less than a monthly basis after the date of this Agreement until the completion of the Site Work. The Site Work Plans and all revised Site Work Plans (which shall clearly identify all changes from the previously approved Site Work Plans) shall be subject to the process and time period for approval each month that is set forth in Section 3.1 of the REA. (b) If Bazaar Company objects to the Site Work Plans and the parties are unable to resolve their differences in accordance with the procedures and within the time period contained in Section 3.1 of the REA, any party may thereafter initiate the Dispute Resolution Procedures. The Aladdin Parties shall not undertake any Site Work unless same is set forth on Site Work Plans which have been approved or deemed approved by Bazaar Company pursuant to this Section 2.2 (c) The Aladdin Parties, at their sole cost and expense (subject only to the Reimbursement Obligation), shall proceed with and diligently prosecute to completion the Site Work in conformance with the approved Site Work Plans and in accordance with the Construction Schedule. ARTICLE III CONSTRUCTION OF IMPROVEMENTS 3.1 Bazaar Plans and Improvements. (a) In accordance with the Construction Schedule, Bazaar Company, at its sole cost and expense, shall prepare or cause to be prepared, and shall provide to the Aladdin Parties for review as soon as prepared by the Project Architect/Engineer and in no event on less than a monthly basis until the completion of construction of the Bazaar Improvements, the Plans to be used to construct the Bazaar Improvements (the "Bazaar Plans"). The Bazaar Plans shall be attached to this Agreement as Exhibit "B-1". The process for approval of the Bazaar Plans shall be that set forth in the LLC Agreement and in the REA. (b) Subject to the conditions precedent set forth in Section 3.3 hereof and in accordance with the Construction Schedule, Bazaar Company, at its sole cost and expense, shall proceed with the construction of the Bazaar Improvements and shall diligently prosecute to completion same in conformance with the Bazaar Plans and the Construction Schedule. 3.2 Aladdin Plans and Improvements. (a) In accordance with the Construction Schedule, the Aladdin Parties, at their sole cost and expense, shall prepare or cause to be prepared and shall provide Bazaar Company with copies of all Plans used to construct the Aladdin Improvements (the "Aladdin Plans") as soon as prepared by the Project Architect/Engineer and in no event on less than a monthly basis until the completion of construction of the Aladdin Improvements. The Aladdin Plans shall be attached to this Agreement as Exhibit "B-2". The process and time period for approval of the Aladdin Plans 11 shall be that set forth in Section 3.1 of the REA. (b) If Bazaar Company objects to the Aladdin Plans and the parties are unable to resolve their differences in accordance with the procedures and within the time period contained in Section 3.1 of the REA, any party may thereafter initiate the Dispute Resolution Procedures. (c) Subject to the conditions precedent set forth in Section 3.3 hereof and in accordance with the Construction Schedule, the Aladdin Parties, at their sole cost and expense, shall proceed with the construction of the Aladdin Improvements and shall diligently prosecute to completion same in conformance with the Aladdin Plans and the Construction Schedule. 3.3 Conditions Precedent. (a) Bazaar Company's obligations to begin construction of the improvements for which it is responsible pursuant to Sections 3.1 and 3.2 above shall be subject to satisfaction of the following conditions: (i) The Demolition Work and the Site Work (or that portion thereof which is necessary to construct the Bazaar Improvements) shall have been completed in the manner described herein; and (ii) The closing of the construction financing for the Bazaar Improvements. (b) The Aladdin Parties' obligations to begin construction of the improvements for which they are responsible pursuant to Sections 3.1 and 3.2 above shall be subject to the closing of the construction financing for the Aladdin Improvements. 3.4 Approval of Construction Schedule. The Aladdin Parties and Bazaar Company have mutually agreed upon the Construction Schedule attached hereto, although they anticipate that the Construction Schedule will be periodically revised and updated. Except as otherwise provided herein (in particular, with respect to the determination of the First Scheduled Opening Date), any material changes to the Construction Schedule must be approved by both the Aladdin Parties and Bazaar Company, in their reasonable discretion. If the parties cannot mutually agree to any such material change to the Construction Schedule proposed by a party then the parties shall adhere to the then existing Construction Schedule (subject to the force majeure provisions of Article IX). ARTICLE IV CONSTRUCTION OBLIGATIONS AND COVENANTS 4.1 Construction Standards. In addition to the other obligations of the parties hereunder, the parties hereby covenant and agree that: (a) The standard of quality of development for the Aladdin Hotel and Casino (as 12 of the First Scheduled Opening Date) shall be equal to or better than the general quality (as of the date of this Agreement) of the Mirage Hotel and Casino (the "Mirage"), as to the Aladdin Hotel and Casino, including but not limited to interior finish, theming and attraction package, and standard hotel rooms, with a higher percentage of suites and king parlors. Such standards are intended to attract as a primary target the upper middle market segment, with an ambiance equal to or better than Bally's Casino and Hotel and the Mirage. Upon the First Scheduled Opening Date, the Aladdin Hotel and Casino is intended to be one of the top five hotel/casinos on the Las Vegas Strip, taking into consideration for such purposes the hotels existing and/or announced as of the date hereof in terms of market segment, average daily room rate and overall ambiance and market perception. Bazaar Company acknowledges that such standards are not intended to be a guaranty of the economic performance of the Aladdin Hotel and Casino and no party shall have any liability under this Agreement with respect to such economic performance. The standard of quality of development for the Retail Facility (as of the First Scheduled Opening Date) shall be equal to or better than the general quality of the Forum Shops (as of the date of this Agreement). (b) All work shall be performed in a good and workmanlike manner, and in accordance with good construction practice in the manner customary for such improvements, and (i) in substantial compliance with the Site Work Plans and the Aladdin Plans and Bazaar Plans, as applicable, approved pursuant hereto, unless otherwise approved in writing by Bazaar Company with respect to the Aladdin Plans or by the Aladdin Parties with respect to the Bazaar Plans, (ii) in strict compliance with all applicable laws, ordinances, orders, rules, regulations, requirements of all federal, state and municipal governments and the appropriate departments, commissions, boards and officers thereof and all Permits, and (iii) in strict compliance with all covenants, conditions and restrictions affecting the Site, including the covenants of any Mortgage on any Tract or the Site and of the REA, or the requirements of any Mortgagee or insurer. (c) Subject to the force majeure provisions set forth in Article IX below, the parties shall prosecute and pursue the work for which they are responsible hereunder with reasonable dispatch and diligence and without unreasonable delay and in strict compliance with the Construction Schedule, using commercially reasonable efforts to, (i) in the case of the Aladdin Parties, (A) complete construction of the Aladdin Hotel and Casino and the Aladdin Parking Area by the First Scheduled Opening Date, (B) enter into an agreement to cause the completion of the construction of the Music Hotel by the Second Scheduled Opening Date, and (C) if the Central Energy Plant is not operational by the First Scheduled Opening Date, cause utilities to be provided to the Site from alternative energy sources, and, (ii) in the case of Bazaar Company, complete construction of the Retail Facility and the Common Parking Area by the First Scheduled Opening Date. (d) The Project Architect/Engineer and Project Contractor shall be engaged under separate written contracts with the Aladdin Parties and Bazaar Company, each reasonably satisfactory to the other. Regardless of whether the Project Architect/Engineer or Project Contractor is working on any improvements in a particular Tract, with respect to its own construction obligations, such party shall use all reasonable efforts to cooperate with the Project Architect/Engineer and the Project Contractor to coordinate the construction plans and activities on that Tract with the construction plans and activities of the other parties in order to achieve the 13 objectives set forth herein. (e) Subject to Article III hereof, in order to achieve the objectives set forth in Section 4.1(a) above and to present to the public a coherent, consistent and polished finished product, each party hereto shall use all reasonable efforts to cooperate and coordinate with the other parties hereto with respect to the design and construction of all interior and exterior theming, finishes and attractions. (f) Each of the Aladdin Parties and Bazaar Company shall cooperate with one another in their respective efforts to apply for and obtain the Permits required for their respective obligations hereunder, at no expense or liability to the other. (g) Each of the Aladdin Parties and Bazaar Company agrees that it shall not (and that it shall cause its Permittees to not) (i) unreasonably interrupt or interfere with the work conducted by any other party at the Site; (ii) cause any material increase in the cost of construction on another party's Tract, or (iii), interfere unreasonably with the use, occupancy or enjoyment of another party's Tract, or any part thereof. (h) Each of the Aladdin Parties and Bazaar Company, as applicable, shall provide written notice to the other at least ten (10) business days in advance of the commencement of the Demolition Work, the Site Work and the construction of the Aladdin Improvements and the Bazaar Improvements, as applicable, or any other construction, alteration or repair contemplated by NRS ss.108.234, so as to afford the Aladdin Parties and Bazaar Company an opportunity to file appropriate notices of non-responsibility. (i) If either the Aladdin Parties or Bazaar Company is required by its Mortgagee to obtain, or otherwise elects to require its Project Contractor to obtain, payment and/or completion bonds in connection with the improvements constructed by such party, then such party shall request that Bazaar Company or the Aladdin Parties, as applicable, be named as an obligee under such bonds, except that the rights of the other party hereto shall be subordinate to the Mortgagee's rights and the rights of the party obtaining such bond. 4.2 Insurance. Throughout the term of this Agreement, each party shall maintain such insurance as is required by the REA and their respective Mortgagees. 4.3 Indemnification. Each of the Aladdin Parties and Bazaar Company ("Indemnitor") shall at all times indemnify, hold harmless, protect and defend, the other parties hereto, including their Affiliates and their respective officers, directors, partners, members, managers, stockholders, landlords, agents, representatives, consultants, servants and employees, and their Tracts, as applicable (individually and collectively, "Indemnitee"), from and against all losses, claims, actions, liens, proceedings, liabilities, damages, costs and/or expenses, including the Indemnitee's reasonable attorneys' fees but excluding consequential damages (collectively, a "Claim") resulting from such Indemnitor's operation, use or ownership of its Tract or arising from any event occurring on its Tract arising under this Agreement, to the extent not resulting from the gross negligence or willful misconduct of that Indemnitee. 14 4.4 Waiver of Subrogation. Each Indemnitor covenants that it will, if generally available in the insurance industry, obtain for the benefit of the Indemnitee a waiver of any right of subrogation which the insurer of Indemnitor may acquire against Indemnitee by virtue of the payment of any loss covered by insurance. In the event any Indemnitor is by law, statute or governmental regulation unable to obtain a waiver of the right of subrogation for the benefit of Indemnitee, then, during any period of time when such waiver is unobtainable, Indemnitor shall not have been deemed to have released any subrogated claim of its insurance carrier against Indemnitee, and during the same period of time Indemnitee shall be deemed not to have released Indemnitor from 15 any claims it or its insurance carrier may assert which otherwise would have been released pursuant to this Section. 4.5 Reimbursement Obligations. (a) Bazaar Company shall reimburse the Aladdin Parties for the costs associated with (i) the construction of the structural shoulder area of the Shell shared by the Retail Facility and the Aladdin Hotel and Casino in the amount of Twelve Million Seven Hundred Fifty Thousand Dollars ($12,750,000), (ii) the construction of the Facade in the amount of Eight Hundred Fifty Thousand Dollars ($850,000), and (iii) Bazaar Company's pro rata share of the financing costs incurred by the Aladdin Parties, as reasonably determined by Bazaar Company and the Aladdin Parties, in connection with the costs set forth in clauses (i) and (ii) above (the "Reimbursement Obligation"). Assuming all of the work described in clauses (i) and (ii) has been completed in accordance with the requirements of the Design/Build Contract, Bazaar Company shall pay the Reimbursement Obligation immediately upon its first draw under its construction financing. If such work has not been completed at the time of Bazaar Company's first draw and Bazaar Company's construction lender permits such partial reimbursements to be funded under its construction draws, the Reimbursement Obligation shall be paid in proportion to the work completed, as reasonably determined by Bazaar Company's construction lender. If Bazaar Company's construction lender does not permit partial reimbursement to be funded, the reimbursement obligation shall be paid in a lump sum upon completion of the applicable work. (b) Notwithstanding that certain Letter of Intent signed by the parties as of February 26, 1997, Bazaar Company and the Aladdin Parties shall have no reimbursement obligations one to the other with respect to the construction of the Aladdin Improvements and the Bazaar Improvements except as set forth in this Agreement, the REA and the Common Parking Area Use Agreement. Notwithstanding anything to the contrary contained in this Agreement, in no event shall Bazaar Company be obligated to spend more than Thirty Six Million Dollars ($36,000,000) attributable to the design and construction of the Common Parking Area, and any excess costs shall be paid by the Aladdin Parties. 4.6 Remedies and Self-Help Cure. (a) If any party fails to perform any of its duties or obligations under Article III with respect to the construction of the Common Parking Area and such failure involves missing a milestone on a critical path of the Construction Schedule, or if any party fails to perform any of its duties or obligations under this Article IV with respect to the maintenance and operation of Common Areas (as that term is defined in the REA), or if the Aladdin Parties fail to complete the construction of the structural shoulder area of the Shell shared by the Retail Facility and the Aladdin Hotel and Casino, any other party shall have those self-help cure rights set forth in Section 3.11 of the REA. (b) If there is a Default by Bazaar Company hereunder with respect to its Reimbursement Obligation, the other party shall have those rights set forth on Exhibit "E" hereto. 16 ARTICLES V and VI [INTENTIONALLY DELETED] ARTICLE VII EXERCISE OF APPROVAL RIGHTS 7.1 Wherever in this Agreement, the approval or consent of any party is required, and unless a different time limit is provided herein (in which event such different time limit shall control), such approval or disapproval shall be given within twenty (20) days following the receipt of the item to be so approved or disapproved or the same shall be conclusively deemed to have been approved by such party, subject to the provisions of this Article. Such approval, or disapproval, shall be given in writing, and such approval shall not be unreasonably withheld, unless the provisions of this Agreement with respect to the particular consent or approval shall expressly provide that the same may be given or refused in the sole and absolute judgment or discretion of such party. Any disapproval shall specify with particularity the reasons therefor; provided, however, that wherever in this Agreement any party is given the right to approve or disapprove in its sole and absolute judgment or discretion, such party may disapprove without specifying a reason therefor and its disapproval shall not be subject to contest in any judicial, administrative, arbitration or other proceeding. 7.2 A party requesting approval shall send such request in a writing setting forth the applicable time period, pursuant to Section 7.1 hereof, within which such party must act or otherwise respond. If the time specified in the notice is incorrectly set forth or omitted, the time limit shall be thirty (30) days unless a longer time period is specified in this Agreement, in which case the longer time period shall control. Failure to specify such time period shall not invalidate such notice but shall instead require the action of such party within said thirty (30) day period or such longer period. 7.3 Any request for the consent or approval of any party shall refer to the proper section numbers of this Agreement to which the request relates, properly state the time period permitted hereunder for approval, and state that the document, or the facts contained therein, shall be deemed approved or consented to by the recipient unless the recipient objects thereto within the required time period specified in such notice. Notwithstanding anything to the contrary contained in this Agreement, no recipient's approval of or consent to the subject matter of a notice shall be deemed to have been given by its failure to object thereto if such notice (or the accompanying cover letter) did not properly refer to the applicable section of this Agreement and properly state the time period permitted hereunder for approval. ARTICLE VIII DISPUTE RESOLUTION PROCEDURES 8.1 Arbitration. (a) The parties hereunder agree that if they are unable in good faith to resolve any dispute or disagreement arising under or pursuant to this Agreement, including any dispute or disagreement about the interpretation or application of any provision hereof (collectively, a 17 "Dispute"), but not including any Default or claim of Default thereunder (which shall be resolved before a court of law), any party to the Dispute (a "Concerned Party" and together with the other parties to the Dispute, the "Concerned Parties") shall demand binding arbitration before the American Arbitration Association ("AAA") in Las Vegas, Nevada, by so notifying all other Concerned Parties and the AAA. (b) In a Dispute between Bazaar Company, on the one hand, and the Aladdin Parties, on the other hand, the Aladdin Parties and all Affiliates thereof shall collectively be considered a single Concerned Party. A Permitted Transferee shall not be considered a single Concerned Party with the Aladdin Parties. (c) Within three (3) days of a demand for arbitration of a Dispute hereunder, in accordance with the rules and guidelines of the AAA, the Aladdin Parties and Bazaar Company shall mutually agree upon one arbitrator (and two alternate arbitrators) to hear the Dispute and the demanding party shall immediately notify such arbitrator of his or her appointment. If an arbitrator is unavailable to hear the Dispute, the demanding party shall notify the alternate(s). If the parties cannot mutually agree upon an arbitrator, the demanding party shall promptly apply to the Eighth Judicial District Court of Nevada for the appointment of an arbitrator in accordance with the provisions of NRS Chapter 38 The arbitration shall take place at the offices of the AAA or at such other location to which the Concerned Parties agree in Las Vegas, Nevada. To the extent possible, the appointed arbitrator shall commence the arbitration hearing on the Dispute within three (3) days of his or her appointment and the hearing shall be conducted on consecutive days, including Saturdays and Sundays (but excluding holidays), until the completion of the hearing. In connection with any arbitration proceedings commenced hereunder, no Concerned Party shall have the right to join any third parties not a party to this Agreement other than the Project Architect/Engineer and the Project Contractor, except by written consent containing a specific reference to this Agreement signed by all Concerned Parties and the other Person sought to be joined. The decision of the arbitrator shall be final and binding on, as well as nonappealable by, the Concerned Parties. The arbitrator shall determine the award as promptly as possible after the arbitration hearing has been completed, and if at all possible not later than three (3) days after the completion of the hearing. The award of the arbitrator shall be written and signed by the arbitrator and shall be served on each Concerned Party in the manner provided in Article 10.2. (d) The award of the arbitrator may be entered as a judgment in a court of competent jurisdiction. To the extent permitted by law, compliance with this Article VIII by a Concerned Party is a condition precedent to the commencement by any Concerned Party of a judicial proceeding arising out of a Dispute. (e) If any of the provisions relating to arbitration are not adhered to or complied with, any party may petition the Eighth Judicial District Court of the State of Nevada for appropriate relief in accordance with the provisions of NRS Chapter 38. 8.3 Fees and Costs. The prevailing party in a Dispute shall be entitled to recover from the non-prevailing party its reasonable fees and costs, including attorneys' fees and other reasonable expenses, as fixed by the arbitrator, in his or her discretion. 18 19 ARTICLE IX FORCE MAJEURE 9.1 Force Majeure. Except as otherwise expressly provided herein to the contrary, each party shall be Excused from its duty to perform any covenant or obligation hereunder, except an obligation to pay any sums of money not expressly conditioned on any party's performance of a covenant or obligation that has itself been Excused by this Section, in the event but only so long as the performance of any such covenant or obligation is prevented, delayed, retarded or hindered by any of the following: an act of God, fire, earthquake, flood, explosion, action of the elements, war, invasion, insurrection, riot, mob violence, sabotage, inability to procure or general shortage of labor, equipment, facilities, materials or supplies in the open market, failure of transportation, strikes, lockouts, action of labor unions, condemnation, requisition, laws, orders of governmental or civil or military or naval authorities, or any other cause, whether similar or dissimilar to the foregoing, not within the respective control of such party (other than the lack or inability to procure funds to fulfill its covenants and obligations provided in this Agreement), including the timely performance of any party (other than such party) of its respective obligations under the DPW Agreement and the REA. 9.2 Notice. In the event any party claims an Excuse from its duty to perform any covenant or obligation set forth in this Agreement due to any of the events of force majeure set forth in Section 9.1, such party shall notify the other party of the occurrence of such event of force majeure within ten (10) days following the occurrence thereof. The provisions of Section 9.1 shall not be effective to Excuse any party failing to give such notice from the performance of such covenant or obligation until such notice is given to the other party. ARTICLE X MISCELLANEOUS PROVISIONS 10.1 Attorneys' Fees. If any party shall institute any legal action or proceeding in connection with any Default or claim of Default under this Agreement, the prevailing party shall be entitled to recover from the non-prevailing party its reasonable fees and costs, including attorneys' fees and other reasonable expenses, as fixed by the court in its discretion. 10.2 Notice. (a) Any and all notices, demands, requests, consents, approvals, designations, or other communications (collectively, for purposes of this Section 10.2 only, "Notice") required or desired to be given, made, received and communicated hereunder by any party shall be in writing and delivered by personal delivery, by deposit in the United States mail, certified or registered, postage prepaid, return receipt requested, by overnight express delivery service or by facsimile transmission, to the following addresses and fax numbers: 20 To the Aladdin Parties: Aladdin Gaming, LLC 2810 West Charleston Boulevard, Ste. 58 Las Vegas, Nevada 89102 Attn: Jack Sommer Telephone No.: (702) 870-1234 Facsimile No.: (702) 870-8733 with a copy to: Ronald Dictrow c/o Sommer Properties 280 Park Avenue New York, NY 10017 Telephone No.: (212) 661-0700 Facsimile No.: (212) 661-0844 and a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, NY 10022-3897 Attention: Wallace L. Schwartz, Esq. Telephone No.: (212) 735-3000 Facsimile No.: (212) 735-2000 and a copy to: Schreck Morris 300 S. Fourth Street, Suite 1200 Las Vegas, Nevada 89101 Attention: Ellen Schulhofer, Esq. Telephone No.: (702) 382-2101 Facsimile No.: (702) 382-8135 To Aladdin Bazaar: Aladdin Bazaar Holdings, LLC c/o TH Bazaar Centers, Inc. 4350 La Jolla Village Drive, Suite 400 San Diego, California 92122-1233 Attention: Wayne Finley and Wendy Godoy Telephone No.: (619) 546-3535 Facsimile No.: (619) 546-3307 with a copy to: John Bedard TH Bazaar Centers, Inc. 4350 La Jolla Village Drive, Suite 400 San Diego, California 92122-1233 Telephone No.: (619) 546-3304 Facsimile No.: (619) 546-3413 21 and Allen, Matkins, et al. 501 W. Broadway, Suite 900 San Diego, California 92101 Attn: David A.B. Burton, Esq. and Michael Pruter, Esq. Telephone No.: (619) 233-1155 Facsimile No.: (619) 233-1158 Each party may designate at any time a different or additional address for its receipt of Notice by giving at least ten (10) days' Notice of such change of address to all other parties. (b) Any Notice shall be deemed to have been given, made, received and communicated, as the case may be, on the date personal delivery was effected if personally served, three (3) business days after the deposit thereof in the United States mail, one (1) business day after the deposit thereof with the overnight delivery service, and on the date of transmission if by facsimile and received by the primary intended recipient (as opposed to those copied) prior to 5:00 p.m. on the recipient's business day (provided a hard copy of the same is sent in another manner permitted herein within twenty-four (24) hours of transmission); provided, however, if delivery is not completed due to the absence of the recipient or his/her refusal to accept delivery, delivery to the Person identified above for receipt of copies shall be deemed to be delivery to the primary addressee. If any such Notice requires any action or response by the recipient or involves any consent or approval solicited from the recipient, such fact shall be clearly stated in the Notice. Any responsive consent, approval or designation shall be sent as provided above and shall be deemed to have been given, made, received and communicated, as the case may be, on the date of personal delivery, the date on which the facsimile was transmitted, one (1) business day after the deposit thereof with the overnight delivery service, or three (3) business days after the same was deposited in the United States mail in conformity with this Section. (c) In the event a party shall give Notice to any other party of a Default, such Party shall concurrently send each of the other parties and their Mortgagees (in accordance with Article 15 of the REA) a copy of such Notice. 10.3 Mortgagee Notice Provisions. Any Mortgagee under a Mortgage affecting the Tract of a party shall be entitled to receive notice of any Default by the party as to such Tract in the same manner provided in Section 10.2, provided that such Mortgagee shall have delivered a notice to each party, substantially in the following form: The undersigned, whose address is _______________ does hereby certify that it is the "Mortgagee" (as such term is defined in the Site Work Development and Construction Agreement ("Site Work Agreement")) of the Tract of land described on Exhibit "A" attached hereto and made a part hereof and being the Tract of [party] in Clark County, Nevada. In the event that any notice shall be given of the Default of the party as to whose Tract the Mortgage held by the undersigned applies, a copy thereof shall be delivered to the 22 undersigned who shall have all rights of a Mortgagee to Cure such Default as specified in the Site Work Agreement. Failure to deliver a copy of such notice to the undersigned shall in no way affect the validity of the notice of Default as it respects such party, but shall make the same invalid as it respects the Mortgage of the undersigned and such Mortgagee's cure rights shall remain undisturbed. In the event that any notice shall be given of the Default of a party and such defaulting party has failed to Cure or commence to Cure such Default as provided in this Agreement, then and in that event any such Mortgagee under a Mortgage affecting the Tract of the Defaulting Party shall be entitled to receive an additional notice, given in the manner provided in Section 10.2, that the Defaulting Party has failed to Cure or commence to Cure such Default. Each Mortgagee shall have thirty (30) days after receipt of said additional notice to Cure or, if such Default cannot be Cured within thirty (30) days, to commence to Cure any such Default and to prosecute said Cure continuously and diligently until completed; provided, however, that no dispute of any nature between Mortgagees shall serve to toll or extend said Cure period nor impose liability of any nature on any Party to resolve such dispute in connection with accepting Cure from any particular Mortgagee. 10.4 Amendment. This Agreement may not be modified, changed or supplemented, nor may any obligations hereunder be waived, except by a written instrument that references this Agreement and is signed by the parties. The parties shall make those modifications and changes to this Agreement requested by any Mortgagees that do not materially increase their respective obligations hereunder or adversely affect or diminish their respective rights at no cost to the non-requesting party. 10.5 No Third Party Beneficiaries. Except as set forth in Section 10.3, this Agreement is for the exclusive benefit of the parties hereto and not for the benefit of any third Person, nor shall this Agreement be deemed to have conferred any rights, express or implied, upon any third Person. 10.6 Counterparts. This Agreement may be executed by the parties in any number of counterparts, each of which shall be deemed an original, and all of which, taken together, shall constitute but one and the same instrument. 10.7 Governing Law. This Agreement shall be governed by, interpreted under, and construed in accordance with the laws of the State of Nevada applicable to agreements made and to be performed wholly within the State of Nevada. The parties intend and agree that the proper forum for the litigation of all actions and proceedings arising out of a Default or claim of Default under this Agreement, is any circuit court of the State of Nevada or the Eighth Judicial District Court of the State of Nevada in Clark County, Nevada. Each of the parties agrees that it will not commence any action or proceeding arising out of or relating to this Agreement in any court other than as specified in the preceding sentence and it shall not challenge on grounds of forum non conveniens or any other grounds any action or proceeding so commenced, and hereby stipulates and irrevocably agrees that said courts have in personam jurisdiction over each of them for such litigation of any such controversy. 23 24 10.8 Waivers. A party's waiver of another party's default or of a provision of this Agreement must be made in writing, and no such waiver shall be implied from a party's failure to take or exercise, or delay in taking or exercising, any action or right in respect thereof (unless the time specified herein for taking such action or exercising such right has expired). No express waiver of any default shall affect any default, or cover any period of time, other than the precise default and period of time specified in such express waiver. No waiver of any default in the performance of any term, covenant, restriction or condition of this Agreement shall be deemed or shall constitute a waiver of any subsequent default or of any other term, covenant, restriction or condition, nor shall any waiver constitute a continuing waiver. A party's giving of its consent or approval to any act or request of another party or the single or partial exercise of any right shall not be deemed to waive or render unnecessary the consenting party's consent to or approval of or the exercise of any subsequent acts, requests or rights, whether or not similar. 10.9 Assignment. This Agreement may not be assigned by any party hereto except that Aladdin Gaming may assign its rights and obligations under this Agreement to Holdings, and vice versa, and any Mortgagee that succeeds to the interest of a party hereunder may assign this Agreement subject to the terms of the REA. If Mortgagee acquires title to the Aladdin Site, Mortgagee shall not be liable for any obligations or damages incurred prior to such acquisition of title but from and after such date shall assume Aladdin Gaming's obligations hereunder. The parties agree in such event to meet and mutually agree upon equitable adjustments to the Construction Schedule and timing for interim and final completion deadlines consistent with commercially reasonable and technically feasible realities of the then existing circumstances. The Aladdin Parties and Bazaar Company may collaterally assign its rights hereunder to lenders in connection with construction financing. Any assignment shall expressly be made subject to the provisions of this Agreement and no party shall be released from liability hereunder in the event of an assignment without the prior written agreement of the other parties, which agreement shall not be unreasonably withheld. 10.10 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties and to their respective successors and assigns. 10.11 Further Assurances. The parties agree to do such further acts and things and to execute and deliver such additional agreements and instruments as the other may reasonably require to consummate, evidence or confirm any agreement contain herein in the manner contemplated hereby. 10.12 Title and Headings. Titles and headings of sections of this Agreement are for convenience of reference only and shall not affect the construction of any provisions of this Agreement. 10.13 Pronouns. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the parties require. 10.14 Severability. The determination that any covenant, representation, warranty, condition or provision of this Agreement is invalid shall not affect the enforceability of the 25 remaining covenants, representations, warranties, conditions or provisions hereof and, in the event of any such determination, this Agreement shall be construed as if such invalid covenant, representation, warranty, condition or provision were not included herein. 10.15 Drafting Ambiguities. The parties and their respective counsel have reviewed and revised this Agreement. The rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or exhibits hereto. 10.16 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior understandings and writings and respect thereto. 10.17 Conflicts with REA. Notwithstanding anything to the contrary in Section 10.8 above, to the extent this Agreement fails to address or conflicts with an issue or matter addressed in the REA, the provisions of the REA shall control. 10.18 Term. This Agreement shall terminate on July 31, 1998, if Bazaar Company shall have failed to obtain its construction financing by that date, or on such date as all covenants and obligations of the parties hereunder have been performed, unless sooner terminated by the written consent of all parties hereto. 10.19 Recording Memorandum and Termination of Agreement. Upon the execution of this Agreement, the parties hereto shall agree to the form of, and, prior to the recordation of any Mortgage and after the recordation of a Memorandum of Bazaar Lease, shall record or cause to be recorded in the office of the recorder of the County, a Memorandum of Site Work Development and Construction Agreement, substantially in the form attached hereto as Exhibit "F". Upon the termination of this Agreement, either party, at the other party's request, will execute a recordable statement of termination of this Agreement which states the applicable termination date. IN WITNESS WHEREOF, the parties have executed this Agreement the date and year first above written. 26 "ALADDIN GAMING" ALADDIN GAMING, LLC, a Nevada limited liability company By: /s/ Ron Dictrow --------------- Ron Dictrow, Executive Vice President and Secretary "HOLDINGS" ALADDIN HOLDINGS, LLC, a Delaware limited liability company By: Aladdin Management Corporation, its Manager By: /s/ Jack Sommer --------------- Jack Sommer, Vice President and Secretary "BAZAAR COMPANY" ALADDIN BAZAAR, LLC, a Delaware limited liability company By: ALADDIN BAZAAR HOLDINGS, LLC, a Nevada limited liability company, its Member By: Aladdin Management Corporation, its Manager By: /s/ Jack Sommer --------------- Jack Sommer, Vice President and Secretary By: TH BAZAAR CENTERS INC., a Delaware corporation By: /s/ Wayne Finley ---------------- Wayne J. Finley, Senior Vice President By: /s/ Wendy Godoy --------------- Wendy M. Godoy, Senior Vice President 27 EXHIBIT A-1 THE SITE EXHIBIT A-2 THE BAZAAR SITE EXHIBIT A-3 THE ALADDIN SITE EXHIBIT A-4 THE MUSIC SITE EXHIBIT A-5 THE ENERGY SITE EXHIBIT B THE PLANS EXHIBIT B-1 THE BAZAAR PLANS EXHIBIT B-2 THE ALADDIN PLANS EXHIBIT C DEMOLITION WORK EXHIBIT D THE SITE WORK PLANS EXHIBIT E REMEDIES A Default by Bazaar Company with respect to its Reimbursement Obligation shall ipso facto result in the creation of a lien against the Bazaar Site consistent with provisions of Section 4.3 to the REA, and shall be treated as an allocable share of real estate taxes. EXHIBIT F MEMORANDUM OF SITE WORK DEVELOPMENT AND CONSTRUCTION AGREEMENT MEMORANDUM OF SITE WORK DEVELOPMENT AND CONSTRUCTION AGREEMENT RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Aladdin Gaming, LLC c/o Schreck Morris 1200 Bank of America Plaza 300 South Fourth Street Las Vegas, Nevada 89101 Attn: Ellen Schulhofer, Esq. - -------------------------------------------------------------------------------- MEMORANDUM OF SITE WORK DEVELOPMENT AND CONSTRUCTION AGREEMENT THIS MEMORANDUM OF SITE WORK DEVELOPMENT AND CONSTRUCTION AGREEMENT ("Memorandum") is made as of this 26th day of February, 1998, by and between Aladdin Gaming, LLC, a Nevada limited liability company ("Aladdin Gaming"), Aladdin Holdings, LLC, a Delaware limited liability company ("Aladdin Holdings") and Aladdin Bazaar, LLC, a Delaware limited liability company ("Bazaar Company"). 1. Aladdin Gaming, Aladdin Holdings and Bazaar Company have entered into that certain Site Work Development and Construction Agreement dated of even date herewith ("Site Work Agreement"), pursuant to which they have set forth their respective rights, duties and obligations with respect to certain demolition and site work and the construction of improvements on certain real property located in the County of Clark, State of Nevada and more particularly described on Exhibit "A" hereto. 2. The purpose of this Memorandum is to give notice of the existence of the Site Work Agreement. To the extent that any provision of this Memorandum conflicts with any provision of the Site Work Agreement, the Site Work Agreement shall control. 3. This Memorandum may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. ALADDIN GAMING, LLC ALADDIN BAZAAR, LLC By: TH Bazaar Centers, Inc., a Delaware corporation By: -------------------------- Name: By: ------------------------ ---------------------------------- Title: Wayne J. Finley, Senior Vice President ----------------------- By: ----------------------------------- By: Wendy M. Godoy, Senior Vice President -------------------------- Name: ------------------------ Title: By: Aladdin Bazaar Holdings, LLC., a Nevada ----------------------- limited liability company ALADDIN HOLDINGS, LLC By: Aladdin Management Corporation, a Nevada corporation, its manager By: Aladdin Management Corporation, its manager By: ------------------------------ Ronald B. Dictrow, Treasurer By: ------------------------------ Ronald B. Dictrow, Treasurer By: ----------------------------- Jack Sommer, Vice President By: ----------------------------- Jack Sommer, Vice President STATE OF NEVADA ) ) ss. COUNTY OF CLARK ) This instrument was acknowledged before me on February ___, 1998, by _________ as ____________ of Aladdin Gaming, LLC. --------------------------------------------- Signature of Notarial Officer STATE OF NEVADA ) ) ss. COUNTY OF CLARK ) This instrument was acknowledged before me on February ___, 1998, by Wayne J. Finley as Senior Vice President of TH Bazaar Centers, Inc., Manager of Aladdin Bazaar, LLC. --------------------------------------------- Signature of Notarial Officer STATE OF NEVADA ) ) ss. COUNTY OF CLARK ) This instrument was acknowledged before me on February ___, 1998, by Wendy M. Godoy as Senior Vice President of TH Bazaar Centers, Inc., Manager of Aladdin Bazaar, LLC. --------------------------------------------- Signature of Notarial Officer STATE OF NEVADA ) ) ss. COUNTY OF CLARK ) This instrument was acknowledged before me on February ___, 1998, by Ronald B. Dictrow as Treasurer of Aladdin Management Corporation, Manager of Aladdin Bazaar Holdings, LLC (in turn, Manager of Aladdin Bazaar, LLC) and as Manager of Aladdin Holdings, LLC. --------------------------------------------- Signature of Notarial Officer STATE OF NEVADA ) ) ss. COUNTY OF CLARK ) This instrument was acknowledged before me on February ___, 1998, by Jack Sommer as Vice President of Aladdin Management Corporation, Manager of Aladdin Bazaar Holdings, LLC (in turn, Manager of Aladdin Bazaar, LLC) and Manager of Aladdin Holdings, LLC. --------------------------------------------- Signature of Notarial Officer STATE OF NEVADA ) ) ss. COUNTY OF CLARK ) This instrument was acknowledged before me on February ___, 1998, by _________ as _________ of Aladdin Holdings, LLC. --------------------------------------------- Signature of Notarial Officer SCHEDULE 1 CONSTRUCTION SCHEDULE SCHEDULE 2 PERMITS I. Approvals Required During Development and Construction A. Environmental Approvals 1. Regulation of Hazardous Materials a. Storm water discharge permit. Nevada Administrative Code ("NAC") 445A.232; Clark County Code ("CCC") 24.40.020. To be obtained. b. Sewer connection permit. CCC 24.05.090 To be obtained. c. Storage tank permit. Nevada Revised Statutes ("NRS") 459.836; NAC 590.730(1) To be obtained. d. Permit to construct elevator, dumbwaiter, escalator and related equipment. NAC 618.454. Provided by Contractor. 2. Air Pollution Control a. "Authority to construct" Certificate for air emissions source. NAC 445.704(1)(a). Provided by State. May be required for generators. b. Operating Permit for air emissions source. NRS 445B.300(1)(a). Provided by State. May be required for generators. c. Land cleaning or leveling permit for the disturbance of dust or vegetation. CCC 9.12.030. To be obtained. 3. Aviation a. Approval of the Federal Aviation Administration ("FAA"). CCC 29.50.030. Obtained. b. Approval of the Clark County Department of Aviation. CCC 29.50.030. To be obtained. c. Execution of aviation easement. CCC 29.50.030 To be obtained. B. Zoning Approvals. 1. Conditional use permit. CCC 29.30.015, 29.30.080 & 29.66.020. Obtained (UC-0334-96 & UC-2030-96). 2. Flood control approval. Clark County Regional Flood Control District Regulations ("CCRFCD Regs") ss. 12.035(B). Preliminary approval obtained. Final approval to be obtained. 3. Pre-development Agreement. Entered into with Clark County and approved by the Board of County Commissioners on March 18, 1997. C. Building Approvals. 1. Traffic study approval. Obtained. 2. Building electrical, plumbing, mechanical, combination, swimming pool, spa, and other permits. CCC Title 22 & 29.56.010. To be obtained. 3. Energy source connection approval. CCC 22.02.970. To be obtained. 4. Demolition, Grading and Foundation Permits. To be obtained (authorized by Pre-development Agreement) D. Subdivision Map Requirements. 1. Technical studies a. Traffic Impact Mitigation Plan. Approved. (Subject to options.) b. Drainage Impact Evaluation Study and Mitigation Plan. Preliminary plan approved. Final approval to be obtained. II. Other Permits required prior to opening: A. Certificate(s) of occupancy. CCC 22.02.980 & 29.54.010 To be submitted. B. Occupational Safety and Health Regulations 1. Operating permit (boiler/pressure vessel). NAC 618.172. Provided after installation. 2. Operating permit for elevators, dumbwaiters, escalators and related equipment. NAC 618.457 & 618.466. Provided after installation. SCHEDULE 3 PRO FORMA BUDGET EX-10.21 17 CONSTRUCTION, OPER. & RECIPROCAL EASEMENT AGMT Design/Build Contract RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 919 Third Avenue New York, New York 10022 Attention: Wallace L. Schwartz, Esq. ================================================================================ (Space Above For Recorder's Use) ALADDIN GAMING/BAZAAR/MUSIC CONSTRUCTION, OPERATION AND RECIPROCAL EASEMENT AGREEMENT by and among ALADDIN GAMING, LLC, a Nevada limited-liability company "Aladdin Gaming" and ALADDIN BAZAAR, LLC, a Delaware limited liability company "Bazaar Company" and ALADDIN MUSIC HOLDINGS, LLC a Nevada limited-liability company "Aladdin Music" TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS.......................................................4 ARTICLE 2 EASEMENTS........................................................22 2.1 Definitions and Conditions.......................................22 2.2 Easement: Automobile Parking, Vehicular and Pedestrian Access; Emergency Egress.................................................26 2.3 Easement: Utilities..............................................27 2.4 Easement: Construction...........................................30 2.5 Easement: Maintenance of Common Structural Supports..............32 2.6 Easement: Exterior and Accent Lights.............................33 2.7 Easement: Truck Loading Areas....................................33 2.8 Easement: Encroachments..........................................34 2.9 Easement: Roof...................................................35 2.10 Easement: Setbacks...............................................35 2.11 Easement: General Integration, Maintenance and Development.......35 2.12 No Dedication of Easements.......................................36 2.13 Abandonment of Easements.........................................36 2.14 Granting of Easements to Utility Companies.......................36 2.15 Easement: Monorail...............................................37 2.16 Easement: Signs..................................................38 ARTICLE 3 CONSTRUCTION OF REDEVELOPED ALADDIN..............................39 3.1 General Covenants and Background.................................39 3.2 Workmanship......................................................40 3.3 Coordination.....................................................41 3.4 Interference During Construction.................................41 3.5 Optional Improvements and Music Hotel............................41 3.6 Mechanic's Liens.................................................43 3.7 Construction Bonds...............................................43 3.8 Temporary Termination of Fire Service............................43 3.9 Indemnity........................................................44 3.10 Submittal of As-Built Plans and Record Drawings..................44 3.11 Self-Help Cure of Construction Defaults..........................45 i ARTICLE 4 ALLOCABLE SHARES OF COMMON COSTS.................................45 4.1 Payments.........................................................45 4.2 Resolution of Disputes...........................................47 4.3 Creation of Lien and Personal Obligation for Payment of Allocable Shares...........................................................47 4.4 Adjustments to Allocable Share of Common Costs...................47 ARTICLE 5 CENTRAL ENERGY PLANT.............................................48 5.1 Construction of Central Energy Plant.............................48 5.2 Purchase of Electricity, Chilled Water and Hot Water.............48 5.3 Sale of Excess Electricity, Chilled Water and Hot Water..........48 ARTICLE 6 FLOOR AREA, USE, AND OPERATION...................................49 6.1 Floor Area; First and Second Scheduled Opening Dates.............49 6.2 Uses.............................................................49 6.3 Limitation on Detrimental Characteristics........................50 6.4 Operation........................................................50 6.5 Gaming Activities................................................53 6.6 Commercial Subdivision; Taxes and Assessments....................54 6.7 Adjacent Land....................................................55 ARTICLE 7 COVENANTS AGAINST WASTE..........................................56 7.1 Waste............................................................56 7.2 Hazardous Substances.............................................56 ARTICLE 8 INDEMNIFICATION AND INSURANCE....................................56 8.1 Indemnity........................................................56 8.2 General Liability Insurance......................................56 8.3 Property Insurance...............................................57 8.4 Blanket Insurance................................................57 8.5 Controlled Insurance Program.....................................57 8.6 Mutual Release; Waiver of Subrogation............................57 8.7 Named Insureds...................................................58 ARTICLE 9 REPAIR, MAINTENANCE, ALTERATIONS AND RES- TORATION.........................................................58 9.1 Maintenance - Buildings..........................................58 9.2 Maintenance - Common Parking Area................................59 9.3 Alterations - Buildings and Common Area..........................59 ii 9.4 Restoration of Buildings and/or Common Area......................61 9.5 Restoration of Improvements Not Covered by Section 9.4...........61 9.6 Standards of Construction........................................62 9.7 Licenses for Repairs, Maintenance, Alterations and Restoration...63 9.8 Clearing of Building Site........................................64 9.9 Self-Help Cure of Maintenance and Restoration Defaults...........64 9.10 Lien.............................................................65 9.11 Article 9 Approvals..............................................65 ARTICLE 10 FORCE MAJEURE....................................................65 10.1 Force Majeure....................................................65 10.2 Notice...........................................................65 ARTICLE 11 DISCHARGE AND RELEASE............................................66 11.1 Discharge on Transfer............................................66 11.2 Discharge on Involuntary Transfer................................66 11.3 Exceptions to Discharge..........................................67 11.4 Discharge of Mortgagee...........................................67 11.5 Aladdin Gaming Released From Operating Covenants.................67 11.6 Bazaar Company Released from Operating Covenants.................67 11.7 Aladdin Music Released from Operating Covenants..................67 11.8 Excuse and Release From Restoration Covenants....................68 11.9 No Waiver........................................................68 ARTICLE 12 ARBITRATION......................................................69 12.1 Disputes Covered.................................................69 12.2 Arbitration Procedures...........................................69 ARTICLE 13 ATTORNEYS' FEES..................................................71 13.1 Prevailing Party.................................................71 ARTICLE 14 NOTICES..........................................................72 14.1 Notices to Parties...............................................72 ARTICLE 15 MORTGAGEE PROVISIONS.............................................77 15.1 Mortgagee Notice.................................................77 ARTICLE 16 AMENDMENT........................................................78 16.1 Method and Effect of Amendment...................................78 iii 16.2 No Third Party Beneficiary......................................79 ARTICLE 17 TERMINATION OF REA..............................................79 ARTICLE 18 EXERCISE OF APPROVAL RIGHTS.....................................79 ARTICLE 19 EFFECTIVE DATE OF REA...........................................80 ARTICLE 20 MISCELLANEOUS...................................................81 20.1 Breach Shall Not Defeat Mortgage................................81 20.2 Breach Shall Not Permit Termination.............................81 20.3 Captions........................................................81 20.4 Interpretation..................................................81 20.5 Governing Laws and Forum........................................81 20.6 Injunctive Relief...............................................82 20.7 No Partnership..................................................82 20.8 Not a Public Dedication.........................................82 20.9 Payment on Default..............................................82 20.10 Severability....................................................83 20.11 Successors......................................................83 20.12 Time of Essence.................................................83 20.13 Waiver of Default...............................................83 20.14 Rights Cumulative...............................................84 20.15 Counterparts....................................................84 20.16 Estoppel Certificates...........................................84 20.17 Limitation on Liability.........................................85 20.18 Index...........................................................86 20.19 Compliance With Laws............................................86 20.20 Conflicts.......................................................87 EXHIBIT "A-1" - LEGAL DESCRIPTION SITE........................................93 EXHIBIT "A-2" - LEGAL DESCRIPTION GAMING SITE.................................94 EXHIBIT "A-3" - LEGAL DESCRIPTION BAZAAR SITE.................................95 EXHIBIT "A-4" - LEGAL DESCRIPTION ALADDIN MUSIC SITE..........................96 EXHIBIT "A-5" - LEGAL DESCRIPTION UTILITY SITE................................97 iv EXHIBIT "A-6" - LEGAL DESCRIPTION OPTIONAL IMPROVEMENTS SITE........................................................98 EXHIBIT "B" - SITE PLANS EXHIBIT "C" - PLANS AND SPECIFICATIONS SCHEDULE "I" - ALLOCABLE SHARE OF COMMON COSTS SCHEDULE "II" - ALLOCABLE SHARE OF REAL ESTATE TAXES v CONSTRUCTION, OPERATION AND RECIPROCAL EASEMENT AGREEMENT (Aladdin Gaming/Bazaar/Music) THIS CONSTRUCTION, OPERATION AND RECIPROCAL EASEMENT AGREEMENT (this "REA") is made and entered into as of February 26, 1998, by and between ALADDIN GAMING, LLC, a Nevada limited-liability company ("Aladdin Gaming"), ALADDIN BAZAAR, LLC, a Delaware limited liability company ("Bazaar Company"), and ALADDIN MUSIC HOLDINGS, LLC, a Nevada limited-liability company ("Aladdin Music"). R E C I T A L S : A. Aladdin Gaming is the owner of that certain real property located at 3667 Las Vegas Boulevard South in Clark County, Nevada (the "County") which is more particularly described on Exhibit "A-1" attached hereto (the "Site"). The Site is currently improved with certain improvements commonly known as the "Aladdin Hotel and Casino" which are being, or will be, demolished and redeveloped, pursuant to the terms of that certain Site Work Development and Construction Agreement dated as of the date hereof, among Aladdin Holdings, LLC, Aladdin Gaming and Bazaar Company (the "Site Work Agreement"). A memorandum of the Site Work Agreement shall be recorded in the Official Records of the County immediately following the recordation of this REA. In addition to the demolition contemplated by the Site Work Agreement, certain portions of the Site will be prepared pursuant to the terms of the Site Work Agreement with various on-site and off-site infrastructure improvements to permit the development of the Redeveloped Aladdin (as hereinafter defined) described in this REA. B. That portion of the Site not including the Bazaar Site, the Aladdin Music Site, the Energy Site and the Optional Improvements Site (as such terms are hereinafter defined) is more particularly described on Exhibit "A-2" attached hereto (the "Gaming Site"). Aladdin Gaming shall construct and/or renovate on the Gaming Site the Aladdin Improvements (as hereinafter defined) consisting of certain related and physically attached facilities, including a hotel containing approximately 2600 rooms, an approximately 116,000 square foot casino, a Theater for Performing Arts (as hereinafter defined), an area (the "Aladdin Parking Area") which shall consist of space for approximately 500 motor vehicles, and truck docking and loading facilities which shall be located beneath the hotel and casino, all as more particularly set forth on the Site Plans and the Plans and Specifications (as such terms are hereinafter defined). C. Aladdin Gaming has leased to Bazaar Company a portion of the Site to permit the construction and operation by Bazaar Company of the Bazaar Improvements (as hereinafter defined) pursuant to the terms of that certain lease between Aladdin Gaming and Bazaar Company (the "Bazaar Lease"). A memorandum of the Bazaar Lease shall be recorded in the Official Records of the County immediately prior to the recordation of this REA. That portion of the Site subject to the Bazaar Lease and upon which the Bazaar Improvements will be developed is more particularly described on Exhibit "A-3" attached hereto (the "Bazaar Site"). D. Aladdin Gaming has leased to Aladdin Music a portion of the Site pursuant to the terms of that certain lease between Aladdin Gaming and Aladdin Music (the "Music Lease") to permit the construction and operation by Aladdin Music of a second hotel and casino facility consisting of certain related and physically attached facilities, including a hotel containing approximately 1000 rooms and an approximately 50,000 square foot casino located on the corner of Audrie Street and Harmon Avenue as more particularly described herein below (the "Music Hotel"). A memorandum of the Music Lease shall be recorded in the Official Records of the County immediately prior to the recordation of this REA. That portion of the Site subject to the Music Lease and upon which the Music Hotel will be developed is more particularly described on Exhibit "A-4" attached hereto (the "Aladdin Music Site"). E. Aladdin Gaming has leased to Energy Provider (as hereinafter defined) a portion of the Site pursuant to the terms of that certain lease dated as of December 3, 1997, between Aladdin Gaming and Energy Provider (the "Energy Lease"). Pursuant to the Energy Provider Agreement (as hereinafter defined), Energy Provider is obligated to construct and operate a central energy plant (the "Central Energy Plant") for the cogeneration of electricity, the production of chilled water and hot water, and the distribution of electricity, chilled water and hot water to the Site. A memorandum of the Energy Lease shall be recorded in the Official Records of the County immediately prior to the recordation of this REA. That portion of the Site subject to the Energy Lease and upon which the Central Energy Plant will be developed is more particularly described on Exhibit "A-5" attached hereto (the "Energy Site"). 2 F. Conditioned upon the due performance of the demolition and infrastructure development described in the Site Work Agreement, Aladdin Gaming and Bazaar Company are each obligated to construct certain improvements on the Gaming Site and the Bazaar Site, respectively, pursuant to the terms of the Site Work Agreement and this REA, as more particularly described on the Site Plans and the Plans and Specifications (the "Initial Planned Floor Area"). The improvements required to be constructed by Bazaar Company on the Bazaar Site pursuant to the terms of this REA shall be owned by Bazaar Company and are hereinafter collectively referred to as the "Bazaar Improvements". The improvements required or permitted to be constructed and/or renovated by Aladdin Gaming pursuant to the terms of this REA shall be owned by Aladdin Gaming and are hereinafter referred to as the "Aladdin Improvements". The Bazaar Improvements, the Music Hotel, the Central Energy Plant and the Aladdin Improvements are sometimes hereinafter collectively referred to as the "Redeveloped Aladdin". As more particularly described in this REA, while all of the Bazaar Improvements are required to be constructed by Bazaar Company, only a portion of the Aladdin Improvements are required to be constructed by Aladdin Gaming. Construction of any Aladdin Improvements which are not required to be constructed by Aladdin Gaming pursuant to this REA (the "Optional Improvements") may be developed by the Aladdin Parties (as hereinafter defined), subject to the terms and conditions of this REA. G. The Bazaar Improvements consist of the "Retail Facility" and the "Common Parking Area." The Retail Facility consists of approximately 726,000 square feet of Floor Area (including approximately 462,000 square feet of gross leasable retail area) in the nature of an enclosed themed entertainment shopping mall located at particular elevations of the Aladdin Improvements with various vertical penetrations above and below such elevations, all as more particularly described on the Site Plans and the Plans and Specifications. The Common Parking Area consists of a multi-level parking structure for approximately 4,800 motor vehicles adjacent to the Bazaar Improvements and surface-level parking facilities for approximately 364 motor vehicles beneath and adjacent to the Retail Facility, as more particularly described on the Site Plans and the Plans and Specifications. The Common Parking Area does not include the Aladdin Parking Area. H. The Parties to this REA desire that the Redeveloped Aladdin be improved and operated as a mixed-use project which is physically and function ally integrated through, among other things, reciprocal easements for parking and 3 access, construction easements for development and renovation of the Redeveloped Aladdin, and the adoption and observance of uniform standards of development, operation and maintenance as set forth in this REA. NOW, THEREFORE, in consideration of the foregoing, the covenants contained herein, and for other and good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows: ARTICLE 1 DEFINITIONS As used in this REA, references to "Recitals," "Articles," "Sections" and "Exhibits" are references to corresponding portions of this REA. Listed below are definitions for certain terms that are used in this REA with particular meanings. Unless otherwise defined herein, capitalized terms used in this REA shall have the meanings set forth in this Article 1. Unless otherwise noted, a defined term shall include, where appropriate to the context, the noun (singular and plural), verb and adjective forms of the terms. Accounting Period. "Accounting Period" shall mean any period beginning on January 1 and ending on the next following December 31, except that the first Accounting Period shall commence on the date hereof and shall end on the following December 31, and the last Accounting Period shall end on the Termination Date. Adjacent Land. "Adjacent Land" is defined in Section 6.7. Affiliate. "Affiliate" shall mean a Person that Controls, is directly or indirectly Controlled by, or is under common ownership or Control with, another Person. Notwithstanding the foregoing or any other provision of this REA to the contrary, in no event shall any Party be considered to be an Affiliate of any other Party or Affiliates thereof, notwithstanding the fact that Affiliates of certain Parties hold a fifty percent (50%) membership interest in other Parties. Aladdin Gaming. "Aladdin Gaming" shall initially mean Aladdin Gaming, LLC, a Nevada limited-liability company, and upon a Transfer or 4 Involuntary Transfer of such Person's interest in the Site, "Aladdin Gaming" shall mean such Person's Transferee. Aladdin Hotel and Casino. "Aladdin Hotel and Casino" is defined in Recital A. Aladdin Improvements. "Aladdin Improvements" is defined in Recital F and includes the Buildings and Common Area improvements on the Gaming Site, as more particularly set forth on the Site Plans and the Plans and Specifications, including any present or future Construction or alteration of the Optional Improvements, in accordance with the terms of this REA and the Site Work Agreement, as the same may exist from time-to-time. Aladdin Improvements shall not include any of the Aladdin Improvements that have been from time-to-time razed or removed in accordance with the terms of this REA. Aladdin Music. "Aladdin Music" shall initially mean Aladdin Music Holdings, LLC, a Nevada limited-liability company, and upon a Transfer or Involuntary Transfer of such Person's interest in the Site, "Aladdin Music" shall mean such Person's Transferee. Aladdin Music Site. "Aladdin Music Site" is defined in Recital D. Aladdin Parking Area. "Aladdin Parking Area" is described in Recital B and includes portions of the Gaming Site, as more particularly set forth on the Site Plans and the Plans and Specifications. Aladdin Parties. "Aladdin Parties" shall mean Aladdin Gaming and/or its Permitted Transferees. Allocable Share of Common Costs. "Allocable Share of Common Costs" shall mean that portion of each category of the Common Costs allocable to each Tract on a monthly basis for each Accounting Period, subject to adjustment on an annual basis as provided in this REA. The Common Costs allocable to each Tract shall also be subject to adjustment pursuant to the terms of Section 4.4 hereof at such time as any Optional Improvements shall be developed by an Aladdin Party, or a successor thereof. The Party responsible for maintaining and operating the Common Area affected by an adjustment shall notify each Party of such adjustment in accordance with Article 4 hereof. The initial Allocable Share of Common Costs for each Tract shall be equal to the percentages and paid by the 5 Parties set forth on Schedule "I" hereto for each such Tract, which amounts shall be payable to Bazaar Company or Aladdin Gaming, as the case may be, as set forth in this REA. Allocable Share of Real Estate Taxes. "Allocable Share of Real Estate Taxes" is defined in Section 6.6. Annual Statement. "Annual Statement" is defined in Section 4.1(b). Arbitrator. "Arbitrator" is defined in Section 12.2(a). Attorneys' Fees. "Attorneys' Fees" is defined in Article 13. Bazaar Company. "Bazaar Company" shall initially mean Aladdin Bazaar, LLC, a Delaware limited liability company, and upon a Transfer or Involuntary Transfer of such Person's interest in the Site, "Bazaar Company" shall mean such Person's Transferee. Bazaar Improvements. "Bazaar Improvements" is defined in Recital F and includes the Buildings and Common Area improvements on the Bazaar Site, as more particularly set forth on the Site Plans and the Plans and Specifications, including any present or future Construction or alteration thereof in accordance with the terms of this REA, as the same may exist from time to time. Bazaar Improvements shall not include any of the Bazaar Improvements that have been from time to time razed or removed in accordance with the terms of the Bazaar Lease and this REA. Bazaar Lease. "Bazaar Lease" is defined in Recital C. Bazaar LLC Agreement. "Bazaar LLC Agreement" shall mean that Limited Liability Company Agreement of Aladdin Bazaar, LLC dated as of September 3, 1997, as amended on October 16, 1997 and as thereafter amended from time to time. Bazaar Perimeter Areas. "Bazaar Perimeter Areas" means the sidewalks, landscaping, irrigation, lighting and similar areas to be maintained by Bazaar Company, as more particularly set forth on the Site Plans and the Plans and Specifications. 6 Bazaar Site. "Bazaar Site" is defined in Recital C. Budget. "Budget" is defined in Section 4.1(a). Building. "Building" shall mean all portions of the buildings and improvements (including alterations or restorations) that exist or are constructed from time to time on a Party's Tract. Casino Perimeter Areas. "Casino Perimeter Areas" means the sidewalks, landscaping, irrigation, lighting and similar areas to be maintained by Aladdin Gaming, as more particularly set forth on the Site Plans and the Plans and Specifications. Central Energy Plant. "Central Energy Plant" is defined in Recital E. Cessation Right. "Cessation Right" is defined in Section 6.4(h). Claim. "Claim" is defined in the definition of "Indemnify". Commercial Subdivision. "Commercial Subdivision" is defined in Section 6.6. Common Area. "Common Area" shall mean the Common Parking Area, Common Area Utility Lines, the Bazaar Perimeter Areas, the Casino Perimeter Areas and the Fire Command Center, all as more particularly set forth on the Site Plans and the Plans and Specifications, subject to any restrictions set forth in this REA. The Common Area, except the Common Parking Area, shall be maintained, repaired, operated and restored by the Parties set forth on Schedule "I" hereto. The Common Parking Area shall be maintained, repaired, operated and restored by Bazaar Company pursuant to the Parking Use Agreement. Common Area Utility Line. "Common Area Utility Line" is defined in Section 2.1(e). Common Area Work. "Common Area Work" is defined in Section 4.1. 7 Common Costs. "Common Costs" shall mean those expenses and costs which arise in connection with the proper maintenance, repair and operation of the Common Area (including administrative fees to the extent representative of actual costs and expenses, but not profits, except as expressly provided in the Parking Use Agreement) and which are to be shared between certain of the Parties in accordance with their respective Allocable Share of Common Costs. Each Party shall be responsible for, and Common Costs shall not include, the cost of building, installing, maintaining and operating Buildings, except to the extent the Parties hereto otherwise agree to include such costs as Common Costs. In no event shall Common Costs include any of the following: (i) the cost of any demolition or construction Work contemplated by the Site Work Agreement, including but not limited to the cost of constructing the Initial Planned Floor Area and the Optional Improvements; (ii) any costs specifically allocated to or required to be paid by a Party pursuant to the Site Work Agreement, the Bazaar Lease, the Music Lease, the Energy Lease, the Parking Use Agreement, this REA, any environmental indemnity, or any other agreement between two or more Parties hereto which specifically requires any such Party to bear a cost or expense which might other wise be considered a Common Cost; (iii) promotional costs and activities; (iv) Construction, operation, maintenance, repair, replacement and restoration of the Central Energy Plant; (v) costs imposed by the County or other governmental authorities claiming jurisdiction over the Site which relate to the use to which any individual Tract is put; (vi) depreciation and financing costs attributable to any of the improvements comprising the Redeveloped Aladdin; (vii) the continuing cost of complying with any requirements imposed by the County or any other governmental authority in connection with the realignment of Harmon Avenue and pedestrian bridges, which cost shall remain the responsibility of Aladdin Gaming; (viii) the cost of special services, goods or materials provided to or specific costs incurred for the account of specific Parties, Occupants or Permittees rather than for the benefit of the Site as a whole; (ix) amounts paid in respect of Common Costs to an Affiliate of an Operator Party to the extent such amounts are in excess of amounts that would be paid on a commercially reasonable basis to qualified third parties in respect of such costs; (x) real estate and personal property taxes with respect to each Tract and each Party (except for personal property taxes attributable to personal property to the extent used in connection with the Common Area) (it being understood, however, that the Parties shall be responsible for their respective Allocable Share of Real Estate Taxes as provided herein); and (xi) the cost of Construction of the Monorail (it being understood, however, that such cost shall nonetheless be subject to equitable allocation among the Parties as set forth in Section 2.15 hereof). 8 Common Parking Area. "Common Parking Area" is referenced in Recital G and shall mean that portion of the Bazaar Improvements located on the Bazaar Site and designated on the Site Plans and the Plans and Specifications for the shared use of the Redeveloped Aladdin in connection with the parking, passage, and loading of motor vehicles and trucks, together with related improvements which at any time are constructed in connection therewith, including but not limited to roadways, pedestrian sidewalks, stairways, elevators, bridges, landscaping light standards, directional signs, driveways and curbs, in each case to the extent indicated on the Site Plans and the Plans and Specifications. Construction. "Construction" is defined in Section 3.1. Contracting Party. "Contracting Party" is defined in Section 3.6. Control. "Control" shall mean ownership of a Person or Party in excess of 50% and/or the power, exercisable jointly or severally, to manage and direct a Person through the direct or indirect ownership of partnership interest, stock, trust powers, or other beneficial interests and/or management or voting rights. A "change of control" shall mean that Control passes from one Person and its Affiliates to another in a single transaction or a series of related transactions. Controlled Insurance Program. "Controlled Insurance Program" is defined and set forth in that certain Contract between Aladdin Gaming and Fluor Daniel, Inc. for Design/Build Services dated as of December 4, 1997. County. "County" is defined in Recital A. Cure. At such time as a Party is in Default and has received a demand for the correction of such Default, such Party and its Mortgagee shall be permitted thirty (30) days or such other amount of time specified herein within which to render remedial performance sufficient to correct said Default, which correction of said Default shall be referred to herein as "Cure." At its election, the Party serving a notice of Default may also serve a demand for the correction of such Default either concurrently with or subsequent to service of the notice of Default, which demand shall specify the nature of the Default and the precise duty or obligation under this REA alleged to have been breached. Except as provided elsewhere in this REA to the contrary, whenever a Default is not capable of Cure within the specified period, a Defaulting Party (or its Mortgagee) shall be deemed 9 to have Cured the Default if it shall have commenced Cure within the specified time period and shall have prosecuted the Cure continuously and diligently thereafter to completion. Default. "Default" shall mean a Party's breach of any of its covenants or obligations set forth in this REA. A notice of Default may be accompanied or followed by service of a demand for the correction of such Default. A party in Default is sometimes referred to herein as a "Defaulting Party." Demolition Work. "Demolition Work" shall mean portions of the Site which may be demolished, razed and removed and which is more particularly described in Article II of the Site Work Agreement. Demand. "Demand" is defined in Section 12.2(a) hereof. Demanding Party. "Demanding Party" is defined in Section 12.2(a) hereof. Discharge. "Discharge" shall mean the full relief and exoneration from any personal liability or responsibility of a Transferor, Mortgagor or Mortgagee for performance of, granting of or compliance with all easements, covenants, duties and obligations accruing and arising under this REA in connection with a Party's possession of its Tract, which shall occur from and after the effective date of the following: (a) with respect to a Transferor, a Transfer, as more fully described in Section 11.1; (b) with respect to a Mortgagor, an Involuntary Transfer, as more fully described in Section 11.2; and (c) with respect to a Mortgagee, a Transfer by such Mortgagee after acquiring title to a Tract (or portion thereof) in an Involuntary Transfer, as more fully described in Section 11.4. DPW Agreement. "DPW Agreement" shall mean that certain Aladdin Hotel & Casino Agreement between Aladdin Holdings, LLC and the County, dated March 18, 1997. Energy Provider. "Energy Provider" shall mean Northwind Aladdin, LLC, a Nevada limited-liability company, and upon a Transfer or Involuntary Transfer of such Person's interest in the Site, "Energy Provider" shall mean such Person's Transferee. 10 Energy Provider Agreement. "Energy Provider Agreement" is defined in Section 2.1(f). Energy Provider Utility Line. "Energy Provider Utility Line" is defined in Section 2.1. Energy Site. "Energy Site" is defined in Recital E. Estimated Cost Statement. "Estimated Cost Statement" is defined in Section 4.1. Event of Default. "Event of Default" shall mean a Default beyond applicable notice and period for Cure. Excuse. "Excuse" shall mean the occurrence of an event of either (a) force majeure pursuant to Article 10 that interferes with a Party's ability to perform its obligations under this REA, or (b) the Default of another Party with respect to its restoration covenants given in Article 9 to the extent that such Default interferes with a non-Defaulting Party's ability to perform its obligations under this REA and which Default shall, pursuant to Section 11.8(a), result in the temporary relief of the non-Defaulting Party from its duty to restore under Article 9, for so long as such force majeure event continues or such Defaulting Party has not Cured its Default. Final Completion Deadline. "Final Completion Deadline" is defined in the Energy Provider Agreement. Fire Command Center. "Fire Command Center" shall mean that certain fire command center for the Site and all facilities in connection therewith, as more particularly set forth on the Site Plans and the Plans and Specifications, to be maintained by Aladdin Gaming or Bazaar Company, as such Parties shall mutually determine. First Scheduled Opening Date. "First Scheduled Opening Date" shall mean that date by which the Redeveloped Aladdin, except for the Music Hotel, is scheduled to be first opened for business to the public, as more particularly set forth in the Site Work Agreement. 11 Floor Area. "Floor Area" shall mean the aggregate, as established from time to time by the Project Architect/Engineer, of the actual number of square feet of floor space on all floors in any Building, whether or not roofed or occupied or leased, excluding non-leasable areas such as equipment rooms, subterranean areas, balconies and mezzanines, management offices, and the like, but only to the extent the same are not actually leased or leasable, measured from the exterior faces or exterior lines of the exterior walls (including basement walls) and from the center line (as opposed to exterior face) of the party and interior common walls. Estimates of the initial Floor Areas, including, with respect to the Gaming Site and the Bazaar Site, the Initial Planned Floor Area, are set forth on the Site Plans and the Plans and Specifications, which estimates shall be adjusted from time to time as the Redeveloped Aladdin is constructed and improved. Gaming Authority; Gaming Activity; Gaming Facility; Gaming Laws. "Gaming Authority" shall mean the Nevada Gaming Commission, the Nevada State Gaming Control Board, the Clark County Liquor and Gaming License Board, any agency or authority operating under the Nevada Gaming Control Act, and any other agency or authority of the State of Nevada regulating Gaming Activities. "Gaming Laws" shall mean any statute, regulation, rule, mandate, opinion or similar authority promulgated by a Gaming Authority. "Gaming Activity" shall mean any use, operation, business or other activity which requires a license, approval, authorization, registration or a finding of suitability from any Gaming Authority. "Gaming Facility" shall mean a facility or facilities devoted substantially to lodging, entertainment and the operation of Gaming Activities open to the public at large, which facility and Gaming Activities are similar in type to the majority of the hotel casinos located on the Las Vegas Strip. A Gaming Facility may be associated with or included within or be a part of another business operated in conjunction with the Gaming Facility including but not limited to a hotel, hotel resort complex, amusement or theme ride parks, retail center, and/or entertainment venues. Gaming Equipment. "Gaming Equipment" is defined in Section 6.5(c). Gaming Site. "Gaming Site" is defined in Recital B. Grantee. "Grantee" is defined in Section 2.1(b). Grantor. "Grantor" is defined in Section 2.1(a). 12 Hazardous Substances. "Hazardous Substances" means and includes the following, including mixtures thereof: any hazardous substance, pollutant, contaminant, waste, by-product or constituent regulated under NRS Ch. 459, NRS ss.ss. 618.750-618.850, NRS ss. 477.045, as amended, or any other federal, state or local laws and regulations as amended or hereafter enacted regulating hazardous or toxic substances or wastes, petroleum pollutant or waste or similar substances, including, but not limited to, as defined in the Comprehensive Environmental Response, Liability and Compensation Act, 42 U.S.C. 9601 et seq., as amended, the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251, et seq., Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et seq., Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq., Safe Drinking Water Act, 42 U.S.C. Sections 3000(f), et seq., Clean Air Act, 42 U.S.C. Sections 7401, et seq., and United States Department of Transportation Hazardous Materials Table, 49 C.F.R. 172.101, Chapters 444, 445A, 445B, 590 or 618 of NRS; pesticides regulated under the Federal Insecticides, Fungicide, and Rodenticide Act, 7 U.S.C. Section 136 et seq.; asbestos and asbestos-containing materials, PCBs and other substances regulated under the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; source material, special nuclear material, by-product material and any other radioactive materials or radioactive wastes, however produced, regulated under the Atomic Energy Act or the Nuclear Waste Police Act; chemicals subject to the OSHA Hazard Communication Standard, 29 C.F.R. 1910.1200 et seq.; and industrial process and pollution control wastes whether or not hazardous within the meaning of the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. References to statutory authority in this definition shall be deemed to refer to such authority as such may be amended from time to time. In. "In" is defined in Section 2.1(c). Indemnify. "Indemnify" shall mean the obligation of a Party ("Indemnitor") to indemnify, hold harmless, protect and defend, with counsel reasonably acceptable to the Person receiving such indemnity ("Indemnity"), including such Person's Affiliates and their respective officers, directors, partners, members, landlords, agents, servants and employees (individually and collectively, "Indemnitee") from and against all losses, claims, actions, liens, proceedings, liabilities, damages (excluding consequential and punitive damages), costs and/or expenses (including the Indemnitee's reasonable Attorneys' Fees) (collectively, a "Claim") resulting from the death of or injury to any Person or the physical or economic damage to or loss of any property arising out of the Indemnitor's duties 13 or conduct specified in this REA. Such term shall also include the requirement that the Indemnitee give the Indemnitor notice of any suit or proceeding entitling the Indemnitee to indemnification pursuant to this REA. Failure to give such notice shall not, however, in any manner negate or invalidate the obligation to provide such indemnity, except to the extent the Indemnitor is actually prejudiced thereby. No Party shall be obligated to Indemnify another Party to the extent the Claim underlying the Indemnitee's request for Indemnity (a) results from the negligence or intentional wrongdoing of the Indemnitee without the negligence of the Indemnitor, or (b) results from such willful, intentional or wanton acts or omissions of the Indemnitee as shall constitute an "occurrence" excluded from coverage under standard comprehensive public liability and property damage insurance policies as they may exist from time to time. Index. "Index" is defined in Section 20.18. Infrastructure Improvements. "Infrastructure Improvements" means those off-site and on-site infrastructure improvements depicted on the Site Plans and the Plans and Specifications and installed, made, constructed, restored or relocated by the Aladdin Parties in order to prepare the Site for the development and construction of the Redeveloped Aladdin, and for ongoing operation as required by the DPW Agreement and the County, including, without limitation, grading, pad preparation, streets, roadways, driveways, walkways, sidewalks, curbs, bridges, turning lanes, traffic control devices, traffic signals, traffic mitigation measures, water drainage and flood control mitigation measures, street lights, driveway and walkway lights, Building lights (including lighting and ceilings that are underneath the Retail Facility), signage, landscaping, pedestrian bridges, tunnels and overpasses (whenever constructed) and preparation for the installation of utilities. Initial Planned Floor Area. "Initial Planned Floor Area" is referred to in Recital F and shall mean the Floor Area that Aladdin Gaming is required to construct on the Gaming Site and Bazaar Company is required to construct on the Bazaar Site, respectively, pursuant to the Site Work Agreement and this REA. The Initial Planned Floor Area for the Bazaar Improvements and the required portion of the Aladdin Improvements is more particularly set forth on the Site Plans and the Plans and Specifications for the Bazaar Improvements and the Aladdin Improvements, respectively. 14 Involuntary Transfer. "Involuntary Transfer" shall mean the conveyance or reversion of fee or leasehold title to a Tract (or portion thereof) from a Mortgagor ("Involuntary Transferor") to a Mortgagee ("Involuntary Transferee") resulting from the judicial or nonjudicial foreclosure of the Mortgage or the grant of a deed in lieu of such foreclosure; provided, however, in the event of such an Involuntary Transfer, the Involuntary Transferor shall be conclusively deemed to have assigned all of its rights, powers, title and interest in its Tract and this REA to the Involuntary Transferee, who shall be conclusively deemed to have assumed all of the Involuntary Transferor's covenants and obligations thereunder accruing from and after such Involuntary Transfer. Licensee. "Licensee" is defined in Section 9.7. Liened Party. The term "Liened Party" is defined in Section 3.6. Monorail. "Monorail" is defined in Section 2.15. Mortgage; Mortgagor; Mortgagee. "Mortgage" shall mean an indenture of mortgage or a deed of trust encumbering all or a portion of the interest of a Party ("Mortgagor") in its Tract. "Mortgagee" shall mean either the trustee and beneficiary/mortgagee, individually or collectively as appropriate, under a Mortgage. Music Hotel. "Music Hotel" is defined in Recital D. Music Lease. "Music Lease" is defined in Recital D. Name. "Name" shall exclusively mean, with respect to Aladdin Gaming, "Aladdin Hotel and Casino" or such other name as Aladdin Gaming may designate in lieu thereof in the future, as to which Bazaar Company and Aladdin Music shall have the right to reasonably approve, which approval shall not be unreasonably withheld; with respect to Bazaar Company, "Desert Passage at Aladdin" or such other name as Bazaar Company may designate in lieu thereof in the future, as to which Aladdin Gaming and Aladdin Music shall have the right to reasonably approve, which approval shall not be unreasonably withheld; and, with respect to Aladdin Music, "Sound Asylum Hotel" or such other name as Aladdin Music may designate in lieu thereof in the future, as to which Aladdin Gaming and Bazaar Company shall have the right to reasonably approve, which approval shall not be unreasonably withheld. 15 Non-Demanding Party. "Non-Demanding Party" is defined in Section 12.2(a) hereof. NRS. "NRS" shall mean Nevada Revised Statutes. Occupant. "Occupant" shall mean the Parties hereto and any Person from time to time entitled to use and occupy Floor Area under any lease, sublease, deed or other instrument or arrangement. Operator Party. "Operator Party" is defined in Section 4.1. Optional Improvements. "Optional Improvements" is referred to in Recital F and shall mean the office tower and/or time share facilities that are permitted to be developed by the Aladdin Parties pursuant to this REA on that portion of the Site more particularly described on Exhibit "A-6" attached hereto (the "Optional Improvements Site"), in all instances to the extent permitted by applicable law. Optional Improvements Site. "Optional Improvements Site" is defined in the definition of Optional Improvements. Parking Use Agreement. "Parking Use Agreement" shall mean that certain Common Parking Area Use Agreement dated as of the date hereof by and between Bazaar Company and Aladdin Gaming. A memorandum of the Parking Use Agreement shall be recorded in the Official Records of the County immediately following the recordation of this REA. Party. "Party" shall mean each of the following: Aladdin Gaming, Bazaar Company, Aladdin Music, Energy Provider, the owner or lessee of any portion of the Site conveyed by or leased from Aladdin Gaming for the purposes of developing the Optional Improvements and, upon a Transfer or Involuntary Transfer, any of their respective Transferees or Involuntary Transferees (as the case may be), subject to the provisions of this Section with respect to Transfers or Involuntary Transfers of partial interests in a Tract. Following a Transfer or Involuntary Transfer, the Transferor or Involuntary Transferor shall no longer be a Party; provided, however, that the easements, conditions, covenants, obligations and restrictions of this REA shall be binding and enforceable by any Party against any Transferor with respect to those time periods during which such Transferor was a Party. A Mortgagee shall not be deemed to be the Party with respect to a 16 Tract so long as the Mortgagor, as the applicable Party, retains the entire possessory interest in such Tract except that if a Mortgagor conveys a Tract to a Mortgagee upon the occurrence of a judicial or nonjudicial foreclosure or the grant of a deed in lieu of foreclosure, then the Mortgagee shall become a Party, although such Mortgagee shall not be liable for the acts or omissions of the Transferor. Notwithstanding the foregoing, any such Mortgagee shall not be deemed a Party unless and until said Mortgagee takes title to the Transferor's interest in the subject Tract or is deemed to be a Mortgagee in possession pursuant to applicable law. A Transferee or Involuntary Transferee of any of the following partial interests shall not be treated as a separate Party hereunder (but shall nonetheless be subject to the terms of this REA), unless such Person is designated in writing as the sole Party with respect to such Tract by all such Persons owning a partial interest in such Tract: (a) Any partial, subdivided interest in a Party's Tract whether by parcelization, condominiumization or otherwise, except in connection with the Commercial Subdivision; (b) Any partial, undivided interest in all of a Party's Tract or Tracts, such as an interest held in joint tenancy, tenancy-in-common or as a life estate; (c) Any partial, undivided interest, legal or equitable, in the assets of any Party that is a Person other than an individual, which interest is not an interest in the Party's Tract, such as a beneficial interest in a Party which is a trust but not including the shareholders and/or bond holders of a Party that is a corporation; and (d) Any lease, sublease, easement or license (excluding the Bazaar Lease, the Music Lease and the Energy Lease) affecting all or a portion of a Tract. Only one Person for each Tract may be designated as a Party. In the event that the Persons owning such partial interests fail to designate a Person as the Party, the acts of the Person who was the Party prior to the Transfer or Involuntary Transfer (whether or not such Party retains any interest in the Tract or Tracts in question) shall be binding on all Persons having an interest or right in said Tract or Tracts, until such time as written notice of such designation is given and recorded in the 17 office of the County Recorder of the County and a copy thereof is served on the Parties in accordance with Article 14. Perimeter Access Areas. "Perimeter Access Areas" means those areas on a Party's Tract adjacent to a Party's Building between exterior Building faces and the exterior boundary lines of the Site, including sidewalks, stairs, escalators, elevators, people movers, monorails and all other surface improvements relating to ingress and egress within said areas. Permittee. "Permittee" shall mean any Party or Occupant and its respective officers, directors, employees, partners, members, agents, contractors, customers, visitors, invitees, subtenants, licensees and concessionaires. Person. "Person" shall mean an individual, fiduciary, partnership, limited liability company, firm, association and corporation, or any other form of business or government entity. Plans and Specifications. "Plans and Specifications" shall mean all drawings, plans and specifications prepared by or for a Party which describe and show the labor, materials, equipment, fixtures and furnishings necessary for the construction of the improvements on a Party's Tract and which are or will be identified on Exhibit "C" attached hereto and made a part hereof, as the same may be modified from time to time pursuant to this REA. Prevailing Party. "Prevailing Party" is defined in Article 13. Project Architect/Engineer. "Project Architect/Engineer" shall mean ADP/FD of Nevada, Inc. with respect to architectural and engineering matters relating to the Demolition Work, the Site Work, the Aladdin Improvements and the shell of the Bazaar Improvements, who shall be retained by Aladdin Gaming, or such other architect(s) or engineer(s) duly licensed to practice in the State of Nevada as may from time to time be selected by Aladdin Gaming and, with respect to the shell of the Bazaar Improvements, approved by Bazaar Company (which approval shall not be unreasonably withheld and shall be deemed granted if not denied within fifteen (15) days of a request therefor). "Project Architect/Engineer" shall mean RTKL Associates, Inc. with respect to architectural and engineering matters relating to the construction of the interior of the shell of the Bazaar Improvements, who shall be retained by Bazaar Company, or such other architect(s) or engineer(s) duly licensed to practice in the State of Nevada as 18 may from time to time be selected by Bazaar Company. "Project Architect/Engineer" shall mean ADP/FD of Nevada, Inc. with respect to architectural and engineering matters relating to the construction of the Common Parking Area, who shall be retained by Bazaar Company, or such other architect(s) or engineer(s) duly licensed to practice in the State of Nevada as may from time to time be selected by Bazaar Company and approved by Aladdin Gaming (which approval shall not be unreasonably withheld and shall be deemed granted if not denied within fifteen (15) days of a request therefor). "Project Architect/Engineer" shall mean, with respect to architectural and engineering matters relating to the construction of the Music Hotel, ADP/FD of Nevada, Inc., who shall be retained by Aladdin Music, or such other architect(s) or engineer(s) duly licensed to practice in the State of Nevada as may from time to time be selected by Aladdin Music and approved by Aladdin Gaming (which approval shall not be unreasonably withheld and shall be deemed granted if not denied within fifteen (15) days of a request therefor). "Project Architect/Engineer" shall mean, with respect to architectural and engineering matters relating to the Construction of the Central Energy Plant, such architect(s) or engineer(s) duly licensed to practice in the State of Nevada selected by Energy Provider in accordance with the Energy Provider Agreement. Project Contractor. "Project Contractor" shall mean Fluor Daniel, Inc., the contractor to be retained by Aladdin Gaming with respect to the Construction of the Initial Planned Floor Area of the Aladdin Improvements and a portion of the shell of the Bazaar Improvements, and by Bazaar Company for the balance of the Retail Facility and the Common Parking Area, or such other contractor(s) duly licensed to practice in the State of Nevada as may from time to time be designated by Bazaar Company with respect to the Bazaar Improvements (provided that such other contractor is reasonably approved by Aladdin Gaming within fifteen (15) days after request therefor and Aladdin Gaming's failure to respond shall be deemed approval) and/or by Aladdin Gaming with respect to the Aladdin Improvements (provided that such other contractor is reasonably approved by Bazaar Company within fifteen (15) days after request therefor and Bazaar Company's failure to respond shall be deemed approval). "Project Contractor" shall mean, with respect to the Construction of the Music Hotel, such contractor(s) duly licensed to practice in the State of Nevada as may from time to time be designated by Aladdin Music (provided that such contractor is reasonably approved by Aladdin Gaming within fifteen (15) days after request therefor and Aladdin Gaming's failure to respond shall be deemed approval). "Project Contractor" shall mean, with respect to the Construction of the Central Energy Plant, such contractor(s) duly licensed to practice in the State of Nevada as may from time to 19 time be designated by Energy Provider in accordance with the Energy Provider Agreement. Quality of Development and Planning for the Aladdin Improvements. "Quality of Development and Planning for the Aladdin Improvements" shall mean that the standard of quality of development for the Aladdin Improvements (as of the First Scheduled Opening Date) shall be equal to or better than the general quality (as of the date of this REA) of the Mirage, including but not limited to interior finish, theming and attraction package, and standard hotel room, with a higher percentage of suites and king parlors. Such standards are intended to attract as a primary target the upper middle market segment, with an ambiance equal to or better than Bally's and Mirage. Upon the First Scheduled Opening Date, the Aladdin Hotel and Casino is intended to be one of the top five hotels on the Las Vegas strip, taking into consideration for such purposes the hotels existing and/or announced as of the date hereof in terms of market segment, average daily room rate and overall ambiance and market perception. Bazaar Company acknowledges that such standards are not intended to be a guaranty of the economic performance of the Aladdin Improvements or the Redeveloped Aladdin and no Party shall have any liability with respect to such economic performance. Bazaar Company shall have reasonable approval of the Quality of Development and Planning for the Aladdin Improvements, and in its exercise of such approval shall take into account, among other things, the quality of vehicular traffic and pedestrian circulation, ingress and egress, and the contractors, plans, drawings and construction schedule relating to the foregoing. Bazaar Company's approval of the Plans and Specifications shall be deemed approval of the Quality of Development and Planning for the Aladdin Improvements with respect to the Construction covered by such Plans and Specifications. Redeveloped Aladdin. "Redeveloped Aladdin" is defined in Recital F. Release. "Release" shall mean that a specified easement, covenant and/or restriction under this REA, as both a Party's personal obligation and one running with the Party's Tract, shall have been terminated with respect to obligations accruing from and after those events described, and in the manner set forth, in Article 11. Released Party. "Released Party" is defined in Section 11.7(b). 20 Retail Facility. "Retail Facility" is defined in Recital G. Second Scheduled Opening Date. "Second Scheduled Opening Date" shall mean that date by which the Music Hotel is scheduled to be first opened for business to the public, which shall mean that (a) all certificates of occupancy for the Music Hotel shall have been issued by the County, and (b) all design and construction work in the casino area of the Music Hotel has been completed and the casino is fully operational and guest rooms are ready to be occupied by guests. The Second Scheduled Opening Date shall in no event be later than the later of (i) six (6) months after the First Scheduled Opening Date and (ii) November 1, 2000. Separate Utility Line. "Separate Utility Line" is defined in Section 2.1(d). Site. "Site" is defined in Recital A. Site Plans. "Site Plans" shall mean those certain drawings, plans, specifications and criteria with respect to the development of the Redeveloped Aladdin on the Site which are identified on Exhibit "B" attached hereto and made a part hereof, as the same may be modified from time to time in accordance with this REA. Site Work. "Site Work" shall mean all Infrastructure Improvements, as well as the installation and construction of all above-and below-ground footings, girders, columns, braces, load-bearing walls, foundations and standard structural support elements necessary for the construction, support, structural integrity, enclosure and operation of Buildings and other improvements constituting the Redeveloped Aladdin except for the Music Hotel and the Central Energy Plant, and any replacement, substitution or modification thereof, all of which shall be designed, installed and constructed by an Aladdin Party or Parties, at its or their sole cost and expense, subject only to the Site Work Contribution defined and set forth in Section 4.5 of the Site Work Agreement. Site Work Agreement. "Site Work Agreement" is defined in Recital A. Suit. "Suit" is defined in Article 13. 21 Termination Date. "Termination Date" shall mean the date on which this REA shall terminate, pursuant to the terms and provisions of Article 17. Theater for Performing Arts. "Theater for Performing Arts" shall mean that portion of the Aladdin Improvements designated as such on the Site Plans and the Plans and Specifications, which shall be leased to Aladdin Music pursuant to the terms of the Theater Lease. Theater Lease. "Theater Lease" shall mean that certain lease of the Theater for Performing Arts to be entered into between Aladdin Gaming, as lessor, and Aladdin Music, as lessee. Tract. "Tract" shall initially mean the land and/or air space comprising the Bazaar Site, the Gaming Site, the Aladdin Music Site, the Energy Site or the Optional Improvements Site, as applicable, together with the Buildings, Common Area and all other improvements of a Party now or hereafter located thereon. If at any time hereafter there is a Transfer of a Tract, then the Tract so transferred shall be deemed a separate Tract and the Person acquiring or leasing such Tract shall be deemed a Party hereunder, subject to the terms set forth herein; provided, however, that no parcelization or subdivision of a Tract (other than the Commercial Subdivision), or lease or license of space within the Redeveloped Aladdin by a Party shall alone be deemed to create a new Tract. Transfer; Transferor; Transferee. "Transfer" shall mean any voluntary transaction in which a Person ("Transferor") shall sell, lease, transfer or assign, other than for security purposes, all or substantially all of its interest in its Tract together with all of its rights under this REA to a Person or Persons ("Transferee") who shall expressly assume, by a duly executed and acknowledged written instrument in recordable form served on all Parties in accordance with Article 14, all of such Transferor's covenants, duties and obligations under this REA. Neither the execution of space leases with Occupants demising space in the Retail Facility, nor execution of the Parking Use Agreement shall be deemed a Transfer by Bazaar Company. Utility Lease. "Utility Lease" is defined in Recital E. Utility Lines. "Utility Lines" is defined in Section 2.3(a). 22 Work. "Work" is defined in Section 9.6. ARTICLE 2 EASEMENTS 2.1 Definitions and Conditions. In this Article 2, each holder of an interest in a Tract grants to the holder(s) of an interest in every other Tract certain easements, subject to the terms and conditions contained herein. As used in this Article 2, the following definitions, terms and conditions shall apply: (a) "Grantor" shall mean the Party granting an easement in this REA. An easement granted herein shall bind the Grantor and its successors and assigns, together with all Persons joining in, consenting to or subordinating to this REA, but only with respect to their respective interests in the Grantor's Tract, or portion thereof, each of which interest or portion shall be a servient tenement burdened with the easement, provided that where only a portion of the Tract or interest is bound and burdened by the easement, only that portion shall be deemed to be the servient tenement. (b) "Grantee" shall mean the Party (and its successors and assigns) as to the Tract, or portion thereof, that is the dominant tenement benefitted by the easement. An easement granted in this Article 2 shall benefit only the dominant tenement (provided that where only a portion of the Tract is so benefitted, only that portion shall be deemed to be the dominant tenement) and Grantee with respect to its interest therein, except Grantee may permit its Permitees from time to time to use such easement; however, such permission shall in no way authorize use of the easement in excess of that set forth in this REA. (c) The word "in" with respect to an easement granted "in" a particular Tract shall mean, as the context may require, "in," "to," "on," "over," "through," "across," "upon" and/or "under." (d) "Separate Utility Line" shall mean a utility line, connection or facility that does not constitute a Common Area Utility Line or a Energy Provider Utility Line, or the portions thereof which extend into a particular Tract from a particular point of delivery, installed for the sole and exclusive use 23 and benefit of any Buildings or Tracts comprising the Redeveloped Aladdin for the transmission of electrical power, heating, ventilation and air conditioning, natural gas, steam, chilled water, hot water, domestic water, fire protection water, storm drain, sanitary sewer, telephone service, cable television service, and other telecommunication services, which lines, connections or facilities shall be installed and maintained by the Party benefitting therefrom at such Party's sole cost and expense. (e) "Common Area Utility Line" shall mean a utility line, connection or facility, or the portions thereof that extend to a particular point of delivery to a particular Tract, installed for the common use and benefit of all Buildings and Tracts comprising the Redeveloped Aladdin for the transmission of domestic water, fire protection water, storm drainage and sanitary sewage, which lines, connections or facilities Aladdin Gaming shall be responsible for installing pursuant to the Site Work Agreement. The Common Area Utility Lines will constitute Common Areas and will initially be as set forth on the Site Plans and the Plans and Specifications. (f) "Energy Provider Utility Line" shall mean a utility line, connection or facility, or the portions thereof that extend to a particular point of delivery to a particular Tract, installed for the common use and benefit of all Buildings and Tracts comprising the Redeveloped Aladdin for the transmission of chilled water, hot water and/or electricity, which lines, connections or facilities shall be installed and maintained by Energy Provider pursuant to (i) the Energy Lease, (ii) that certain Development Agreement between Aladdin Gaming and Energy Provider dated as of December 3, 1997, (iii) that certain Guaranty dated as of December 3, 1997 by Unicom Corporation to and for the benefit of Aladdin Gaming, (iv) those certain Energy Service Agreements to be entered into between Energy Provider and the other Parties and (v) that certain Coordination Agreement to be entered into among Aladdin Gaming, Bazaar Company and Aladdin Music ((i) through (v) collectively, the "Energy Provider Agreement"). (g) All easements granted in this REA are appurtenant and not in gross. Unless provided otherwise herein, all easements are nonexclusive, irrevocable and shall terminate on the Termination Date. Notwithstanding anything to the contrary contained herein, no easement shall be deemed to be granted and/or no easement shall be permitted to be used, if or while the grant or use of such easement, as applicable, would violate any law, statute or regulation of the County or any other governmental authority claiming jurisdiction over the Site. 24 (h) All easements granted hereunder shall exist by virtue of this REA, without the necessity of confirmation by any other document. Likewise, upon the termination of any easement (in whole or in part) by expiration or Release, the same shall be deemed to have been terminated without the necessity of confirmation by any other document. However, at the request of any other Party, each Party shall execute and acknowledge a document memorializing the continued existence (including the location and any conditions thereon) or the termination (in whole or in part) of any easement, provided each Party approves the form and substance of such document pursuant to Article 18. Moreover, the Parties hereby agree to cooperate with each other to terminate or modify easements affecting the Site as of the date hereof to the extent necessary to effect the intentions of the Parties under this REA, which cooperation shall include, but not be limited to, the execution and recordation of documents that implement such terminations and/or modifications. (i) No grant of easement pursuant to this Article 2 shall impose any greater obligation on any Party to construct or maintain its Buildings other than as expressly provided in this REA. (j) In its sole and absolute discretion, Grantee shall elect whether to exercise its right to use any easement granted to it. Except for easements granted pursuant to Sections 2.2, 2.7, 2.8, 2.11 and 2.14, prior to Grantee's entry onto Grantor's Tract in exercise of its easement rights, Grantee shall first obtain Grantor's consent to Grantee's proposed location, methods and schedule for such exercise, which consent shall not be unreasonably withheld or delayed, except as otherwise provided herein. Should Grantee elect to exercise any such easement right, Grantee covenants to use the easement with due care so as not to damage, injure or disturb any Person, any Party's Tract or any Party's operation of its business and Buildings. Further, Grantee covenants to construct, maintain, repair, operate, and restore and/or remove, at Grantee's sole cost and expense (except as provided in Section 2.3 with respect to the cost of Grantor relocating a utility easement), any facilities and improvements Grantee shall have installed in Grantor's Tract in connection with such use; provided, however, Grantee may elect at any time to discontinue its use of such easement, in which event Grantee (i) shall remove or, at Grantor's request, abandon all facilities and improvements previously installed in connection with such use, (ii) shall repair any damage to Grantor's Tract in connection therewith as required by Section 2.1(k) below and (iii) thereafter shall be Discharged from all further duties whatsoever with respect thereto. 25 (k) Grantee shall Indemnify Grantor and shall repair at Grantee's sole cost and expense the servient tenement in connection with Grantee's exercise of any of its easement rights. Without limiting the foregoing, Grantee shall repair, to such condition as existed prior to Grantee's exercise of such rights, all portions of the surface area or Buildings of the servient tenement that Grantee or its agents may have excavated, damaged or otherwise disturbed in exercising its easement rights. (l) Each Party covenants and agrees that its exercise of the easements granted herein shall not unreasonably interrupt or unreasonably interfere with the Construction and/or business operations conducted by any other Party at the Redeveloped Aladdin and that its exercise of the easements granted herein shall be in a manner so as to avoid (i) causing any increase in the cost of Construction on any other Party's Tract or any part thereof, (ii) interfering unreasonably with any Construction Work being performed on any other Party's Tract, or any part thereof, or (iii) interfering unreasonably with the use, occupancy or enjoyment of any other Party's Tract, or any part thereof, by any other Permittee. Any use of such easements by Grantee, and Grantor's obligations in connection therewith, are subject to the provisions of Article 3 hereof. (m) Each Party covenants and agrees that its exercise of the right to relocate easements granted herein shall not unreasonably interrupt or unreasonably interfere with the Construction and/or business operations conducted by the Grantor of such easement on its Tract. (n) Each Party reserves the right to close off such portions of its Tract for such reasonable periods of time as may be legally necessary, in the reasonable opinion of its attorney, to prevent the acquisition of prescriptive rights by any Person or a dedication for a public purpose; provided, however, that prior to closing off any such portion of its Tract, as herein provided, such Party shall notify the other Parties of its intention so to do and shall coordinate such closing with the other Parties so that there shall be no unreasonable interference with the operation of the Redeveloped Aladdin. 2.2 Easement: Automobile Parking, Vehicular and Pedestrian Access; Emergency Egress. (a) Each Party hereto as to its ownership or leasehold interest in its Tract, as applicable, as Grantor, hereby grants to each other Party 26 hereto as to its respective ownership or leasehold interest in its Tract, as applicable, as Grantee, for use by Grantee and Grantee's Permittees, a non-exclusive easement in such respective portions of the Common Area and Perimeter Access Areas of Grantor's Tract as have been identified on the Site Plans and the Plans and Specifications, or may be set aside, maintained and authorized under this REA for pedestrian and vehicular ingress and egress to and from Grantee's Tract. (b) Bazaar Company, as to its ownership or leasehold interest in its Tract, as applicable, as Grantor, hereby grants to each other Party hereto as to its respective ownership or leasehold interest in its Tract, as applicable, as Grantee, for use by Grantee and Grantee's Permittees, a non-exclusive easement in such respective portions of the Common Parking Area of Grantor's Tract as have been identified on the Site Plans and the Plans and Specifications, or may be set aside, maintained and authorized under this REA for passage and parking of vehicles. Bazaar Company, as Grantor, shall at all times provide Grantee access to the Common Parking Area. Each Grantee's use of the vehicular parking easement granted in this Section 2.2, and the Construction, maintenance, operation and/or restoration of the Common Parking Area by, and the other rights and obligations in connection therewith of, Bazaar Company are subject to the provisions of the Parking Use Agreement. (c) Each Party hereto shall have the non-exclusive easement to use the exit stairways and walkways shown on the Site Plans and the Plans and Specifications for emergency egress purposes only, provided that in the event of construction, repair, demolition, casualty or similar circumstances one or more alternate means of egress may be provided. (d) Each Grantor hereby reserves the right to eject or cause to be ejected from its Tract any Person who is not authorized, empowered or privileged to use such Tract under this REA. (e) Bazaar Company, as Grantor, hereby grants to Aladdin Gaming as to its ownership interest in its Tract, as Grantee, for use by Grantee and its employees, a non-exclusive easement in such respective portions of Grantor's Tract as has been designated on the Site Plans and the Plans and Specifications (and as otherwise may be, set aside, maintained and authorized under this REA) for the pedestrian access and passage by Grantee and its employees from the Common Parking Area through the service corridor of the Retail Facility and to the Gaming Site. 27 2.3 Easement: Utilities. (a) Each Party hereto as to its ownership or leasehold interest in its Tract, as applicable, as Grantor, hereby grants to each of the other Parties hereto as to its ownership or leasehold interest in its Tract, as applicable, as Grantee, an easement in the Common Area of Grantor's Tract and in Buildings to the extent reflected on the Plans and Specifications for the Initial Planned Floor Area or as may be reasonably required, for the installation, operation, flow, passage, use, maintenance, repair, replacement, relocation, restoration and/or removal of Separate Utility Lines, Energy Provider Utility Lines and Common Area Utility Lines (collectively, "Utility Lines"). All Utility Lines, whether or not installed and/or relocated pursuant to the easements granted herein, shall be placed underground or within a structure reasonably approved by Grantor. The location (or relocation) of all easements granted by the Parties in this Section 2.3 shall be subject to the prior approval of the Grantor, which approval shall not be unreasonably withheld; provided, however, any Utility Lines shown on the Plans and Specifications which have been approved by Bazaar Company or Aladdin Gaming, as applicable, pursuant to the provisions of the Bazaar Lease or the Site Work Agreement, or approved by Aladdin Gaming pursuant to the Energy Provider Agreement, shall not require separate approval by the Grantor pursuant to the provisions of this REA. (b) The Grantee of any of the Separate Utility Line easements shall be responsible as between the Grantor and Grantee thereof for the installation, maintenance, repair, restoration, relocation and/or removal of all such Separate Utility Lines installed pursuant to such grant. Grantee shall give Grantor at least fifteen (15) days written notice prior to Grantee's installation, maintenance, repair, restoration, relocation and/or removal of any such Separate Utility Line; provided, however, in the case of an emergency, Grantee may perform or cause to be performed any such Work (i) immediately after giving Grantor such advance written notice as is practicable under the circumstances, or (ii) immediately and without advance notice if the reasonably expected delay to be incurred by giving advance notice would unreasonably jeopardize persons or property; provided, further, however, that in the event of emergency Work permitted to be conducted without advance notice pursuant to clause (ii) above, Grantee shall give Grantor notice thereof as soon as practicable thereafter. Grantee shall perform all such Work without cost or expense to Grantor and in such a manner as to cause minimal disturbance to Grantor's and other Person's use of the Redeveloped Aladdin as may be practicable under the circumstances. 28 (c) All Energy Provider Utility Lines shall be installed, maintained, repaired, restored, relocated and/or removed by Energy Provider. Energy Provider shall give the other Parties at least fifteen (15) days written notice prior to Energy Provider's installation, maintenance, repair, restoration, relocation and/or removal of any such Energy Provider Utility Lines; provided, however, that in the case of an emergency, Energy Provider may perform or cause to be performed any such Work (i) immediately after giving the other Parties such advance written notice as is practicable under the circumstances, or (ii) immediately and without advance notice if the reasonably expected delay to be incurred by giving advance notice would unreasonably jeopardize persons or property; provided, further, however, that in the event of emergency Work permitted to be conducted without advance notice pursuant to clause (ii) above, Energy Provider shall give the Parties notice thereof as soon as practicable thereafter. Energy Provider shall use its reasonable efforts to perform all such Work in such a manner as to cause minimal disturbance to the use, operation, development and construction of the Redeveloped Aladdin as may be practicable under the circumstances. The cost of such Work shall be payable to Energy Provider by the other Parties pursuant to the Energy Provider Agreement. (d) All Common Area Utility Lines shall be initially Constructed and installed by Aladdin Gaming pursuant to the Site Work Agreement. Thereafter, all Common Area Utility Lines shall be maintained, repaired, restored, relocated and/or removed by the Operator Party. The Operator Party shall give the other Parties at least fifteen (15) days written notice prior to the Operator Party's relocation, removal or, if such may result in the temporary cessation of service, maintenance of any such Common Area Utility Lines; provided, however, that in the case of an emergency, the Operator Party may perform or cause to be performed any such Work (i) immediately after giving the other Parties such advance written notice as is practicable under the circumstances, or (ii) immediately and without advance notice if the reasonably expected delay to be incurred by giving advance notice would unreasonably jeopardize persons or property; provided, further, however, that in the event of emergency Work permitted to be conducted without advance notice pursuant to clause (ii) above, the Operator Party shall give the Parties notice thereof as soon as practicable thereafter. The Operator Party shall use its reasonable efforts to perform all such Work in such a manner as to cause minimal disturbance to the use, operation, development and construction of the Redeveloped Aladdin as may be practicable under the circumstances. The cost of such Work shall be payable to the Operator Party by the other Parties pursuant to the Allocable Share of Common Costs. 29 (e) The Grantor of any utility easement granted under this Section 2.3 shall have the right to relocate the same on its Tract at any time; provided that Grantor shall give Grantee thirty (30) days prior written notice thereof; and provided further, that such relocation (i) shall not interfere with or diminish the utility services to Grantee, (ii) shall not reduce or unreasonably impair the usefulness or function of such easements, (iii) shall not be relocated other than underground or within a structure reasonably approved by Grantee; and (iv) shall be performed at Grantor's sole cost and expense and without cost or expense to Grantee, including any increased cost of maintenance caused by such relocation. Notwithstanding clauses (i) and (ii) above, temporary interferences with and diminution in such services shall be permitted if they occur upon prior written notice and during Grantee's non-peak business hours and Grantor promptly reimburses Grantee for all of Grantee's direct cost, expense and loss (excluding, in the absence of Grantor's negligence, any consequential damages) resulting from such interferences and/or diminution in such services. Notwithstanding anything to the contrary set forth in this Section 2.3(e), any relocation of any utility easement permitted to be effected by a Grantor shall be subject to the reasonable approval of any non-Grantee Party (except Energy Provider) if said relocation would have a material and detrimental effect on such non-Grantee Party's owner ship, construction, leasing, financing, operation or restoration of its Tract. (f) The Grantee of any utility easement granted under this Section 2.3 shall have the right to relocate the same on Grantor's Tract at any time, subject to the reasonable approval of Grantor; provided that Grantee shall give Grantor thirty (30) days prior written notice thereof; and provided further, that such relocation (i) shall not interfere with or diminish the utility services to Grantor, (ii) shall not reduce or unreasonably impair the usefulness or function of Grantor easements or the business conducted by Grantor on Grantor's Tract, (iii) shall not be relocated other than underground or within a structure reasonably approved by Grantor; and (iv) shall be performed at Grantee's sole cost and expense and without cost or expense to Grantor, including any increased cost of maintenance caused by such relocation. Notwithstanding clauses (i) and (ii) above, temporary interferences with and diminution in utility services shall be permitted if they occur upon prior written notice and during Grantor's non-peak business hours and Grantee promptly reimburses Grantor for all of Grantor's direct cost, expense and loss (excluding, in the absence of Grantee's negligence, any consequential damages) resulting from such interferences and/or diminution in such services. Notwithstanding anything to the contrary set forth in this Section 2.3(f), any relocation of any utility easement permitted to be effected by a Grantee shall be 30 subject to the approval of any non-Grantee Party (except Energy Provider), in such non-Grantee's sole and absolute discretion, if said relocation would have a material and detrimental effect on such non-Grantee Party's ownership, construction, leasing, financing, operation or restoration of its Tract. 2.4 Easement: Construction. Each Party hereto as to its ownership or leasehold interest in its Tract, as applicable, as Grantor, hereby grants to each of the other Parties hereto as to its ownership or leasehold interest in its Tract, as applicable, as Grantee, an easement in Grantor's Tract (to the extent reasonably necessary for the Grantee's enjoyment or preservation of Grantee's improvements located on Grantor's Tract and in Grantor's Buildings), for the (i) installation, Construction and/or restoration of improvements to the Grantee's Tract and Buildings performed pursuant to this REA (including, without limitation, for staging areas, worker parking, hoist and crane locations, underpinnings and temporary safety closures); (ii) ingress, egress and access to said areas to perform said Work; and (iii) use and maintenance of the following: (a) separate or common footings, girders, columns, braces, foundations and other standard support elements to a maximum lateral distance as set forth in the Site Plans and the Plans and Specifications for the purpose of supporting Building improvements of Grantee and party walls shared by Grantor and Grantee as may be necessary for the structural integrity and enclosure of adjacent or subjacent Buildings and any replacement, substitution or modification thereof as permitted by this REA; provided that, at the request of any Party, the applicable Parties shall prepare and record an agreement specifying the exact locations of such above-ground and underground footings, girders, columns, braces, foundations and other standard support elements, and provided further that the manner of attachment shall be designed in accordance with good Construction practice in the manner customary for such improvements and so as not to impose any load on Grantor's Building in excess of the loads contemplated in the Plans and Specifications for the Initial Planned Floor Area approved pursuant to the provisions hereof, unless otherwise approved in writing by Grantor and Grantee; (b) canopies, roof and building overhangs, roof flashings, wing walls, awnings, signs, lights and lighting devices and other similar appurtenances, provided that all of the foregoing are attached to the Buildings of Grantee to a maximum lateral distance as set forth in the Site Plans and the Plans and Specifications or as otherwise consented to by Grantor, which consent shall not be unreasonably withheld; and 31 (c) electrical or similar vaults and HVAC supply or exhaust shafts above and below the surface of such Tract, to a maximum lateral distance as set forth in the Site Plans and the Plans and Specifications; provided, however, the precise locations of the items described in subparagraphs (a), (b) and (c) above must be shown in the Plans and Specifications for the Initial Planned Floor Area and approved pursuant to the provisions hereof or must otherwise be approved by Grantor. Upon completion of the Construction elements referred to in subparagraphs (a), (b) and (c) above and upon request of any Party, the Parties shall execute an agreement, in recordable form, appropriately identifying the nature and location of each such Construction element and the location of the easements granted in this Section 2.4, none of which shall thereafter be changed without the prior written approval of Grantor, which approval shall be at Grantor's sole and absolute discretion. The Parties hereto acknowledge that it is contemplated that the Music Hotel and the Optional Improvements, if any, will not be developed and open to the public until after the First Scheduled Opening Date. In connection therewith, each Party covenants and agrees that its exercise of the easements granted under this Section 2.4 shall not unreasonably interrupt or unreasonably interfere with the Construction and/or business operations conducted by any other Party at the Redeveloped Aladdin, it being understood that there is likely to be more interruption and interference during the Construction of the Music Hotel and Optional Improvements than might otherwise occur during normal business operations. 2.5 Easement: Maintenance of Common Structural Supports. The Grantor of any easement in Section 2.4 covenants to Grantee that, if all or any part of Grantor's Building is removed or destroyed and Grantor does not restore the same, and if Grantor and Grantee shall have shared any foundations, footings, girders, columns, braces, party walls or load-bearing walls, then Grantor shall leave in place such structural support elements, or portions thereof not so removed or destroyed, to the extent necessary, for adjacent, lateral, and subjacent support and only for so long as that portion of Grantee's Building sharing such structural support elements, as originally constructed or as replaced under this REA, exists or is being restored. In the event Grantee shall desire that Grantor reconstruct or restore such structural support elements, the following provisions shall apply to Grantee's exercise of its easement under this Section 2.5. Following any such removal or destruction, to obtain Grantor's reasonable approval of common footings and foundations and other structural support elements which Grantee 32 desires that Grantor construct or restore, Grantee shall furnish Grantor with all required live and dead load requirements, all column, anchor and beam conditions and locations, and all other information Grantor shall reasonably require with respect thereto. Upon Grantor's reasonable approval (which approval shall be deemed granted if not denied within fifteen (15) days after Grantor's receipt of the information set forth in the preceding sentence), Grantor shall perform all Construction, maintenance, repair or replacement of such footings and foundations and other structural support elements and Indemnify Grantee from all costs associated therewith; provided, however, that if Grantor does not perform all such Construction, maintenance, repair or replacement in a timely and diligent manner, then Grantee may perform the same at Grantor's sole and reasonable cost and expense if Grantee follows the self-help cure procedures set forth in Section 9.9 hereof. Grantor shall be under no obligation to perform any Construction, maintenance, repair or replacement of such footings and foundations and other structural support elements, if such damage has occurred after the termination of Grantor's restoration obligations set forth in Section 9.4 hereof; provided, however, that in such event Grantee shall have the right, at Grantee's cost and expense, to maintain, repair or replace such footings and foundations and other structural support elements on Grantor's Tract upon Grantor's reasonable approval (which approval shall be deemed granted if not denied within fifteen (15) days after Grantee's request therefor). Notwithstanding the foregoing, in the event of damage affecting more than one Party's Tract, and the affected Parties have each elected to restore their respective Tracts, the provisions of Section 9.4 hereof shall control such Parties' actions in connection with such restoration. 2.6 Easement: Exterior and Accent Lights. Each Party hereto as to its ownership or leasehold interest in its Tract, as applicable, as Grantor, hereby grants to each other Party hereto as to its ownership or leasehold interest in its Tract, as applicable, as Grantee, an easement in such location as Grantor shall reasonably approve for the (a) installation, maintenance, repair, replacement and/or removal, at Grantee's sole cost and expense (including the cost of electricity), of exterior and accent lights, on such light standards and locations and at such levels of illumination as set forth on the Site Plans and the Plans and Specifications, to highlight the exterior of Grantee's Building, installed pursuant to this REA; and (b) ingress, egress and access to said area to perform said Work. All such exterior and accent lighting must be located and detailed as set forth on the Site Plans and the Plans and Specifications for the Initial Planned Floor Area, and any exterior or accent lights thereafter proposed to be installed by a Grantee shall be subject to Grantor's approval, at Grantor's sole and absolute discretion, as to 33 location, type and character, and must be harmonious with existing exterior and accent lighting treatments. During Construction on Grantor's Tract in the vicinity of the easement, any Grantee of this easement shall, upon thirty (30) days prior written notice from Grantor, promptly remove all lights so installed by the Grantee from the area under Construction; provided, however, upon completion of such Construction, each Grantee shall have the right to reinstall said lights at Grantee's cost and subject to compliance with the above provisions. 2.7 Easement: Truck Loading Areas. Each Party, as to its ownership or leasehold interest in its Tract, as applicable, as Grantor, hereby grants to each other Party, as to its ownership or leasehold interest in its Tract, as applicable, as Grantee, an easement in that portion of the Grantor's Tract that borders those areas which have been designated on the Site Plans and the Plans and Specifications and/or Constructed, maintained, repaired or restored for purposes of truck dock parking, turn-around and loading/delivery areas, storage rack areas, and truck access areas serving Grantee's Tract, if and to the extent that Grantor's Tract borders such areas. All such truck loading areas shall be Constructed in accordance with the requirements of this REA, the Site Work Agreement and the Parking Use Agreement. Each Grantee's use of the easements granted in this Section 2.7, and Grantor's rights and obligations in connection therewith, are subject to the provisions hereof, the Parking Use Agreement and each Party's exclusive truck loading facilities designated as such on the Site Plans and the Plans and Specifications. The Parties hereby acknowledge that the easements granted in this Section 2.7 are granted for the sole purpose of permitting each Party the full use and enjoyment of said exclusive truck loading facilities, which facilities shall be maintained by the Party entitled to the exclusive use thereof. 2.8 Easement: Encroachments. Each Party hereto as to its ownership or leasehold interest in its Tract, as applicable, as Grantor, hereby grants to each other Party hereto as to its ownership or leasehold interest in its Tract, as applicable, as Grantee, an easement for encroachments and maintenance thereof if and to the extent that: (a) there are minor variations from the Plans and Specifications in the Construction of any of the Buildings occurring due to Construction accuracy, methods and/or techniques; 34 (b) there is minor settlement or shifting of any Buildings over time so that any part of a Building encroaches upon a part of an adjacent Tract; and (c) there are canopies, roof and building overhangs, door swings, signs, light standards, or other similar encroachments as contemplated by the Plans and Specifications for the Initial Planned Floor Area, or as may otherwise be approved by Grantor, together with their replacements as such replacements may be reasonably modified. Such easement for the maintenance of encroachments shall exist, as to a particular encroachment, only so long as the encroaching portion of the Building shall remain standing and in existence. Notwithstanding the foregoing, in no event shall an easement for any encroachment be created or maintained in favor of one Tract if such encroachment materially and adversely interferes with the use, operation and enjoyment of another Tract by its Occupants or Permitees. Nothing contained herein shall in any manner be construed as diminishing, or be deemed to constitute a waiver of, any rights of a Grantor resulting from a Grantee's failure to construct its Buildings within its respective Tract in strict accordance with the Plans and Specifications therefor, and this encroachment easement shall not relieve or excuse a Grantee from exercising all due diligence to Construct its Buildings within the boundaries of such Grantee's Tract. 2.9 Easement: Roof. Each Party as to its ownership or leasehold interest in its Tract, as applicable, as Grantor, hereby grants to each other Party (except Energy Provider) as to its ownership or leasehold interest in its Tract, as applicable, as Grantee, an easement for the usage of any of Grantor's roof space for the Construction, maintenance, repair, replacement and/or removal, at Grantee's sole cost and expense, of such telecommunication and ventilation equipment as may be reasonably necessary or required for the benefit of Grantee's Tract (but excluding telecommunications or other equipment installed by third parties pursuant to a lease or license executed by Grantee), subject to the reason able approval of Grantor (it being understood that, with respect to visible items installed pursuant to this Section 2.9, said items must be properly and attractively screened). 2.10 Easement: Setbacks. Each Party hereto as to its ownership or leasehold interest in its Tract, as applicable, as Grantor, hereby grants to each of the other Parties hereto as to its ownership or leasehold interest in its Tract, as 35 applicable, as Grantee, an easement to the extent required by and for the purpose of complying with any setback requirement imposed by applicable law or private covenants, conditions and restrictions affecting the Site as of the issuance of building permits for the Initial Planned Floor Area and the Music Hotel. To the extent reflected on the Plans and Specifications for the Initial Planned Floor Area, Grantor further agrees not to construct, place or otherwise permit to be maintained any Building within such setback area in a manner which would violate any such setback restrictions. Nothing contained herein shall require a Grantor to relocate any Building constructed on its Tract in compliance with such initial setback restrictions to allow for a setback easement described herein due to changes in any applicable law or the decision to develop the Optional Improvements. 2.11 Easement: General Integration, Maintenance and Development. Each Party hereto as to its ownership or leasehold interest in its Tract, as applicable, as Grantor, hereby grants to each of the other Parties hereto as to its ownership or leasehold interest in its Tract, as applicable, as Grantee, easements at any level above or below the ground to the extent to which such easements may be required to comply with any provision of applicable law with respect to ingress or egress in the event of fire or other emergency, maintenance of Grantee's Buildings, or as otherwise may be reasonably necessary to carry out the Construction, repair, operation, and restoration of Grantee's Buildings; provided, however, that the location of any such additional easements shall be governed by the provisions of Section 2.1(m) hereof pertaining to the location or relocation of easements; and provided, further, that with respect to any such additional easements, Grantee shall not, pursuant to Section 2.1(l) hereof, unreasonably interrupt or unreasonably interfere with the Construction and/or business operations conducted by Grantor on its Tract. Notwithstanding the foregoing, no Party shall be required to grant an easement hereunder if it is in any way adverse to that Party and the Party requesting the easement can comply with applicable laws or accomplish its purpose in another reasonable manner. 2.12 No Dedication of Easements. Nothing contained in this Article 2, including the grant of any or all easements hereunder, shall be deemed to constitute a dedication of any Tract or any portion or portions thereof to the County or any other governmental body, agency or entity or to the general public, or be construed to create any rights in or for the benefit of any Person not a Party, it being intended that this REA shall be strictly limited to and for the purposes herein expressed. 36 2.13 Abandonment of Easements. Subject to the requirements of Section 2.1(j), the easements granted in Article 2 and any improvements constructed in the exercise thereof, may be (a) abandoned by the Grantee at any time by Grantee's notice given to Grantor (together with the written joinder in such abandonment by the fee owner and any ground lessee of Grantee's Tract); or (b) terminated by Grantor after the Termination Date of this REA, if not terminated by their own terms, because the use thereof, including the use of facilities therein, shall have ceased for a period of two (2) years and prior to the resumption of use (i) Grantor shall have notified the then record owner of the fee or leasehold estate constituting the dominant tenement that such easement has been abandoned, (ii) Grantor shall have caused to be recorded in the Recorder's Office in the County an affidavit that such abandonment has taken place and that such notice has been properly given, and (iii) within ninety (90) days after such notice, any such record owner shall have failed to record in such Recorder's Office an affidavit that the Grantee has in fact used such easement within such two (2) year period. Any Person at any time acquiring an interest in any Tract after the first such affidavit described above has been placed of record (provided such affidavit and recording shall have been made after the Termination Date as provided in subsection (b) above) shall be entitled to rely on such failure to record an affidavit of use within such ninety (90) day period as conclusive evidence that such easement has been abandoned and terminated. 2.14 Granting of Easements to Utility Companies. (a) Aladdin Gaming is hereby authorized by the other Parties hereto to convey any utility easements in the Gaming Site, the Optional Improvements Site and the Energy Site to Energy Provider, public utility companies or to any municipal or other similar governmental agency requesting the execution and delivery of a written easement agreement prior to the First Scheduled Opening Date and subject and pursuant to the terms of the Site Work Agreement, so long as Aladdin Gaming, in the exercise of its reasonable business judgment, determines that the granting of such easements would not have a material adverse effect on the Parties. (b) Bazaar Company is hereby authorized by the other Parties hereto to convey any utility easements in the Bazaar Site to public utility companies or to any municipal or other similar governmental agency requesting the execution and delivery of a written easement agreement prior to the First Scheduled Opening Date and subject and pursuant to the terms of the Site Work Agree- 37 ment, so long as Bazaar Company, in the exercise of its reasonable business judgment, determines that the granting of such easements would not have a material adverse effect on the Parties. (c) Aladdin Music is hereby authorized by the other Parties hereto to convey any utility easements in the Aladdin Music Site to public utility companies or to any municipal or other similar governmental agency requesting the execution and delivery of a written easement agreement prior to the Second Scheduled Opening Date, so long as Aladdin Music, in the exercise of its reasonable business judgment, determines that the granting of such easements would not have a material adverse effect on the Parties. 2.15 Easement: Monorail. Aladdin Gaming shall have the right but not the obligation, at any time to Construct, operate, alter, maintain and/or remove a monorail and monorail stop to carry pedestrians and Permittees to and from the Redeveloped Aladdin (the "Monorail") as such Monorail may be permitted by the authorities of the County. In the event that Aladdin Gaming Constructs the Monorail, Aladdin Gaming shall use commercially reasonable efforts (at no significant cost to Aladdin Gaming) to provide a Monorail stop that provides access into the Music Hotel. Subject to the other provisions of this Article 2, each Party as to its ownership or leasehold interest in its Tract, as applicable, as Grantor, hereby grants to Aladdin Gaming as to its ownership or leasehold interest in its Tract, as applicable, as Grantee, an easement in Grantor's Tract, for the Construction, operation, maintenance and removal of such Monorail which may have supports located on a portion of the Gaming Site, the Bazaar Site and/or the Music Site. The Monorail shall be deemed to be a part of the Common Area and the costs of the Construction, operation and maintenance thereof shall be subject to an equitable allocation among the Parties as mutually approved by the Parties. 2.16 Easement: Signs. (a) Each Party as to its ownership or leasehold interest in its Tract, as applicable, as Grantor, hereby grants to each other Party (except Energy Provider) as to its ownership or leasehold interest in its Tract, as applicable, as Grantee, an easement for signs and posters advertising the Aladdin Hotel and Casino, the Retail Facility, the Music Hotel or events in any of the foregoing at such locations as are then used for such posters or advertising and at the locations designated for same on the Site Plans and the Plans and Specifications, subject to the reasonable approval of Grantor. 38 (b) Aladdin Gaming, Bazaar Company and Aladdin Music shall be entitled to have their respective Names on signs designating the Aladdin Hotel and Casino, the Retail Facility and the Music Hotel, respectively, over certain doors, gates and at certain other locations on each other Party's Tract, subject to the approval of the Plans and Specifications for such signage, as set forth in Section 3.1 hereof. The location and approximate size of all signs referred to in this clause are designated on the Site Plans and the Plans and Specifications. (c) Aladdin Gaming, Bazaar Company and Aladdin Music shall be entitled to have their respective Names on signs designating the Aladdin Hotel and Casino, the Retail Facility and the Music Hotel, respectively, at certain locations in the Common Areas, subject to the approval of the Plans and Specifications for such signage, as set forth in Section 3.1 hereof. The location and approximate size of all signs referred to in this clause are designated on the Site Plans and the Plans and Specifications. (d) Each Party which erects signs and posters pursuant to this Section 2.16 shall maintain such signs and posters in good condition and repair and the erection, maintenance and repair thereof shall be performed at such Party's sole cost and expense. ARTICLE 3 CONSTRUCTION OF REDEVELOPED ALADDIN 3.1 General Covenants and Background. The Parties agree that the Construction of the Aladdin Improvements, the Bazaar Improvements, the Music Hotel, the Central Energy Plant and any Optional Improvements shall be accomplished in accordance with the requirements of the Site Work Agreement and this REA, as applicable. As used in this REA, "Construction" means initially installing or constructing upon, performing maintenance upon, making repairs to, constructing alterations, additions and improvements, and/or razing, replacing and restoring the whole or any part of the Buildings in accordance with the provisions of this REA. All references to the Plans and Specifications refer to those plans and specifications which have been attached hereto as Exhibit C, as the same may be modified from time to time, pursuant to the procedures hereinafter described. Any changes to the Plans and Specifications requested by a Party which involve physical changes to another Party's Tract (except Energy Provider's), other than 39 de minimis changes which have no adverse effect, must be consented to by such other Party(ies), in their sole discretion. For the purposes of this Section 3.1, "adverse effect" means a materially detrimental effect on the ownership, construction, leasing, financing, operation or restoration of a Party's Tract or improvements thereon. Any changes to the Plans and Specifications requested by a Party which have a direct adverse effect on (a) another Party's Tract (except Energy Provider's), (b) the Site Work, (c) the Common Areas, or (d) the Quality of Development and Planning for the Redeveloped Aladdin, shall be subject to the reasonable approval of the non-requesting Party(ies) (except Energy Provider), which approval shall be deemed granted if not denied within ten (10) business days following a request therefor. Any changes to the Plans and Specifications requested by a Party which do not have a direct adverse effect on those items enumerated in clauses (a) through (d) above, but which are material and substantial in nature, are subject to the reasonable approval of the non-requesting Party(ies) (except Energy Providers), which approval shall be deemed granted if not denied within ten (10) business days following a request therefor. Any changes to the Plans and Specifications requested by a Party which involve physical changes to any Tract other than to the Gaming Site, other than de minimis changes which have no adverse effect, shall be subject to the reasonable approval of Aladdin Gaming, which approval shall be deemed granted if not denied within ten (10) business days following a request therefor. The approval rights of Aladdin Gaming set forth in this paragraph shall be effective at such time as Aladdin Bazaar Holdings, LLC is not an Affiliate (disregarding for the purposes of this Section 3.1 the second sentence of the definition of the term "Affiliate") of Aladdin Gaming. Within ten (10) business days after the submission of such Plans and Specifications, the Party affected by such Construction, if and to the extent any approval is applicable as set forth herein, shall notify the constructing Party whether the same are approved or disapproved in accordance with Article 18, specifying the reason therefor if disapproved. If such Party shall disapprove the modified Plans and Specifications, such Parties shall attempt to resolve any disagreements by consulting with each other and their respective architects, engineers or consultants as soon as reasonably possible, and if such Parties are unable to resolve any such disagreements, any Party to the disagreement may elect to resolve the disagreement by arbitration pursuant to the expedited arbitration procedure set forth in the Site Work Agreement if such Work is to be performed prior to the Second Scheduled Opening Date and otherwise pursuant to the procedure set forth in Article 12 hereof. 40 The failure of any Party to exercise its approval rights within the time periods set forth in this Section 3.1 shall be deemed approval with respect to the Plans and Specifications theretofore submitted. 3.2 Workmanship. Each Party agrees that all Construction to be performed hereunder by such Party during the term of this REA shall be done in a good and workmanlike manner and in accordance with good construction practice, with new, first-class materials and in compliance with all applicable laws, rules, ordinances, regulations, orders, requirements of all federal, state and municipal governments and all licenses, approvals, permits, variances, entitlements and certificates of occupancy and in substantial compliance with the Plans and Specifications for the same which have been approved by the other Party to the extent required by Section 3.1 above. Subject to the Site Work Agreement, each Party shall pay all costs, expenses, liabilities and liens arising out of or in any way connected with its Construction, including without limitation all costs to repair any Buildings or property of the other Party damaged as a result of such Construction. Upon demand, each Party shall deliver to the other Party copies of those items submitted to such Party's Mortgagee evidencing (i) completion of such Party's Work hereunder in compliance with the approved Plans and Specifications for such Party's Buildings, if applicable, and all applicable laws, ordinances, regulations and rules, and (ii) payment of all costs, expenses, liabilities and liens arising out of or in any way connected with such Construction and (iii) discharge of all liens of record, or contested and bonded, in which event any judgment or other process issued in such contest shall be paid and discharged before execution thereof. Nothing contained herein shall be deemed to prohibit a lien created by a Mortgage on a Tract. 3.3 Coordination. Each Party shall use all reasonable efforts to cause its Project Architect/Engineer and Project Contractor to cooperate and coordinate such Party's Construction with the Project Architect/Engineers and Project Contractors and Construction of the other Parties to the extent reasonably practicable in order to achieve the objectives set forth in Sections 3.1 and 3.2. 3.4 Interference During Construction. Each Party agrees to perform its respective Work (and to cause such Party's Permittees to perform such Work) in a manner so as to avoid (a) causing any increase in the cost of Construction on any other Party's Tract or any part thereof, (b) interfering unreasonably with any Work being performed on any other Party's Tract, or any part thereof, or (c) interfering unreasonably with the use, occupancy or enjoyment of any other 41 Party's Tract, or any part thereof, by any other Permittee. In furtherance of the obligation set forth in clause (c) of the preceding sentence, the constructing Party and/its Permittees shall exercise commercially reasonable efforts to (i) minimize the amount of dust caused by its Construction activities, (ii) utilize secondary access routes for all deliveries of Construction equipment and supplies to minimize disruption to the other Parties' business operations and (iii) to the extent deliveries of Construction equipment and supplies are not able to be made on secondary access routes, to the extent feasible, schedule such deliveries at non-peak business hours and days to minimize disruption to the other Parties' business operations. 3.5 Optional Improvements and Music Hotel. (A) If and when Aladdin Gaming elects to Construct any of the Optional Improvements, and before Aladdin Music begins to Construct the Music Hotel, the Constructing Party shall so notify the other Parties (except Energy Provider), which notification shall be accompanied by such program requirements and conceptual plans and drawings as the Constructing Party may have prepared at such time. (B) If and to the extent that the Construction or Optional Improvements would require physical changes to the Bazaar Site or the Gaming Site, other than de minimis changes which have no adverse effect (as such term is used in Section 3.1 hereof), such changes must be approved by the Party (or Parties, other than Energy Provider) whose Tract is so affected, in such Party's sole discretion. (C) If and to the extent that the Construction or the Optional Improvements have a direct adverse effect on (a) the Bazaar Site or the Gaming Site, (b) the Work at the Bazaar Site or the Gaming Site, (c) the Common Area, or (d) the Quality of Development and Planning for the Aladdin Improvements, such Construction shall be subject to the reasonable approval of the affected Party or Parties (other than Energy Provider), which approval shall be deemed granted if not denied within twenty (20) days following a request therefor. (D) If and to the extent that the Construction Optional Improvements would not have a direct adverse effect on those items enumerated in clauses (a) through (d) above, but are material and substantial in nature, the Construction shall be subject to the reasonable approval of the other Parties (except Energy Provider), which approval shall be deemed granted if not denied within fifteen (15) days of a request therefor. (E) At least thirty (30) days prior to the commencement of any material Construction of the Music Hotel or any Optional Improvements or restoration thereof by any Party, and in addition to compliance with other relevant provisions of this REA, such Party shall cause its Project Architect/Engineer to submit to the other Parties the following to the extent necessary or applicable: (a) a plot plan of the Site affected by the Music Hotel or Optional Improvements showing (i) the Buildings, (ii) the Common Area, (iii) utility connections, (iv) contractors' staging 42 areas, (v) material and equipment storage areas, (vi) Construction shacks and other temporary improvements, (vii) access routes which the constructing Party agrees to require its Construction personnel to use during the course of such Construction or reconstruction, and (viii) workmen's parking area; (b) a time schedule in reason able detail indicating the approximate date or dates upon which the constructing Party shall commence, continue and cease using the affected portions of the Site for the Construction of the Music Hotel or any Optional Improvements; and (c) any material changes to the zoning or use permits affecting the Site. Within fifteen (15) or twenty (20) days, as applicable, after the submission of such plans and specifications for the Music Hotel or Optional Improvements, the Party affected by such Construction (other than Energy Provider), shall, to the extent such approval is applicable as set forth herein, notify the constructing Party whether the same are approved or disapproved in accordance with Article 18, specifying the reason therefor if disapproved. If such Party shall disapprove the plans and specifications for the Music Hotel or the Optional Improvements, such Parties shall attempt to resolve any disagreements by consulting with each other and their respective architects, engineers or consultants as soon as reasonably possible, and if such Parties are unable to resolve any such disagreements, any Party to the disagreement may elect to resolve the disagreement by arbitration pursuant to the expedited arbitration procedure set forth in the Site Work Agreement if such Work is to be performed prior to the Second Scheduled Opening Date or pursuant to the procedure set forth in Article 12 hereof. The failure of any Party to exercise its approval rights within the time periods set forth in this Section 3.5 shall be deemed its approval. 3.6 Mechanic's Liens. In the event any mechanic's lien is filed against the Tract of any Party (referred to in this Section 3.6 as the "Liened Party"), the Party who ordered or contracted for the Work or materials on account of which the lien was filed (referred to in this Section 3.6 as the "Contracting Party") hereby covenants for the benefit of the Liened Party either to pay the same and have it promptly discharged of record or to take such action as may be required reasonably and legally to object to such lien or to have such lien removed from such Tract but in all events to have such lien discharged prior to its foreclosure. Upon request of the Liened Party, the Contracting Party covenants to bond against and to Indemnify the Liened Party, its Mortgagee, and the title insurer of the Liened Party's Tract from such lien or furnish such security as may be required by law, or by any Mortgagee of the Liened Party, to remove, release and discharge such lien of record. For all purposes applicable to provisions of the statutory law of the State of Nevada, the Music Hotel, Common Parking Area, the 43 Retail Facility, the Central Energy Plant and the Aladdin Improvements shall each be deemed separate and distinct works of improvement, notwithstanding the integration of the Buildings constituting the Redeveloped Aladdin. 3.7 Construction Bonds. If any Party is required by its Mortgagee to obtain, or otherwise elects to require its Project Contractor to obtain, payment and/or completion bonds in connection with the Construction of the Initial Planned Floor Area, the Central Energy Plant, the Music Hotel or any subsequent Optional Improvements, then such Party shall request that the other Parties (except Energy Provider) and their respective Mortgagees (except Energy Provider's Mortgagee) be named as additional obligees under such bonds, except that the rights of said additional obligees shall be subordinate to the Mortgagee's rights and the rights of the Party obtaining such bond; provided, however, that naming such other Parties as obligees under such payment and/or completion bonds shall be at reasonable cost to the Party obtaining such bond and is permitted by said Party's Mortgagee. 3.8 Temporary Termination of Fire Service. In the event a Party is to perform any Construction or repair Work, including but not limited to the installation, modification or relocation of utility facilities pursuant to Article 2, which shall require as an incident thereto the loss of operation of fire service in any Party's Building, the constructing Party, as a condition precedent to the commencement and continuation of such Construction, shall: (a) notify the other Parties that fire service will be temporarily terminated at least forty-eight (48) hours prior thereto, which notice shall specify the Party is performing such Construction and the date or dates and hours such service shall be lost; (b) obtain the prior written consent of the Parties in whose Building(s) such service shall be lost, which consent shall not be unreasonably withheld; (c) perform all such Construction during non-peak business hours of (or such other hours as may be designated by) the Parties so affected; 44 (d) cause a fire watch to be posted and provide substitute fire protection measures acceptable to the other Parties, at the constructing Party's cost, during all periods when such fire service is not in operation; and (e) comply with all requirements of County laws, codes and regulations. 3.9 Indemnity. As to Work or materials ordered or contracted for by or on behalf of each Party or its agents, such Party covenants to Indemnify the other Parties and the Tracts of the other Parties from (i) claims of lien of laborers, materialmen and others arising from such Work performed or supplies furnished pursuant to such order or contract and (ii) all Claims arising from or as a result of the death of, or any accident, bodily injury, loss or damage whatsoever caused to any natural Person, or to the property of any Person, as shall occur by reason of the performance of any Work to be constructed or caused to be constructed by such Party. 3.10 Submittal of As-Built Plans and Record Drawings. Within ninety (90) days after each of the First Scheduled Opening Date, the Second Scheduled Opening Date and the completion of any Optional Improvements, as applicable, each Party shall cause its Project Architect/Engineer to prepare as-built plans and record drawings with respect to the Building constructed on its Tract and, after receipt thereof, shall deliver copies of same to the other Parties for their records. 3.11 Self-Help Cure of Construction Defaults. If Bazaar Company fails to perform any of its Construction duties or obligations under this Article 3 in connection with the Construction of the Common Parking Area within sixty (60) days after the applicable milestone dates for performance as indicated on the construction schedule for the Common Parking Area, any other Party may at any time give a written notice to Bazaar Company, setting forth the specific nonperformance. If such nonperformance is not corrected within thirty (30) days after receipt of such notice, or if such nonperformance is such that it cannot be corrected within such time, then if Bazaar Company fails to commence the performance of such duties within such period and diligently prosecute the same to completion thereafter, then, in either such event, the Party giving such notice shall have the right, upon prior written notice, to perform same, including the right and temporary license to enter upon Bazaar Company's Tract to perform same, and Bazaar Company shall pay, on demand, the performing Party's reasonable costs 45 thereof, with interest computed in accordance with Section 20.9(a) hereof, provided, however, these provisions shall be without prejudice to Bazaar Company's right to contest the right of the other Party's performance. All Work performed by such Party shall be performed in compliance with the Gaming Laws and this Article 3. ARTICLE 4 ALLOCABLE SHARES OF COMMON COSTS 4.1 Payments. (a) Except as may be otherwise noted in this REA, the maintenance, operation, repair and other Work required to be performed on the Common Area (the "Common Area Work") shall be performed by the Parties (individually, an "Operator Party" and collectively, the "Operator Parties") set forth on Schedule "I" hereto. Each Operator Party shall submit to all other Parties (except Energy Provider), at least thirty (30) days prior to the commencement of every Accounting Period, the reasonably estimated annual costs to be incurred by such Operating Party in the performance of its Common Area Work during the next Accounting Period (the "Budget") and each Party's Allocable Share of Common Costs with respect thereto (the "Estimated Cost Statement"). Notwithstanding the preceding sentence, each Operator Party shall submit the applicable Budget and Estimated Cost Statement with respect to the first Accounting Period as soon as reasonably possible following the recordation of this REA. Bazaar Company and/or Aladdin Gaming may object to the Budget within fifteen (15) days of its receipt thereof, in which event the objecting Party and Operator Party shall negotiate in good faith in an attempt to reach an agreement. Any Party (except Energy Provider) may object to the Estimated Cost Statement within fifteen (15) days of its receipt thereof, in which event the objecting Party and the relevant Operator Party shall negotiate in good faith to reach an agreement. If an agreement concerning the Budget and/or the Estimated Cost Statement is not reached within ten (10) days of an objection, then the objection shall be subject to the arbitration procedures set forth in Article 12 hereof; provided, however, that during such arbitration each Party shall pay its Allocable Share of Common Costs, as hereinafter provided, based upon the lesser of (x) the actual cost of the subject Common Area Work for the previous Accounting Period, plus ten percent (10%), or (y) the Estimated Cost Statement. The failure of an Operator Party to timely 46 submit an Estimated Cost Statement shall not preclude the right of such Party to collect each Party's Allocable Share of Common Costs. (b) Each Party shall pay its Allocable Share of Common Costs to the Operator Party on the first day of each month pursuant to the Estimated Cost Statement. Within ninety (90) days following the end of each Accounting Period, each Operator Party shall provide each other Party with a full, complete and itemized separate statement (the "Annual Statement"), together with reasonable supporting documentation, showing the actual Common Costs incurred by such Operator Party in the performance of its Common Area Work during such Accounting Period. The Annual Statement, and any Operator Party's books and records in connection therewith, may upon reasonable notice be audited by an independent accounting firm or real estate consultant retained by any Party at its sole cost and discretion. If any Party has paid more than its Allocable Share of Common Costs during any such Accounting Period with respect to such Common Area Work, such Party shall receive a credit toward its next payment(s) of its Allocable Share of Common Costs with respect to which such overpayment occurred. If any Party has paid less than its Allocable Share of Common Costs for such Accounting Period, then such Party shall pay the deficiency in its Allocable Share of Common Costs to the Operator Party entitled to same within thirty (30) days after receipt of the Annual Statement. At any time, any Operator Party, with the reasonable approval of the other Parties, may adjust the monthly estimated payments contained in the Estimated Cost Statement to more closely reflect actual expenses being incurred as Common Costs in order to reduce the magnitude of any year-end reconciliation. Any payment which is not timely made by a Party under this Section 4.1 shall bear interest from the date that is three (3) business days subsequent to such Party's receipt of a delinquency notice from an Operator Party until such payment is received by the Operator Party at the rate specified in Section 20.9 hereof. Any delinquent payment made by a Party and bearing interest pursuant to the preceding sentence shall include a late charge in the amount of five percent (5%) of the delinquent amount due. 4.2 Resolution of Disputes. If a Party disagrees with an Operator Party's year-end reconciliation of the Allocable Share of Common Costs, such Party shall be entitled to object by written notice to such Operator Party within thirty (30) days of receipt of the Annual Statement. If the Parties cannot reach an agreement within thirty (30) days of such notice, the dispute shall be resolved by arbitration pursuant to the provisions of Article 12 hereof. 47 4.3 Creation of Lien and Personal Obligation for Payment of Allocable Shares. Each Party hereby covenants for the benefit of every other Party hereto, regardless of whether such covenant is expressed in any deed to a Tract, that the delinquent amount of its Allocable Share of Common Costs and/or its Allocable Share of Real Estate Taxes, together with any late charges, Attorneys' Fees and interest due on any delinquent payment thereof, shall be a charge upon such Party's Tract and shall be a continuing lien upon such Tract, effective upon recordation of a notice of delinquency as provided herein. The total amount so due shall be the personal obligation of the Party owing such amount, and shall not pass to Transferees of such Party, but shall remain a personal obligation of such previous Party and shall remain as a lien and charge against the Tract of such previous delinquent Party. Notwithstanding the foregoing, no Mortgagee shall be liable for the payment of liens for Allocable Shares of Common Costs except those accruing after the Mortgagee obtains title to the Tract encumbered by its Mortgage pursuant to an Involuntary Transfer and liens of record prior to the recordation of the lien of such Mortgagee. Any such Involuntary Transferee shall take title to the Tract subject to the Mortgage free and clear of any claims and liens for unpaid Allocable Shares of Common Costs. Any such Involuntary Transferee who so acquires title to the Tract shall be liable for payment of Allocable Shares of Common Costs accruing after the date of such Involuntary Transfer. Following any such Involuntary Transfer, the Party owing such delinquent amount shall remain personally liable for the payment thereof. 4.4 Adjustments to Allocable Share of Common Costs. The Common Costs allocable to each Tract shall be subject to equitable adjustment at such time as the Optional Improvements shall be developed by an Aladdin Party or a successor thereof. Upon such an adjustment to the Common Costs, the Operator Parties shall notify the other Parties of the new Allocable Share of Common Costs which shall be payable by each Party commencing on the first day of the succeeding month, provided such notification is delivered to each Party by the tenth day of the then current month. If a Party disagrees with the adjustment to the Allocable Share of Common Costs, such Party shall be entitled to object by written notice to the Operator Parties within thirty (30) days of receipt of such adjustment. If the Parties cannot reach an agreement within thirty (30) days of such notice, the dispute shall be resolved by arbitration pursuant to the provisions of Article 12 hereof. 48 ARTICLE 5 CENTRAL ENERGY PLANT 5.1 Construction of Central Energy Plant. The Central Energy Plant will be designed and Constructed to perform in accordance with the specifications described in the Energy Provider Agreement and subject to the provisions of this REA. All Construction of the Central Energy Plant, including the maintenance, operation and restoration thereof, shall be performed without contribution from any Party, except to the extent specifically provided in the Energy Provider Agreement. Upon the expiration or termination of the Energy Provider Agreement, Aladdin Gaming shall make the Energy Site available for the Construction, renovation and operation of such facilities as may be necessary to provide sufficient electricity, chilled water and hot water to each of the Tracts. The Parties agree to cooperate in all reasonable respects to cause such facilities to be provided for the Site, and the plans and specifications for any such facilities and the operating agreements relating thereto shall be subject to the reasonable approval of the Parties (other than Energy Provider), which approval shall be deemed granted if not denied within fifteen (15) days following the request therefor. 5.2 Purchase of Electricity, Chilled Water and Hot Water. Provided that the Central Energy Plant provides electricity, chilled water and hot water in accordance with the specifications and requirements described in the Energy Provider Agreement, each Party which is the owner of a Building located on the Site shall purchase electricity, chilled water and hot water in amounts sufficient to service such Building(s) from Energy Provider pursuant to the Energy Provider Agreement. 5.3 Sale of Excess Electricity, Chilled Water and Hot Water. The sale to third parties of excess electricity, chilled water and/or hot water by Energy Provider shall be permitted only upon the terms and conditions set forth in the Energy Provider Agreement. ARTICLE 6 FLOOR AREA, USE, AND OPERATION 6.1 Floor Area; First and Second Scheduled Opening Dates. Subject to force majeure as described in Article 10 and the satisfaction of the 49 applicable conditions precedent contained in the Site Work Agreement, on or before the First Scheduled Opening Date, Aladdin Gaming covenants that it shall have completed Construction (as evidenced by issuance of certificates of occupancy by the County) of that portion of the Initial Planned Floor Area of the Aladdin Improvements that Aladdin Gaming is required to construct pursuant to this REA. Subject to force majeure as described in Article 10 and the satisfaction of the applicable conditions precedent contained in the Site Work Agreement, on or before the First Scheduled Opening Date, Bazaar Company covenants that it shall have completed Construction (as evidenced by issuance of certificates of occupancy by the County) of the Common Parking Area and the Retail Facility required to be constructed by Bazaar Company pursuant to this REA. Subject to force majeure as described in Article 10, on or before the Second Scheduled Opening Date, Aladdin Music covenants that it shall have completed Construction (as evidenced by issuance of certificates of occupancy by the County) of the Music Hotel required to be constructed by Aladdin Music pursuant to this REA. On or before the Final Completion Deadline, Energy Provider shall complete Construction of the Central Energy Plant required to be constructed by Energy Provider pursuant to the Energy Provider Agreement. 6.2 Uses. (a) Each portion of the Initial Planned Floor Area and the Music Hotel shall be operated in a manner consistent with the standards of a first-class facility, which standards shall be at least equivalent to the standards of the Mirage (as of the date of this REA), as to the Aladdin Hotel and Casino, the standards of Bally's (as of the date of this REA) as to the Music Hotel, and the standards of the Forum Shops (as of the date of this REA), as to the Retail Facility. The Parties agree that the Theater for Performing Arts shall be used to present events which are consistent with the first-class nature of the Redeveloped Aladdin. (b) Bazaar Company agrees that the Retail Facility shall be used only for retail merchandising, restaurants, services and entertainment as are commonly found in first-class retail enclosed shopping centers and related incidental uses, including but not limited to a management/leasing office not exceeding eighteen thousand (18,000) square feet of Floor Area. (c) Aladdin Gaming and Aladdin Music shall have the right to lease or use portions of the Aladdin Improvements and the Music Hotel, respectively, for retail purposes (whether or not such retail purposes would be 50 competitive with Occupants of the Retail Facility), including, but not limited to, restaurants, souvenir shops, spa facilities, and the like which are commonly found in first-class casinos and/or first-class hotels. (d) The Parties shall install, maintain, repair and replace the landscaping on their respective Tracts (to the extent that said landscaping is not part of the Common Area to be maintained by an Operator Party) as required to keep the same in a first-class condition. (e) The Parties shall use commercially reasonable efforts to employ or cause to be employed sufficient security and traffic control personnel to ensure the safety of all Permittees using the Tracts operated by such Parties. 6.3 Limitation on Detrimental Characteristics. Notwithstanding any other provision of this REA, no use or operation shall be made, conducted or permitted on any part of the Site which is clearly objectionable to the development or operation of the Retail Facility, the Music Hotel or the Aladdin Improvements or which is inconsistent with the operation of a first-class shopping center, hotel and casino, as described in Section 6.2(a) above. 6.4 Operation. (a) Subject to Section 9.4 hereof, provided that Aladdin Gaming is using commercially reasonable efforts to operate the Aladdin Improvements, substantially similar in size to the gaming facility and hotel set forth on the Plans and Specifications, in a first-class manner in accordance with the provisions of Section 6.4(b) hereof, then Bazaar Company, subject to requirements of applicable laws and regulations, shall use commercially reasonable efforts to cause the Bazaar Improvements, substantially similar in size to the Bazaar Improvements set forth on the Plans and Specifications. (i) With respect to the Retail Facility and the retail tenants of the Bazaar Improvements (A) for the three year period beginning on the First Scheduled Opening Date, to be kept open to the general public at all times when any tenant of the Retail Facility is open for business but in any event at such times as the general business hours of the Forum Shops, and (B) subsequent to said three year period, to be kept open to the general public at all times that are industry standard for first-class mixed use casino-related shopping centers located on Las Vegas Boulevard, and (ii) to be operated and leased as a first-class themed entertainment center, in accordance with this REA. The common areas within the Retail Facility (as distinguished from the Common Area) 51 shall remain open 24 hours a day, seven days a week, each and every day of the year, and shall be operated in a first-class manner consistent with the provisions of Section 6.4(f) hereof. (b) Subject to Section 9.4 hereof, provided that (i) the Common Parking Area, substantially similar in size to the Common Parking Area set forth on the Plans and Specifications, is open to the general public and being operated in accordance with the Parking Use Agreement, and (ii) Bazaar Company is using commercially reasonable efforts to keep the Retail Facility, substantially similar in size as that set forth on the Plans and Specifications, open to the public and operated and leased as a first-class themed entertainment center in accordance with the provisions of Section 6.4(a) hereof, then Aladdin Gaming shall use commercially reasonable efforts to cause the Aladdin Improvements, substantially similar in size to the Aladdin Improvements set forth on the Plans and Specifications, (x) subject to requirements of applicable laws and regulations, and subject to practices which are industry standard for first class mixed use shopping-center related hotels and casinos located on Las Vegas Boulevard, to be kept open to the general public 24 hours a day, seven days a week, each and every day of the year, and (y) to be operated as a first-class hotel and casino, in accordance with this REA. (c) Subject to Section 9.4 hereof, provided that (i) the Common Parking Area, substantially similar in size to the Common Parking Area set forth on the Plans and Specifications, is open to the general public and being operated in accordance with the Parking Use Agreement, and (ii) Bazaar Company is operating the Retail Facility, substantially similar in size as that set forth on the Plans and Specifications, open to the public and operated and leased as a first-class themed entertainment center in accordance with the provisions of Section 6.4(a) hereof, then, as of the Second Scheduled Opening Date, Aladdin Music shall use commercially reasonable efforts to cause the Music Hotel, substantially similar in size to the Music Hotel set forth on the Plans and Specifications, (x) subject to requirements of applicable laws and regulations, and subject to practices which are industry standard for first class mixed use shopping-center related hotels and casinos located on Las Vegas Boulevard, to be kept open to the general public 24 hours a day, seven days a week, each and every day of the year, and (y) to be operated as a first-class hotel and casino, in accordance with this REA. (d) Energy Provider shall operate the Central Energy Plant pursuant to the Energy Provider Agreement. 52 (e) In addition, regardless of whether the Parties are operating their respective Buildings in accordance with the foregoing minimum requirements, all Parties hereto covenant and agree for the benefit of all Parties hereto to maintain all necessary Perimeter Access Areas to permit Occupants and Permitees access to and enjoyment of the Buildings of any other Party hereto which may be open for business to the general public. (f) Subject to the provisions of this Section 6.4, all Common Areas of the Redeveloped Aladdin and the common areas within the Retail Facility shall be operated in a first-class manner comparable to the standards of the Forum Shops and be "fully opened" to the public for ingress and egress at all times 24 hours a day, seven days a week, each and every day of the year, except that (i) such areas need not be open at any time that none of the Aladdin Hotel and Casino, the Retail Facility and the Music Hotel is open for business, (ii) such areas need not be open prior to the First Scheduled Opening Date, and (iii) portions of such areas may be closed from time to time as required for repair and maintenance provided that at all times there is reasonable ingress and egress to each Tract of the Redeveloped Aladdin. "Fully opened" means, without limitation, that there shall be reasonably adequate security, adequate air conditioning, lighting and other utilities, consistent with first-class standards; and in general that at all hours such areas shall be maintained, but not necessarily staffed, in the same manner as when all stores are open for business. (g) The Parties agree that each Party (except Energy Provider) shall have the right to sponsor and stage special events on their Tracts at the locations designated for same on the Site Plans and the Plans and Specifications. In the event that a Party schedules a special event in the Theater for Performing Arts or on any public areas on level 115 (as defined in the Plans and Specifications), such Party shall inform the other Parties (other than Energy Provider) at least thirty (30) days prior thereto and provide each of them with information with respect to the type of entertainment, proposed time and location of staging, planned security arrangements and expected turnout for the event. All such events shall be consistent with the first-class nature of the Redeveloped Aladdin. Any disputes relating to such events shall be resolved by arbitration pursuant to Article 12 hereof. The costs attributable to any such special event, including security, refuse disposal and janitorial staff, shall be at the sole cost and expense of the Party or Parties sponsoring such event. Nothing in this Section 6.4(g) shall be construed as granting approval rights to any Party. 53 (h) Forty-five (45) days prior to any Party's exercise of its right, if any, to cease compliance with the operational covenants set forth in subsections 6.4(a) through 6.4(c) above, as applicable, based upon the Default of another Party ("Cessation Right"), such non-Defaulting Party shall serve notice of such intention upon each of the other Parties (including, but not limited to, the Defaulting Party), which notice shall specify in reasonable detail the circumstances of the subject Default. If the Defaulting Party fails to Cure the Default specified in said notice, if any, or, if said Default cannot reasonably be Cured within the aforesaid forty-five day period, the Defaulting Party fails to diligently pursue said Cure within such period and until the subject Default is Cured, then the non-Defaulting Party may exercise its Cessation Right. The notice and Cure period required in this subsection 6.4(h) is a condition precedent to any Party's exercise of its Cessation Right. Subject to Sections 11.5 and 11.6 hereof, any Party's Cessation Right shall be terminated upon the Cure of the Default underlying same. 6.5 Gaming Activities. (a) Aladdin Gaming represents that neither Aladdin Gaming nor any member thereof nor any Affiliate of Aladdin Gaming nor any member thereof is unwilling or unable to file all necessary applications with the Gaming Authorities to obtain whatever gaming licenses that may be required of such Persons in connection with the Gaming Activities to be conducted in the Gaming Facilities in the Aladdin Improvements. To Aladdin Gaming's actual knowledge, no such Person has ever engaged in any conduct or practices which would cause such Person to be denied any gaming license that may be required by such Person. Without limiting the foregoing, no such Person has ever (a) been convicted of any felony, (b) had a civil or criminal record expunged or sealed by a court order, (c) received a pardon for any criminal offense, (d) held a privileged or professional license in any state and had any disciplinary action taken against him or her with respect to any such license, or (e) been refused a gaming license or been subject to a related fining of unsuitability or been refused a license for selling alcoholic beverages or been subject to a related finding of unsuitability or been a participant in any group which has been denied any such license or subject to such finding. Aladdin Gaming covenants to take all commercially reasonable actions in order that Aladdin Gaming shall be issued all necessary gaming licenses in order to conduct Gaming Activities in the Gaming Facilities in the Music Hotel as soon as reasonably possible following the recordation of this REA. 54 (b) Aladdin Music represents that neither Aladdin Music nor any member thereof nor any Affiliate of Aladdin Music nor any member thereof is unwilling or unable to file all necessary applications with the Gaming Authorities to obtain whatever gaming licenses that may be required of such Persons in connection with the Gaming Activities to be conducted in the Gaming Facilities in the Music Hotel. To Aladdin Music's actual knowledge, no such Person has ever engaged in any conduct or practices which would cause such Person to be denied any gaming license that may be required by such Person. Without limiting the foregoing, no such Person has ever (a) been convicted of any felony, (b) had a civil or criminal record expunged or sealed by a court order, (c) received a pardon for any criminal offense, (d) held a privileged or professional license in any state and had any disciplinary action taken against him or her with respect to any such license, or (e) been refused a gaming license or been subject to a related fining of unsuitability or been refused a license for selling alcoholic beverages or been subject to a related finding of unsuitability or been a participant in any group which has been denied any such license or subject to such finding. Aladdin Music covenants to take all commercially reasonable actions in order that Aladdin Music shall be issued all necessary gaming licenses in order to conduct Gaming Activities in the Gaming Facilities in the Music Hotel as soon as reason ably possible following the recordation of this REA. (c) No Gaming Activities or gaming devices, cashless wagering systems or associated equipment (as such terms are defined in NRS Chapter 463) ("Gaming Equipment") shall be permitted in or on the Bazaar Site, except to the extent that Bazaar Company agrees to permit Aladdin Gaming to engage in Gaming Activities or to open a Gaming Facility therein in its sole discretion. 6.6 Commercial Subdivision; Taxes and Assessments. The Parties agree to cooperate with each other to commercially subdivide the Site into separate legal tracts for the Gaming Site, the Optional Improvements Site, the Bazaar Site (with separate legal lots for each of the Retail Facility and the Common Parking Area), the Aladdin Music Site and the Energy Site (the "Commercial Subdivision"). Aladdin Gaming agrees to use commercially reasonable efforts to pursue the Commercial Subdivision at its own cost and expense and to commence such process as soon as reasonably practicable after the date hereof, but in any event so as to complete the Commercial Subdivision prior to the First Scheduled Opening Date. Until such time as the Commercial Subdivision shall be effected, the Parties agree to pay to Aladdin Gaming, within thirty (30) days of a request 55 therefor (but in no event more frequently than quarterly), their respective allocable share of the real estate taxes and assessments levied against the Site (the "Allocable Share of Real Estate Taxes"), as such shares are set forth on Schedule "II" hereto. The Allocable Share of Real Estate Taxes shall be appropriately prorated with respect to the real estate tax year in which the recordation of this REA and the Commercial Subdivision occurs. After such time as the Commercial Subdivision is effected, each Party agrees that it will pay before delinquency, all real estate taxes and assessments, both general and special, which are levied or assessed against its Tract. Nothing herein contained shall be deemed to limit the right of a Party to contest the validity of any such taxes or assessments against its Tract by appropriate proceedings; provided, that such contest is made in good faith at such Party's own cost, and as long as neither title to the subject Tract, nor the rights, privileges and easements granted herein with respect thereto would be forfeited or released as a result of the continuing non-payment of such taxes. If a Party fails to comply with this Section 6.6, any of the other Parties, upon giving the Defaulting Party thirty (30) days' prior notice, may cure such failure and shall be entitled to reimbursement from the Defaulting Party in accordance with the terms of Section 20.9. 6.7 Adjacent Land. The Parties agree that the parcel of land located on the northeast corner of the intersection of Las Vegas Boulevard South and Harmon Avenue (the "Adjacent Land") shall not be purchased by any Party or any Affiliate thereof without first notifying all other Parties (except Energy Provider). If any Party or Affiliate thereof purchases the Adjacent Land, the Parties agree that as of such purchase (a) the Adjacent Land and the then owner thereof shall become subject to all of the terms and conditions of this REA (b) the Construction of any improvements thereon shall be subject terms and conditions of Section 3.5 hereof (it being understood that all Parties (except Energy Provider) shall have approval rights in connection with such Construction to the same extent that Bazaar Company has approval rights over the Construction of the Optional Improvements) and (c) the Allocable Share of Common Costs will be equitably adjusted among the parties. If any Party performs Construction on the Adjacent Land, such Party hereby covenants that (x) such Construction shall be consistent with the architectural character of the Aladdin Hotel and Casino and the Retail Facility and (y) it shall use commercially reasonable efforts (at no significant cost to such Party) to minimize interference with the visibility of the Music Hotel from Las Vegas Boulevard resulting therefrom. 56 ARTICLE 7 COVENANTS AGAINST WASTE 7.1 Waste. Each Party covenants to the other Parties that it shall not commit or suffer any waste or damage to, or impairment of the value of, any Party's Tract in the use of the easements created herein or otherwise. 7.2 Hazardous Substances. Each Party covenants to the other Parties that it shall not keep, use or store, or allow to be kept, used or stored, or discharge in any amount, any Hazardous Substances or any other hazardous or toxic substances on or in the Site, without the express prior written consent of the other Parties and all insurance companies which have issued any insurance on the Site or any portion thereof, provided, however, a Party may use Hazardous Substances (in quantities necessary for the activities conducted) in the business of operating each Party's Tract to the extent such use is in compliance with applicable laws and prudent Hazardous Substance handling procedures and such Hazardous Substances to the extent not fully used are properly and lawfully disposed of, without materially violating applicable laws, endangering human health and safety or impairing any portion of the Site. Each Party Indemnifies the others with respect to any Claims arising out of the breach of the foregoing sentence and from any damages resulting from a Party's use of Hazardous Substances which impairs such other Party's use of their Tract. ARTICLE 8 INDEMNIFICATION AND INSURANCE 8.1 Indemnity. Each Party, as Indemnitor, covenants to Indemnify the other Parties, as Indemnitees, with regard to any and all Claims arising from such Indemnitor's operation, use or ownership of its Tract or arising from any event occurring on its Tract or any Default under this REA; provided, how ever, Indemnity under this Section 8.1 shall not be required if and to the extent the Claim underlying an Indemnitee's request for indemnity is of a type covered by "All-Risk" property damage insurance or by the insurance required to be carried under this Article 8 and the insurance carrier accepts tender of such Claim. 57 8.2 General Liability Insurance. Throughout the term of this REA, each Party shall maintain through the Controlled Insurance Program, or otherwise shall cause to be maintained, in full force and effect, with a financially responsible insurance company or companies, commercial general liability (including public liability and property damage) insurance covering occurrences, accidents and incidents on the Tract in which such Party has an interest, that (a) occur during the term of this REA (regardless of when the claim is filed), and (b) result in bodily injury, personal injury or death to any Person and/or damage or destruction of property. Said insurance shall have a combined single limit of liability per occurrence of not less than One Million Dollars ($1,000,000) on a primary basis and not less than One Hundred Million Dollars ($100,000,000) on an excess/umbrella basis, or such greater amounts as are typical for similar casino-hotel projects in Las Vegas and as such Parties may consider from time to time (but not more than once every three (3) years) and agree upon. By endorsements, such insurance policy shall provide coverage for liability arising from the premises, its operations, personal injury, completed operations, broad-form property damage liability, and broad-form contractual liability extending to the Indemnity given in Section 8.1. Each Party shall also maintain, or cause to be maintained, motor vehicle insurance with not less than Five Million Dollars ($5,000,000) combined single limit of liability per occurrence, which limit such Parties shall review periodically in the same manner as they shall review the general liability insurance coverage. In addition to the minimum requirements set forth in this Section 8.2, Energy Provider shall maintain the insurance coverages required pursuant to the Energy Provider Agreement. 8.3 Property Insurance. Each Party shall maintain property damage insurance on its improvements with coverage amounts not less than the full replacement value thereof and as may be required by such Party's Mortgagee. 8.4 Blanket Insurance. The Parties agree that the insurance described in this Article 8 may be provided in whole or in part through a policy or policies covering other liabilities and locations of the Parties or their respective Affiliates. 8.5 Controlled Insurance Program. The Parties acknowledge that participation in the Controlled Insurance Program will not satisfy all of the insurance obligations of the Parties hereunder. 58 8.6 Mutual Release; Waiver of Subrogation. Each Party covenants that it will, if generally available in the insurance industry, obtain for the benefit of each such released Party a waiver of any right of subrogation which the insurer of such Party may acquire against any such Party by virtue of the payment of any such loss covered by such insurance. In the event any Party is by law, statute or governmental regulation unable to obtain a waiver of the right of subrogation for the benefit of another Party, 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 other Party, and during the same period of time such other Party shall be deemed not to have released the Party who has been unable to obtain such waiver from any claims it or its insurance carrier may assert which otherwise would have been released pursuant to this Section. 8.7 Named Insureds. Each Party shall name the other Parties (a) as additional named insureds on general liability insurance policies held by such Party or such Party's contractors and (b) as an indemnitee under any indemnity clause in such Party's contractors' general liability insurance policies, if, in either event, such is obtainable without material additional cost to said Party. Each Party shall, upon the written request of another Party, provide such requesting Party with a copy of the insurance certificates evidencing the insurance required to be maintained by such Party under this REA. ARTICLE 9 REPAIR, MAINTENANCE, ALTERATIONS AND RESTORATION 9.1 Maintenance - Buildings. Each Party shall keep and maintain, or cause to be kept and maintained, in good order, first-class (as defined in Section 6.2(a) hereof, to the extent applicable) condition and repair, reasonable wear and tear excepted, and in accordance with all applicable laws, rules, ordinances, orders and regulations, all completed portions of such Party's Tract. Without limiting the generality of the foregoing each Party shall, with respect to such Party's Tract except with respect to the Common Area in which case the Operator Party shall: 59 (a) regularly clean the floor surfaces with appropriate finishing compounds and shall maintain them so that such surfaces remain smooth and evenly covered with surfacing material; (b) remove all papers, debris, filth and refuse and wash or thoroughly sweep or vacuum surface areas; (c) clean, repair and maintain all lighting fixtures and relamp and reballast them as needed; (d) subject to Sections 2.6 and 2.16 hereof, maintain or cause to be maintained all signs, in a clean, orderly and first-class condition, including relamping and repairing as may be required; (e) maintain and keep in a sanitary condition public restrooms and other common use facilities; (f) clean, repair and maintain all mechanical systems, vertical transportation equipment, sprinkler and fire control systems, and mechanically actuated and manually operated doors; (g) furnish necessary pest (including rodent) abatement controls; (h) subject to Section 2.1(n), keep the Perimeter Access Areas and all other pedestrian and vehicular access areas within the Redeveloped Aladdin open to passage to the general public; and (i) maintain and replace landscaping as necessary to maintain first-class condition. 9.2 Maintenance - Common Parking Area. Bazaar Company agrees that it shall maintain the Common Parking Area in accordance with the provisions of the Parking Use Agreement. 9.3 Alterations - Buildings and Common Area. (a) Right to Alter. Following the date on which the Construction of the Initial Planned Floor Area is completed with respect to the 60 Gaming Site and Bazaar Site, and following the Second Scheduled Opening Date with respect to the Aladdin Music Site, changes and alterations to each Party's Tract shall be made subject to the following conditions: (i) any alterations requested by a Party which involve physical changes to another Party's Tract (other than Energy Provider's Tract), other than de minimis changes which have no adverse effect (as defined in Section 3.1 hereof), must be approved by any Party whose Tract is so affected, in such Party's sole discretion; (ii) any alterations requested by a Party which have a direct adverse effect on (a) another Party's Tract, (b) the Common Areas, or (c) the Quality of Development and Planning for the Redeveloped Aladdin, shall be subject to the reasonable approval of, with respect to clauses (a) and (b), the affected Party (except Energy Provider), and with respect to clause (c), Aladdin Gaming and Bazaar Company. Any alterations requested by a Party which do not have a direct adverse effect on those items enumerated in clauses (a) through (c) above, but which are material and substantial in nature, are subject to the reasonable approval of any affected Party (except Energy Provider). If any affected Party (except Energy Provider) shall disapprove any requested contemplated alterations, the requesting and affected Parties shall attempt to resolve any disagreements by consulting each other and their respective architects, engineers or consultants as soon as reasonably possible, and if such Parties are unable to resolve any such disagreements, any Party to the disagreement may elect to resolve the disagreement by arbitration pursuant to Article 12. For the purposes of this Section 9.3(a), the term "adverse effect" shall have the meaning for such term set forth in Section 3.1 hereof. (b) Right to Raze. Except as permitted by the Site Work Agreement, no Party shall be permitted to demolish or raze any Buildings located on its Tract in violation of the provisions of Article 6, including but not limited to Section 6.4 thereof, except as may be necessary prior to rebuilding the same following destruction or damage due to a casualty or condemnation pursuant to the provisions of Section 9.4 hereof. If any Party elects to demolish or raze any portion of its Buildings or Common Area located on its Tract which is not required to be operated in accordance with Article 6, such demolition shall be undertaken in a manner designed to minimize any disruption or inconvenience to the other Parties in the operation of their business, and thereafter that portion of the Site so leveled shall be maintained in a safe, sightly and dust-free condition appropriately landscaped to be consistent with the standards required in Section 3.1, until such Party which has demolished same shall elect to rebuild on such portion of the Site. In no event shall such demolition be undertaken in a way which would render unusable 61 any structural support easements or any of the other easements granted in Article 2, except as may be permitted in strict accordance with the provisions of Article 2. (c) Right to Re-open Access. In the event that access to and/or through the Tract of any Party is temporarily closed or impaired, the Party responsible for creating the impaired access shall open such access or provide alternate access to and/or through such Tract. If any Party fails to provide adequate access, any other Party may at any time give a written notice to the Party thus failing, setting forth the impaired access. If such access is not re-opened within three (3) days after receipt of such notice, or if such access cannot be reopened within such time, then if such Party fails to re-open the access within such period and diligently prosecute the same to completion thereafter, then, in either such event, the Party giving such notice shall have the right, upon prior written notice, to re-open the access, including the right and temporary license to enter upon the other Party's Tract to perform same, and such Party which has failed to perform shall pay the performing Party's reasonable costs thereof, provided, however, these provisions shall be without prejudice to such non-performing Party to contest the right of the other Party to re-open such access or expend such monies. 9.4 Restoration of Buildings and/or Common Area. In the event of any casualty (which term shall include acts of God, fire, earthquake, flood, explosion or similar occurrences) or condemnation that results in damage or destruction to, or the taking of, less than substantially all of any Party's Tract, whether insured or uninsured, which damage, destruction or taking occurs during a time when such Party is required by this REA to be in operation, then such Party shall restore, repair and/or rebuild such Tract with all due diligence and in accordance with the Plans and Specifications therefor. All restoration, repair and/or rebuilding shall be performed in accordance with the applicable requirements of Article 3. If any Party desires to alter the improvements to be so repaired or restored, such Party shall comply with the provisions of Section 9.3(a) hereof. All costs and expenses of restoration, repair and/or rebuilding of the Buildings, Common Area and/or other improvements on a Party's Tract in excess of available insurance or condemnation proceeds shall be paid by said Party; provided, however, that with respect to the Common Parking Area, any such excess costs and expenses shall be allocated to all Parties in accordance with each Tract's proportionate share of parking spaces required in accordance with County laws, codes and regulations. Notwithstanding the foregoing, the Parties (other than Energy Provider) shall not have the obligation to restore their Tract if such 62 damage or destruction occurs more than twenty-five (25) years after the Second Scheduled Opening Date; provided, however, that if such damage or destruction affects the Common Parking Area and occurs at any time during the term of this REA, then the Common Parking Area shall be restored. In addition to the minimum requirements set forth in this Section 9.4, Energy Provider shall adhere to the restoration obligations required pursuant to the Energy Provider Agreement. 9.5 Restoration of Improvements Not Covered by Section 9.4. Aladdin Gaming shall have no obligation to repair or restore any damage or destruction to any improvements constituting Optional Improvements; however, the provisions of Section 9.8 shall apply in the event a Party elects not to repair or restore any such damaged or destroyed improvements. 9.6 Standards of Construction. A Party performing any restoration, repair, rebuilding, maintenance, alterations, additions or improvements (collectively called "Work") shall, to the extent applicable, strictly comply with the standards of construction set forth in Article 3 hereof and the following requirements: (a) Such Work shall include leveling, paving, constructing proper exterior walls for what previously constituted common party walls, and creating reasonably useful entrances and exits that afford proper ingress to and egress between and among the Retail Facility, the Common Parking Area, the Aladdin Improvements and the Music Hotel. (b) No Work shall be commenced unless the Party desiring to perform the same has in each instance complied with the appropriate provisions of this REA. (c) If the Work is to a structure which is adjacent to a Party's Building, then during the performance of the Work the structure being restored, repaired and/or rebuilt shall be secured and temporarily enclosed in order to prevent conditioned air from escaping, and upon completion shall be physically integrated with such Party's Building. (d) If the Work could reasonably be deemed to constitute a hazardous condition for Permitees or detract from the attractiveness of any Party's Buildings, then during the performance of the Work, an adequate and attractive 63 construction barricade or other protective device shall be placed around the structure being restored, repaired and/or rebuilt. (e) All Work shall be performed in a good and workmanlike manner in accordance with good construction practice, strictly conforming to and complying with: (i) The Plans and Specifications therefor approved to the extent provided in Section 9.4; (ii) All applicable requirements of laws, codes, regulations, rules and underwriters, subject to the right of any Party to contest the validity or application thereof at its sole cost and expense; (iii) As applicable, the requirements of any Mortgagee and the Plans and Specifications; and (iv) As applicable, the provisions of Section 11.7. (f) Except as herein provided to the contrary, all Work shall be completed at the sole cost and expense of the Party performing the same, and with due diligence. 9.7 Licenses for Repairs, Maintenance, Alterations and Restoration. Each Party (hereinafter, the "Licensee") is hereby granted a temporary license to use portions of the Common Area for the purposes of performing maintenance upon, making repairs to, constructing alterations, additions and improvements, and/or razing, replacing and restoring the whole or any part of the Common Area and/or Buildings, as are permitted pursuant to this REA. Within a reasonable time prior to commencement of Work pursuant to said license, the Licensee shall submit to the other Parties (except Energy Provider) for their approval the following: a plot plan of the Site affected by the Work and a time schedule therefor, all in accordance with the provisions of Section 3.5 and the approvals provided for therein. At all times during any Licensee's use of a portion of the Common Area, as aforesaid, such Licensee shall comply with the applicable requirements of this REA, and, upon cessation of such use, shall promptly restore the portions of the Common Area so used to the same condition in which they existed prior to the time of commencement of such use, including the clearing of such area of all dirt, debris, equipment and Construction materials. The Licensee 64 shall also restore, at its sole cost and expense, any portions of the Site which may have been damaged as a result of such Construction promptly upon the occurrence of such damage and shall at all times during the period of any such Construction keep all portions of the Site, except the portions upon which said Construction is being performed and the portions of the Common Area being utilized by such Party pursuant to this Section, free from and unobstructed by any dirt, debris, equipment or Construction materials related to such Construction. Each Licensee covenants to Indemnify each other Party with regard to such Licensee's exercise of the license provided by this Section. 9.8 Clearing of Building Site. Whenever a Party is not obligated hereunder to restore, repair and/or rebuild any Building that has been damaged, destroyed or taken by any casualty or condemnation and elects not to do so, then and in such event such Party shall raze such Building or such part thereof as has been so damaged or destroyed in accordance with the requirements of Section 9.3(b). 9.9 Self-Help Cure of Maintenance and Restoration Defaults. If any Party fails to perform any of its duties or obligations under this Article 9, including but not limited to the obligations of certain Parties to maintain certain portions of the Common Area, any other Party may at any time give a written notice to the Defaulting Party thus failing, setting forth the specific nonperformance. If such nonperformance is not corrected within thirty (30) days after receipt of such notice, or if such nonperformance is such that it cannot be corrected within such time, then if such Defaulting Party fails to commence the performance of such duties within such period and diligently prosecute the same to completion thereafter, then, in either such event, the Party giving such notice shall have the right, upon prior written notice, to perform same, including the right and temporary license to enter upon the Defaulting Party's Tract to perform same, and the Defaulting Party shall pay, on demand, the performing Party's reasonable costs thereof (subject to the allocation provision of Section 9.4 hereof), with interest computed in accordance with Section 20.9(a) hereof, provided, however, these provisions shall be without prejudice to the Defaulting Party's right to contest the right of the other Party to make such repairs or expend such monies. All Work performed by such Party shall be performed in compliance with the Gaming Laws and Article 3 hereof and, notwithstanding anything herein to the contrary, shall be performed by such Party to the extent necessary to properly operate such Party's Tract and shall not be performed by such Party in order to effect a rebuilding or restoration of the Building on the Defaulting Party's Tract, except a rebuilding, 65 repair or restoration of the Common Parking Area following damage or partial condemnation, which shall be permitted hereunder in the event that the Party responsible for the maintenance and operation of the Common Parking Area (a) fails to diligently pursue such rebuilding, repair or restoration within the ninety (90) day period following a casualty to the Common Parking Area or (b) fails for a period of sixty (60) days to meet milestones on the critical path of any construction schedule in connection with such rebuilding, repair or restoration. Notwithstanding anything hereinabove contained to the contrary, in the event that any Party in good faith deems that there is an emergency situation which threatens immediate injury to Persons or immediate damage to property, or material interference with access to or parking for a Party's Tract, such Party may, without the notice required above, but with such notice as is reasonable under the circumstances, cure any such Default. 9.10 Lien. Any amount due under this Article 9 from the Defaulting Party to the other Party shall be a lien against the Tract of the Defaulting Party, effective upon and enforceable in accordance with Section 4.3 hereof. 9.11 Article 9 Approvals. Except as otherwise provided herein, any approval required pursuant to this Article 9 shall be deemed granted if not denied within thirty (30) days after the approving Party's receipt of the requisite information and a request therefor and shall be subject to the terms and conditions of Article 18 hereof. ARTICLE 10 FORCE MAJEURE 10.1 Force Majeure. Except as otherwise expressly provided in this REA to the contrary, each Party shall be Excused from its duty to perform any covenant or obligation of this REA, except an obligation to pay any sums of money not expressly conditioned on any Party's performance of a covenant or obligation that has itself been Excused by this Section, in the event but only so long as the performance of any such covenant or obligation is prevented, delayed, retarded or hindered by any of the following: act of God, fire, earthquake, floods, explosion, action of the elements, war, invasion, insurrection, riot, mob violence, sabotage, inability to procure or general shortage of labor, equipment, facilities, materials or supplies in the open market, failure of transportation, strikes, lockouts, action of 66 labor unions, condemnation, requisition, laws, orders of governmental or civil or military or naval authorities, or any other cause, whether similar or dissimilar to the foregoing, not within the respective control of such Party (other than the lack of or inability to procure funds to fulfill its covenants and obligations provided in this REA), including the timely performance by any Party (other than such Party) of its respective obligations under the Site Work Agreement. Notwithstanding any specific references in certain provisions of this REA to this Section, the absence of such specific reference in any other provision shall not be deemed to diminish the general applicability of this Section. 10.2 Notice. In the event any Party claims Excuse from its duty to perform any covenant or obligation set forth in this REA due to any of the events of force majeure set forth in Section 10.1, such Party shall notify the other Parties of the occurrence of such event of force majeure within ten (10) days following the occurrence thereof. The provisions of Section 10.1 shall not be effective to Excuse any Party failing to give such notice from the performance of such covenant or obligation until such notice is given to the other Parties; provided, however, in no event shall the giving of such notice at any time following such ten (10) day period extend the period during which such Party is otherwise Excused beyond any maximum Excuse periods set forth in this REA. ARTICLE 11 DISCHARGE AND RELEASE 11.1 Discharge on Transfer. Except as provided in Section 11.3, a Transferor shall be Discharged from and after the effective date of the Transfer from all of its unaccrued obligations hereunder, provided that all of the following conditions precedent are satisfied: (a) Transferor shall have paid all amounts due and payable to the other Parties, and shall have performed all of its obligations accrued, as of said effective date; (b) Transferor shall have given the other Parties notice of the Transfer; and 67 (c) Transferor shall have delivered to each other Party a written instrument in recordable form, duly executed and acknowledged by Transferee, whereby Transferee shall have expressly assumed all of the covenants, duties and obligations of Transferor under this REA from and after said effective date. 11.2 Discharge on Involuntary Transfer; Condemnation. Subject to the provisions of Section 11.3, an Involuntary Transferor shall be Discharged from and after the effective date of the Involuntary Transfer from all of its unaccrued obligations hereunder, on condition that such Involuntary Transferor shall have paid all amounts due and payable to the other Parties by such Involuntary Transferor, and shall have performed all of its obligations accrued, as of said effective date. In the event of a condemnation of at least substantially all of a Party's Tract, such Party shall be Discharged from and after the effective date of the taking of title to or possession of such Tract, whichever first occurs, from all of its unaccrued obligations hereunder, on condition that such Party shall have paid all amounts due and payable to the other Parties by such Party, and shall have performed all of its obligations accrued, as of said effective date. 11.3 Exceptions to Discharge. Neither a Transfer nor an Involuntary Transfer shall Discharge a Party from its initial Construction obligations under Section 3.1. Further, neither a Transfer nor an Involuntary Transfer shall Discharge a Transferor or Involuntary Transferor from (i) amounts due and unpaid from such Transferor or Involuntary Transferor or (ii) accrued obligations of such Transferor or Involuntary Transferor, in either event, as of the date of such Transfer or Involuntary Transfer, and such Transferor or Involuntary Transferor shall not be Released from such obligations by such Transfer or Involuntary Transfer. 11.4 Discharge of Mortgagee. A Mortgagee that acquires title to a Tract (or portion thereof) in an Involuntary Transfer shall subsequently be Discharged from and after the effective date of such Mortgagee's Transfer of its interest in said Tract provided it has performed all of its obligations that accrued during its period of ownership, and complies with Sections 11.1 (b) and (c). 11.5 Aladdin Gaming Released From Operating Covenants. Provided that Aladdin Gaming is not then in Default under this REA, the Bazaar Lease, the Site Work Agreement or the Parking Use Agreement, Aladdin Gaming shall be Released from its operating covenants under Article 6 and its Tract shall 68 be Released from such operating covenants if Bazaar Company shall have failed to Cure a material Default in the performance of any of its duties under Article 6 within one hundred twenty (120) days after notice to Cure from Aladdin Gaming, which failure shall constitute an Event of Default. 11.6 Bazaar Company Released from Operating Covenants. Provided that Bazaar Company is not then in Default under this REA, the Bazaar Lease, the Site Work Agreement, or the Parking Use Agreement, Bazaar Company shall be Released from its operating covenants under Article 6 and its Tract shall be Released from such operating covenants if Aladdin Gaming shall have failed to Cure a material Default in the performance of any of its duties under Article 6 within one hundred twenty (120) days after notice to Cure from Bazaar Company, which failure shall constitute an Event of Default. 11.7 Aladdin Music Released from Operating Covenants. Provided that Aladdin Music is not then in Default under this REA or the Music Lease, Aladdin Music shall be Released from its operating covenants under Article 6 and its Tract shall be Released from its operating covenants if Bazaar Company shall have failed to Cure a material Default in the performance of any of its duties under Article 6, within one hundred twenty (120) days after notice to Cure from Aladdin Music, which failure shall constitute an Event of Default. 11.8 Excuse and Release From Restoration Covenants. (a) Excuse. Each Party shall be Excused from its restoration covenants under Article 9 for so long as any other Party is Excused from and is not performing, or is in Default of, its restoration and/or operation covenants, in each case to the extent that and for so long as such nonperformance of such other Party interferes with the subject Party's ability to perform its obligations hereunder. (b) Release. A Party (the "Released Party") shall be Released from its restoration covenants under Article 9 in each of the following circumstances: (i) The Released Party shall be Released from said covenants if the Released Party has also been Released from its operating covenants under Section 6.4 hereof pursuant to Sections 11.5, 11.6, or 11.7 hereof. 69 (ii) The Released Party shall be Released from said covenants if the other Parties have not Cured their respective Defaults under said covenants after sixty (60) days notice from the Released Party. 11.9 No Waiver. A Party's Excuse, Discharge or Release, or a Party's continued performance or operation after its Excuse, Discharge or Release or its service of a notice of Default or a notice to Cure shall not diminish such Excuse, Discharge or Release nor any rights of such Party under this REA, including any claim for damages, or constitute such Party's waiver of the effectiveness of the notice it shall have served. ARTICLE 12 ARBITRATION 12.1 Disputes Covered. Except where a Party may grant or withhold its consent or approval under the express provisions of this REA in its sole and absolute discretion, any dispute between the Parties involving any approvals hereunder, including those arising from lack of approval or disagreements over interpretation or application of such provisions, and any other disputes involving provisions of this REA shall be resolved by binding arbitration conducted in the manner described in this Article 12; provided, however, that any Party may seek prohibitory injunctive relief without first submitting the controversy to arbitration. Prior to the Second Scheduled Opening Date, the arbitration procedures set forth in Article VIII of the Site Work Agreement shall control, notwithstanding the fact that all the Parties are not parties to the Site Work Agreement. 12.2 Arbitration Procedures. (a) A Party seeking arbitration ("Demanding Party") shall deliver a written notice of demand to resolve dispute (the "Demand") to the other Party to such dispute ("Non-Demanding Party"), with a copy of the Demand delivered to all other Parties (except Energy Provider). The Demand shall include a brief statement of the Demanding Party's claim or controversy, the amount thereof, and the name of the proposed Arbitrator to decide the dispute ("Arbitrator"). Within ten (10) days after receipt of the demand, the Non-Demanding Party against whom a demand is made 70 shall deliver a written response to the Demanding Party. Such response shall include a short and plain statement of the Non-Demanding Party's defense to the claim and shall also state whether such Party agrees to the Arbitrator chosen by the Demanding Party. If the Non-Demanding Party fails to agree to the Arbitrator chosen by the Demanding Party, then such Non-Demanding Party shall state in its response the name of the proposed Arbitrator chosen by such non-Demanding Party as the proposed Arbitrator. If the Non-Demanding Party fails to deliver its written response to the Demanding Party within ten (10) days after receipt of the demand, or if the Non-Demanding Party fails to select in its written response a proposed Arbitrator, then the Arbitrator selected by the Demanding Party shall serve as the Arbitrator. An Arbitrator shall not be employed by any Party or its Affiliate, directly, indirectly or as an agent, except in connection with the arbitration proceeding. Any person appointed as an Arbitrator shall be knowledgeable and experienced in the matters sought to be arbitrated. (b) The locale of the arbitration shall be in Las Vegas, Nevada at the offices of the American Arbitration Association or at such other location in Las Vegas, Nevada agreed to by the parties, or if the Parties cannot agree, at the Aladdin Hotel and Casino. (c) If the Non-Demanding Party selects a proposed Arbitrator different than the Arbitrator selected by the Demanding Party, and such selection is indicated by the Non-Demanding Party in its written response to the Demanding Party made within ten (10) days after receipt of the demand, then the Parties shall, for ten (10) days after the Demanding Party's receipt of the Non-Demanding Party's written response to the demand, attempt to agree upon an Arbitrator. If the Parties cannot agree upon an Arbitrator within said ten (10) day period, then, on the application of the Demanding Party, a single neutral Arbitrator shall be appointed by the Eighth Judicial District Court of the State of Nevada in accordance with the provisions of NRS Section 38.055. (d) The Arbitrator's powers shall be limited as follows: the Arbitrator shall follow the substantive laws of the State of Nevada, and the Rules of Evidence of Nevada, and his/her decision shall be subject to review thereon in accordance with the provisions of NRS Chapter 38 (the Nevada Uniform Arbitration Act). 71 (e) The costs of the resolution (including all reporter costs) shall be split among the Parties participating in the arbitration, provided, however, that such costs, along with all other costs and expenses, including attorney's fees, shall be subject to award, in full or in part, by the Arbitrator, in his/her discretion, to the prevailing party. Unless the Arbitrator so awards attorneys' fees, each Party shall be responsible for its own attorneys' fees. (f) To the extent possible, the arbitration hearings shall be conducted on consecutive days, excluding Saturdays, Sundays and holidays, until the completion of the hearings. (g) In connection with any arbitration proceedings commenced hereunder, any Party shall have the right to join any third parties in such proceedings in order to resolve any other disputes, the facts of which are related to the matters submitted for arbitration hereunder. (h) The Arbitrator shall render her/his decision(s) concerning the substantive issue(s) in dispute in writing. The written decision shall be sent to the Parties no later than thirty (30) days following the last hearing date. (i) All hearings shall be concluded within ninety (90) days from the day the Arbitrator is selected or appointed, unless the Arbitrator determines that this deadline is impractical. (j) If any of the provisions relating to arbitration are not adhered to or complied with, any Party may petition the Eighth Judicial District Court of the State of Nevada, for appropriate relief in accordance with the provisions of NRS Chapter 38. (k) Upon application of a Party to the Eighth Judicial District Court of the State of Nevada within one year of any award, the award of the Arbitrator may be confirmed and entered as a judgment in a court of competent jurisdiction. All arbitration conducted under this Article 12 shall be in accordance with NRS Chapter 38 and the rules of the American Arbitration Association situated in Las Vegas, Nevada to the extent such rules do not conflict with the procedures herein set forth. To the extent permitted by law, compliance with this Article 12 is a condition 72 precedent to the commencement by any Party of a judicial proceeding arising out of any arbitratable dispute relating directly or indirectly to this REA. ARTICLE 13 ATTORNEYS' FEES 13.1 Prevailing Party. If any Party shall institute any action or proceeding ("Suit"), excluding arbitration, against any other Party relating to a breach or alleged violation of any covenant, term or obligation of this REA, any Default, or enforcement of the provisions hereof, the Prevailing Party (as hereinafter defined) shall be entitled to recover from the nonprevailing Party, as part of the Prevailing Party's costs of Suit or its damages, said Prevailing Party's reasonable Attorneys' Fees as fixed by the court. The "Prevailing Party" shall be the Party which by law is entitled to recover its costs of Suit, whether or not the Suit proceeds to final judgment. A Party not entitled to recover its costs shall not recover Attorneys' Fees; provided, however, where a Party shall have instituted and then dismissed Suit as against another Party, without the concurrence of such other Party, such other Party shall be the Prevailing Party. No sum for Attorneys' Fees shall be included in calculating the amount of a judgment to determine whether a Party is the Prevailing Party entitled to recover its costs and Attorneys' Fees. The term "Attorneys' Fees" shall include fees of outside counsel and costs allocable to in-house counsel (including, in each instance, fees and charges attributable to services performed by legal assistants or other non-attorney personnel performing services under the supervision of an attorney). The provisions of this Article shall not apply to any action or cause of action for declaratory relief. ARTICLE 14 NOTICES 14.1 Notices to Parties. Any notice, demand, request, consent, approval, designation, or other communication that any Party is required or desires to give, make or communicate to any other Party shall be given, made or communicated in writing either by personal delivery, by facsimile or telex transmission, 73 by reliable overnight courier, or by United States registered or certified mail, return receipt requested with postage fully prepaid, to the following addresses: To Aladdin Gaming: Aladdin Gaming, LLC c/o Sigmund Sommer Properties 2810 West Charleston Boulevard Suite 58 Las Vegas, Nevada 89102 Attention: Mr. Jack Sommer Telephone No.: (702) 870-1234 Facsimile No.: (702) 870-8733 with a copy to: Mr. Ronald Dictrow Sigmund Sommer Properties 280 Park Avenue New York, New York 10017 Telephone No.: (212) 661-0700 Facsimile No.: (212) 661-0844 and a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022-3897 Attention: Wallace L. Schwartz, Esq. Telephone No.: (212) 735-3000 Facsimile No.: (212) 735-2000 and a copy to: Schreck Morris 300 S. Fourth Street Suite 1200 Las Vegas, Nevada 89101 Attention: Ellen Schulhofer, Esq. Telephone No.: (702) 382-2101 Facsimile No.: (702) 382-8135 To Bazaar Company: Aladdin Bazaar, LLC c/o TH Bazaar Centers, Inc. 4350 La Jolla Village Drive Suite 400 San Diego, California 92122-1233 74 Attention: Mr. Wayne Finley and Ms. Wendy Godoy Telephone No.: (619) 546-3535 Facsimile No.: (619) 546-3413 with a copy to: Aladdin Bazaar Holdings, LLC c/o Aladdin Management Corporation, Manager 2810 West Charleston Boulevard Suite 58 Las Vegas, Nevada 89102 Attention: Mr. Jack Sommer Telephone No.: (702) 870-1234 Facsimile No.: (702) 870-8733 and a copy to: TH Bazaar Centers Inc. 4350 La Jolla Village Drive Suite 400 San Diego, California 92122-1233 Attention: General Counsel Telephone No.: (619) 546-3535 Facsimile No.: (619) 546-3413 and a copy to: Allen, Matkins, Leck, Gamble & Mallory LLP 501 West Broadway, Suite 900 San Diego, CA 92101 Attention: Michael C. Pruter, Esq. David A. B. Burton, Esq. Telephone No.: (619) 235-1517 Facsimile No.: (619) 233-1158 and a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022-3897 Attention: Wallace L. Schwartz, Esq. Telephone No.: (212) 735-3000 Facsimile No.: (212) 735-2000 75 and a copy to: Schreck Morris 300 S. Fourth Street Suite 1200 Las Vegas, Nevada 89101 Attention: Ellen Schulhofer, Esq. Telephone No.: (702) 382-2101 Facsimile No.: (702) 382-8135 To Aladdin Music: Aladdin Music Holdings, LLC c/o Sigmund Sommer Properties 2810 West Charleston Boulevard Suite 58 Las Vegas, Nevada 89102 Attention: Mr. Jack Sommer Telephone No.: (702) 870-1234 Facsimile No.: (702) 870-8733 with a copy to: Mr. Ronald Dictrow Sigmund Sommer Properties 280 Park Avenue New York, New York 10017 Telephone No.: (212) 661-0700 Facsimile No.: (212) 661-0844 and a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022-3897 Attention: Wallace L. Schwartz, Esq. Telephone No.: (212) 735-3000 Facsimile No.: (212) 735-2000 and a copy to: Schreck Morris 300 S. Fourth Street Suite 1200 Las Vegas, Nevada 89101 Attention: Ellen Schulhofer, Esq. Telephone No.: (702) 382-2101 Facsimile No.: (702) 382-8135 76 To Energy Provider: Northwind Aladdin, LLC c/o Unicom Thermal Technologic, Inc. 30 West Monroe Street, Suite 500 Chicago, Illinois 60603 Attention: President Telephone No.: (312) 634-3200 Facsimile No.: (312) 346-3201 and a copy to: Schwartz, Cooper, Greenberger & Kraus 180 North LaSalle Street, Suite 2700 Chicago, Illinois 60601 Attention: Andrew H. Connor, Esq. Telephone No.: (312) 346-1300 Facsimile No.: (312) 782-8416 Each Party may designate at any time a different or additional address for its receipt of notices by giving at least ten (10) days' written notice of such change of address to all other Parties. Any notice, demand, request or other communication (except any consent, approval or designation), including any copy, shall be deemed to have been given, made, received and communicated, as the case may be, on the date personal delivery was effected if personally served, on the date of acknowledgment of receipt if by facsimile or telex (provided a hard copy of the same is sent in another manner permitted herein within twenty-four (24) hours of transmission), on the date shown as the delivery date on the overnight courier's cartage copy if by overnight courier, or on the date of delivery as shown on the return receipt if delivered by mail; provided, however, if delivery is not completed due to the absence of the recipient or his/her refusal to accept delivery, delivery to the Person identified above for receipt of copies shall be deemed to be delivery to the primary addressee. If any such notice requires any action or response by the recipient or involves any consent or approval solicited from the recipient, such fact shall be clearly stated in the notice in the manner provided in Article 18. Any responsive consent, approval or designation shall be sent as provided above and shall be deemed to have been given, made, received and communicated, as the case may be, on the date of personal delivery, the date on which the facsimile or telex was transmitted, the date deposited with the overnight courier, or the date the same was deposited in the United States mail in conformity with this Section. 77 In the event a Party shall give notice to any other Party of a Default, such Party shall concurrently send each of the other Parties and their Mortgagees (in accordance with Article 15) a copy of such notice; provided, however, failing to give a copy of such notice to the other Parties (and/or their Mortgagees) shall not affect the validity of such notice of Default nor shall giving or failing to give such notice create any liability on the part of the Party so declaring a Default. ARTICLE 15 MORTGAGEE PROVISIONS 15.1 Mortgagee Notice. Any Mortgagee under a Mortgage affecting the Tract of a Party shall be entitled to receive notice of any Default by the Party as to such Tract, provided that such Mortgagee shall have delivered a copy of a notice substantially in the form hereinafter contained to each Party. The form of such notice shall be as follows: The undersigned, whose address is __________________________________ _____________________________________ does hereby certify that it is the "Mortgagee" (as such term is defined in the REA) of the Tract of land described on Exhibit "A" attached hereto and made a part hereof and being the Tract of Party ("Party") in Clark County, Nevada. In the event that any notice shall be given of the Default of the Party as to whose Tract the Mortgage held by the undersigned applies, a copy thereof shall be delivered to the undersigned who shall have all rights of a Mortgagee to Cure such Default as specified in the REA. Failure to deliver a copy of such notice to the undersigned shall in no way affect the validity of the notice of Default as it respects such Party, but shall make the same invalid as it respects the Mortgagee of the undersigned, and such Mortgagee's Cure rights shall remain undisturbed. 78 Any such notice to a Mortgagee shall be given in the same manner as provided in Article 14. In the event that any notice shall be given of the Default of a Party and such defaulting Party has failed to Cure or commence to Cure such Default as provided in this REA, then and in that event any such Mortgagee under a Mortgage affecting the Tract of the Defaulting Party shall be entitled to receive an additional notice, given in the manner provided in Article 14, that the Defaulting Party has failed to Cure or commence to Cure such Default. Each Mortgagee shall have thirty (30) days after receipt of said additional notice to Cure or, if such Default cannot be Cured within thirty (30) days, to commence to Cure any such Default and to prosecute said Cure continuously and diligently until completed (it being understood that such period beyond said thirty (30) days shall apply to events including, but not limited to, non-monetary Defaults temporarily incapable of a Cure by a Mortgagee due to (a) an automatic stay or (b) the requirement of possession); provided however, that any Default personal to a Party shall not prejudice the rights of any Mortgagee; provided further, however, no dispute of any nature between Mortgagees shall serve to toll or extend said Cure period nor impose liability of any nature on any Party to resolve such dispute in connection with accepting Cure from any particular Mortgagee. ARTICLE 16 AMENDMENT 16.1 Method and Effect of Amendment. The Parties agree that the provisions of this REA may be modified or amended, in whole or in part, only by an instrument in writing, executed and acknowledged by Bazaar Company, Aladdin Gaming and Aladdin Music, and duly recorded in the Office of the Recorder in and for the County. Any amendment or modification hereof, including any extension and renewal hereof, whenever made, shall be superior to any and all liens, to the same extent as if such amendment or modification had been executed concurrently with this REA; provided that, in the event a Party (other than Energy Provider) has a Mortgage which requires the Mortgagee's consent to any amendment of this REA, and such Mortgagee has given notice of the existence of such Mortgage to the other Parties to this REA in accordance with Article 15, the Mortgagee's written consent to any proposed amendment, which consent shall not be unreasonably withheld or delayed, must be obtained in order for such amendment to be enforceable against and binding on such Mortgagee. Nothing contained herein shall constitute a Party's agreement that this REA cannot be 79 effectively amended as between the Parties without the approval of a Party's Mortgagee. If a Party's Mortgagee (other than Energy Provider's Mortgagee) reasonably requests a modification or amendment to this REA which does not materially increase the obligations or decrease the rights of the Parties hereunder, the Parties agree to amend or modify this REA accordingly. 16.2 No Third Party Beneficiary. Except for the provisions of Article 15 which are for the benefit of a Mortgagee, the provisions of this REA are for the exclusive benefit of the Parties hereto and not for the benefit of any third Person, nor shall this REA be deemed to have conferred any rights, express or implied, upon any third Person. It is expressly understood and agreed that the Parties specifically intend that no other Person (other than a Mortgagee in accordance with Article 15) shall have any right to enforce any of the provisions of this REA. ARTICLE 17 TERMINATION OF REA Except as to the easements, covenants and/or provisions of this REA which by their terms shall or may survive such date, and except as to the Parties' restoration obligations set forth in Section 9.4 hereof, which obligations (except Energy Provider's and except with respect to the Common Parking Area) shall terminate twenty-five (25) years after the Second Scheduled Opening Date, this REA shall terminate on December 31, 2097, unless sooner terminated by the written consent of all Parties (other than Energy Provider). ARTICLE 18 EXERCISE OF APPROVAL RIGHTS 18.1 Wherever in this REA the approval or consent of any Party is required, and unless a different time limit is provided in this REA (in which event such different time limit shall control), such approval or disapproval shall be given within twenty (20) days following the receipt of the item to be so approved or disapproved or the same shall be conclusively deemed to have been approved by such Party, subject to the provisions of this Article. Such approval, or disap- 80 proval, shall be given in writing, and such approval shall not be unreasonably withheld, unless the provisions of this REA with respect to a particular consent or approval shall expressly provide that the same may be given or refused in the sole and absolute judgment or discretion of such Party. Any disapproval shall specify with particularity the reasons therefor; provided, however, that wherever in this REA any Party is given the right to approve or disapprove in its sole and absolute judgment or discretion, such Party may disapprove without specifying a reason therefor and its disapproval shall not be subject to contest in any judicial, administrative, arbitration or other proceeding. 18.2 A Party requesting approval shall send such request in a writing setting forth the applicable time period, pursuant to Section 18.1 hereof, within which such Party must act or otherwise respond. If the time specified in the notice is incorrectly set forth or omitted, the time limit shall be thirty (30) days unless a longer time period is specified in this REA, in which case the longer time period shall control. Failure to specify such time period shall not invalidate such notice but shall instead require the action of such Party within said thirty (30) day period or such longer period. 18.3 Any request for the consent or approval of any Party shall refer to the proper section numbers of the REA to which the request relates, properly state the time period permitted hereunder for approval, and state that the document, or the facts contained therein, shall be deemed approved or consented to by the recipient unless the recipient objects thereto within the required time period specified in such notice. Notwithstanding anything to the contrary contained in this REA, no recipient's approval of or consent to the subject matter of a notice shall be deemed to have been given by its failure to object thereto if such notice (or the accompanying cover letter) did not properly refer to the applicable section of this REA and properly state the time period permitted hereunder for approval. ARTICLE 19 EFFECTIVE DATE OF REA This REA shall not be effective until it has been executed, acknowledged and delivered by all signatories hereto. The Parties agree that this REA is to be recorded in the Office of the Recorder of the County. The duly executed 81 REA shall be effective against all Persons having actual or constructive notice thereof whether or not it has been recorded. ARTICLE 20 MISCELLANEOUS 20.1 Breach Shall Not Defeat Mortgage. A breach of any of the easements, conditions, covenants, or restrictions of this REA shall not defeat or render invalid the lien of any Mortgage made in good faith and for value, but all such easements, conditions, covenants and restrictions shall be binding upon and effective against any Person who acquires title to said property or any portion thereof by Involuntary Transfer. 20.2 Breach Shall Not Permit Termination. No breach of this REA shall entitle any Party to cancel, rescind or otherwise terminate this REA, but such limitation shall not affect, in any manner, any other right or remedies which the Parties may have by reason of any breach of this REA. 20.3 Captions. The table of contents and the captions of the Sections and Articles of this REA are for convenience only and shall not be considered or referred to in resolving questions of interpretation and/or construction. 20.4 Interpretation. Any uncertainty or ambiguity regarding the provisions of this REA shall not be interpreted against any Party as the draftsman of the document, but shall be resolved by application of all other principles of law regarding interpretation of contracts. 20.5 Governing Laws and Forum. This REA shall be governed by, interpreted under, and construed in accordance with the laws of the State of Nevada. The Parties intend and agree that the proper forum for the litigation of any and all disputes or controversies arising out of or related to this REA, to the extent that arbitration is not permitted for the resolution of such dispute or arbitration as described herein, is any circuit court of the State of Nevada or the Eighth Judicial District Court of the State of Nevada. Each of the Parties agrees that it will not commence any action or proceeding arising out of or relating to this REA in any court other than as specified in the preceding sentence and that it shall not 82 challenge on grounds of forum non conveniens or any other grounds any action or proceeding so commenced, and hereby stipulates and irrevocably agrees that said courts have in personam jurisdiction over each of them for such litigation of any dispute or controversy arising out of or in any way related to this REA. 20.6 Injunctive Relief. In the event of any violation or threatened violation by any Person of any of the terms, restrictions, covenants and conditions of this REA, any of the Parties shall have the right to seek an injunction of such violation or threatened violation in a court of competent jurisdiction. 20.7 No Partnership. Neither this REA nor any acts of the Parties (other than acts undertaken pursuant to written agreements expressly setting forth such intention) shall be deemed or construed by the Parties to constitute an agreement to share profits and losses or to create the relationships of principal-agent, partnership, joint venture, or any association whatsoever between any of the Parties. 20.8 Not a Public Dedication. Nothing in this REA shall be deemed to be a gift to the general public, or a dedication for any public purpose whatsoever, of any portion of the Site, it being the intention of the Parties that this REA shall be strictly limited to and for the purposes herein expressed. 20.9 Payment on Default. (a) If any Party (i) is compelled or elects to pay any sum of money or do any acts which require the payment of money by reason of any other Party's Default or (ii) does not pay any other sum when due to any other Party pursuant to the terms and provisions of this REA, then the Defaulting Party shall, provided that said Party shall have been served a written delinquency notice from the paying Party, upon demand, promptly reimburse the paying Party all such sums together with interest thereon at the lesser of (x) the rate of fifteen percent (15%) per annum, and (y) the maximum rate permitted by law, compounded annually, from the date that is three (3) business days subsequent to such Defaulting Party's receipt of the delinquency notice from the paying Party until the date of such reimbursement by the Defaulting Party. (b) If the Defaulting Party shall not have made the requested repayment within ten (10) days after demand therefor, the paying 83 Party (or Person to whom the amount is due) shall have the right to deduct the amount thereof, together with interest as aforesaid, without liability or forfeiture, from any sums then due or thereafter becoming due from the paying Party to the Defaulting Party, subject, however, to Sections 4.2 and 9.9 and Article 12 hereof, if the payment amount is in dispute. (c) A Party's deduction from any sums due or payable by it pursuant to the provisions of this Section 20.9 shall not constitute a Default in the payment thereof unless such Party fails to pay the amount of such deduction (with interest thereon at the rate provided above from the respective date of deduction) to the Defaulting Party to whom the sum is owing within thirty (30) days after final adjudication or decision that such amount is owing. The option given in this Section 20.9 is for the sole protection of the paying Party (or Person to whom such sum is due) but shall not Release the Defaulting Party from its obligation to perform the terms, provisions, covenants and conditions of this REA which are required to be performed by such Party, nor deprive the paying Party (or Party to whom such sum is due) of any legal or equitable rights which it may have by reason of such Default. 20.10 Severability. If any term, covenant, restriction or condition contained in this REA shall, to any extent, be invalid or unenforceable, the remainder of this REA (or the application of such term, covenant, restriction or condition to Persons or circumstances other than those with respect to which it is invalid or unenforceable), shall not be affected thereby and each term, covenant, restriction and condition of this REA shall be valid and enforceable to the fullest extent permitted by law, except those terms, covenants, restrictions or conditions which are expressly subject to or conditioned upon such invalid or unenforceable provisions. 20.11 Successors. The provisions of this REA shall, except as otherwise provided herein, run with the land, both as respects benefits and burdens created herein. 20.12 Time of Essence. Time is of the essence with respect to the performance of each of the terms, covenants, restrictions and conditions contained in this REA. 84 20.13 Waiver of Default. A Party's waiver of another Party's Default must be made in writing, and no such waiver shall be implied from a Party's failure to take any action in respect of such Default if such Default continues or is repeated. No express waiver of any Default shall affect any Default, or cover any period of time, other than the precise Default and period of time specified in such express waiver. One or more waivers of any Default in the performance of any term, covenant, restriction or condition of this REA shall not be deemed to waive any subsequent Default. A Party's giving of its consent or approval to any act or request of another Party shall not be deemed to waive or render unnecessary the consenting/approving Party's consent to or approval of any subsequent similar acts or requests. 20.14 Rights Cumulative. Except as limited by Article 12, the rights and remedies of any Party under this REA shall be cumulative and not exclusive of any other rights or remedies of such Party at law or in equity. A Party's exercise of any given right or remedy shall not impair such Party's standing to exercise any other right or remedy. 20.15 Counterparts. This REA may be executed in multiple counterparts, each of which shall be deemed an original, and all such counterparts taken together shall constitute one and the same instrument. Further, this REA may be executed in triplicate originals. 20.16 Estoppel Certificates. Each Party hereby severally covenants that upon at least twenty (20) days' prior notice from another Party, it will issue to any prospective or existing Mortgagee or to any prospective Transferee, an estoppel certificate stating: (a) whether the Party to whom the request has been directed knows of any default under this REA, and if there are known defaults, specifying the nature thereof, (b) whether to its knowledge this REA has been assigned, modified or amended in any way (and if it has, then stating the nature thereof; (c) that to the Party's knowledge this REA as of that date is in full force and effect; and (d) as to such other reasonably requested factual matters known to the Party concerning this REA. Such certificate shall act as a waiver of any claim by the Party furnishing such certificate to the extent such claim is based upon facts which are contrary to those asserted in the certificate but only to the extent the claim is asserted against a bona fide encumbrancer or purchaser for value without knowledge of facts contrary to those contained in the certificate and who has acted in reasonable reliance upon the certificate. Such certificate shall in no event subject the Party furnishing it to any liability whatsoever (except for fraud), 85 notwithstanding the negligent or inadvertent failure of such Party to disclose correct or relevant information. 20.17 Limitation on Liability. Notwithstanding anything contained in this REA, if at any time a Party (such Party being referred to in this Section 20.17 as the "breaching Party") shall fail to perform or pay any covenant or obligation on its part to be performed or paid hereunder or under any such other agreement, or shall breach any warranty made hereunder, and as a consequence thereof any other Party, or their successors and assigns, shall recover a money judgment against the breaching Party, such judgment shall (subject to the rights of any Mortgagee whose lien predates the attachment of such judgment) be enforced against and satisfied out of only (i) the proceeds of sale produced upon execution of such judgment and levy thereon against the breaching Party's interest in its Tract and improvements thereon, (ii) the rents, issues, profits or other income receivable from the such Tract and improvements thereon, (iii) the consideration received by the breaching Party from the sale of all or any part of its interest in its Tract and improvements thereon made after such failure of performance or breach of warranty (which consideration shall be deemed to include any assets at any time held by the breaching Party to the extent that the value of same does not exceed the proceeds of such sale), (iv) any insurance proceeds or condemnation award payable as the result of any casualty to or condemnation of the breaching Party's Tract and/or improvements thereon, and (v) any sums due or to become due from the other Party to the breaching Party regardless of when the obligation arises, by way of set-off, and the other Party and any other owner or holder of any claim or action against the breaching Party shall look solely to the breaching party's Tract and improvements thereon and to said property specified in clauses (i), (ii), (iii), (iv) and (v) above for the payment and satisfaction of any such claim or action and any judgment thereon. Except as set forth in the preceding sentence, the breaching Party shall not have any personal liability for the performance or payment of any such covenant, warranty or obligation hereunder or under any such other agreement or upon any judgment thereon. Furthermore, none of the members individually in the limited liability companies referred to herein as "Aladdin Gaming", "Bazaar Company", "Aladdin Music" and "Energy Provider" shall have any liability whatsoever for the performance or payment of any covenant, warranty or obligation of such Party hereunder or upon any judgment thereon. No Party shall seek specific performance of any affirmative covenant or affirmative obligation by or against the breaching Party or any partner in the breaching Party, except to the extent that the same can be achieved with the property and proceeds specified in clauses (i), (ii), (iii), (iv) and (v) above. The provisions of this Section 20.17 are 86 not intended to relieve the breaching Party from the performance of any of its obligations hereunder, but rather to limit the breaching Party's liability as aforesaid, and to relieve and release any partner or member of the breaching Party from any such liability as aforesaid; nor shall any of the provisions of this Section 20.17 be deemed to limit or otherwise affect any Party's right to obtain injunctive relief necessary to enforce other rights specifically granted to such Party in this REA. To the extent that (with or without recourse to the limited remedies provided in this Section 20.17) a Party is, by virtue of the foregoing limitations, unable to recover the full amount of any money judgment against the Defaulting Party, the non-Defaulting Party may, for so long as such amount (and interest thereon in accordance with Section 20.9) shall remain unpaid, offset amounts owed by the Defaulting Party against amounts owed to the non-Defaulting Party hereunder and/or pursuant to the Site Work Agreement and/or the Parking Use Agreement and/or that certain subordinated debenture between Aladdin Gaming and Bazaar Company. 20.18 Index. Wherever in this REA reference is made to a constant dollar denomination, calculation of constant dollar equivalency shall be adjusted every fifth Accounting Period based on the Implicit Price Deflator of the Gross National Product of the United States (Personal Consumption Expenditures By Major Type of Product Table), issued and published by the United States Department of Commerce (1972=100) (the "Index"), or any successor index thereto, appropriately adjusted. In the event that the Index is converted to a different standard reference base or otherwise revised, the determination of the adjustment to be made with reference to the Index shall be made with the use of such conversion factor, formula or table for converting the Index as may be published by the Department of Commerce or, if said Department shall not publish the same, then with the use of such conversion factor, formula or table as may be published by Prentice Hall, Inc., or other nationally recognized publisher of similar statistical information as may be agreed upon by the Parties. If at any time such index as herein recited shall not exist, the Parties shall substitute an index or procedure that reasonably reflects and monitors consumer prices, and the same shall be considered the "Index" hereunder and in the event the Parties are unable to agree upon a substitute index or procedure, the matter shall be resolved pursuant to Article 12. Notwithstanding anything to the contrary set forth herein, the adjustments provided in this Section 20.18 shall be effective only upon notice given by any Party (except Energy Provider) to all other Parties not more than 120 days nor less than 30 days before the beginning of every fifth Accounting Period, which notice shall make specific reference to this Section 20.18. 87 20.19 Compliance With Laws. Each Party shall comply with all applicable laws, ordinances, rules, orders and regulations of all governmental agencies and entities respecting the use, occupancy and/or enjoyment of its Tract and improvements thereon including, but not limited to, obtaining and maintaining all necessary licenses, approvals and permits from all federal, state and local authorities required for the operation of such Tract and improvements. 20.20 Conflicts. In the case of each and every conflict or inconsistency between the provisions of the Bazaar Lease, the Music Lease, the Parking Use Agreement, the Site Work Agreement or the Energy Provider Agreement and this REA, the Parties agree that the provisions of this REA shall prevail and control. All Mortgages shall be subject and subordinate to the terms, covenants and provisions of this REA and any amendment hereto to which the subject Mortgagee has consented to pursuant to Section 16.1 hereof. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.] 88 IN WITNESS WHEREOF, this REA has been executed by the Parties as of the day and year first written above. "Aladdin Gaming" ALADDIN GAMING, LLC a Nevada limited-liability company By: /s/ Ronald Dictrow ----------------------------- Name: Ronald Dictrow Title: Secretary "Bazaar Company" ALADDIN BAZAAR, LLC a Delaware limited liability company By: Aladdin Bazaar Holdings, LLC, a Nevada limited-liability company, its member By: Aladdin Management Corporation Its: Manager By: /s/ Ronald Dictrow ----------------------------- Name: Ronald Dictrow Title: Treasurer By: TH Bazaar Centers Inc., a Delaware corporation, its member By: /s/ Wayne J. Finley ----------------------------- Name: Wayne J. Finley Title: Senior Vice President By: /s/ Wendy M. Godoy ----------------------------- Name: Wendy M. Godoy Title: Senior Vice President "Aladdin Music" ALADDIN MUSIC HOLDINGS, LLC, a Nevada limited-liability company By: Aladdin Music Holdings, LLC Its: Member By: /s/ Ronald Dictrow ----------------------------- Name: Ronald Dictrow Title: Treasurer STATE OF New York) ) ss. COUNTY OF New York) On February 27, 1998, before me, Dawn M. Schoenig, a Notary Public in and for said state, personally appeared Ronald Dictrow, personally known to me (or proved to me on the basis of satisfactory evidence) to be the persons whose names are subscribed to the within instrument and acknowledged to me that they executed the same in their authorized capacities, and that by their signatures on the instrument, the persons, or the entity upon behalf of which the persons acted, executed the instrument. WITNESS my hand and official seal. /s/ Dawn M. Schoenig ---------------------------- Notary Public in and for said State STATE OF New York) ) ss. COUNTY OF New York) On February 27, 1998, before me, Dawn M. Schoenig, a Notary Public in and for said state, personally appeared Wayne Finley and Wendy Godoy, personally known to me (or proved to me on the basis of satisfactory evidence) to be the persons whose names are subscribed to the within instrument and acknowledged to me that they executed the same in their authorized capacities, and that by their signatures on the instrument, the persons, or the entity upon behalf of which the persons acted, executed the instrument. WITNESS my hand and official seal. /s/ Dawn M. Schoenig ---------------------------- Notary Public in and for said State STATE OF New York) ) ss. COUNTY OF New York) On February 27, 1998, before me, Dawn M. Schoenig, a Notary Public in and for said state, personally appeared Ronald Dictrow, personally known to me (or proved to me on the basis of satisfactory evidence) to be the persons whose names are subscribed to the within instrument and acknowledged to me that they executed the same in their authorized capacities, and that by their signatures on the instrument, the persons, or the entity upon behalf of which the persons acted, executed the instrument. WITNESS my hand and official seal. /s/ Dawn M. Schoenig ---------------------------- Notary Public in and for said State STATE OF New York) ) ss. COUNTY OF New York) On February 27, 1998, before me, Dawn M. Schoenig, a Notary Public in and for said state, personally appeared Ronald Dictrow, personally known to me (or proved to me on the basis of satisfactory evidence) to be the persons whose names are subscribed to the within instrument and acknowledged to me that they executed the same in their authorized capacities, and that by their signatures on the instrument, the persons, or the entity upon behalf of which the persons acted, executed the instrument. WITNESS my hand and official seal. /s/ Dawn M. Schoenig ---------------------------- Notary Public in and for said State EXHIBIT "A-1" LEGAL DESCRIPTION SITE (Please see attached) EXHIBIT "A-2" LEGAL DESCRIPTION GAMING SITE (Please see attached) EXHIBIT "A-3" LEGAL DESCRIPTION BAZAAR SITE (Please see attached) EXHIBIT "A-4" LEGAL DESCRIPTION ALADDIN MUSIC SITE (Please see attached) EXHIBIT "A-5" LEGAL DESCRIPTION UTILITY SITE (Please see attached) EXHIBIT "A-6" LEGAL DESCRIPTION OPTIONAL IMPROVEMENTS SITE (Please see attached) EXHIBIT "B" SITE PLANS (Please see attached) EXHIBIT "C" PLANS AND SPECIFICATIONS (Please see attached) SCHEDULE "I" ALLOCABLE SHARE OF COMMON COSTS Common Area Operator Party Allocable Share ----------- -------------- --------------- I. Common Area Bazaar Company Bazaar Company: 25% Utility Lines Aladdin Gaming: 75%(1) II. Casino Perimeter Aladdin Gaming Bazaar Company: 25% Area Aladdin Gaming: 75%(1) II. Bazaar Perimeter Bazaar Company Bazaar Company: 25% Area Aladdin Gaming: 75%(1) IV. Fire Command Bazaar Company: 25% Center [To be determined] Aladdin Gaming: 75%(1) - ---------- (1) Aladdin Gaming shall have the right, but not the obligation, to assign one-third (1/3) of its Allocable Share obligation to Aladdin Music (which obligation Aladdin Music hereby agrees to assume), but shall not be relieved of liability therefor. SCHEDULE "II" ALLOCABLE SHARE OF REAL ESTATE TAXES Responsible Party Allocable Share(1) ----------------- ------------------ Aladdin Gaming 49% Bazaar Company 35% 24% - Retail Facility 11% - Garage Parking Music Lease 14% Energy Provider 2% - ---------- (1) Notwithstanding the Allocable Shares of Real Estate Taxes set forth herein, it is understood and agreed that all Parties shall be directly and personally responsible for the payment of all taxes and assessments attributable to the improvements Constructed on and changes of ownership regarding their respective Tracts after the date hereof. EX-10.22 18 EXHIBIT 10.22 COMMON PARKING AREA USE AGREEMENT COMMON PARKING AREA USE AGREEMENT --------------------------------- THIS COMMON PARKING AREA USE AGREEMENT ("Agreement") is entered into as of the 26th day of February, 1998 (the "Effective Date"), by and between Aladdin Gaming, LLC, a Nevada limited liability company ("Aladdin Gaming"), and Aladdin Bazaar, LLC, a Delaware limited liability company ("Bazaar Company"). R E C I T A L S --------------- A. Aladdin Gaming owns certain real property located at 3667 Las Vegas Boulevard South in Clark County, Nevada which are more particularly described on Exhibit "A-1" to the REA (the "Site"). B. Aladdin Gaming and Bazaar Company have entered into that certain Lease dated of even date herewith (the "Bazaar Lease"), pursuant to which Bazaar Company leased from Aladdin Gaming that portion of the Site more particularly described on Exhibit "A-3" to the REA (the "Bazaar Site"). Bazaar Company shall construct certain improvements on the Bazaar Site (the "Bazaar Improvements") consisting of an enclosed themed entertainment shopping center containing approximately 462,000 square feet of gross leasable retail area (the "Retail Facility"), and a multi-level parking structure adjacent to the Aladdin Improvements for approximately 4,800 motor vehicles adjacent to the Aladdin Improvements, and surface-level parking facilities for approximately 364 motor vehicles beneath and adjacent to the Retail Facility, all as more particularly described on the Site Plans (as defined in the REA) attached to the REA as Exhibit "B" (the "Common Parking Area"). C. Aladdin Gaming shall construct or cause to be constructed certain improvements on that portion of the Site that is more particularly described on Exhibit "A-2" to the REA (the "Aladdin Site") consisting of a renovated and expanded hotel-casino containing approximately 2,600 rooms and an approximately 115,000 square foot casino (the "Aladdin Hotel & Casino"), a Theater for Performing Arts (as that term is defined in the REA) and parking facilities beneath the Aladdin Hotel and Casino for approximately 500 motor vehicles (the "Aladdin Parking Area" and, together with the Aladdin Hotel & Casino and Theater for Performing Arts, the "Aladdin Improvements"). D. Aladdin Gaming and Aladdin Music Holdings, LLC ("Aladdin Music Holdings") have entered into that certain Lease dated of even date herewith (the "Music Lease"), pursuant to which Aladdin Music Holdings leased from Aladdin Gaming an approximately 4.7 acre portion of the Site (the "Music Site") located at the corner of Audrie Street and Harmon Avenue to permit the construction and operation by Aladdin Music, LLC ("Aladdin Music") of an approximately 1,000 room, themed hotel with an approximately 50,000 square foot casino (the "Music Hotel"). Aladdin Music Holdings shall assign all its right, title and interest in the Music Lease to Aladdin Music. E. Aladdin Gaming and its Permittees must have the non-exclusive right to use the Common Parking Area and Bazaar Company agrees to grant to Aladdin Gaming and its Permittees such non-exclusive right to use the Common Parking Area, pursuant to the covenants, terms and 1 conditions hereinafter set forth. NOW, THEREFORE, incorporating the foregoing recitals and in consideration of the mutual promises, representations and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 --------- DEFINITIONS ----------- Accounting Period. "Accounting Period" means any period beginning on January 1st and ending on the next following December 31st, except that the first Accounting Period shall commence on the Effective Date and shall end on the following December 31st. Adjustment Date. "Adjustment Date" has the meaning ascribed to it in Section 3.1(b) of this Agreement. Affiliate. "Affiliate" means a Person that Controls, is directly or indirectly Controlled by, or is under common ownership or Control with, another Person. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, Bazaar Company shall not be considered to be an Affiliate of Aladdin Gaming or any Affiliates thereof, and Aladdin Gaming shall not be considered to be an Affiliate of Bazaar Company or any Affiliates thereof, notwithstanding the fact that an Affiliate of Aladdin Gaming holds a fifty percent (50%) membership interest in Bazaar Company. Agreement. "Agreement" means this Common Parking Area Use Agreement, as amended from time to time. Aladdin Improvements. "Aladdin Improvements" has the meaning ascribed to it in Recital C of this Agreement. Aladdin Music. "Aladdin Music" means Aladdin Music, LLC, a Nevada limited liability company, its successors and assigns. Aladdin Music Holdings. "Aladdin Music Holdings" means Aladdin Music Holdings, LLC, a Nevada limited liability company, its successors and assigns. Aladdin Site. "Aladdin Site" shall have the meaning ascribed to it in Recital C of this Agreement. Allocable Share of Parking Operating Costs. "Allocable Share of Parking Operating Costs" means that percentage of the Parking Operating Costs allocable to each of Aladdin Gaming for the Aladdin Site and the Music Site and Bazaar Company for the Bazaar Site on a monthly basis in and for each Accounting Period, which share shall be determined by multiplying the amount set forth in the Estimated Cost Statement by the percentage set forth below, which percentage shall be subject to equitable adjustment as reasonably determined by the parties hereto at such time as any Optional Improvements (as that term is defined in the REA) shall be developed by Aladdin Gaming and its Permitted Transferees under the REA, or a successor thereof. The initial Allocable Share of Parking 2 Operating Costs shall be equal to the percentages and paid by the parties set forth below, payable to Aladdin Gaming or Bazaar Company, as the case may be, as set forth herein: (a) Seventy-five percent (75%) for Aladdin Gaming; and (b) Twenty-five percent (25%) for Bazaar Company. Amended LLC Agreement. "Amended LLC Agreement" shall mean that certain Limited Liability Company Agreement of Bazaar Company dated as of September 3, 1997, as amended by that certain First Amendment to the Limited Liability Company Agreement dated as of October 16, 1997, as amended. Arbitration. "Arbitration" means those procedures for resolving Disputes among the parties set forth in Section 10.1 of this Agreement. Arbitrator. "Arbitrator" shall have the meaning ascribed to it in Section 10.1(a) of this Agreement. Base Fee. "Base Fee" shall have the meaning ascribed to it in Section 3.1 of this Agreement. Base Month. "Base Month" has the meaning ascribed to it in Section 3.1(b) of this Agreement. Bazaar Company. "Bazaar Company" means Aladdin Bazaar, LLC, a Delaware limited liability company, its successors and assigns. Bazaar Improvements. "Bazaar Improvements" has the meaning ascribed to it in Recital B of this Agreement. Bazaar Lease. "Bazaar Lease" has the meaning ascribed to it in Recital B of this Agreement, as amended from time to time. Bazaar Site. "Bazaar Site" has the meaning ascribed to it in Recital B of this Agreement. Budget. "Budget" has the meaning ascribed to it in Section 3.2(a) of this Agreement. CIP. "CIP" shall mean the "Controlled Insurance Program" as defined and set forth in that certain Contract between Aladdin Gaming and Fluor Daniel, Inc. for Design/Build Services dated as of December 4, 1997. Common Parking Area. "Common Parking Area" has the meaning ascribed to it in Recital B of this Agreement and shall mean that portion of the Bazaar Improvements as designated on the Site Plans attached to the REA as Exhibit "B" for the shared use of all parties and the Redeveloped Aladdin and all of their Permittees in connection with the parking, passage and loading of motor vehicles, together with related improvements which are at any time constructed in connection therewith including driveways, pedestrian sidewalks, walkways and stairways, escalators, elevators, 3 light standards, directional signs, curbs and landscaping within and adjacent to areas used for such shared parking, passage and loading. Comparison Month. "Comparison Month" has the meaning ascribed to it in Section 3.1(b) of this Agreement. Control. "Control" shall mean the power, exercisable jointly or severally, to manage and direct a Person through the direct or indirect ownership of partnership interest, stock, trust powers, or other beneficial interests and/or management or voting rights. CPI. "CPI" means the Consumer Price Index for Urban Wage Earners and Clerical Workers, or any successor index thereto, published by the United States Department of Labor, Bureau of Labor Statistics, for the year in question. In the event that the CPI is converted to a different standard reference base or otherwise revised, the determinations to be made based on the CPI pursuant to Section 3.1 of this Agreement shall be made with the use of such conversion factor, formula or table for converting the CPI as may be published by the U.S. Department of Labor or, if not so published, then with the use of such conversion factor, formula or table as may be published by any nationally recognized publisher of similar statistical information, or if a conversion factor, formula or table is unavailable from any such source, the parties shall select, in good faith, another method to adjust the CPI, or any successor thereto, to the figure that would have been arrived at had the manner of computing the CPI in effect on the date of this Agreement not been altered. Demand. "Demand" shall have the meaning ascribed to it in Section 10.1(a) of this Agreement. Demanding Party, Non-Demanding Party. "Demanding Party" and "Non-Demanding Party" shall have the meanings ascribed to them in Section 10.1(a) of this Agreement. Dispute. "Dispute" shall have the meaning ascribed to it in Section 10.1(a) of this Agreement. Effective Date. "Effective Date" means the date this Agreement is executed by Aladdin Gaming and Bazaar Company as set forth in the introductory paragraph of this Agreement. Employee Parking Areas. "Employee Parking Areas" shall have the meaning ascribed to it in Section 6.2(b) of this Agreement. Estimated Cost Statement. "Estimated Cost Statement" shall have the meaning ascribed to it in Section 3.2(a) of this Agreement. Event of Default, Default. "Event of Default" or "Default" shall have the meanings ascribed to them in Article 9 of this Agreement. Aladdin Gaming. "Aladdin Gaming" means Aladdin Gaming, LLC, a Nevada limited liability company, its successors and assigns. 4 Hazardous Substances. "Hazardous Substances" means and includes the following, including mixtures thereof; any hazardous substance, pollutant, contaminant, waste, byproduct or constituent regulated under NRS Chapter 459, NRS Sections 618.750-618.850, NRS Section 477.045, as amended, or any other federal, state or local laws and regulations as amended or hereafter enacted regulating hazardous or toxic substances or wastes, petroleum pollutant or waste or similar substances, including, but not limited to, as defined in the Comprehensive Environmental Response, Liability and Compensation Act, 42 U.S.C. Section 9601 et seq., as amended, the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251, et seq. Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et seq., Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq., Safe Drinking Water Act, 42 U.S.C. Sections 3000(f), et seq., Clean Air Act, 42 U.S.C. Sections 7401, et seq., United States Department of Transportation Hazardous Materials Table, 49 C.F.R. 172.101, Chapters 444, 445A, 445B, 590 or 618 of NRS, pesticides regulated under the Federal Insecticides, Fungicide and Rodenticide Act, 7 U.S.C. Section 136 et seq., asbestos and asbestos-containing materials, PCBs and other substances regulated under the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., source material, special nuclear material, by-product material and any other radioactive materials or radioactive wastes, however produced, regulated under the Atomic Energy Act or the Nuclear Waste Police Act; chemicals subject to the OSHA Hazard Communication Standard, 29 C.F.R. 1910.1200 et seq.; and industrial process and pollution control wastes whether or not hazardous within the meaning of the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., all as may be amended. Involuntary Transfer; Involuntary Transferor; Involuntary Transferee. "Involuntary Transfer" shall mean the conveyance or reversion of fee or leasehold title to a Tract (or portion thereof) from a Mortgagor ("Involuntary Transferor") to a Mortgagee ("Involuntary Transferee") resulting from the judicial or nonjudicial foreclosure of the Mortgage, the grant of a deed in lieu of such foreclosure, or the expiration, termination or surrender of a leaseback in a sale and leaseback transaction; provided, however, in the event of such an Involuntary Transfer, the Involuntary Transferor shall be conclusively deemed to have assigned all of its rights, powers, title and interest in its Tract (or the relevant portion thereof) and this Agreement to the Involuntary Transferee, who shall be conclusively deemed to have assumed all of the Involuntary Transferor's covenants and obligations thereunder accruing from and after such Involuntary Transfer. Mortgage; Mortgagor; Mortgagee. "Mortgage" shall mean an indenture of mortgage, deed of trust, or a sale and leaseback of all or a portion of the interest of a party ("Mortgagor") in its Tract. "Mortgagee" shall mean either the trustee and beneficiary/mortgagee, individually or collectively as appropriate, under a Mortgage or Aladdin Gaming or lessor following a sale and leaseback, provided that such Persons are not in possession of the Tract of the applicable party. Mortgagee shall not be deemed to be in possession until Mortgagee takes title to any Tract. Music Hotel. "Music Hotel" has the meaning ascribed to it in Recital D of this Agreement. Music Lease. "Music Lease" has the meaning ascribed to it in Recital D of this Agreement. Music Site. "Music Site" has the meaning ascribed to it in Recital D of this Agreement. NRS. "NRS" means the Nevada Revised Statutes as in effect from time to time. 5 Offset Rights. "Offset Rights" shall have the meaning ascribed to it in Section 3.5. Opening Date. "Opening Date" shall have the meaning ascribed to the term "First Scheduled Opening Date" in the Site Work Agreement. Parking Operating Costs. "Parking Operating Costs" shall mean all costs and expenses of every kind and nature incurred by Bazaar Company in connection with its operation, management, maintenance, repair, replacement or restoration of the Common Parking Area, which costs and expenses are not allocated among the parties as Common Costs (as that term is defined in the REA) and are not associated with the Retail Facility, including, without limitation, the following: (a) all payments made to an operator of any portion of the Common Parking Area, including administrative fees paid to and actual costs incurred by Bazaar Company as operator (and Bazaar Company shall be entitled to a ten percent (10%) override to cover Bazaar Company's general and administrative costs); (b) any use taxes or other fees or charges relating to parking operations imposed by Clark County or any other governmental authority claiming jurisdiction over the Site; (c) the cost of licenses, certificates, permits and inspections, and the cost of contesting the validity or applicability of any governmental enactments which may affect Parking Operating Costs; (d) all real estate taxes and general and special assessments allocable to the Common Parking Area, in accordance with Section 6.6 of the REA; (e) the cost of insurance premiums with respect to insurance policies required to be carried by Bazaar Company by its Mortgagee, the REA, or this Agreement, including business interruption insurance, in an amount equal to the difference between the aggregate insurance premiums paid by Bazaar Company for the Bazaar Site and the aggregate insurance premiums which would have been payable by Bazaar Company if it had only carried required insurance with respect to the Retail Facility; and (f) the cost of supplying all utilities, and operating, maintaining, repairing, renovating and managing all systems and equipment; (g) wages, salaries and other compensation and benefits of all persons engaged exclusively (appropriate pro rata portion thereof) in the operation, management, maintenance or security of the Common Parking Area, and employer's social security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages, salaries, compensation and benefits; (h) payments under the Bazaar Lease (excluding rent) or under any easement, license, operating agreement, declaration, restrictive covenant or instrument pertaining to the sharing of costs by the Common Parking Area; 6 (i) the cost of janitorial service, alarm and security service, trash removal, maintenance of public areas, maintenance and replacement of curbs, walkways and roofs; (j) the cost of landscaping, relamping, supplies, tools, equipment and materials, and all fees, charges and other costs incurred in connection with the management, operation, repair and maintenance of the Common Parking Area pursuant to Section 6.1 of this Agreement; and (k) the cost of any capital improvements or other costs (i) which are intended as a labor-saving device or to effect other economies in the operation or maintenance of the Common Parking Area, (ii) made to the Common Parking Area after the Opening Date that are required under any governmental law or regulation enacted after the Effective Date unless such capital improvement or other cost should have been incurred in connection with the initial construction of the Common Parking Area in order to comply with then existing governmental laws and regulations; or (iii) which are reasonably determined by Bazaar Company to be in the best interests of the Common Parking Area. If and to the extent any services or transactions referred to in subsections (a) through (k) of this definition are performed by Affiliates of Bazaar Company, they shall be at competitive market rates. Except as otherwise specifically provided above, "Parking Operating Costs" shall not include costs of interest on debt or amortization on any Mortgages and rent payable under the Bazaar Lease. Any and all revenues generated by the Common Parking Area shall be offset against the Parking Operating Costs for the corresponding Accounting Period in order that Parking Operating Costs shall represent the net cost of operating the Common Parking Area after application of such revenues. Parking Regulations. "Parking Regulations" shall have the meaning ascribed to it in Section 6.2(a) of this Agreement. Permitted Transferee. "Permitted Transferee" means a Person to whom Aladdin Gaming or Bazaar Company sells, leases, transfers or assigns its interest in all of its Tract, together with all or the relevant portion of its rights and obligations under this Agreement, the REA, the Bazaar Lease and any and all other agreements affecting or concerning the Site or any portion thereof, as applicable. Such Person to whom a transfer is made and who becomes a Permitted Transferee hereunder must expressly assume the transferring party's rights and obligations under this and all relevant agreements by a writing duly acknowledged and in recordable form if necessary. Permittees. "Permittees" shall mean the parties hereto, Aladdin Music, and all other Persons from time to time entitled to use, occupy or visit the Redeveloped Aladdin pursuant to any lease, sublease, deed or other instrument, agreement or arrangement, and their respective officers, directors, employees, representatives, agents, partners, members, managers, architects, engineers, contractors, customers, visitors, invitees, tenants, subtenants, licensees, suppliers, vendors and concessionaires. Person. "Person" shall mean an individual, fiduciary, trust, partnership, limited liability company, firm, association and corporation, or any other form of business or governmental entity. REA. "REA" means that certain Construction, Operation and Reciprocal Easement Agreement dated concurrently herewith, by and among Aladdin Gaming, Bazaar Company and 7 Aladdin Music. Redeveloped Aladdin. "Redeveloped Aladdin" means the Bazaar Improvements, the Aladdin Improvements, the Music Hotel and the Energy Plant. Retail Facility. "Retail Facility" has the meaning ascribed to it in Recital B of this Agreement. Site. "Site" has the meaning ascribed to it in Recital A of this Agreement. Site Work Agreement. "Site Work Agreement" means that certain Site Work Development and Construction Agreement dated concurrently herewith, entered into by Aladdin Gaming, Aladdin Holdings, LLC, a Delaware limited liability company, and Bazaar Company. Subordinated Debt. "Subordinated Debt" shall have the meaning ascribed to it in Section 3.5 of this Agreement. Tract. "Tract" shall initially mean all buildings, land and/or air space comprising the Bazaar Site or the Aladdin Site, as applicable, together with all other improvements of Aladdin Gaming, or Bazaar Company, as the case may be, now or hereafter located thereon. If at any time hereafter less than all of the Bazaar Site or the Aladdin Site is Transferred in accordance with the requirements of the REA, then that portion of the Tract so Transferred shall hereinafter be deemed a separate Tract and the Person acquiring or leasing such new Tract shall be deemed a Permittee hereunder; provided, however, that no lease or license of space within the Redeveloped Aladdin by either Aladdin Gaming or Bazaar Company shall be deemed to create a new Tract. Use Fee. "Use Fee" means, collectively, the Base Fee and Aladdin Gaming's Allocable Share of Parking Operating Costs which shall be payable to Bazaar Company at the address for Bazaar Company set forth in Section 10.4 below. ARTICLE 2 USE OF COMMON PARKING AREA 2.1 Use by Permittees. From and after the Opening Date, all Permittees of the Redeveloped Aladdin shall have the right to use the Common Parking Area, subject only to the terms and conditions contained herein. 2.2 Limitations on Use. Notwithstanding any other provision contained in this Agreement, no Permittee may use the Common Parking Area for any unlawful purpose and, unless Aladdin Gaming and Bazaar Company otherwise mutually agree, the Common Parking Area shall be used only for the parking, passage, loading and unloading of motor vehicles and pedestrian traffic. The use of the Common Parking Area shall be subject to the Parking Regulations and, more generally, the provisions of Article 6 hereof. In addition, neither Aladdin Gaming nor any Permittees shall perform any act or carry on any practice that may damage the Common Parking Area, normal wear and tear excepted, or cause any offensive odors or loud noise (aside from odors and noises customarily found in a parking garage) or constitute a nuisance or a menace. Neither Aladdin Gaming nor Bazaar 8 Company shall, without the prior express written consent of the other party keep, use or store, or allow to be kept, used or stored, upon or about the Common Parking Area any Hazardous Substances that may endanger any portion thereof or Permittee thereon; provided, however, a party may use Hazardous Substances (in quantities necessary for the activities conducted) in the business of operating the Common Parking Area to the extent such use is in strict compliance with applicable laws and prudent Hazardous Substance handling procedures and such Hazardous Substances, to the extent not fully used, are properly and lawfully disposed of, without violating applicable laws, endangering human health and safety or impairing any portion of the Site. Each party indemnifies the other with respect to any claims arising out of the breach of the foregoing sentence and from any damages resulting from a party's use of Hazardous Substances which impairs such other party's use of the Common Parking Area of their Tract. ARTICLE 3 USE FEE AND ALLOCABLE COSTS 3.1 Base Fee. (a) Commencing on the Opening Date and for the balance of the affected Accounting Period, Aladdin Gaming shall pay to Bazaar Company, in such legal tender of the United States of America as at the time of payment shall be acceptable for the payment of public and private debts, a fee in the amount of Three Million Two Hundred Thousand Dollars ($3,200,000) per annum (the "Base Fee"), payable in twelve (12) equal monthly installments during each year, in advance, on the first day of the calendar month for which such monthly payment is being made. Should the Opening Date occur on a day other than the first day of the calendar month, then the Base Fee for such first fractional month shall be paid on the Opening Date and shall be computed on a daily basis for the period from the Opening Date to the end of such calendar month and at an amount equal to 1/360th of the Base Fee for each such day, and, thereafter, shall be computed and paid as aforesaid. (b) Commencing on the first day of the calendar month following the end of the fifth Accounting Period (the "Adjustment Date") and on the first day of the calendar month following the end of each successive fifth Accounting Period thereafter, the Base Fee shall be adjusted in accordance with percentage increases, if any, in the CPI over the preceding five (5) years, which increase shall be capped at five percent (5%) per annum. The initial Base Fee shall be increased by a percentage equal to the percentage increase, if any, in the CPI published for the calendar month which is three (3) months prior to the month in which the Adjustment Date occurs (the "Comparison Month") as compared to the CPI published for the same calendar month immediately preceding the Opening Date (the "Base Month"). Notwithstanding anything to the contrary herein, if the CPI for any applicable Comparison Month shall be less than the CPI for the Base Month, the Base Fee shall remain at the same amount payable immediately prior to the applicable Adjustment Date. Commencing on the first day of the calendar month following the end of the sixty-ninth Accounting Period of the term of this Agreement, and on the first day of the calendar month following the end of each successive tenth Accounting Period thereafter through the end of the term, the Base Fee shall be adjusted to market rate. 3.2 Allocable Costs. 9 (a) Bazaar Company shall submit to Aladdin Gaming, promptly following the Effective Date, and in each Accounting Period thereafter, at least ninety (90) days prior to the first day of the calendar month following the first anniversary of the Effective Date, and in each successive Accounting Period thereafter, a reasonable estimate of the total Parking Operating Costs to be incurred by Bazaar Company during the next Accounting Period (the "Budget"), and each party's Allocable Share of Parking Operating Costs with respect thereto (the "Estimated Cost Statement"). Aladdin Gaming may object to the Budget and/or the Estimated Cost Statement within thirty (30) days of its receipt thereof, in which event the parties shall negotiate in good faith in an attempt to reach an agreement. If an agreement concerning the Budget and/or Estimated Cost Statement is not reached within twenty (20) days of an objection, then the objection shall be subject to the procedures for Arbitration set forth in Article 10.1 hereof; provided, however, that during such arbitration, Aladdin Gaming shall pay to Bazaar Company Aladdin Gaming's Allocable Share of Parking Operating Costs, as hereinafter provided, based upon the lesser of (x) the actual cost of the subject Parking Operating Costs for the previous Accounting Period, plus ten percent (10%), or (y) the Estimated Cost Statement. The failure of Bazaar Company to timely submit a Budget or the Estimated Cost Statement shall not preclude Bazaar Company from enforcing its right to collect Aladdin Gaming's Allocable Share of Parking Operating Costs. (b) Aladdin Gaming shall pay its Allocable Share of Parking Operating Costs in twelve (12) equal monthly installments, in advance, on the first day of each calendar month commencing on the Effective Date (and on and after the Opening Date, together with its next installment of the Base Fee due), pursuant to the Estimated Cost Statement. At any time, Bazaar Company, with the reasonable approval of Aladdin Gaming, may elect to adjust monthly estimated payments contained in the Estimated Cost Statement to more closely reflect actual Parking Operating Costs being incurred in order to reduce the magnitude of any year-end reconciliation. Should the Effective Date occur on a day other than the first day of the calendar month, then for such first fractional month the Allocable Share of Parking Operating Costs shall be paid on the Effective Date and shall be computed on a daily basis for the period from the Effective Date to the end of such calendar month and at an amount equal to 1/360th of the Allocable Share of Parking Operating Costs for each such day, and, thereafter, shall be computed and paid as aforesaid. (c) Within ninety (90) days following the end of each Accounting Period, Bazaar Company shall provide Aladdin Gaming with a full, complete and itemized separate statement, with reasonable supporting documentation as may be requested, showing the actual Parking Operating Costs incurred during such Accounting Period. Aladdin Gaming shall also have the right, upon reasonable notice and at its sole cost and expense, to audit Bazaar Company's records with respect to the immediately preceding Accounting Period and its allocation of Parking Operating Costs. If any party has paid more than its Allocable Share of Parking Operating Costs during any such Accounting Period, such party shall receive a credit towards its next payment of its Allocable Share of Parking Operating Costs. If any party has paid less than its Allocable Share of Parking Operating Costs for such Accounting Period, such party shall pay the deficiency within thirty (30) days after receipt of such year-end statement. 3.3 Resolution of Disputes. If Aladdin Gaming disagrees with Bazaar Company's year-end reconciliation of the Allocable Share of Parking Operating Costs, Aladdin Gaming shall be entitled to object by written notice to Bazaar Company within thirty (30) days of receipt of such year- 10 end statement. If the parties cannot reach an agreement within thirty (30) days following such notice, the Dispute shall be resolved by Arbitration pursuant to the provisions of Section 10.1 hereof. 3.4 Creation of Lien and Personal Obligation for Payment of Allocable Share. Aladdin Gaming and Bazaar Company covenant for the benefit of the other, regardless of whether such covenant is expressed in any deed to a Tract, that the delinquent amount of its Allocable Share of Parking Operating Costs and the delinquent amount of any other payments owing by a party hereunder, together with any late charges, attorneys' fees or interest due on any delinquent amount, shall be a charge and a continuing lien upon its Tract, effective upon recordation of a notice of delinquency as provided herein. The total amount so due shall be the personal obligation of the party owing such amount and shall remain the personal obligation of such previous party, and shall pass to Transferees of such previous party as a lien and charge against its Tract. Notwithstanding the foregoing, no Mortgagee shall be liable for the payment of liens for an Allocable Share of Parking Operating Costs or any other payments to be made by a party hereunder except those accruing after the Mortgagee obtains title to the Tract encumbered by its Mortgage pursuant to an Involuntary Transfer but shall take subject to any lien encumbering the property at the time such Mortgage is recorded. Any Involuntary Transferee shall take title to the Tract subject to the Mortgage free and clear of any claims and liens for unpaid Allocable Shares of Parking Operating Costs or other unpaid charges. Any such Involuntary Transferee who so acquires title to the Tract shall be liable for payment of Allocable Shares of Parking Operating Costs accruing after the date of such Involuntary Transfer. Following any such Involuntary Transfer, the party owing the delinquent amount shall remain personally liable for the payment thereof. 3.5 Offset Rights. The parties hereto are relying on full performance under both this Agreement and the Bazaar Lease. The failure of Aladdin Gaming to pay the Use Fee shall be offset against any amount due from Bazaar Company under the Bazaar Lease and against the payments due under that subordinated debenture (the "Subordinated Debt") issued by Bazaar Company to Aladdin Gaming, LLC upon the terms and conditions set forth in the Amended LLC Agreement (the "Offset Rights"). 3.6 Sublicense to Aladdin Music. Aladdin Gaming shall have the right to enter into a parking sublicense agreement with Aladdin Music for the purpose of passing through to such entity one-third of the parking fees and costs incurred by Aladdin Gaming hereunder (which parking fees and costs Aladdin Music hereby agrees to assume) relating to Aladdin Gaming's use and its Permittees' use of the Common Parking Area, including the right to use any portion of the non-exclusive Common Parking Area; however, Aladdin Gaming's payments to Bazaar Company hereunder are not contingent upon Aladdin Gaming's receipt of any sums under any such agreement. Bazaar Company and Aladdin Gaming hereby agree that if and when Aladdin Music is not indirectly wholly-owned by Aladdin Gaming then this Agreement shall be amended and restated as a tri-party agreement with Aladdin Music as the third party with its own obligations and benefits on the same terms as otherwise exist in this Agreement, except that it bears sole responsibility for its 25% Allocable Share of Parking Operating Costs with a corresponding reduction in Aladdin Gaming's Allocable Share of Parking Operating Costs to 50%. Each party shall cause its Mortgagee to subordinate to such restated and amended tri-party agreement. 11 ARTICLE 4 TERM This Agreement shall commence on the Effective Date and shall thereafter run until December 31, 2097. If Bazaar Company holds over at the Bazaar Site with Aladdin Gaming's consent following the expiration or any earlier termination of the Bazaar Lease, this Agreement shall remain in full force and effect until such time as Bazaar Company shall cease to remain in possession and control of the Bazaar Site. ARTICLE 5 INSURANCE After the Effective Date or after the Opening Date, as applicable, and throughout the term of this Agreement each party shall maintain through CIP, or otherwise shall cause to be maintained, in full force and effect with a financially responsible insurance company or companies, such insurance coverage as is required in Article 8 of the REA, and to the extent not covered thereby, garage liability and garage keepers liability policies of not less than Two Million Dollars ($2,000,000) each subject to deductibles of no greater than Five Thousand Dollars ($5,000) for each vehicle and Twenty Five Thousand Dollars ($25,000) for each loss covering bodily and personal injury and property damage for operation of the garage, and comprehensive and collision coverage for physical damage to vehicles in Bazaar Company's or its Permittees' care, custody and control. Bazaar Company shall submit any proposed substitution or modification of such insurance coverage to Aladdin Gaming for Aladdin Gaming's approval at least forty-five (45) days in advance, which consent shall not be unreasonably withheld or delayed. ARTICLE 6 OPERATION; MAINTENANCE 6.1 Operation and Maintenance. Bazaar Company shall be solely responsible for the operation and maintenance of the Common Parking Area. Subject to Article 7 and Section 10.2 of this Agreement, Bazaar Company shall operate and maintain or cause to be operated and maintained the Common Parking Area in good order, condition and repair, and in first-class condition. Without limiting the generality of the foregoing, with respect to the Common Parking Area, Bazaar Company shall observe and comply with those operation, repair, maintenance, alteration and restoration obligations and standards set forth in Articles 6 and 9 of the REA. 6.2 Parking Regulations. (a) The use and operation of the Common Parking Area shall be subject to such reasonable rules, regulations and restrictions as are imposed and promulgated by Bazaar Company from time to time (the "Parking Regulations"). Copies of the proposed Parking Regulations and, after their implementation, any proposed amendments to the Parking Regulations, shall be provided to Aladdin Gaming at least thirty (30) days prior to their adoption by Bazaar Company. Within ten (10) days of its receipt of the proposed Parking Regulations (or amendments thereof), Aladdin Gaming 12 shall notify Bazaar Company in writing of any reasonable objections. If Aladdin Gaming so objects, the parties shall meet and confer in good faith with one another and their authorized representatives and consultants in an attempt to resolve their differences during the ten (10) day period following such notification. If the parties are unable to resolve their differences during such time period, any party making the demand shall submit to Arbitration pursuant to the provisions of Section 10.1 hereof. Notwithstanding the generality of the foregoing, unless Aladdin Gaming and Bazaar Company, in their sole and absolute discretion, mutually agree, no fee of any type shall be charged to or collected from any Permittees, including commercial Permittees, for parking or the right to park vehicles in, or for the use of, or for the passage through, the Common Parking Area, except for any charges that may be associated with any valet parking service operated in the Common Parking Area, which valet parking service fees, if any, shall be reasonably approved by both parties. (b) Bazaar Company and Aladdin Gaming shall designate certain areas within the Common Parking Area or on other land outside the Site within a reasonable distance from the Site for use as automobile parking space for certain Permittees of the Site including, without limitation, officers, directors, managers, and employees of Bazaar Company, Aladdin Gaming, Aladdin Music and their respective tenants and subtenants (the "Employee Parking Areas"). (c) So long as such Permittees do not violate the Parking Regulations, Permittees of the Redeveloped Aladdin shall not be prohibited or prevented from parking in any portion of the Common Parking Area other than (i) the Employee Parking Areas, which are for the exclusive use of certain designated Permittees, and (ii) spaces reserved for valet parking services. 6.3 Use of Entire Structure. Subject to Section 6.4, if at any time Bazaar Company should determine that it is not necessary to operate or keep open for use by the public any portion of the Common Parking Area, with the approval of Aladdin Gaming, it may close that portion of the Common Parking Area for the time period it deems reasonable. 6.4 Compliance with Applicable Law. Although Bazaar Company shall not be liable specifically to Aladdin Gaming with respect to whether sufficient parking and/or loading docks and areas are available within the Common Parking Area to serve each party's businesses and Buildings, Bazaar Company shall be responsible for operating and maintaining the Common Parking Area, in strict compliance with all applicable laws, ordinances, orders, rules, regulations, requirements and permits of all federal, state and municipal governments and the appropriate departments, commissions, boards and officers thereof, and for operating and maintaining the Common Parking Area in strict compliance with all covenants, conditions and restrictions affecting the Site, including the covenants and requirements of any Mortgage encumbering the Common Parking Area or insurer of the Common Parking Area. 6.5 Self-Help Cure of Operation and Maintenance Defaults. If any party fails to perform any of its duties or obligations under this Article 6 with respect to the operation and maintenance of Common Parking Area, any other party may at any time give written notice to the party thus failing, setting forth the specific nonperformance. If such nonperformance is not corrected within thirty (30) days after receipt of such notice, or if such nonperformance is such that it cannot be corrected within such time, then if such party fails to commence the performance of such duties within such period and diligently prosecute the same to completion thereafter, then, in either such event, the party giving such notice shall have the right, upon prior written notice, to perform same, including the right and 13 temporary license to enter upon the other party's Tract to perform same, and such party which has failed to perform shall pay the performing party's reasonable costs thereof, provided, however, that these provisions shall be without prejudice to such non-performing party to contest the right of the other party to make such repairs or expend such monies. All work performed by such party shall be performed in compliance with this Article and shall be performed by such party to the extent necessary to properly operate such party's Tract. Notwithstanding anything hereinabove contained to the contrary, in the event of any emergency situation which threatens immediate injury to persons or immediate danger to property, or material interference with access to a party's Tract, or in the event of any closure of the Common Parking Area in violation of this Agreement or the REA, such party may without the notice required above, but with such notice as is reasonable under the circumstances, cure any such default. ARTICLE 7 CONDEMNATION, DAMAGE OR DESTRUCTION 7.1 Condemnation. (a) The rights and obligations of the parties hereunder in the event of a permanent taking of fee title to all or substantially all of the Common Parking Area for any public or quasi-public use under any statute, or by right of eminent domain, whether by a condemnation proceeding or otherwise, or any permanent transfer of all or substantially all of the Common Parking Area in avoidance of an exercise of the power of eminent domain, shall be governed by and as set forth in the REA. No party other than Bazaar Company shall have any interest in any condemnation award under this Agreement; provided, however, that nothing herein shall limit any rights that the Aladdin Gaming may have in any condemnation award under any other agreement or lease. (b) The rights and obligations of the parties hereunder in the event of any taking or any transfer in avoidance of eminent domain of less than substantially all of the Common Parking Area, or if such taking or transfer is less than of a permanent nature, shall be governed by and as set forth in the REA; provided, however, that assuming that the remaining portion of the Common Parking Area (after reconstruction, if necessary) is reasonably suitable for continued use as a parking facility and lawfully remains open for operation, this Agreement shall remain in force and effect as to that remaining portion, the Base Fee shall continue to be payable by Aladdin Gaming but shall be reduced in proportion to the number of usable parking spaces before and after the taking or transfer, and the Allocable Share of Parking Operating Costs allocable to Aladdin Gaming shall not reflect any amounts expended by Bazaar Company to rebuild or repair the remaining portions of the Common Parking Area. 7.2 Damage or Destruction. (a) The rights and obligations of the parties in the event of any casualty to the Common Parking Area resulting in damage to or destruction of the Common Parking Area, shall be governed by and as set forth in the REA; provided, however, that, assuming that any portion of the Common Parking Area lawfully remains open for operation, this Agreement shall remain in full force and effect, and the Base Fee shall continue to be payable by Aladdin Gaming but shall be proportionately reduced to reflect the amount of insurance proceeds received by Bazaar Company, and 14 the Allocable Share of Parking Operating Costs allocable to Aladdin Gaming shall not reflect any amounts expended by Bazaar Company to rebuild or repair those portions of the Common Parking Area that were damaged or destroyed. (b) Any excess insurance proceeds after a taking or transfer shall be paid to Aladdin Gaming and Bazaar Company in the same ratio as the required number of parking spaces in accordance with the County's laws, codes and regulations bears to the total number of parking spaces in the Common Parking Area. 7.3 Payment of Excess Costs to Repair. Any costs to repair or rebuild the Common Parking Area which are in excess of the condemnation award or insurance proceeds (as applicable) received by Bazaar Company shall be paid by Aladdin Gaming and Bazaar Company in the same ratio as the required number of parking spaces in accordance with the County's laws, codes and regulations bears to the total number of parking spaces in the Common Parking Area. ARTICLE 8 ASSIGNMENT Except as set forth in Section 3.6 hereof, the parties shall have no right at any time during the term of this Agreement to assign, sell or otherwise transfer any of their respective rights hereunder, unless such assignment is made in conjunction with the sale of the relevant party's entire Tract (and, in the case of Aladdin Gaming, the concurrent sale of its interest in the Bazaar Lease or Subordinated Debt, as applicable), in which case (a) such assignment shall expressly be made subject to the provisions of this Agreement and the transferee shall sign all documents necessary to acknowledge its assumption of the obligations hereunder, and (b) no party shall be released from liabilities, whether known or unknown, that accrued before such assignment, however, the transferring party shall be released from all liabilities accruing after such assignment, except that this Agreement may be collaterally assigned by either party in connection with the financing of its improvements and, in the case of Aladdin Gaming, in the event of the sale of the Subordinated Debt. ARTICLE 9 DEFAULT 9.1 Event of Default. An "Event of Default" or "Default" shall be deemed to have occurred upon the happening of one or more of the following events: (a) if any party shall fail to make payment of the Use Fee or any portion thereof or any other sum owing hereunder when and as the same shall have become due and payable, and such Default shall have continued for a period of thirty (30) days after delivery of a notice of delinquency thereof from the non-defaulting party to the defaulting party (except that if a Dispute regarding the payment of such Use Fee or other sum has been submitted to Arbitration, the defaulting party shall have thirty (30) days after the decision of the Arbitrator to make any required payment); (b) if any party shall breach or violate any covenants, terms or obligations set forth in this Agreement and such Default shall have continued for a period of ninety (90) days after notice thereof from the non-defaulting party, to the defaulting party, (or if the default is not capable of being 15 cured within such period, the defaulting party fails within such period to commence to cure such default and to continuously and diligently prosecute and pursue such cure thereafter to completion); or (c) subject to Section 10.2 hereof, if, during the term of this Agreement, Bazaar Company shall abandon or close down the Common Parking Area, without the consent of Aladdin Gaming, for a period of three (3) consecutive days. 9.2 Rights and Remedies. If any Event of Default occurs, the non-defaulting party shall have the following remedies, in addition to any rights (including the Offset Rights) that it may possess at law or in equity: (a) The right to bring suit against the defaulting party for the amount of damage sustained by the non-defaulting party by reason of such Event of Default, except that no party shall be liable for consequential or punitive damages; and (b) The right to seek such injunctive or other equitable relief as may be necessary to enforce the terms and conditions hereof, it being understood and agreed that damages may not be an adequate remedy for the breach hereof. Except as may be limited by the REA, the rights and remedies of any party hereunder shall be cumulative and not exclusive of any other rights or remedies of such party at law or in equity. 9.3 Interest on Default; Late Charge. Any installment of a Use Fee or any other sum due from either party to the other hereunder which is not timely made shall bear interest from the date that is ten (10) days subsequent to the defaulting party's receipt of a notice of delinquency from the non-defaulting party until such payment is received at the rate of fifteen percent (15%) per annum. Any delinquent payment made by a party and bearing interest pursuant to the preceding sentence shall include a late charge in the amount of five percent (5%) of the delinquent amount due. The late charge shall be deemed to constitute a part of such party's Allocable Share of Parking Operating Costs and the right to require it shall be in addition to all of such non-delinquent party's other rights and remedies hereunder, at law or in equity, and shall not be construed as liquidated damages or as limiting such party's remedies in any manner. ARTICLE 10 MISCELLANEOUS PROVISIONS 10.1 Arbitration. (a) The parties hereunder agree that if they are unable in good faith to resolve any dispute or disagreement arising under or pursuant to this Agreement, including any dispute or disagreement about the interpretation or application of any provision thereof and any dispute arising pursuant to Sections 3.2(a), 3.3, or 6.2(a) hereof (collectively, a "Dispute"), but not including any Event of Default or claim of Default thereunder (which shall be resolved before a court of law), the party seeking arbitration of the Dispute (a "Demanding Party") shall deliver written notice of demand to resolve Dispute (the "Demand") to the other party (the "Non-Demanding Party"), which Demand shall include a brief statement of the Demanding Party's claim or controversy, the amount thereof and 16 the name of the proposed arbitrator to decide the Dispute (the "Arbitrator"). (b) Within ten (10) days after receipt of the Demand, the Non-Demanding Party against whom a Demand is made shall deliver a written response to the Demanding Party. Such response shall include a short and plain statement of the Non-Demanding Party's defense to the claim and shall also state whether such Party agrees to the Arbitrator chosen by the Demanding Party. If the Non-Demanding Party fails to agree to the Arbitrator chosen by the Demanding Party, then such Non-Demanding Party shall state in its response the name of the proposed Arbitrator chosen by such non-Demanding Party as the proposed Arbitrator. If the Non-Demanding Party fails to deliver its written response to the Demanding Party within ten (10) days after receipt of the Demand, or if the Non-Demanding Party fails to select in its written response a proposed Arbitrator, then the Arbitrator selected by the Demanding Party shall serve as the Arbitrator. An Arbitrator shall not be employed by any party or its Affiliate, directly, indirectly or as an agent, except in connection with the arbitration proceeding. Any person appointed as an Arbitrator shall be knowledgeable and experienced in the matters sought to be arbitrated. (c) The locale of the Arbitration shall be the offices of the American Arbitration Association in Las Vegas, Nevada or at such other location in Las Vegas, Nevada to which the Demanding Party and the Non-Demanding Party agree. (d) If the Non-Demanding Party selects a proposed Arbitrator different than the Arbitrator selected by the Demanding Party, and such selection is indicated by the Non-Demanding Party in its written response to the Demanding Party made within ten (10) days after receipt of the Demand, then the parties shall, for ten (10) days after the Demanding Party's receipt of the Non-Demanding Party's written response to the Demand, attempt to agree upon an Arbitrator. If the parties cannot agree upon an Arbitrator within said ten (10) day period, then a single neutral Arbitrator shall be appointed by the Eighth Judicial District Court of the State of Nevada in accordance with NRS Section 38.055 on the application of the Demanding Party. (e) The Arbitrator's powers shall be limited as follows: the Arbitrator shall follow the substantive laws of the State of Nevada and the Rules of Evidence of Nevada, and his/her decision shall be subject to review thereon in accordance with the provisions of NRS Chapter 38. (f) The costs of the resolution (including all reporter costs) shall be split among the parties participating in the Arbitration provided, however, that such costs, along with all other costs and expenses, including attorneys' fees, shall be subject to award, in full or in part, by the Arbitrator, in his/her discretion, to the prevailing party. Unless the Arbitrator so award attorneys' fees, each party shall be responsible for its own attorneys' fees. (g) To the extent possible, the Arbitration hearings shall be conducted on consecutive days, excluding Saturdays, Sundays and holidays, until the completion of the hearings. (h) In connection with any Arbitration proceedings commenced hereunder, any party shall have the right to join any third parties in such proceedings in order to resolve any other disputes, the facts of which are related to the matters submitted for arbitration hereunder. (i) The Arbitrator shall render his/her decisions concerning the substantive issues 17 in dispute in writing. The written decision shall be sent to the parties no later than thirty (30) days following the last hearing date. (j) All hearings shall be concluded within ninety (90) days from the day the Arbitrator is selected or appointed, unless the Arbitrator determines that this deadline is impractical. (k) If any of the provisions relating to Arbitration are not adhered to or complied with, any party may petition the Eighth Judicial District Court of the State of Nevada for appropriate relief in accordance with NRS Chapter 38. (l) Upon application of a party to the Eighth Judicial District Court of the State of Nevada within one (1) year, the award of Arbitrator may be confirmed and entered as a judgment in a court of competent jurisdiction. All Arbitration conducted under this Article 10 shall be in accordance with NRS Chapter 38 (the Nevada Uniform Arbitration Act) and the rules of the American Arbitration Association to the extent such rules do not conflict with the procedures herein set forth. To the extent permitted by law, compliance with this Article 10 is a condition precedent to the commencement by any party of a judicial proceeding arising out of any dispute relating directly or indirectly to this Agreement. 10.2 Force Majeure; Discharge and Release. The force majeure provisions set forth in Article 10 of the REA and the Discharge and Release provisions set forth in Article 11 of the REA are hereby incorporated into this Agreement in their entirety by this reference. 10.3 Attorneys' Fees. If any party shall institute any legal action or proceeding in connection with any Default or claim of Default under this Agreement, the prevailing party shall be entitled to recover from the non-prevailing party its reasonable fees and costs, including attorneys' fees and other reasonable expenses, as fixed by the court in its discretion. 10.4 Notices. (a) Any and all notices, demands, requests, consents, approvals, designations, or other communications (collectively for purposes of this Section 10.4, "Notice") required or desired to be given, made, received and communicated hereunder by any other party shall be in writing by personal delivery, by deposit in the United States mail, certified or registered, postage prepaid, return receipt requested, by overnight express delivery service or by facsimile transmission, to the following addresses and fax numbers: 18 Aladdin Gaming: Aladdin Gaming, LLC 2810 W. Charleston Blvd., Suite 58 Las Vegas, Nevada 89102 Attn.: Jack Sommer Telephone: 702-870-1234 Facsimile: 702-870-8733 with a copy to: Ronald Dictrow c/o Sommer Properties 280 Park Avenue New York, New York 10017 Telephone: 212-661-0700 Facsimile: 212-661-0844 and Schreck Morris 300 South Fourth Street, Suite 1200 Las Vegas, Nevada 89101 Attn.: Ellen L. Schulhofer, Esq. Telephone: 702-382-2101 Facsimile: 702-382-8135 and Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 Attn.: Wallace L. Schwartz, Esq. Telephone: 212-735-3000 Facsimile: 212-735-2000 Bazaar Company: Bazaar Company, LLC c/o TH Bazaar Centers, Inc. 4350 La Jolla Village Drive, Suite 400 San Diego, California 92122-1233 Attention: Wayne Finley and Wendy Godoy Telephone No.: (619) 546-3535 Facsimile No.: (619) 546-3307 with a copy to: John Bedard TH Bazaar Centers, Inc. 4350 La Jolla Village Drive, Suite 400 San Diego, California 92122-1233 Telephone No.: (619) 546-3304 Facsimile No.: (619) 546-3413 and 19 Allen, Matkins, Leck, Gamble & Mallory LLP 501 W. Broadway, Suite 900 San Diego, California 92101 Attn: Michael C. Pruter, Esq. Telephone: 619-235-1517 Facsimile: 619-233-1158 Aladdin Music Holdings: Aladdin Music Holdings, LLC c/o Sigmund Sommer Properties 2810 West Charleston Boulevard, Suite 58 Las Vegas, Nevada 89102 Attn: Jack Sommer Telephone: 702-870-1234 Facsimile: 702-870-8733 with a copy to: Ronald Dictrow c/o Sommer Properties 280 Park Avenue New York, New York 10017 Telephone: 212-661-0700 Facsimile: 212-661-0844 and Schreck Morris 300 South Fourth Street, Suite 1200 Las Vegas, Nevada 89101 Attn.: Ellen L. Schulhofer, Esq. Telephone: 702-382-2101 Facsimile: 702-382-8135 and Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 Attn.: Wallace L. Schwartz, Esq. Telephone: 212-735-3000 Facsimile: 212-735-2000 Each party may designate at any time a different or additional address for its receipt of Notice by giving at least ten (10) days' notice of such change of address to all other parties. (b) Any Notice shall be deemed to have been given, made, received and communicated, as the case may be, on the date personal delivery was effected if personally served, three (3) business days after the deposit thereof in the United States mail, one (1) business day after the deposit thereof with the overnight delivery service, and on the date of transmission if by facsimile [and received by the recipient prior to 5:00 p.m. on the recipient's business day][(provided a hard copy of the same is sent in another manner permitted herein within twenty-four (24) hours of transmission)]; provided, however, if delivery is not completed due to the absence of the recipient or 20 his/her refusal to accept delivery, delivery to the Person identified above for receipt of copies shall be deemed to be delivery to the primary addressee. If any such Notice requires any action or response by the recipient or involves any consent or approval solicited from the recipient, such fact shall be clearly stated in the Notice. (c) In the event a party shall give Notice to any other party of a Default, such Party shall concurrently send each of the other parties and (provided the Mortgagees shall have given to the party giving such Notice a notice substantially in the form prescribed in Article 15 of the REA) their Mortgagees a copy of such Notice, and such Mortgagees shall have the same rights to Cure Defaults under this Agreement by the owner of the Tract encumbered by their Mortgages as they have to Cure Defaults under the REA. 10.5 Partial Invalidity. If any provision of this Agreement or the application thereof to any Person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such provision to Persons or circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby, and each provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. 10.6 Governing Law. This Agreement shall be governed by, interpreted under, and construed in accordance with the laws of the State of Nevada. The parties intend and agree that the proper form for the litigation of any and all disputes or controversies arising out of or related to this Agreement, to the extent that such dispute is not submitted to Arbitration, is any circuit court of the State of Nevada or the Eighth Judicial District Court of the State of Nevada in Las Vegas, Nevada. Each of the parties agrees that it will not commence any action or proceeding arising out of or relating to this Agreement in any court other than as specified in the preceding sentence on grounds of forum non conveniens or any other grounds, and hereby stipulates and irrevocably agrees that said courts have in personam jurisdiction over each of them for such litigation of any dispute or controversy arising out of or in any way related to this Agreement. 10.7 Captions. The captions and headings in this Agreement are for convenience only, are not a part of this Agreement, and do not in any way limit or amplify the provisions hereof. 10.8 Amendments. The parties agree that the provisions of this Agreement may be modified or amended, in whole or in part, only by an instrument in writing, executed and acknowledged by Bazaar Company and Aladdin Gaming. The parties shall make those modifications and amendments to this Agreement requested by any of their respective Mortgagees that do not materially increase their respective obligations hereunder or adversely affect or diminish their respective rights, so long as such modifications and amendments shall be at no cost to the non-requesting party. 10.9 Relationship of Parties. The relationship of the parties is that of licensor and licensee and nothing herein shall be deemed to be a contract for employment or to constitute an agreement to share profits and losses or to create a relationship of joint venture, partnership, agent-principal, or any other type of association between the parties or any officer, director, manager, member or employee of the parties. 10.10 Time of Essence. Time is of the essence with respect to the performance of each of the terms, covenants, restrictions and conditions contained in this Agreement. 21 10.11 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which, taken together, shall constitute one and the same instrument. 10.12 Binding Obligations. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties hereto. 10.13 Waiver. A party's waiver of another party's default or of a provision of this Agreement must be made in writing, and no such waiver shall be implied from a party's failure to take or exercise, or delay in taking or exercising, any action or right in respect thereof (unless the time specified herein for taking such action or exercising such right has expired). No express waiver of any default shall affect any default, or cover any period of time, other than the precise default and period of time specified in such express waiver. No waiver of any default in the performance of any term, covenant, restriction or condition of this Agreement shall be deemed or shall constitute a waiver of any subsequent default or of any other term, covenant, restriction or condition, nor shall any waiver constitute a continuing waiver. A party's giving of its consent or approval to any act or request of another party or the single or partial exercise of any right shall not be deemed to waive or render unnecessary the consenting party's consent to or approval of or the exercise of any subsequent acts, requests or rights, whether or not similar. 10.14 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior understandings and writings and respect thereto. 10.15 Conflicts with REA. Notwithstanding anything to the contrary in Section 10.14 above, to the extent this Agreement fails to address an issue or matter addressed in the REA, the provisions of the REA shall control. 10.16 Memorandum of Agreement. After the REA has been recorded in the office of the Recorder of Clark County, Nevada, and prior to the recordation of any Mortgage, the parties hereto agree that they shall prepare, execute and cause to be recorded with the Clark County Recorder a Memorandum of Common Parking Area Use Agreement in the form attached hereto as Exhibit "A". Upon termination of this Agreement, either party, at the other party's request, will execute and record a statement of termination of this Agreement which states the applicable termination date. 22 IN WITNESS WHEREOF, the parties hereto have set forth their hands on the day and year first above mentioned. "Aladdin Gaming" "Bazaar Company" ALADDIN GAMING, LLC, a ALADDIN BAZAAR, LLC, a Nevada limited liability company Delaware limited liability company By: Aladdin Bazaar Holdings, LLC, a Nevada limited liability company, its Member By: /s/ Ronald Dictrow By: Aladdin Management Corporation, ----------------------- Ronald B. Dictrow, Executive Vice its Manager President and Secretary By: /s/ Jack Sommer --------------------------- Jack Sommer, Vice President and Secretary By: TH Bazaar Centers Inc., a Delaware corporation, its Member By: /s/ Wayne Finley ------------------- Wayne J. Finley, Senior Vice President By: /s/ Wendy Godoy ------------------ Wendy M. Godoy, Senior Vice President 23 EXHIBIT "A" MEMORANDUM OF COMMON PARKING AREA USE AGREEMENT RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Aladdin Gaming, LLC c/o Schreck Morris 1200 Bank of America Plaza 300 South Fourth Street Las Vegas, Nevada 89101 Attn: Ellen Schulhofer, Esq. ________________________________________________________________________ MEMORANDUM OF COMMON PARKING AREA USE AGREEMENT THIS MEMORANDUM OF COMMON PARKING AREA USE AGREEMENT ("Memorandum") is made as of this __ day of February, 1998, by and between Aladdin Gaming, LLC, a Nevada limited liability company ("Aladdin Gaming") and Aladdin Bazaar, LLC, a Delaware limited liability company ("Bazaar Company"). 1. Aladdin Gaming and Bazaar Company have entered into that certain Common Parking Area Use Agreement dated of even date herewith ("Parking Agreement"), pursuant to which Bazaar Company has agreed to grant Aladdin Gaming and its permittees a non-exclusive right to use that certain multi-level parking structure for approximately 4,800 motor vehicles and surface-level parking facilities for approximately 364 motor vehicles located on that certain real property located in the County of Clark, State of Nevada, and more particularly described on Exhibit "A" attached hereto, until December 31, 2097, unless sooner terminated by the written consent of the parties, and commencing on the date hereof, for the fees and subject to the terms and covenants set forth in the Parking Agreement. 2. The purpose of this Memorandum is to give notice of the existence of the Parking Agreement. To the extent that any provision of this Memorandum conflicts with any provision of the Parking Agreement, the Parking Agreement shall control. 1 3. This Memorandum may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. ALADDIN GAMING, LLC ALADDIN BAZAAR, LLC By: TH Bazaar Centers, Inc., a Delaware corporation By: ------------------------- Name: By: ------------------------ ----------------------------------- Title: Wayne J. Finley, Senior Vice President ----------------------- By: ------------------------------------ By: Wendy M. Godoy, Senior Vice -------------------------- President Name: ------------------------ Title: By: Aladdin Bazaar Holdings, LLC., a Nevada ------------------------- limited liability company By: Aladdin Management Corporation, a Nevada corporation, its manager By: ----------------------------- Ronald B. Dictrow, Treasurer By: ----------------------------- Jack Sommer, Vice President STATE OF NEW YORK ) ) ss. BOROUGH OF MANHATTAN ) This instrument was acknowledged before me on February ___, 1998, by __________________ as _____________________ of Aladdin Gaming, LLC. ----------------------------------- Signature of Notarial Officer 2 STATE OF NEW YORK ) ) ss. BOROUGH OF MANHATTAN ) This instrument was acknowledged before me on February ___, 1998, by __________________ as _____________________ of Aladdin Gaming, LLC. -------------------------------------- Signature of Notarial Officer STATE OF NEW YORK ) ) ss. BOROUGH OF MANHATTAN ) This instrument was acknowledged before me on February ___, 1998, by Wayne J. Finley as Senior Vice President of TH Bazaar Centers, Inc., Manager of Aladdin Bazaar, LLC. -------------------------------------- Signature of Notarial Officer STATE OF NEW YORK ) ) ss. BOROUGH OF MANHATTAN ) This instrument was acknowledged before me on February ___, 1998, by Wendy Godoy as Senior Vice President of TH Bazaar Centers, Inc., Manager of Aladdin Bazaar, LLC. -------------------------------------- Signature of Notarial Officer 3 STATE OF NEW YORK ) ) ss. BOROUGH OF MANHATTAN ) This instrument was acknowledged before me on February ___, 1998, by Ronald B. Dictrow as Treasurer of Aladdin Management Corporation, which is Manager of Aladdin Bazaar Holdings, LLC, Manager of Aladdin Bazaar, LLC and is Manager of Aladdin Holdings, LLC. -------------------------------------- Signature of Notarial Officer STATE OF NEW YORK ) ) ss. BOROUGH OF MANHATTAN ) This instrument was acknowledged before me on February ___, 1998, by Jack Sommer as Vice President of Aladdin Management Corporation, which is Manager of Aladdin Bazaar Holdings, LLC, Manager of Aladdin Bazaar, LLC. -------------------------------------- Signature of Notarial Officer 4 COMMON PARKING AREA USE AGREEMENT by and between ALADDIN GAMING, LLC, a Nevada limited liability company "Aladdin Gaming" and ALADDIN BAZAAR, LLC, a Delaware limited liability company "Bazaar Company" TABLE OF CONTENTS
Page RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 ARTICLE 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 ARTICLE 2 USE OF COMMON PARKING AREA . . . . . . . . . . . . . . . . . . . . . . . .8 2.1 Use by Permittees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2.2 Limitations on Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 ARTICLE 3 USE FEE AND ALLOCABLE COSTS. . . . . . . . . . . . . . . . . . . . . . . .8 3.1 Base Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 3.2 Allocable Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3.3 Resolution of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.4 Creation of Lien and Personal Obligation for Payment of Allocable Share . . . 10 3.5 Offset Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.6 Sublicense to Aladdin Music . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 4 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE 5 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE 6 OPERATION; MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . . . 11 6.1 Operation and Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . 11 6.2 Parking Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 6.3 Use of Entire Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 6.4 Compliance with Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . 12 6.5 Self-Help Cure of Operation, and Maintenance Defaults . . . . . . . . . . . . 13 ARTICLE 7 CONDEMNATION, DAMAGE OR DESTRUCTION. . . . . . . . . . . . . . . . . . . 13 7.1 Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.2 Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7.3 Payment of Excess Costs to Repair . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE 8 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE 9 DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 9.1 Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 9.2 Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 9.3 Interest on Default; Late Charge. . . . . . . . . . . . . . . . . . . . . . . 15
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Page ARTICLE 10 MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 16 10.1 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 10.2 Force Majeure; Discharge and Release. . . . . . . . . . . . . . . . . . . . . 17 10.3 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 10.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 10.5 Partial Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 10.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 10.7 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 10.8 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 10.9 Relationship of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 10.10 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 10.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 10.12 Binding Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 10.13 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 10.14 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 10.15 Conflicts with REA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 10.16 Memorandum of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ii EX-10.24 19 EXHIBIT 10.24 MALL PROJECT LEASE LEASE THIS LEASE is made as of February 26, 1998, by and between Aladdin Gaming, LLC, a Nevada limited-liability company ("Lessor"), and Aladdin Bazaar, LLC, a Delaware limited liability company ("Lessee"). R E C I T A L S : A. Lessor is the owner in fee simple of certain real property located at 3667 Las Vegas Boulevard South, Clark County, Nevada (the "Master Site"), upon which Lessor intends to participate with others in the renovation and expansion of an existing hotel and casino facility, including, without limitation, the construction by Lessee of a themed entertainment shopping center (the "Retail Facility") and new parking facilities for approximately 4,800 automobiles in a car parking facility and approximately three hundred sixty-four (364) automobiles in additional surface parking (the "Common Parking Area"). The Master Site is more particularly described on Exhibit "A" hereto, which is incorporated herein by reference. B. Lessee desires to lease from Lessor and Lessor desire to lease to Lessee that certain portion of the Master Site upon which the Retail Facility and the Common Parking Area will be constructed, together with all rights, privileges, easements, Improvements (as defined below), buildings, reversions and appurtenances thereto, a more particular description of which is set forth on Exhibit "B" hereof, which is incorporated herein by reference (the "Demised Premises"). C. Lessor, Lessee and Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings") have entered into that certain Site Work Development and Construction Agreement dated concurrently herewith ("Site Work Agreement"). Pursuant to the Site Work Agreement, certain existing improvements on the Master Site shall be demolished by Lessor and Holdings. D. Lessor shall be constructing and maintaining a hotel/casino complex on the remaining portion of the Master Site as well as a parking area thereunder (the "Hotel/Casino Facilities"), which shall be used in connection with the Retail Facility and Common Parking Area. IN CONSIDERATION of the recitals and the mutual promises herein, the parties hereby agree as follows: 1 ARTICLE I DEMISED PREMISES -- TERM OF LEASE Section 1.1. Lessor does hereby lease, rent, let and demise unto Lessee, and Lessee does hereby lease, take and hire, pursuant to this Lease, the Demised Premises, to have and hold the same unto Lessee, its successors and assigns, for the Term (as defined in Section 1.3 hereof), subject only to the terms and conditions herein provided and to the encumbrances and exceptions to title of record as of the date hereof (collectively, the "Permitted Exceptions"). All buildings, structures and improvements now or at any time hereafter erected, constructed or situated upon the Demised Premises or any part thereof prior to or during the continuance of the term of this Lease (including all utilities systems, loading areas, access ways, fixtures, plants, apparatus, appliances, furnaces, boilers, machinery, engines, motors, compressors, dynamos, elevators, fittings, piping, connections, conduits, ducts, equipment, partitions, furnishings and personal property of every kind and description now or hereafter affixed or attached or adjacent or subjacent to any such building, structure or improvement now or hereafter used or procured for use in connection with the heating, cooling, lighting, plumbing, ventilating, air conditioning, refrigeration, cleaning or general operation of any such building, structure or improvement, together with any and all renewals and replacements of, additions to and substitutes for any such building, structure or improvement or any of the above referred to property made by Lessee) may be hereinafter sometimes collectively called the "Improvements." Lessee acknowledges that certain existing Improvements on the Master Site will be demolished by Lessor pursuant to the Site Work Agreement and agrees to cooperate with Lessor at no cost or liability to Lessee except as set forth in the Site Work Agreement. Section 1.2. It is understood and agreed by the parties that, following the execution hereof, Lessor shall cause the Demised Premises to be subdivided into a separate parcel or parcels from the balance of the Master Site, in accordance with Nevada Revised Statutes ("NRS") 278.320 through NRS 278.469, inclusive (the "Commercial Subdivision"). Lessee agrees to cooperate with Lessor to obtain the Commercial Subdivision and to fund its pro rata share of the cost thereof based upon the ratio that the Demised Premises bears to the Master Site. Lessor agrees to diligently pursue the Commercial Subdivision and to commence such process as soon as reasonably practicable after the date hereof, but in any event so as to complete the Commercial Subdivision prior to the "First Scheduled Opening Date" (as such term is defined in the Site Work Agreement). As soon as practicable after obtaining the Commercial Subdivision, and conditioned upon the cure of any outstanding monetary defaults of Lessee, Lessor shall convey to Lessee, at no cost or expense to Lessee, a fee interest in the Demised Premises free and clear of any liens created by Lessor and subject only to liens created by Lessee, the Permitted Exceptions and any encumbrances and exceptions created in accordance with the provisions hereof (the "Fee Transfer"). Lessor's obligations with respect to the Fee 2 Transfer shall relate back to the date hereof and the recordation of the Memorandum of Lease attached as Exhibit "C". Any mechanics' liens or other clouds on title arising after the date of recordation of the Memorandum of Lease shall be subordinate to the Fee Transfer. Section 1.3. This Lease shall commence as of the date hereof and shall terminate on the earlier to occur of (i) December 31, 2097 (ii) the date upon which possession of the whole of the Demised Premises and the Improvements is taken by any governmental or quasi-governmental public authority for any public or quasi-public use under any statute or by right of eminent domain, as set forth in Article X, and (iii) the Fee Transfer (such period of time shall be referred to herein as the "Term"), unless this Lease shall be otherwise sooner terminated as provided herein. In the event that the Term of this Lease terminates pursuant to Subsections (ii), or (iii), above, the parties shall execute, acknowledge and deliver a ratification of that certain Construction, Operation and Reciprocal Easement Agreement (the "REA") dated as of the date hereof and encumbering the Master Site, substantially in the form attached hereto as Exhibit "D" (the "Ratification of REA"), and such Ratification of REA shall be deemed effective as of the original effective date of the REA. Lessee hereby grants Lessor a limited power of attorney coupled with an interest for the purpose of executing, acknowledging and delivering the Ratification of REA upon the termination of the Term of this Lease pursuant to Subsections (ii) or (iii) above. Neither party shall have the right to terminate this Lease prior to the expiration of the Term under any circumstances, including, without limitation, the occurrence of an Event of Default (as defined below). ARTICLE II RENT Section 2.1. Lessee shall pay to Lessor from and after the grand opening of the Retail Facility to the public ("Rent Commencement Date"), in such legal tender of the United States of America as at the time of payment shall be acceptable for the payment of public and private debts, at the address for Lessor set forth below or at such other place as Lessor may from time to time designate in writing, an annual rent in the amount of Ten and No/100 Dollars ($10.00) ("Property Rent"), payable in advance in annual installments commencing on the Rent Commencement Date and continuing on the same day of each year thereafter, with payments for periods of less than one year being prorated for the number of days of that year which are part of the term(s) of this Lease. Section 2.2. Lessee shall pay the Property Rent without notice or demand. 3 ARTICLE III PAYMENT OF TAXES, ASSESSMENTS, ETC. Section 3.1. During all times prior to the Commercial Subdivision, Lessee shall pay or cause to be paid, as additional rent, its Allocable Share of Real Estate Taxes, as such term is defined in, and pursuant to the terms of Section 6.6 of the REA (the "Impositions"). Section 3.2. Deliberately Omitted. Section 3.3. The parties intend this Lease to be a "net" Lease, subject to the terms and conditions of the REA. All expenses in connection with the operation of the Demised Premises and Improvements during the Term hereof shall be paid prior to the due date by Lessee, except where this Lease or the REA expressly provides otherwise. Section 3.4. Each party, upon the written request of the other party, shall furnish to the requesting party and, upon the further and separate written request of the other party, to any mortgagee to whom the requesting party is the mortgagor, within thirty (30) days after the date when any Imposition would become delinquent, official receipts of the appropriate taxing authority, or other proof satisfactory to the requesting party or such mortgagee, evidencing the payment thereof or a decision to proceed diligently under Section 3.5. Section 3.5. Prior to the Fee Transfer, Lessee shall have the right, after prior written notice to Lessor, to contest the amount or validity, in whole or in part, of any Imposition by appropriate proceedings diligently conducted in good faith; provided, however, that Lessee must in any event pay any such Imposition prior to any action being taken that may adversely affect the ownership of or any leasehold or mortgagee's interest in the Demised Premises, in any of the Improvements, or in any portion thereof for nonpayment. Prior to commencing the contest of an Imposition, Lessee shall notify Lessor of the nature of the contest and of the amount in issue, and Lessor and Lessee shall use commercially reasonable efforts to reconcile their respective positions in relation to the taxing authority. Subject to the terms or conditions of any mortgage on the Demised Premises, either Lessor or Lessee may, if it shall so desire, but at its sole expense, endeavor at any time or times to obtain a lowering of the assessed valuation upon the Demised Premises and the Improvements, or any part thereof, for the purpose of reducing taxes thereon, and in such event, the other party will cooperate in effecting such reduction, provided the other party shall not be obligated to expend any money or provide any moneys in so cooperating. Section 3.6. Neither party shall be required to join in any proceedings referred to in Section 3.5 of this Lease that are initiated by the other party unless the provisions of any law, rule or regulation at the time in effect shall require that such proceeding be brought by and or in the name of such other party or any owner of the Demised Premises, in which event the other party shall join in such proceedings or permit the same to be brought in its name, but shall not, however, be subjected to any liability for the payment of any costs or expenses in connection 4 with any such proceedings not initiated by that party and the party initiating the said proceedings will indemnify and save harmless the other party from any such costs and expenses, reimbursing the other party therefor upon demand. Each party shall be entitled to any refund of any Imposition and penalties or interest from any governmental authority to the extent such refund represents moneys paid to such governmental authority, directly or indirectly, by that party. Section 3.7. An official certificate or statement issued or given by any federal, state, county or municipal authority, or any department, bureau, board or officer thereof or of any public utility, showing the existence of any Imposition, together with interest and penalties thereon, the payment of which is the obligation of Lessee as herein provided, shall be prima facie evidence for all purposes of this Lease of the existence, amount and validity of such Imposition. ARTICLE IV SURRENDER OF PREMISES Section 4.1. Subject to the provisions of Articles I and XI hereof and the provisions of the REA, on the last day of the Term hereof, or upon any earlier termination of this Lease (except if the Term ends as a result of the Fee Transfer), Lessee shall surrender and deliver possession of the Demised Premises and the Improvements to Lessor in reasonably good condition considering their age and use, ordinary wear and tear and the effect of casualty and condemnation excepted, without delay and free and clear of all liens and encumbrances other than (a) the Permitted Exceptions, and (b) those created in accordance with the provisions hereof or the REA. At the end of the Term (except if the Term ends as a result of the Fee Transfer), the title to and ownership of the Improvements shall automatically vest in Lessor without the execution of any further instrument, but Lessee shall execute a quitclaim deed and any other appropriate conveyancing documents to Lessor if Lessor so requests. Section 4.2. Notwithstanding any other provisions of this Lease, where furnished by or at the expense of Lessee or any subtenant, Lessee may (or if required by Lessor, shall) remove furniture, trade fixtures and business equipment, furnishings and personal property of every kind, regardless of whether or not originally classified as Improvements, at or prior to the termination of this Lease; provided, however, that the removal thereof will not impair the structural integrity of the Improvements. Any damage to the Improvements resulting from such removal shall be repaired by Lessee to the reasonable satisfaction of Lessor, taking into account normal wear and tear. Section 4.3. Any personal property of Lessee which shall remain in the Improvements for more than thirty (30) days after the termination of this Lease and the removal of Lessee, and any personal property of any subtenant which shall remain in the Improvements for more than thirty (30) days after the termination of this Lease and the removal of any such subtenant from the Improvements, may, at the option of Lessor, be deemed to have been abandoned by Lessee or such subtenant and may be retained by Lessor as its property or may be disposed of, without accountability, in such a manner as Lessor may see fit. 5 Section 4.4. The provisions of this Article IV shall survive any termination of this Lease. ARTICLE V INSURANCE Section 5.1. The parties agree that they shall, throughout the Term of this Lease, maintain, or cause to be maintained, in full force and effect, such policy or policies of insurance as shall be required under Article 8 of the REA. ARTICLE VI REPAIRS, MAINTENANCE AND RESTORATION Section 6.1. Deliberately Omitted. ARTICLE VII CONSTRUCTION, CHANGES AND ALTERATIONS Section 7.1. Deliberately Omitted. Section 7.2. All construction performed on the Demised Premises or the Hotel/Casino Facilities shall be done in accordance with Articles 3 and 9 of the REA. ARTICLE VIII USE OF PROPERTY Section 8.1. Use of the Demised Premises shall be governed by the REA and, as applicable, the Site Work Agreement. ARTICLE IX ENTRY ON PROPERTY BY LESSOR AND LESSEE Section 9.1. Lessee shall permit Lessor and Lessor's authorized representatives to enter the Demised Premises and Improvements at all reasonable times during usual business hours after reasonable notice to Lessee for the purpose of inspecting the same and observing the manner in which Lessee protects, maintains and repairs the Demised Premises and complying with the Site Work Agreement. Section 9.2. Lessor shall have the right to enter the Demised Premises and Improvements at all reasonable times during usual business hours after reasonable notice to Lessee and upon Lessee's consent (which Lessee shall not unreasonably withhold) for the 6 purpose of showing the same to prospective purchasers and prospective tenants of the Master Site, exclusive of the Demised Premises and Improvements, provided any such entry is in compliance with Lessee's reasonable security requirements and applicable gaming laws. Lessee shall have the right to enter the Master Site and Hotel/Casino Facilities at all reasonable times during usual business hours after notice to Lessor and upon Lessor's consent (which Lessor shall not unreasonably withhold) for the purpose of showing the same to prospective assignees of Lessee's interest in or prospective subtenants of the Demised Premises, provided any such entry is in compliance with Lessor's reasonable security requirements and applicable gaming laws. Section 9.3. Nothing contained herein is intended to alter Lessor's or Lessee's rights under the REA regarding access. ARTICLE X CONDEMNATION Section 10.1. In the event that the whole of the Demised Premises shall be taken by any governmental or public authority for any public or quasi-public use under any statute or by right of eminent domain, whether by a condemnation proceeding or otherwise, then this Lease shall terminate on the earlier of the date that title to or possession of the Demised Premises and Improvements is taken and Property Rent and other charges provided herein to be paid by Lessee or already paid by Lessee shall be apportioned and paid by Lessee or refunded by Lessor to Lessee, as appropriate, to such date. In the event that a portion of the Demised Premises is condemned, then this Lease shall remain in full force and effect as to the portion of the Demised Premises remaining after such taking; provided, however, that if such partial taking occurs prior to the Fee Transfer, Lessee's Allocable Share of Real Estate Taxes shall be recalculated and Lessor shall refund any amounts Lessee overpaid for the applicable tax year. Lessee shall have the right to all awards and payments provided as compensation for any such taking, and Lessor hereby agrees to assign and transfer to Lessee any such awards and payments received by it, except those expressly allocated to the Lessor's interest in the Demised Premises. Lessor and Lessee shall cooperate and shall jointly adjust and settle all claims relating to the award. ARTICLE XI FEE MORTGAGES AND LEASEHOLD MORTGAGES Section 11.1. As used herein, "Mortgage" shall mean an indenture of mortgage, deed of trust, or a Sale and Leaseback of all or a portion of the interest of a party ("Mortgagor") in any portion of the Master Site owned or leased by it ("Mortgaged Premises"). "Mortgagee" shall mean either the trustee and beneficiary/mortgagee, individually or collectively as appropriate, under a Mortgage or the fee owner or lessor following a Sale and Leaseback, provided that such persons are not in possession of the Mortgaged Premises of the applicable party. A "Sale and Leaseback" shall mean a transaction in which (a) a party who is the fee owner of its Mortgaged Premises conveys a fee or a leasehold estate in all or a portion of its 7 Mortgaged Premises for financing purposes and, immediately thereafter, such party, its affiliate or any guarantor of such party's covenants, agreements and obligations set forth in this Lease or in the REA, leases or subleases such Mortgaged Premises or portion thereof so conveyed, or (b) a party holding a leasehold estate in its Mortgaged Premises assigns said estate (or a portion thereof) or subleases such Mortgaged Premises (or a portion thereof) for financing purposes and, immediately thereafter, such party, its affiliate or any guarantor of such party's covenants, agreements and obligations set forth in this Lease or in the REA subleases such Mortgaged Premises or portion thereof so assigned or subleased. Section 11.2. Any present or future Mortgage or other lien or encumbrance affecting or encumbering Lessor's fee title to the real property constituting the Demised Premises (the "Fee") (any such Mortgage or other lien or encumbrance shall be referred to herein as a "Fee Mortgage") shall be subject and subordinate to this Lease. Lessor and Lessee acknowledge and agree that concurrently herewith, Lessor is encumbering the Fee with a Fee Mortgage in favor of Bank of Nova Scotia as Administrative Agent on behalf of certain lenders. Section 11.3. (a) Lessee shall have the right, at any time and from time to time, to encumber, by mortgage, deed of trust or other property instrument, the leasehold interest herein demised on such terms, conditions, and maturity as Lessee shall determine, and to enter into any and all extensions, modifications, amendments, replacements, and refinancing thereof as Lessee may desire (all of the foregoing being referred to herein collectively as "Leasehold Mortgages" and singularly as a "Leasehold Mortgage"). (b) Lessor shall simultaneously deliver to the holder of each Leasehold Mortgage ("Leasehold Mortgagee") and/or each trustee ("Trustee") of any trust indenture or deed of trust relating to the Leasehold Mortgage identified by written notice from Lessee to Lessor, a duplicate copy of any and all notices of default or other notices which Lessor may deliver to Lessee pursuant to the terms of this Lease, and any such notice shall not be effective as against any such Leasehold Mortgagee or Trustee until the duplicate copy is so delivered. A different address may be designated by any such Leasehold Mortgagee and Trustee by notice delivered to Lessor from time to time. Any such Leasehold Mortgagee or Trustee may, at its option and at any time, pay any of the Rents or other sums of money herein stipulated to be paid by Lessee or do any other act or thing required of Lessee by the terms of this Lease in accordance with the provisions of Sections 11.3(f) and (g) hereof; and all payments so made, and all things so done or performed by any such Leasehold Mortgagee or Trustee shall be as effective to cure Lessee's default as the same would have been if done and performed by Lessee instead of by any such Leasehold Mortgagee or Trustee. The loan documents related to any such Leasehold Mortgage (the "Loan Documents") may, if Lessee so desires, be so conditioned as to provide that, as between the Leasehold Mortgagee (or Trustee) and Lessee, the Leasehold Mortgagee (or Trustee), on making good and performing any such default or defaults on the part of Lessee, shall be thereby subrogated to any and all of the rights of the person or persons to whom any payment 8 is made by the Leasehold Mortgagee (or Trustee), and all of the rights of Lessee hereunder. The Leasehold Mortgagee (or Trustee) shall not be or become liable to Lessor as an assignee of this Lease until such time, if any, as the Leasehold Mortgagee (or Trustee) shall by foreclosure or other appropriate proceedings in the nature thereof, or as the result of any other action of remedy provided for in the Loan Documents (or Leasehold Mortgage), or by proper conveyance from Lessee, either acquire the rights and interests of Lessee under the terms of this Lease or actually take possession of the Demised Premises, and such liability of Leasehold Mortgagee (or Trustee) shall terminate upon the Leasehold Mortgagee (or Trustee) assigning such rights and interests to another party or relinquishing such possession, as the case may be, provided that such termination of liability as to the Leasehold Mortgagee (or Trustee) shall not extinguish any default hereunder or any such liability as to any other person or persons. (c) Should any Leasehold Mortgagee or Trustee acquire Lessee's interest in this Lease and the Demised Premises by foreclosure or other appropriate proceedings in the nature thereof, or as a result of any other action or remedy provided for by any Leasehold Mortgage, or by a proper conveyance from Lessee, such Leasehold Mortgagee or Trustee shall take Lessee's interest in the Demised Premises subject to all the provisions of this Lease; and shall, so long as and only so long as it shall be the owner of the leasehold interest, assume personally the obligations of Lessee under this Lease. (d) Should any Leasehold Mortgagee or Trustee or a purchaser at a foreclosure sale acquire Lessee's interest in this Lease and in the Demised Premises by foreclosure or other appropriate proceedings in the nature thereof, or as a result of any other action or remedy provided for by any Leasehold Mortgage, or by proper conveyance from Lessee, such Leasehold Mortgagee, Trustee or purchaser may, subject to the provisions of Article XII, assign this Lease by sale or otherwise, and any assignee of such Leasehold Mortgagee, Trustee or purchaser may likewise assign this Lease. subject to the provisions of Article XII below. Any assignee of such Leasehold Mortgagee or Trustee, or any purchaser of the leasehold interest from such Leasehold Mortgagee or Trustee, or any person taking through any other means from such Leasehold Mortgagee or Trustee and/or their respective successors in interest shall take such leasehold interest subject to all the agreements, conditions, covenants and terms of this Lease on the part of Lessee to be kept, observed and performed, and shall as a condition of such assignment, purchase or other taking, assume and agree by writing in form approved by and delivered to Lessor to perform all such agreements, conditions, covenants and terms, whereupon the assignor thereof shall be relieved thereafter of any liability hereunder; provided, however, that any such Leasehold Mortgagee or Trustee or assignee thereof that so acquires Lessee's interest hereunder shall not be liable for any default of Lessee hereunder except a default in connection with Lessee's failure to pay Impositions, but the foregoing is not intended to relieve such Leasehold Mortgagee or Trustee or assignee thereof of obligations under the REA, the Site Work Agreement or the Parking Agreement. (e) No such foreclosure, assignment, sale or hypothecation of the Demised Premises shall relieve, release, or in any manner affect the liability of Lessee under this Lease. 9 (f) Notwithstanding anything to the contrary contained herein, any Leasehold Mortgagee or Trustee shall have until thirty (30) days after the later of (i) notice from Lessor or the holder of the Fee Mortgage or (ii) the expiration of the cure period given to Lessee under this Lease to cure any default under this Lease, provided that if such default is a non-monetary default and is not capable of cure within such thirty (30) day period, then such period as is reasonably necessary to cure such default, so long as such Leasehold Mortgagee or Trustee shall diligently proceed to do so. If the non-monetary default is such that possession of the Demised Premises is necessary to cure the same, then the period of time within which the Leasehold Mortgagee or Trustee may cure shall be extended by the period of time necessary for the Leasehold Mortgagee or Trustee to acquire Lessee's interest in this Lease and the Demised Premises by foreclosure or other appropriate proceedings (which extension shall include any period of time during which the Leasehold Mortgagee or Trustee is prohibited or delayed from commencing or prosecuting such proceedings by reason of the bankruptcy or insolvency of Lessee), provided that the Leasehold Mortgagee or Trustee promptly commences and diligently prosecutes such proceedings. (g) Deliberately Omitted (h) Lessor shall not agree to any mutual termination or accept any surrender of this Lease, nor shall Lessor consent to any material amendment or modification of this Lease, without the prior written consent of each Leasehold Mortgagee or Trustee. (i) Lessor agrees to execute such amendments or modifications of this Lease as may be reasonably required by a Leasehold Mortgagee or Trustee, at Lessee's request, provided that any such amendments and modifications do not in any material respect diminish any right or increase any obligation of, or adversely affect, Lessor and are in form reasonably satisfactory to Lessor and the holder of the Fee Mortgage. Section 11.4. (a) Upon termination of this Lease by reason of rejection of this Lease in a bankruptcy of Lessor or for any other reason (other than as a result of the Fee Transfer), Lessor shall give notice thereof to the first priority Leasehold Mortgagee or Trustee, and such Leasehold Mortgagee or Trustee shall have the option, upon notice to Lessor deposited in the mails not later than ninety (90) days after notice from Lessor of such termination, to elect to receive, in its own name or in the name of its nominee or designee, from Lessor a new lease of the Demised Premises for the unexpired balance of the Term hereof, or any renewal or extension hereof, on the same terms and conditions as are in this Lease set forth, which new lease shall be effective as of the date of termination of this Lease and Lessor agrees promptly to execute such lease, provided: (i) such Leasehold Mortgagee or Trustee shall simultaneously with the giving of such notice cure any monetary default of Lessee; and 10 (ii) such Leasehold Mortgagee or Trustee immediately commences to remedy, and thereafter diligently pursues the remedy of, any non-monetary default of Lessee, excluding those which by their very nature are incapable of cure by any other person. (b) The Leasehold Mortgagee or Trustee, or the nominee or designee of either, shall thereafter observe and perform all covenants and conditions in such new lease contained on the part of Lessee to be observed and performed. Any such new lease shall have priority equal to this Lease. If such Leasehold Mortgagee or Trustee (or nominee or designee) shall become lessee under such new lease and shall subsequently assign such new lease in accordance with Article XII herein, then such Leasehold Mortgagee or Trustee (or nominee or designee) shall thereupon be relieved of liability under such new lease, provided that the assignee expressly assumes all liabilities and obligations of lessee under such new lease thereafter accruing, and Lessee furnishes Lessor a copy of such assignment and assumption. The termination of this Lease prior to the date on which this Lease expires shall not terminate the right of such Leasehold Mortgagee or Trustee (or nominee or designee) to a new lease under this Article XI. ARTICLE XII ASSIGNMENT, TRANSFERS AND SUBLETTING Section 12.1. The parties shall have the right at any time and from time to time during the Term hereof to assign, sell or otherwise transfer their respective interests, in whole or in part, in this Lease and the estate created by this Lease in accordance with the requirements of the REA; provided, however, that (a) each such assignment, sale or transfer shall expressly be made subject to the provisions of this Lease, and (b) any such assignment, sale or transfer shall be subject to the Discharge and Release provisions of Article XIII hereof. Section 12.2. Lessee shall have the right at any time and from time to time during the Term hereof to sublet all or any part or parts of the Demised Premises and to assign, encumber, extend, or renew any sublease, provided that: (a) each such sublease shall expressly be made subject to the provisions of this Lease; (b) each such sublease shall expire, by its express terms, no later than the end of the Term of this Lease; (c) Lessee remains primarily obligated to perform Lessee's obligations hereunder; and (d) Lessee shall use reasonable efforts to ensure that each sublease entered into after the Term of this Lease commences shall contain a provision requiring the sublessee, so long as the terms of such sublease are recognized and honored, to attorn to Lessor if Lessee defaults under this Lease, and if the subtenant is notified of Lessee's default and instructed to 11 make subtenant's rental payments to Lessor. Section 12.3. Lessor agrees, upon written request by Lessee and subject to the prior agreement of sublessees to attorn and make payments to Lessor as provided in Section 12.2 hereof, and that Lessor shall execute a non-disturbance and attornment agreement upon commercially reasonable terms and in a form and substance acceptable to Lessor and the holder of the Fee Mortgage, which shall not require Lessor or the holder of the Fee Mortgage to assume any obligation to construct the Bazaar Improvements. ARTICLE XIII DISCHARGE AND RELEASE Section 13.1. The discharge and release provisions set forth in Article 11 of the REA, along with the definitions set forth in Article 1 of the REA, shall also apply to this Lease. ARTICLE XIV DEFAULT PROVISIONS Section 14.1. If any one or more of the following events happens, an Event of Default shall be deemed to have occurred: (a) if default shall be made in the payment of any Property Rent payable under this Lease or any part thereof, when and as the same shall become due and payable, and such default shall continue for a period of ninety (90) days after written notice thereof from Lessor to Lessee; or (b) if default shall be made in the payment of any other amounts payable under this Lease or any part thereof, when and as the same shall become due and payable, and such default shall continue for a period of forty-five (45) days after written notice thereof from Lessor to Lessee; or (c) notwithstanding the foregoing, if any mechanics' lien encumbers the Demised Premises (other than as may be created by Lessor or its agents) for more than thirty (30) days following actual notice to Lessee, and Lessee shall have failed to bond around same in accordance with applicable law, or have deposited an equivalent amount with the holder of the Fee Mortgage. Any amount so deposited shall be released to the party entitled to same upon the resolution of the claim underlying the mechanics lien. Section 14.2. If any Event of Default occurs arising from the nonpayment of any Property Rents or any other amounts payable under this Lease, Lessor shall have the right to sue for each installment of such Property Rent or such other amounts as the same becomes due. 12 Section 14.3. If any Event of Default occurs other than one arising from the nonpayment of rents ("Nonmonetary Default"), this Lease shall remain in full force and effect and, if no resolution regarding the Event of Default can be obtained by agreement of the parties, Lessor shall be required to obtain its remedies by arbitration in accordance with the REA; provided, however, that following an arbitration decision requiring Lessee to cure a Nonmonetary Default, Lessee shall have an additional thirty (30) days after the issuance of the said decision to cure any such default and, if the default cannot be cured within such thirty (30) day period, Lessee shall diligently pursue such cure. Section 14.4. No failure by Lessor or Lessee to insist upon the strict performance of any provision of this Lease or to exercise any right or remedy consequent upon a breach hereof and no acceptance of full or partial rent during the continuance of any such breach (and/or the application thereof toward cure of the earliest occurring default) shall constitute a waiver of any such breach or of such provision. No provision hereof to be complied with by Lessee or Lessor, and no breach thereof shall be waived, terminated, altered or modified, except by a written instrument executed by Lessor and Lessee. No waiver of any breach shall affect or alter this Lease, but each and every provision of this Lease shall continue in full force and effect with respect to any other then existing or subsequent breach thereof. Section 14.5. The remedies provided herein may be exercised by the parties entitled thereto singly, in combination, and cumulatively. Section 14.6. Amounts payable under this Lease which become delinquent shall bear interest, from the delinquency date until paid in full, at the rate set forth in Section 20.9 of the REA. When the party who owes the delinquent amount pays it, the party shall also pay the interest accrued thereon. No amount shall be considered delinquent hereunder until after the expiration of any applicable notice period or grace period. Section 14.7. If default shall be made by Lessor in the performance of any obligations of Lessor under this Lease and such default shall continue for a period of thirty (30) days, and Lessor fails within such period to commence to cure such default and continuously and diligently thereafter to proceed with the curing of such default by the earliest date by which it may through continuous, diligent effort be cured (it being intended that in connection with a default not susceptible of being cured with due diligence within thirty (30) days, the time of Lessor within which to cure the same shall be extended for such period as may be necessary to complete the same with all due diligence), then Lessee shall have all rights and remedies available at law or in equity and not otherwise inconsistent with the terms of this Lease or the REA. The holder of the Fee Mortgage shall be entitled to receive notice and exercise the same or reciprocal rights as a Leasehold Mortgagee has under Section 11.3 in connection with a default by Lessee hereunder. 13 ARTICLE XV INVALIDITY OF PARTICULAR PROVISIONS Section 15.1. If any provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. ARTICLE XVI NOTICES AND CERTIFICATES Section 16.1. Unless otherwise provided herein, any notice, communication, request, reply or advice (herein severally and collectively for convenience, called "notice" in this Lease) provided or permitted to be given, made or accepted by either party to the other, must be in writing and may, unless otherwise expressly provided in this Lease, be given or be served by telecopier transmittal with the original thereof deposited in the United States mail, postpaid and certified and addressed to the party to be notified, with return receipt requested, or by delivering the same to such party in person or by courier. Notice transmitted via telecopier with an original deposited in the manner hereinabove described shall be effective, unless otherwise stated in this Lease, from and after the transmission of said telecopied notice. Notice given in any other manner shall be effective only if and when received by the party to be notified. For purposes of notice, the addresses of the parties shall, until changed as herein provided, be as follows: LESSOR: Aladdin Gaming, LLC c/o Sigmund Sommer Properties 2810 W. Charleston Blvd., Suite 58 Las Vegas, Nevada 89102 Attn.: Jack Sommer Telephone: 702-870-1234 Telecopier: 702-870-8733 with copies similarly delivered to: Aladdin Gaming, LLC c/o Sigmund Sommer Properties 280 Park Avenue New York, New York 10017 Attn.: Ronald Dictrow Telephone: 212-661-0700 Telecopier: 212-661-0844 14 and: Schreck Morris 300 S. Fourth Street, Suite 1200 Las Vegas, Nevada 89101 Attn.: Ellen L. Schulhofer, Esq. Telephone: 702-382-2101 Telecopier: 702-382-8135 and: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 Attn.: Wallace L. Schwartz, Esq. Telephone: 212-735-3000 Telecopier: 212-735-2000 LESSEE: Aladdin Bazaar, LLC c/o TH Bazaar Centers, Inc. 4350 La Jolla Village Drive, Suite 400 San Diego, California 92122-1233 Attn.: Mr. Wayne Finley and Ms. Wendy Godoy Telephone: 619-546-1001 Facsimile: 619-546-3309 with copies similarly delivered to: Aladdin Bazaar, LLC c/o TH Bazaar Centers Inc. 4350 La Jolla Village Drive, Suite 400 San Diego, California 92122-1233 Attn.: General Counsel Telephone: 619-546-1001 Facsimile: 619-546-3342 and: Allen, Matkins, Leck, Gamble & Mallory LLP 501 West Broadway, Suite 900 San Diego, California 92101 Attn.: Michael C. Pruter, Esq. Telephone: 619-233-1155 Telecopier: 619-233-1158 Section 16.2. Notices, demands, requests and consents which shall be served by registered or certified mail upon Lessor or Lessee in the manner aforesaid shall be deemed sufficiently served or given for all purposes hereunder (a) five (5) days after such notice, demand, request or consent shall be mailed by United States registered or certified mail as 15 aforesaid in any Post Office or Branch Post Office regularly maintained by the United States Government, or (b) upon receipt, if earlier. ARTICLE XVII GOVERNING LAW AND CHOICE OF FORUM Section 17.1. This Lease shall be governed by, interpreted under, and construed in accordance with the laws of the State of Nevada. The Parties intend and agree that the proper forum for the litigation of any and all disputes or controversies arising out of or related to this Lease, to the extent that arbitration is not specified for the resolution of such dispute as described herein, is the Eighth Judicial District Court of the State of Nevada. Each of the parties agrees that it will not commence any action or proceeding arising out of or relating to this Lease in any court other than as specified in the preceding sentence on grounds of forum non conveniens or any other grounds, and hereby stipulates and irrevocably agrees that said courts have in personam jurisdiction over each of them for such litigation of any dispute or controversy arising out of or in any way related to this Lease. ARTICLE XVIII QUIET ENJOYMENT; CONVEYANCE BY LESSOR Section 18.1. Lessor covenants that, provided that no Event of Default has occurred and is continuing, Lessee shall quietly have and enjoy the Demised Premises and Improvements and all portions thereof throughout the entire Term hereof but it is understood and agreed that this covenant and any and all other covenants of Lessor contained in this Lease shall be binding upon Lessor and its successors and assigns only with respect to breaches occurring during its and their respective ownership of the Lessor's interest hereunder. Section 18.2. Lessor understands and agrees that Lessee shall have control over the Demised Premises subject and pursuant to the REA, the Site Work Agreement, and the Common Parking Area Use Agreement of even date herewith (the "Parking Agreement"). Section 18.3. At no time during the Term of this Lease shall Lessor, without Lessee's consent (which Lessee shall not unreasonably withhold), grant any easement, servitude or license or enter any restrictive covenant or accept any condition or otherwise make any grant or agreement which will affect title to the real property constituting the Demised Premises or Lessor's estate therein or Lessor's reversion hereunder except as expressly permitted in the REA. ARTICLE XIX ESTOPPEL CERTIFICATES Section 19.1. Each party shall at any time, and from time to time, within ten (10) business days of written notice from the other party, execute, acknowledge and deliver to such 16 other party and any other party identified by such other party a statement in writing: (a) clarifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease as so modified, is in full force and effect) and the dates to which the rental and other charges are paid in advance or delinquent, if any, (b) certifying the commencement and termination dates of the Lease, (c) certifying that there has been no assignment or other transfer by the certifying party of this Lease, or any interest therein subject to Articles XI through XII hereof, (d) acknowledging that there are not, to the certifying party's knowledge, any uncured defaults on the part of the other party hereunder and that the certifying party has no right of offset, counterclaim or deduction against rent, or specifying such default if any are claimed together with the amount of any offset, counterclaim or deduction alleged by the certifying party, and (e) setting forth any other matters reasonably required by the requesting party. Any such statements may be relied upon by any existing owner or prospective purchaser or any present or prospective lender upon the security of the Demised Premises. The failure of either party to deliver such statement within such time shall be conclusive and binding upon that party (i) that this Lease is in full force and effect, without modification except as may be represented by the requesting party, and that the status of rent payments is as certified by the requesting party, (ii) that there are no uncured defaults in the requesting party's performance and that the party being requested to issue a certificate has no right of offset, counterclaim or deduction against rental, and (iii) that no more than one month's rent has been paid in advance. In addition to the foregoing, Lessor hereby covenants and agrees, upon the satisfaction by Lessee of the Construction Financing Requirement and the written request of Lessee, to execute, acknowledge and deliver to Lessee, or to such other party as Lessee may reasonably direct, a statement in writing certifying that the Construction Financing Requirement has been satisfied. Lessor hereby grants to Lessee an irrevocable power of attorney coupled with a interest for the purpose of executing, acknowledging and delivering such a statement in connection with the satisfaction of the Construction Financing Requirement. ARTICLE XX INDEMNITY AND LIABILITY Section 20.1. The parties hereto shall be subject to the same indemnity obligations as are set forth in Section 8.1 of the REA, using the same definitions as are set forth in Article 1 of the REA. ARTICLE XXI FORCE MAJEURE Section 21.1. The rights and obligations of the parties hereto shall be subject to the same force majeure provisions as contained in the REA. 17 ARTICLE XXII ARBITRATION Section 22.1. Any dispute between the parties involving this Lease, including those arising from disagreements over interpretation or application of the provisions hereof, and any other disputes involving provisions of this Lease shall be resolved by binding arbitration conducted in the manner set forth in Article 12 of the REA; provided, however, that any Party may seek prohibitory injunctive relief without first submitting the controversy to arbitration. ARTICLE XXIII MISCELLANEOUS PROVISIONS Section 23.1. For the purpose of this Lease, unless the context otherwise requires: (a) The term "person" shall mean an individual, corporation, limited liability company, joint venture, general or limited partnership, unincorporated organization, tenancy-in-common or government, or any agency or political subdivision thereof, and the term "successors" shall include the executors and administrators of any individual. (b) Words of any gender used in this Lease shall include any other gender. Section 23.2. Each party shall be separately responsible for any attorneys' fees it may incur in connection with the negotiation and preparation of this Lease and other instruments or documents mentioned herein. If there is any legal action or proceeding between Lessor and Lessee to enforce any provision of this Lease or to protect or establish any right or remedy of either party hereunder, the prevailing party shall be entitled to all costs and expenses, including reasonable attorneys' fees incurred in connection with such action and in any appeal in connection therewith. Section 23.3. The captions and headings in this Lease are for convenience only, are not a part of this Lease, and do not in any way limit or amplify the provisions hereof. Section 23.4. The parties shall cause a Memorandum of this Lease in the form attached hereto as Exhibit "C" to be executed and recorded with the office of the recorder of Clark County, Nevada immediately prior to the recording of the REA. Upon the termination of this Lease, either party, at the other party's request, will execute a recordable statement of termination of the Lease which states the applicable termination date. Section 23.5. The relationship of Lessor and Lessee is that of landlord and tenant. Nothing herein shall be deemed to be a contract for employment or to create (a) a joint venture, (b) a partnership, (c) an agent/principal relationship, (d) an employer-employee relationship, or (e) any other type of relationship between Lessor and Lessee, or between Lessor and any officer, 18 director or employee of Lessee. Nothing in this Lease shall be deemed to interfere with Lessor's or Lessee's right to hire, terminate or discipline their respective employees. Section 23.6. It is mutually agreed by and between Lessor and Lessee that the respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Lessor and Lessee, Lessee's use or occupancy of the Demised Premises, and/or any claim of injury or damage. Section 23.7. Time is of the essence of this Lease and of all of the terms, covenants, and conditions hereof. Section 23.8. This Lease may be executed in two or more counterparts and all of such counterparts, taken together, shall be deemed part of one instrument. ARTICLE XXIV NO MERGER OF TITLES Section 24.1. Except as provided in Article I hereof, so long as any mortgage on this Lease and the leasehold created hereby has not been fully paid and satisfied and discharged of record, there shall be no merger of this leasehold estate with any other interest or title Lessee hereunder may acquire in the Demised Premises or any part thereof. ARTICLE XXV COVENANT TO BIND AND BENEFIT RESPECTIVE PARTIES Section 25.1. The covenants of the parties herein contained shall, subject to the provisions of this Lease, bind and inure to the benefit of the successors and assigns of the respective parties hereto, except as otherwise provided herein. ARTICLE XXVI ENTIRE AGREEMENT OF PARTIES Section 26.1. This Lease constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior agreements, representations and understandings of the parties. Concurrently herewith, the parties are entering into, inter alia, the REA, the Site Work Agreement and the Parking Agreement. No addition to or modification or termination of this Lease shall be binding unless executed in writing by each of the parties. Except as may be otherwise provided in this Lease, no waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver and no waiver shall be binding unless evidenced by an instrument in writing executed by the party marking the waiver. 19 IN WITNESS WHEREOF, the parties hereto have set forth their hands on the day and year first above mentioned. "LESSOR" ALADDIN GAMING, LLC, a Nevada limited-liability company By: /s/ Jack Sommer Name: Jack Sommer Its: Manager "LESSEE" ALADDIN BAZAAR, LLC, a Delaware limited liability company By: TH BAZAAR CENTERS, INC. a Delaware corporation, Its Member By: /s/ Wayne J. Finley Wayne J. Finley, Senior Vice President By: /s/ Wendy M. Godoy Wendy M. Godoy, Senior Vice President By: ALADDIN BAZAAR HOLDINGS, LLC, a Nevada limited-liability company, Its Member By: ALADDIN MANAGEMENT CORPORATION, a Nevada corporation, Its Manager By: /s/ Jack Sommer Name: Jack Sommer Its: Vice President 20 STATE OF ) ) ss. COUNTY OF ) This instrument was acknowledged before me on the _____ day of ____________, 199_, by Richard Goeglein, as President of Aladdin Gaming Corp., Manager of Aladdin Gaming, LLC. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State STATE OF ) ) ss. COUNTY OF ) This instrument was acknowledged before me on the _____ day of ____________, 199_, by Ronald B. Dictrow, as Treasurer of Aladdin Gaming Corp., Manager of Aladdin Gaming, LLC. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State STATE OF New York ) ) ss. COUNTY OF New York ) This instrument was acknowledged before me on the 27 day of February, 1998, by Jack Sommer, as Secretary of Aladdin Gaming Corp., Manager of Aladdin Gaming, LLC. WITNESS my hand and official seal. Notary Public /s/ Dawn M. Schoenig (My Commission expires August 3, 1999) 21 STATE OF New York ) ) ss. COUNTY OF New York ) This instrument was acknowledged before me on the 27 day of February, 1998, by Wayne J. Finley, as Senior Vice President of TH Bazaar Centers Inc., Member of Aladdin Bazaar, LLC. Notary Public /s/ Dawn M. Schoenig (My Commission expires August 3, 1999) STATE OF New York ) ) ss. COUNTY OF New York ) This instrument was acknowledged before me on the 27 day of February, 1998, by Wendy M. Godoy, as Senior Vice President of TH Bazaar Centers Inc., Member of Aladdin Bazaar, LLC. Notary Public /s/ Dawn Schoenig (My Commission expires August 3, 1999) STATE OF ) ) ss. COUNTY OF ) This instrument was acknowledged before me on the _____ day of ______________ , 1998, by Ronald B. Dictrow, as Treasurer of Aladdin Bazaar Holdings, LLC, Member of Aladdin Bazaar, LLC. Notary Public (My Commission expires __________________________ ) 22 STATE OF New York ) ) ss. COUNTY OF New York ) This instrument was acknowledged before me on the 27 day of February, 1998, by Jack Sommer, as Vice President of Aladdin Management Corporation, manager of Aladdin Bazaar Holdings, LLC, Member of Aladdin Bazaar, LLC. Notary Public /s/ Dawn M. Schoenig (My Commission expires August 3, 1999) 23 EXHIBIT "A" LEGAL DESCRIPTION OF THE MASTER SITE 1 EXHIBIT "B" LEGAL DESCRIPTION OF THE DEMISED PREMISES 1 EXHIBIT "C" RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Aladdin Bazaar, LLC c/o Allen, Matkins, Leck, Gamble & Mallory LLP 501 West Broadway, Suite 900 San Diego, California 92101 Attn.: Michael C. Pruter, Esq. - -------------------------------------------------------------------------- (Space Above For Recorder's Use) MEMORANDUM OF LEASE THIS MEMORANDUM OF LEASE ("Memorandum'), is made as of this 26th day of February, 1998 by and between ALADDIN GAMING, LLC, a Nevada limited-liability company ("Landlord"), and ALADDIN BAZAAR, LLC, a Delaware limited liability company ("Tenant"). 1. Landlord and Tenant have entered into that certain Lease dated of even date herewith ("Lease"), pursuant to which Landlord has ground leased to Tenant and Tenant has ground leased from Landlord that certain real property located in the County of Clark, State of Nevada, and more particularly described on Exhibit "A" attached hereto (the "Premises"), for a term commencing on February 26, 1998 and expiring December 31, 2097, for the rental and subject to the terms and covenants set forth in the Lease. 2. The purpose of this Memorandum is to give notice of the existence of the Lease. The Lease provides for the right of a mortgagee to have a new lease in the same priority as the Lease. To the extent that any provision of this Memorandum conflicts with any provision of the Lease, the Lease shall control. 3. This Memorandum may be executed in counterparts, each of which shall be deemed an original, but all of which, together shall constitute one and the same instrument. [Signatures on next page ] 1 IN WITNESS WHEREOF, the undersigned have caused their duly authorized signatories execute this Memorandum of Lease. "LESSOR" ALADDIN GAMING, LLC, a Nevada limited-liability company By: _____________________________ Name: ______________________ Its: ______________________ By: _____________________________ Name: ______________________ Its: ______________________ "LESSEE" ALADDIN BAZAAR, LLC, a Delaware limited liability company By: TH BAZAAR CENTERS, INC., a Delaware corporation, Its Member By: _____________________________ Wayne J. Finley, Senior Vice President By: _____________________________ Wendy M. Godoy, Senior Vice President By: ALADDIN BAZAAR HOLDINGS, LLC, a Nevada limited-liability company, Its Member By: ALADDIN MANAGEMENT CORPORATION, a Nevada corporation, Its Manager By: _____________________________ Name: _______________________ Its: _______________________ By: _____________________________ Name: _______________________ Its: _______________________ 2 STATE OF ___________________) ) ss. COUNTY OF __________________) This instrument was acknowledged before me on the _____ day of ____________, 199_, by Richard Goeglein, as President of Aladdin Gaming Corp., Manager of Aladdin Gaming, LLC. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State STATE OF ___________________) ) ss. COUNTY OF __________________) This instrument was acknowledged before me on the _____ day of ____________, 199_, by Ronald B. Dictrow, as Treasurer of Aladdin Gaming Corp., Manager of Aladdin Gaming, LLC. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State STATE OF ___________________) ) ss. COUNTY OF __________________) This instrument was acknowledged before me on the _____ day of ____________, 199_, by Jack Sommer, as Secretary of Aladdin Gaming Corp., Manager of Aladdin Gaming, LLC. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State 3 STATE OF ___________________) ) ss. COUNTY OF __________________) This instrument was acknowledged before me on the _____ day of ____________, 199_, by Wayne J. Finley, as Senior Vice President of TH Bazaar, LLC, Member of Aladdin Bazaar, LLC. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State STATE OF ___________________) ) ss. COUNTY OF __________________) This instrument was acknowledged before me on the _____ day of ____________, 199_, by Wendy M. Godoy, as Senior Vice President of TH Bazaar, LLC, Member of Aladdin Bazaar, LLC. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State STATE OF ___________________) ) ss. COUNTY OF __________________) This instrument was acknowledged before me on the _____ day of ____________, 199_, by Ronald B. Dictrow, as Treasurer of Aladdin Bazaar Holdings, LLC, Member of Aladdin Bazaar, LLC. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State 4 STATE OF ___________________) ) ss. COUNTY OF __________________) This instrument was acknowledged before me on the _____ day of ____________, 199_, by Jack Sommer, as Vice President of Aladdin Bazaar Holdings, LLC, Member of Aladdin Bazaar, LLC. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State 5 EXHIBIT "D" RATIFICATION OF REA 1 LEASE by and between Aladdin Gaming, LLC, a Nevada limited-liability company ("Lessor") and Aladdin Bazaar, LLC, a Delaware limited liability company ("Lessee") 2 EX-10.25 20 EXHIBIT 10.25 DEED OF TRUST Recording Requested by and Recorded Counterparts Should be Returned to: MAYER, BROWN & PLATT 1675 Broadway New York, New York 10019-5820 Attn: Douglas L. Wisner, Esq. DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, FIXTURE FILING AND SECURITY AGREEMENT made by ALADDIN GAMING, LLC, a Nevada limited-liability company, as Trustor, to STEWART TITLE OF NEVADA, a Nevada corporation, as Trustee, for the benefit of THE BANK OF NOVA SCOTIA, in its capacity as Administrative Agent, as Beneficiary ****************************************************************************** THIS INSTRUMENT IS TO BE FILED AND INDEXED IN THE REAL ESTATE RECORDS AND IS ALSO TO BE INDEXED IN THE INDEX OF FINANCING STATEMENTS OF CLARK COUNTY, NEVADA UNDER THE NAME OF ALADDIN GAMING, LLC AS "DEBTOR" AND THE BANK OF NOVA SCOTIA, AS ADMINISTRATIVE AGENT, AS SECURED PARTY. THIS INSTRUMENT IS A "CONSTRUCTION MORTGAGE" AS THAT TERM IS DEFINED IN SECTION 104.9313(1)(C) OF THE NEVADA REVISED STATUTES AND SECURES AN OBLIGATION INCURRED FOR THE CONSTRUCTION OF AN IMPROVEMENT UPON LAND. 2 DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, FIXTURE FILING AND SECURITY AGREEMENT THIS DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, FIXTURE FILING AND SECURITY AGREEMENT (hereinafter called "Deed of Trust") is made and effective as of February 26, 1998, by ALADDIN GAMING, LLC, a Nevada limited-liability company (Aladdin Gaming, LLC, together with all successors and assigns of the Trust Estate (as hereinafter defined), "Trustor") whose address is 2810 West Charleston Boulevard, Suite F58, Las Vegas, Nevada 89102, Attention: Jack Sommer, to STEWART TITLE OF NEVADA, a Nevada corporation, whose address is 3800 Howard Hughes Parkway, Suite 500, Las Vegas, Nevada 89109, Attention: Linda J. Jones, as Trustee ("Trustee"), for the benefit of THE BANK OF NOVA SCOTIA, a Canadian chartered bank ("Beneficiary"), whose address is: 580 California Street, 21st Floor, San Francisco, California 94104, Attention: Mr. Alan Pendergast, in its capacity as Administrative Agent under that certain Credit Agreement dated as of February 26, 1998, among Trustor, Beneficiary, Merrill Lynch Capital Corporation, as syndication agent, and the lenders (the "Lenders") listed therein from time to time (as the same may be amended or modified from time to time, the "Credit Agreement"). INTEREST ON OBLIGATIONS SECURED HEREBY ACCRUES AT THE RATE WHICH MAY FLUCTUATE FROM TIME TO TIME. DEFINITIONS - As used in this Deed of Trust, the following terms have the meanings hereinafter set forth: "Accounts Receivable" shall have the meaning set forth in Section 9-106 (NRS 104-9106) of the UCC for the term "account," and shall include, without limitation, all rents, room revenues, income, receipts, issues, profits, revenues and maintenance fees, all rights to payment for hotel room occupancy by hotel guests, food and beverage revenues, advance registration fees, tour or junket proceeds and deposits, deposits for conventions and/or party reservations, security deposits and prepaid amounts, license and concession fees, income, proceeds and other benefits to which Trustor may now or hereafter be entitled from the Site, the Improvements, or any business or other activity conducted by Trustor at the Site or the Improvements. "Bankruptcy" means, with respect to any Person that: (i) a court having jurisdiction in the Trust Estate shall have entered a decree or order for relief in 3 respect of such Person in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order has not been stayed; or any other similar relief shall have been granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against such Person, under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similarly law now or hereafter in effect; or a decree or order of a court having jurisdiction in the Trust Estate for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over such Person, or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of such Person, for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of such Person, and any such event described in this clause (ii) shall continue for sixty (60) days unless dismissed, bonded or discharged; or (iii) such Person shall have an order for relief entered with respect to it or shall commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or such Person shall make any assignment for the benefit of creditors or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due and payable and a period of thirty (30) days shall have elapsed; or (iv) such Person shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due and a period of thirty (30) days shall have elapsed; or the Board of Directors of such Person (or any committee thereof) or the managing member of such Person shall, adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (iii) above or this clause (iv). "Deed of Trust" means this Deed of Trust, Assignment of Rents and Leases and Security Agreement as it may be amended, increased or modified from time to time "Default Rate" means the interest rate set forth in Section 3.2.2 of the Credit Agreement that shall be due upon an Event of Default pursuant to Section 8.3 of the Credit Agreement. "Event of Default" has the meaning set forth in Section 3.1 hereof. 4 "FF&E" means all furniture, fixtures, equipment, apparatus, appurtenances, inventory and personal property now or in the future contained in, used in connection with, attached to, or otherwise useful or convenient to the use, operation, or occupancy of, or placed on, but unattached to, any part of the Site or Improvements whether or not the same constitutes real property or fixtures in the State of Nevada, and including all removable window and floor coverings, all furniture and furnishings, heating, lighting, plumbing, laundry, ventilating, air conditioning, refrigerating, incinerating, cleaning, and or lifting equipment, all elevators, escalators, and elevator and escalator plants, vacuum cleaning systems, public address and communications systems, switchboards, security and surveillance equipment and devices, power equipment, transformers, sprinkler systems and other fire prevention and extinguishing apparatus and materials, engines, motors, compressors, machinery, pipes, appliances, equipment, fittings, conduits, fixtures, and building materials, all exercise equipment, all financial equipment, computer equipment, calculators, adding machines, video game machines, and any other electronic equipment of every nature used or located on any part of the Site or Improvements, together with all venetian blinds, shades, awnings, screens, draperies, drapery and curtain rods, carpeting, brackets, bulbs, cleaning apparatus, mirrors, lamps, ornaments, cooling apparatus and equipment, cooking facilities, stoves, ranges and ovens, microwave units, bakery equipment, garbage disposals, dishwashers, dishes, china, flatware, utensils, glassware and barware, all stock pots, and all other pots and pans and other kitchen and/or food, beverage and liquor handling, preparation, serving and storage equipment, tables, desks, chairs, chests, cabinets, mantels, plants, shrubbery, ground maintenance equipment, and any and all such property which is at any time installed in, affixed to or placed upon the Site or Improvements. "Improvements" means (1) all the buildings, structures, facilities and improvements of every nature whatsoever now or hereafter situated on the Site or any real property encumbered hereby, and (2) all FF&E, of every nature whatsoever now or hereafter owned or leased by Trustor or in which Trustor has any rights or interest and located in or on, or attached to, or used or intended to be used or which are now or may hereafter be appropriated for use on or in connection with the operation of the Site or any real or personal property encumbered hereby or any other Improvements, or in connection with any construction being conducted or which may be conducted thereon, and all extensions, additions, accessions, improvements, betterments, renewals, substitutions, and replacements to any of the foregoing, and all of the right, title and interest of Trustor in and to any such property, which, to the fullest extent permitted by law, shall be conclusively deemed fixtures and improvements and a part of the real property hereby encumbered. 5 "Intangible Collateral" means (a) the rights to use all names and all derivations thereof now or hereafter used by Trustor in connection with the Site or Improvements, including, without limitation, the name "Aladdin," including any variations thereon, together with the goodwill associated therewith, and all names, logos, and designs used by Trustor, or in connection with the Site or in which Trustor has rights, with the exclusive right to use such names, logos and designs wherever they are now or hereafter used in connection with the Site or Improvements, and any and all other trade names, trademarks or service marks, whether or not registered, now or hereafter used in the operation of the Site or Improvements, including, without limitation, any interest as a lessee, licensee or franchisee, and, in each case, together with the goodwill associated therewith; (b) subject to the absolute assignment contained herein, the Rents; (c) any and all books, records, customer lists, concession agreements, supply or service contracts, licenses, permits, governmental approvals (to the extent such licenses, permits and approvals may be pledged under applicable law), signs, goodwill, casino and hotel credit and charge records, supplier lists, checking accounts, safe deposit boxes (excluding the contents of such deposit boxes owned by persons other than Trustor and its subsidiaries), cash, instruments, chattel papers, including inter-company notes and pledges, documents, unearned premiums, deposits, refunds, including but not limited to income tax refunds, prepaid expenses, rebates, tax and insurance escrow and impound accounts, if any, actions and rights in action, and all other claims, including without limitation condemnation awards and insurance proceeds, and all other contract rights and general intangibles resulting from or used in connection with the operation and occupancy of the Trust Estate and the Improvements and in which Trustor now or hereafter has rights; and (d) general intangibles, vacation license resort agreements or other time share license or right to use agreements, including without limitation all rents, issues, profits, income and maintenance fees resulting therefrom, whether any of the foregoing is now owned or hereafter acquired. "Personal Property" has the meaning set forth in Section 1.13 hereto. "Proceeds" has the meaning assigned to it under the UCC and, in any event, shall include but not be limited to (i) any and all proceeds of any insurance (including without limitation property casualty and title insurance), indemnity, warranty or guaranty payable from time to time with respect to any of the Trust Estate; (ii) any and all proceeds in the form of accounts, security deposits, tax escrows (if any), down payments (to the extent the same may be pledged under applicable law), collections, contract rights, documents, instruments, chattel paper, liens and security instruments, guarantees or general intangibles relating in whole or in part to the Site 6 or the Improvements and all rights and remedies of whatever kind or nature Trustor may hold or acquire for the purpose of securing or enforcing any obligation due Trustor thereunder; (iii) any and all payments in any form whatsoever made or due and payable from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Trust Estate by any Governmental Instrumentality; (iv) subject to the absolute assignment contained herein, the Rents or other benefits arising out of, in connection with or pursuant to any Space Lease of the Trust Estate; and (v) any and all other amounts from time to time paid or payable in connection with any of the Trust Estate; provided, however, that the Trustor is not authorized to dispose of any of the Trust Estate unless such disposition is a Permitted Disposition. "Rents" means all rents, issues, profits, revenue, royalties, income, proceeds, earnings and other benefits, including, without limitation, prepaid rents, security deposits, and impound accounts derived from the Ground Leases, any Space Lease, sublease, license, franchise, occupancy or other agreement now existing or hereafter created affecting all or any portion of the Site or the Improvements or the use or occupancy thereof. "Space Leases" means any and all leases, subleases, lettings, licenses, concessions, operating agreements, management agreements, arrangements and all other agreements affecting the Trust Estate, that Trustor has entered into, taken by assignment, taken subject to, or assumed, or has otherwise become bound by, now or in the future, that give any person (a) the right to conduct its business on, or otherwise use, operate or occupy, all or any portion of the Site or Improvements or (b) the right to enter upon or use any of the Trust Estate to extract or remove natural resources of any kind, together with all amendments, extensions, and renewals of the foregoing entered into in compliance with this Deed of Trust, together with all rental, occupancy, service, maintenance or any other similar agreements pertaining to use or occupation of, or the rendering of services at the Site, the Improvements or any part thereof; provided, however, the Ground Leases shall not be deemed to be included within the definition of "Space Leases." "Space Lessee(s)" means any and all tenants, licensees, or other grantees of the Space Leases and any and all guarantors, sureties, endorsers or others having primary or secondary liability with respect to such Space Leases. 7 "Site" means the real property situated in the County of Clark, State of Nevada, more specifically described in Exhibit A attached hereto and incorporated herein by reference, including any after acquired title thereto. "Tangible Collateral" means all personal property, goods, equipment, supplies, building and other materials of every nature whatsoever and all other tangible personal property constituting a part or portion of the Site or the Improvements and/or used in the operation of the hotel, casino, restaurants, stores, parking facilities, and all other commercial operations on the Site or Improvements, including but not limited to communication systems, visual and electronic surveillance systems and transportation systems and not constituting a part of the real property subject to the real property lien of this Deed of Trust and including all property and materials stored therein in which Trustor has an interest and all tools, utensils, food and beverage, liquor, uniforms, linens, housekeeping and maintenance supplies, vehicles, fuel, advertising and promotional material, blueprints, surveys, plans and other documents relating to the Site or Improvements, and all construction materials and all furnishings, fixtures and equipment, including, but not limited to, all FF&E and all equipment and devices which are or are to be installed and used in connection with the operation of the Site or the Improvements, those items of furniture, fixtures and equipment which are to be purchased or leased by Trustor, machinery and any other item of personal property in which Trustor now or hereafter own or acquire an interest or right, and which are used or useful in the construction, operation, use and occupancy of the Site or the Improvements and all present and future right and interest of Trustor in and to any casino operator's agreement, license agreement or sublease agreement used in connection with the Site or the Improvements. "Trust Estate" means all of the property described in Granting Clauses (A) through (P) below, inclusive, and each item of property therein described. "UCC" means the Uniform Commercial Code in effect in the State of Nevada from time to time, NRS chapters 104 and 104A. In addition. any capitalized terms used in this Deed of Trust which are not otherwise defined herein shall have the meaning ascribed to such terms in the Credit Agreement and, if not defined therein, the meaning ascribed to such terms in the Disbursement Agreement W I T N E S S E T H: 8 IN CONSIDERATION OF TEN DOLLARS AND OTHER GOOD AND VALUABLE CONSIDERATION; THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, AND FOR THE PURPOSE OF SECURING in favor of Beneficiary (1) the due and punctual payment of the indebtedness evidenced by the Notes in the principal amount of Four Hundred Ten Million Dollars ($410,000,000); (2) the performance of each covenant and agreement of Trustor contained in the Credit Agreement, herein or in the other Loan Documents and the Disbursement Agreement; (3) the payment of such additional loans or advances as hereafter may be made to Trustor (individually or jointly and severally with any other Person) or its successors or assigns, when evidenced by a promissory note or notes reciting that they are secured by this Deed of Trust; provided, however, that any and all future advances by Beneficiary or Lenders to Trustor made for the improvement, protection or preservation of the Trust Estate, together with interest at the interest rate provided in the Credit Agreement, shall be automatically secured hereby unless such a note or instrument evidencing such advances specifically recites that it is not intended to be secured hereby and (4) the payment of all sums expended or advanced by Beneficiary or Lenders under or pursuant to the terms hereof or to protect the security hereof (including Protective Advances (as such term is defined in Section 4.2 hereof)), together with interest thereon as herein provided, Trustor, in consideration of the premises, and for the purposes aforesaid, does hereby ASSIGN, GRANT, BARGAIN, SELL, CONVEY, PLEDGE, RELEASE, HYPOTHECATE, WARRANT, AND TRANSFER WITH POWER OF SALE UNTO TRUSTEE IN TRUST FOR THE BENEFIT OF BENEFICIARY AND THE LENDERS each of the following: (A) Trustor's interest in the Site; (B) TOGETHER WITH all the estate, right, title and interest of Trustor of, in and to the Improvements; (C) TOGETHER WITH all Appurtenant Rights which now or hereinafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by Trustor; (D) TOGETHER WITH all the estate, right, title and interest of Trustor of, in and to the Tangible Collateral to the extent permitted by, or not prohibited by, the Nevada Gaming Laws and other applicable law; 9 (E) TOGETHER WITH the Intangible Collateral to the extent permitted by, or not prohibited by, Nevada Gaming Laws and other applicable law; (F) TOGETHER WITH (i) all the estate, right, title and interest of Trustor of, in and to all judgments and decrees, Loss Proceeds (including awards of damages and settlements hereafter made resulting from condemnation proceedings or the taking of any of the property described in Granting Clauses (A), (B), (C), (D) and (E) hereof or any part thereof under the power of eminent domain, or for any damage (whether caused by such taking or otherwise) to the property described in Granting Clauses (A), (B), (C), (D) and (E) hereof or any part thereof, or to any Appurtenant Rights thereto), and Beneficiary is hereby authorized to collect and receive said Loss Proceeds and to give proper receipts and acquittance therefor, and (subject to the terms hereof) to apply the same toward the payment of the indebtedness and other sums secured hereby, notwithstanding the fact that the amount owing thereon may not then be due and payable; (ii) all proceeds of any sales or other dispositions of the property or rights described in Granting Clauses (A), (B), (C), (D) and (E) hereof or any part thereof whether voluntary or involuntary, provided, however, that the foregoing shall not be deemed to permit such sales, transfers, or other dispositions except as specifically permitted herein; and (iii) whether arising from any voluntary or involuntary disposition of the property described in Granting Clauses (A), (B), (C), (D) and (E), all Proceeds, products, replacements, additions, substitutions, renewals and accessions, remainders, reversions and after-acquired interest in, of and to such property; (G) TOGETHER WITH, the absolute assignment of the Ground Leases and any Space Leases or any part thereof that Trustor has entered into, taken by assignment, taken subject to, or assumed, or has otherwise become bound by, now or in the future, together with all of the following (including all "Cash Collateral" within the meaning of the Bankruptcy Code) arising from the Ground Leases and any Space Leases: (a) Rents (subject, however, to the aforesaid absolute assignment to Trustee for the benefit of Beneficiary and the conditional permission hereinbelow given to Trustor to collect the Rents), (b) all guarantees, letters of credit, security deposits, collateral, cash deposits, and other credit enhancement documents, arrangements and other measures with respect to the Ground Leases and any Space Leases, (c) all of Trustor's right, title, and interest under the Ground Leases and any Space Leases, including the following: (i) the right to receive and collect the Rents from the lessee, sublessee or licensee, or their successor(s), under the Ground Leases and any Space Lease(s) and (ii) the right to enforce against any tenants thereunder and otherwise any and all remedies under the Ground Leases and any Space Leases, 10 including Trustor's right to evict from possession any tenant thereunder or to retain, apply, use, draw upon, pursue, enforce or realize upon any guaranty of the Ground Leases and any Space Lease; to terminate, modify, or amend the Ground Leases and any Space Leases; to obtain possession of, use, or occupy, any of the real or personal property subject to the Ground Leases and any Space Leases; and to enforce or exercise, whether at law or in equity or by any other means, all provisions of the Ground Leases and any Space Leases and all obligations of the tenants thereunder based upon (A) any breach by such tenant under the applicable Ground Lease or Space Lease (including any claim that Trustor may have by reason of a termination, rejection, or disaffirmance of such Ground Lease or Space Lease pursuant to the Bankruptcy Code) and (B) the use and occupancy of the premises demised, whether or not pursuant to the applicable Ground Lease or Space Lease (including any claim for use and occupancy arising under landlord-tenant law of the State of Nevada or the Bankruptcy Code). Permission is hereby given to Trustor, so long as no Event of Default has occurred and is continuing hereunder, to enforce and collect and use the Rents, as they become due and payable, but not more than one (1) month in advance thereof. Upon the occurrence of an Event of Default, the permission hereby given to Trustor to collect the Rents shall automatically terminate, but such permission shall be reinstated upon a cure of such Event of Default. Beneficiary shall have the right, at any time and from time to time, to notify the ground lessees and any Space Lessee of the rights of Beneficiary as provided by this Section; Notwithstanding anything to the contrary contained herein, the foregoing provisions of this Paragraph (G) shall not constitute an assignment for purposes of security but shall to the extent permitted by, or not prohibited by, the Nevada Gaming Laws and other applicable law constitute an absolute and present assignment of the Rents to Beneficiary, subject, however, to the conditional license given to Trustor to collect and use the Rents as hereinabove provided; and the existence or exercise of such right of Trustor shall not operate to subordinate this assignment to any subsequent assignment, in whole or in part, by Trustor; (H) TOGETHER WITH all of Trustor's right, title and interest in and to any and all reimbursements and rights to payments, credits, offsets and refunds under the Main Project Documents (other than the Ground Leases) including, without limitation, the Reciprocal Easement Agreement, the Common Parking Use Agreement, the Site Work Agreement, the Energy Service Agreement (including any right to purchase the Utility Plant), and any side letters or related agreements between Trustor and any other party thereto; 11 (I) TOGETHER WITH all of Trustor's right, title and interest in and to any and all Plans and Specifications and all maps, plans, specifications, surveys, studies, tests, reports, data and drawings relating to the development of the Site or the Improvements and the construction of the Improvements, including, without limitation, all marketing plans, feasibility studies, soils tests, design contracts and all contracts and agreements of Trustor relating thereto including, without limitation, architectural, structural, mechanical and engineering plans and specifications, studies, data and drawings prepared for or relating to the development of the Site or the Improvements or the construction, renovation or restoration of any of the Improvements or the extraction of minerals, sand, gravel or other valuable substances from the Site and purchase contracts or any agreement granting Trustor a right to acquire any land situated within Clark County, Nevada; (J) TOGETHER WITH, to the extent permitted by applicable law, all of Trustor's right, title, and interest in and to any and all licenses, permits, variances, special permits, franchises, certificates, rulings, certifications, validations, exemptions, filings, registrations, authorizations, consents, approvals, waivers, orders, rights and agreements (including, without limitation, options, option rights, contract rights now or hereafter obtained by Trustor from any Governmental Instrumentality having or claiming jurisdiction over the Site, the FF&E, the Improvements, or any other element of the Trust Estate or providing access thereto, or the operation of any business on, at, or from the Site including, without limitation, any liquor or Gaming Licenses, (except for any registrations, licenses, findings of suitability or approvals issued by the Nevada Gaming Authorities or any other liquor or gaming licenses which are non-assignable); provided, that upon an Event of Default hereunder or under the Credit Agreement, if Beneficiary is not qualified under the Nevada Gaming Laws to hold such Gaming Licenses, then Beneficiary may designate an appropriately qualified third party to which an assignment of such Gaming Licenses can be made in compliance with the Nevada Gaming Laws; (K) TOGETHER WITH all water stock, water permits and other water rights relating to the Site; (L) TOGETHER WITH all oil and gas and other mineral rights, if any, in or pertaining to the Site and all royalty, leasehold and other rights of Trustor pertaining thereto; (M) TOGETHER WITH any and all monies and other property, real or personal, which may from time to time be subjected to the lien hereof by Trustor or 12 by anyone on its behalf or with its consent, or which may come into the possession or be subject to the control of Trustee or Beneficiary pursuant to this Deed of Trust, the Credit Agreement or any other Loan Document granting a security interest to the Beneficiary, including, without limitation, any Protective Advances (as defined in Section 4.2 hereof) under this Deed of Trust; and all of Trustor's right, title, and interest in and to all extensions, improvements, betterments, renewals, substitutes for and replacements of, and all additions, accessions, and appurtenances to, any of the foregoing that Trustor may subsequently acquire or obtain by any means, or construct, assemble, or otherwise place on any of the Trust Estate, and all conversions of any of the foregoing; it being the intention of Trustor that all property hereafter acquired by Trustor and required by this Deed of Trust, the Credit Agreement or other Loan Document granting security interest to the Beneficiary to be subject to the lien of this Deed of Trust or intended so to be shall forthwith upon the acquisition thereof by Trustor be subject to the lien of this Deed of Trust as if such property were now owned by Trustor and were specifically described in this Deed of Trust and granted hereby or pursuant hereto, and Trustee and Beneficiary are hereby authorized to receive any and all such property as and for additional security for the obligations secured or intended to be secured hereby. Trustor agrees to take any action as may reasonably be necessary to evidence and perfect such liens or security interests, including, without limitation, the execution of any documents necessary to evidence and perfect such liens or security interests; (N) TOGETHER WITH, to the extent permitted by applicable laws, any and all Accounts Receivable and all royalties, earnings, income, proceeds, products, rents, revenues, reversions, remainders, issues, profits, avails, production payments, and other benefits directly or indirectly derived or otherwise arising from any of the foregoing, all of which are hereby assigned to Beneficiary, who, except as otherwise expressly provided in this Deed of Trust (including, the provisions of Section 1.13 hereof), is authorized to collect and receive the same, to give receipts and acquittances therefor and to apply the same to the Obligations secured hereunder, whether or not then due and payable; (O) TOGETHER WITH Proceeds of the foregoing property described in Granting, Clauses (A) through (N); (P) TOGETHER WITH Trustor's rights further to assign, sell, lease, encumber or otherwise transfer or dispose of the property described in Granting Clauses (A) through (O) inclusive, above, for debt or otherwise; and 13 Trustor, for itself and its successors and assigns, covenants and agrees to and with Trustee that, at the time or times of the execution of and delivery of these presents or any instrument of further assurance with respect thereto, Trustor has good right, full power and lawful authority to assign, grant, bargain, sell, convey, pledge, release, hypothecate, warrant, and transfer its interests in the Trust Estate in the manner and form as aforesaid, and that the Trust Estate is free and clear of all liens and encumbrances whatsoever, except the Permitted Liens, and Trustor shall warrant and forever defend the above-bargained property in the quiet and peaceable possession of Trustee and its successors and assigns against all and every person or persons lawfully or otherwise claiming or to claim the whole or any part thereof, except for Permitted Liens and Permitted Encumbrances. Trustor agrees that any greater title to the Trust Estate hereafter acquired by Trustor during the term hereof shall be automatically subject hereto. ARTICLE 1. COVENANTS OF TRUSTOR The Beneficiary and Lenders have been induced to enter into the Credit Agreement and the Disbursement Agreement and to make the Loans to Borrower on the basis of the following material covenants, all agreed to by Trustor: a. Performance of Loan Documents. Trustor shall perform, observe and comply with each and every provision hereof, and with each and every provision contained in the Loan Documents and shall promptly pay to the Administrative Agent, when payment shall become due, the principal with interest thereon and all other sums required to be paid by Trustor under this Deed of Trust and the other Loan Documents. b. General Representations, Covenants and Warranties. Trustor represents, covenants and warrants that: (a) all of Trustor's representations and warranties contained in the Credit Agreement are true, correct and complete; (b) Trustor has good and marketable title to an indefeasible fee estate in the Site, free and clear of all encumbrances except the Permitted Liens and the Permitted Encumbrances, and that it has the right to hold, occupy and enjoy its interest in the Trust Estate, 14 and has good right, full power and lawful authority to subject the Trust Estate to the Lien of this Deed of Trust and to pledge the same as provided herein and Beneficiary may at all times peaceably and quietly enter upon, hold, occupy and enjoy the entire Trust Estate in accordance with the terms hereof; (c) all costs arising from construction of any Improvements, the performance of any labor and the purchase of all Tangible Collateral and Improvements have been or shall be paid when due (subject to the provisions of the Disbursement Agreement, the Credit Agreement and this Deed of Trust); (d) the Site has frontage on, and direct access for ingress and egress to dedicated street(s); (e) Trustor shall at all times conduct and operate the Trust Estate in a manner so as not to lose, or permit its affiliate to lose the right to conduct gaming activities at the Main Project; and (f) Trustor acknowledges and agrees that it presently uses, and has in the past used, certain trade or fictitious names in connection with the operation of the business at the Trust Estate, including the names "Aladdin," (all of the foregoing, collectively, the "Enumerated Names"). For all purposes under this Deed of Trust it shall be deemed that the term "Trustor" includes, in addition to "Aladdin Gaming, LLC," all trade or fictitious names (including without limitation, all filings with Clark County, Nevada for fictitious names as d/b/a's) that Aladdin (or any successor or assign thereof) now or hereafter uses, or has in the past used, including, without limitation, the Enumerated Names, with the same force and effect as if this Deed of Trust had been executed in all such names (in addition to "Aladdin Gaming, LLC"). c. Compliance With Legal Requirements. Trustor shall cause all portions of the Trust Estate and its use and occupancy to fully comply in all material respects with Legal Requirements at all times, whether or not such compliance requires work or remedial measures that are ordinary or extraordinary, foreseen or unforeseen, structural or nonstructural, or that interfere with the use or enjoyment of the Trust Estate. d. Taxes. Except as otherwise permitted by the Credit Agreement generally and within the definition of "Permitted Liens," 15 (a) Trustor shall pay all Impositions as they become due and payable and shall deliver to Beneficiary promptly upon Beneficiary's request, evidence satisfactory to Beneficiary that the Impositions have been paid or are not delinquent; (b) Trustor shall not suffer to exist, permit or initiate the joint assessment of the real and personal property, or any other procedure whereby the lien of the real property taxes and the lien of the personal property taxes shall be assessed, levied or charged to the Site as a single lien, except as may be required by law; and (c) in the event of the passage of any law deducting from the value of real property for the purposes of taxation any lien thereon, or changing in any way the taxation of deeds of trust or obligations secured thereby for state or local purposes, or the manner of collecting such taxes and imposing a tax, either directly or indirectly, on this Deed of Trust or the Notes, Trustor shall pay all such Impositions and all payments required with respect to such Impositions. e. Insurance. i. Hazard Insurance Requirements and Proceeds. (1) Hazard Insurance. Trustor shall at its sole expense obtain for, deliver to, assign and maintain for the benefit of Beneficiary, during the term of this Deed of Trust, insurance policies insuring the Trust Estate and liability insurance policies, all in accordance with the requirements of Section 7.1.4 of the Credit Agreement, Section 3.1.6 and Exhibit E of the Disbursement Agreement. Trustor shall promptly pay when due any premiums on such insurance policies and on 16 any renewals thereof and all payments required with respect to the procurement of such insurance. In the event of the foreclosure of this Deed of Trust or any other transfer of title to the Trust Estate in extinguishment of the Indebtedness and other sums secured hereby, all right, title and interest of Beneficiary in and to all insurance policies and renewals thereof then in force shall pass to the purchaser or grantee. (2) Handling of Proceeds. All Proceeds from any insurance policies shall be applied in accordance with the provisions of Section 7.1.20 of the Credit Agreement. ii. Notices Regarding Insurance Policies. Trustor covenants to promptly send to Beneficiary all notices relating to any violation of such policies or otherwise affecting Trustor's insurance coverage or ability to obtain and maintain such insurance coverage. f. Condemnation. Beneficiary is hereby authorized, at its option, to commence, appear in and prosecute in its own or Trustor's name any action or proceeding relating to any condemnation and, to settle or compromise any claim in connection therewith, and Trustor hereby appoints Beneficiary as its attorney-in-fact to take any action in Trustor's name pursuant to Beneficiary's rights hereunder. Immediately upon obtaining knowledge of the institution of any proceedings for the condemnation of the Trust Estate, or any portion thereof, Trustor shall notify the Trustee and Beneficiary of the pen- 17 dency of such proceedings. Trustor from time to time shall execute and deliver to Beneficiary all instruments requested by it to permit such participation; provided, however, that such instruments shall be deemed as supplemental to the foregoing grant of permission to Trustee and Beneficiary, and unless otherwise required, the foregoing permission shall, without more, be deemed sufficient to permit Trustee and/or Beneficiary to participate in such proceedings on behalf of Trustor. All such compensation awards, damages, claims, rights of action and Proceeds, and any other payments or relief, and the right thereto, whether paid to Beneficiary or Trustor, are included in the Trust Estate. Beneficiary, after deducting therefrom all its expenses, including reasonable attorneys fees, shall apply all Loss Proceeds in accordance with the provisions of Section 7.1.20 of the Credit Agreement. Trustor hereby waives any rights it may have under NRS 37.115, as amended or recodified from time to time. g. Care of Trust Estate. Trustor shall not permit, commit or suffer to exist any waste, impairment or deterioration of the Trust Estate or of any part thereof that in any manner materially impairs Beneficiary's security hereunder and shall not take any action which will materially increase the risk of fire or other hazard to the Trust Estate or to any part thereof. Except as permitted under the Credit Agreement or as contemplated by the Plans and Specifications, no material part of the Improvements or Tangible Collateral that are part of the Trust Estate shall be removed, demolished or materially altered, without the prior written consent of Beneficiary, which consent shall not be unreasonably withheld or delayed. Trustor shall have the right, without such consent, to remove and dispose of free from the lien of this Deed of Trust any part of the Improvements or Tangible Collateral (that is part of the Trust Estate) as from time to time may become worn out or obsolete, or otherwise not useful in connection with the operation of the Trust Estate, provided that either (i) such removal or disposition does not materially affect the value of the Trust Estate or (ii) prior to or promptly following such removal, any such property shall be replaced with other property of substan- 18 tially equal utility and of a value at least substantially equal to that of the replaced property when first acquired and free from any security interest of any other person (subject only to Permitted Liens), and by such removal and replacement Trustor shall be deemed to have subjected such replacement property to the lien of this Deed of Trust. h. Leases. i. Trustor represents and warrants that: (1) Trustor has delivered to Beneficiary true, correct and complete copies of the Ground Leases, and all Space Leases, including all amendments and modifications, written or oral existing as of the Closing Date; (2) Trustor has not executed or entered into any modifications or amendments of the Ground Leases, or the Space Leases, either orally or in writing, other than written amendments that have been disclosed to Beneficiary in writing; (3) to Trustor's knowledge, no default now exists under the Ground Leases or any Space Lease; (4) to Trustor's knowledge, no event has occurred that, with the giving of notice or the passage of time or both, would constitute such a default or would entitle Trustor or any other party under 19 the Ground Leases or any Space Lease to cancel the same or otherwise avoid its obligations; (5) Trustor has not accepted prepayments of installments of Rent under the Ground Leases or any Space Leases, except for installment payments not in excess of one month's Rent and security deposits; (6) except for the assignment effected hereby and as set forth in the Credit Agreement, Trustor has not executed any assignment or pledge of any of the Ground Leases, any of the Space Leases, the Rents, or of Trustor's right, title and interest in the same; and (7) this Deed of Trust does not constitute a violation or default under any of the Ground Leases or the Space Lease, and is and shall at all times constitute a valid lien on Trustor's interests in the Ground Leases or the Space Leases. ii. Trustor shall not enter into any Space Lease nor shall any Space Lease be modified, amended, or supplemented without Beneficiary's prior written consent, which consent shall not be unreasonably withheld or delayed. iii. Trustor shall not amend, modify or supplement any Ground Lease without Beneficiary's prior 20 written consent, which consent shall not be unreasonably withheld or delayed. iv. After an Event of Default, Trustor shall deliver to Beneficiary the executed originals of all Space Leases. i. Further Encumbrance. Trustor acknowledges and confirms its agreement to be bound by the covenants and restrictions contained in the Credit Agreement applicable to the Trust Estate. Trustor covenants and agrees to comply with all of the terms and conditions set forth in any FF&E Financing. If Trustor shall default in its obligations under any FF&E Financing, then the Beneficiary shall have the right, but not the obligation, to cure such default on Trustor's behalf and any and all sums so expended by the Beneficiary shall be secured by this Deed of Trust and shall be repaid by Trustor upon demand, together with interest thereon at the Default Rate from the date of advance. j. Actions with Respect to Permitted Liens. i. If any action or proceeding shall be brought to foreclose any Permitted Lien (regardless of whether the same is a judicial proceeding or pursuant to a power of sale contained therein), (i) no tenant of any portion of the Trust Estate shall be named by Trustor as a party defendant nor shall any action be taken with respect to the Trust Estate which would terminate any occupancy or tenancy of the Trust Estate, or any portion thereof, without the consent of Beneficiary; and (ii) any Rents, if collected through a receiver or by the holder of the Permitted Lien, shall be applied first to the obligations secured by this Deed of Trust, including principal and interest due and owing on or to become due and owing on the Notes, and then to the payment of maintenance expenses, operating charges, 21 taxes, assessments, and disbursements incurred in connection with the ownership, operation, and maintenance of the Trust Estate. ii. Trustor agrees that in the event the ownership of the Trust Estate or any part thereof becomes vested in a person other than Trustor, Beneficiary may, without notice to Trustor, deal in any way with such successor or successors in interest with reference to this Deed of Trust, the Notes and other Obligations hereby secured without in any way vitiating or discharging Trustor's or any guarantor's, surety's or endorser's liability hereunder or upon the obligations hereby secured. No sale of the Trust Estate and no forbearance to any person with respect to this Deed of Trust and no extension to any person of the time for payment of the Notes, and other sums hereby secured given by Beneficiary shall operate to release, discharge, modify, change or affect the original liability of Trustor, or such guarantor, surety or endorser either in whole or in part. k. Partial Releases of Trust Estate. Trustor may from time to time make a Permitted Disposition including, but not limited to, (i) transferring a portion of the Trust Estate (including any temporary taking) to any person legally empowered to exercise the power of eminent domain, (ii) granting utility easements reasonably necessary or desirable for the construction and/or operation of the Site and the Improvements, which grant or transfer is for the benefit of the Trust Estate, or (iii) transferring a portion of the Trust Estate as contemplated pursuant to Section 7.1.19 of the Credit Agreement (including the release of the Mall Project Parcel, and the Music Project Parcel). In each such case, Beneficiary shall execute and deliver any instruments necessary or appropriate to effectuate or confirm any such transfer or grant, free from the lien of this Deed of Trust, provided, however, that Beneficiary shall 22 execute a lien release or subordination agreement, as appropriate, for matters described in clauses (i) and (iii) above only if: i. Such transfer, grant or release is permitted by the Credit Agreement and all conditions precedent contained in the Credit Agreement for such transfer, grant or release, if any, shall have been satisfied; ii. Beneficiary and Trustee shall have received a counterpart of the instrument pursuant to which such transfer, grant or release is to be made, and each instrument which Beneficiary or Trustee is requested to execute in order to effectuate or confirm such transfer, grant or release; iii. In the case of a transfer to a Person legally empowered to exercise the power of eminent domain, which transfer involves property whose value is greater than $5,000,000, Beneficiary and Trustee shall have received an opinion of counsel, who may be counsel to Trustor, to the effect that the assignee or grantee of the portion of the Trust Estate being transferred is legally empowered to take such portion under the power of eminent domain; and iv. Beneficiary and Trustee shall have received such other instruments, certificates (including evidence of authority), endorsements (including title endorsements and date downs) and opinions as Beneficiary or Trustee may reasonably request, including, but not limited to, opinions that the proposed release is permitted by this Section 1.11. Any consideration received for a transfer to any person empowered to exercise the right of eminent domain shall be subject to Section 1.6 hereof. 23 l. Further Assurances. i. At its sole cost and without expense to Trustee or Beneficiary, and subject in all events to compliance with the Nevada Gaming Laws and other applicable Legal Requirements, Trustor shall do, execute, acknowledge and deliver any and all such further acts, deeds, conveyances, notices, requests for notices, financing statements, continuation statements, certificates, assignments, notices of assignments, agreements, instruments and further assurances, and shall mark any chattel paper, deliver any chattel paper or instruments to Beneficiary and take any other actions that are necessary, prudent, or reasonably requested by Beneficiary or Trustee to perfect or continue the perfection and first priority of Beneficiary's security interest in the Trust Estate, to protect the Trust Estate against the rights, claims, or interests of third persons other than holders of Permitted Liens or to effect the purposes of this Deed of Trust, including the security agreement and the absolute assignment of Rents contained herein, or for the filing, registering or recording thereof. ii. Trustor shall forthwith upon the execution and delivery of this Deed of Trust, and thereafter from time to time, cause this Deed of Trust and each instrument of further assurance to be filed, indexed, registered, recorded, given or delivered in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien hereof upon, and the title of Trustee and/or Beneficiary to, the Trust Estate. m. Security Agreement and Financing Statements. Trustor (as debtor) hereby grants to Beneficiary (as creditor and secured 24 party) a present and future security interest in all Account Receivables, Tangible Collateral (other than Tangible Collateral which secures an FF&E Financing), Intangible Collateral, FF&E (other than FF&E which secures an FF&E Financing), Improvements (in the case of Improvements described in clause (2) of the definition thereof, other than Improvements which secure an FF&E Financing), all other personal property now or hereafter owned or leased by Trustor or in which Trustor has or will have any interest, to the extent that such property constitutes a part of the Trust Estate (whether or not such items are stored on the premises or elsewhere), Proceeds of the foregoing comprising a portion of the Trust Estate and all proceeds of insurance policies and consideration awards arising therefrom and all proceeds, products, substitutions, and accessions therefor and thereto, subject to Beneficiary's rights to treat such property as real property as herein provided (collectively, the "Personal Property"). Trustor shall execute any and all documents and writings, including without limitation financing statements pursuant to the UCC, as may be necessary or prudent to preserve and maintain the priority of the security interest granted hereby on property which may be deemed subject to the foregoing security agreement or as Beneficiary may reasonably request, and shall pay to Beneficiary on demand any reasonable expenses incurred by Beneficiary in connection with the preparation, execution and filing of any such documents. Trustor hereby authorizes and empowers Beneficiary to execute and file, on Trustor's behalf, all financing statements and refiling and continuations thereof as advisable to create, preserve and protect said security interest (which empowerment shall be irrevocably as it is coupled with an interest). This Deed of Trust constitutes both a real property deed of trust and a "security agreement," within the meaning of the UCC, and the Trust Estate includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Trustor in the Trust Estate. Trustor by executing and delivering this Deed of Trust has granted to Beneficiary, as security of the Obligations, a security interest in the Trust Estate. 25 i. Fixture Filing. Without in any way limiting the generality of the immediately preceding, paragraph or of the definition of the Trust Estate, this Deed of Trust constitutes and shall be effective as Financing Statement filed as a fixture filing from the date of recording under Sections 9-313 and 9-402 of the UCC (NRS 104.9313 and NRS 104.9402). For such purposes, (i) the "debtor" is Trustor and its address is the address given for it in the initial paragraph of this Deed of Trust; (ii) the "secured party" is Beneficiary, and its address for the purpose of obtaining information is the address given for it in the initial paragraph of this Deed of Trust; (iii) the real estate to which the fixtures are or are to become attached is Trustor's interest in the Site and is legally described in Exhibit A attached hereto; and (iv) the record owner of such real estate is Trustor. ii. Remedies. This Deed of Trust shall be deemed a security agreement as defined in the UCC and the remedies for any violation of the covenants, terms and conditions of the agreements herein contained shall include any or all of (i) those prescribed herein, and (ii) those available under applicable law, and (iii) those available under the UCC, all at Beneficiary's sole election. In addition, a photographic or other reproduction of this Deed of Trust shall be sufficient as a financing statement for filing wherever filing may be necessary to perfect or continue the security interest granted herein. iii. Derogation of Real Property. It is the intention of the parties that the filing of a financing statement in the records normally having to do with personal property shall never be construed as in anyway derogating from or impairing the 26 express declaration and intention of the parties hereto as hereinabove stated that everything used in connection with the production of income from the Trust Estate and/or adapted for use therein and/or which is described or reflected in this Deed of Trust is, and at all times and for all purposes and in all proceedings both legal or equitable shall be regarded, as part of the real property encumbered by this Deed of Trust irrespective of whether (i) any such item is physically attached to the Improvements, (ii) serial numbers are used for the better identification of certain equipment items capable of being thus identified in a recital contained herein or in any list filed with Beneficiary, or (iii) any such item is referred to or reflected in any such financing statement so filed at any time. It is the intention of the parties that the mention in any such financing statement of (1) rights in or to the proceeds of any fire and/or hazard insurance policy, or (2) any award in eminent domain proceedings for a taking or for loss of value, or (3) Trustor's interest as lessors in any present or future Space Lease or rights to Rents, shall never be construed as in any way altering any of the rights of Beneficiary as determined by this Deed of Trust or impugning the priority of Beneficiary's real property lien granted hereby or by any other recorded document, but such mention in the financing statement is declared to be for the protection of Beneficiary in the event any court or judge shall at any time hold with respect to the matters set forth in the foregoing clauses (1), (2) and (3) that notice of Beneficiary's priority of interest to be effective against a particular class of persons, including but not limited to, the federal government and any subdivisions or 27 entity of the federal government, must be filed in the UCC records. iv. Priority; Permitted Financing of Tangible Collateral. All Personal Property of any nature whatsoever which is subject to the provisions of this security agreement shall be purchased or obtained by Trustor in its name and free and clear of any lien or encumbrance, except for Permitted Liens and the lien hereof, for use only in connection with the business and operation of the Site and the Improvements, and shall be and at all times remain free and clear of any lease or similar arrangement, chattel financing, installment sale agreement, security agreement and any encumbrance of like kind, so that Beneficiary's security interest shall attach to and vest in Trustor for the benefit of Beneficiary, with the priority herein specified, immediately upon the installation or use of the Personal Property at the Site and Trustor warrants and represents that Beneficiary's security interest in the Personal Property is a validly attached and binding security interest, properly perfected and prior to all other security interests therein except as otherwise permitted in this Deed of Trust. The foregoing shall not be construed as limiting Trustor's rights to transfer Personal Property pursuant to Permitted Dispositions or to obtain releases of Personal Property from the Lien of this Deed of Trust pursuant to Section 1.11 hereof. v. Presentation of Contractual Rights of Collateral. Trustor shall, prior to delinquency, default, or forfeiture, perform all obligations and satisfy all material conditions required on its part to be satisfied to preserve its rights and privileges under any contract, lease, license, 28 permit, or other authorization (i) under which it holds any Tangible Collateral or (ii) which constitutes part of the Intangible Collateral, except where Trustor is contesting such obligations in good faith. vi. Removal of Collateral. Except as permitted in the Credit Agreement (while in effect) for damaged or obsolete Tangible Collateral which is either no longer usable or which is removed temporarily for repair or improvement or removed for replacement on the Trust Estate with Tangible Collateral of similar function or as otherwise permitted herein, none of the Tangible Collateral shall be removed from the Trust Estate without Beneficiary's prior written consent. vii. Change of Name. Trustor shall not change its corporate or business name, or do business within the State of Nevada under any name other than such name, or any trade name(s) other than those as to which Trustor gives prior written notice to Beneficiary of its intent to use such trade names, or any other business names (if any) specified in the financing statements delivered to Beneficiary for filing in connection with the execution hereof, without providing Beneficiary with the additional financing statement(s) and any other similar documents deemed reasonably necessary by Beneficiary to assure that its security interest remains perfected and of undiminished priority in all such Personal Property notwithstanding such name change. n. Assignment of Rents and Leases. Effective upon the recordation of this Deed of Trust, the assignment of Rents and Leases set out above in Granting Clause (G) shall constitute an 29 absolute and present assignment to Beneficiary, subject to the license herein given to Trustor to collect the Rents (including the Account Receivables, to the extent they are deemed to be Rents), and shall be fully operative without any further action on the part of any party, and Trustor hereby irrevocably, absolutely, presently and unconditionally assigns to Beneficiary all Rents and Leases. This is an absolute assignment and not an assignment for security only. Beneficiary shall be entitled upon the occurrence of an Event of Default hereunder to all Rents and to enter into the Site and the Improvements to collect all such Rents, provided, however, that Beneficiary shall not be obligated to take possession of the Trust Estate, or any portion thereof. The absolute assignment contained in Granting Clause (G) shall not be deemed to impose upon Beneficiary any of the obligations or duties of Trustor provided in any Ground Lease or Space Lease (including, without limitation, any liability under the covenant of quiet enjoyment contained in any lease in the event that any lessee shall have been joined as a party defendant in any action to foreclose this Deed of Trust and shall have been barred and foreclosed thereby of all right, title and interest and equity of redemption in the Trust Estate or any part thereof). o. Expenses. i. Trustor shall pay when due and payable all costs, including without limitation, those reasonable appraisal fees, recording fees, taxes, abstract fees, title policy fees, escrow fees, attorneys' and paralegal fees, travel expenses, fees for inspecting architect(s) and engineer(s) and all other reasonable costs and expenses of every character which may hereafter be incurred by Beneficiary or any assignee of Beneficiary in connection with the preparation and execution of the amendments to the Credit Agreement and the Loan Documents, amendments thereto or instruments, agreements or documents of further assurance, the funding of 30 the indebtedness secured hereby, and the enforcement of any Loan Document; and ii. Trustor shall, upon demand by Beneficiary, reimburse Beneficiary or any assignee of Beneficiary for all such reasonable expenses which have been incurred or which shall be incurred by it; and iii. Trustor shall indemnify Beneficiary with respect to any transaction or matter in any way connected with any portion of the Trust Estate, this Deed of Trust, including any occurrence at, in, on, upon or about the Trust Estate (including any personal injury, loss of life, or property damage), or Trustor's use, occupancy, or operation of the Trust Estate, or the filing or enforcement of any mechanic's lien, or otherwise caused in whole or in part by any act, omission or negligence occurring on or at the Trust Estate, including failure to comply with any Legal Requirement or with any requirement of this Deed of Trust that applies to Trustor, except to the extent resulting from the gross negligence, fraud or willful misconduct of Trustee or Beneficiary. If Beneficiary is a party to any litigation as to which either Trustor is required to indemnify Beneficiary (or is made a defendant in any action of any kind against Trustor or relating directly or indirectly to any portion of the Trust Estate) then, at Beneficiary's option, Trustor shall undertake Beneficiary's defense, using counsel reasonably satisfactory to Beneficiary (and any settlement shall be subject to Beneficiary's consent, which consent shall not be unreasonably withheld) and in any case shall indemnify Beneficiary against such litigation. Trustor shall pay all reasonable costs and expenses, including reasonable legal costs, that 31 Beneficiary pays or incurs in connection with any such litigation. Any amount payable under any indemnity in this Deed of Trust shall be a demand obligation, shall be added to, and become a part of, the secured obligations under this Deed of Trust, shall be secured by this Deed of Trust, and shall bear interest at the interest rate specified in the Credit Agreement. Such indemnity shall survive any release of this Deed of Trust and any foreclosure. p. Beneficiary's Cure of Trustor's Default. If Trustor defaults hereunder in the payment of any tax, assessment, lien, encumbrance or other Imposition, in its obligation to furnish insurance hereunder, or in the performance or observance of any other covenant, condition or term of this Deed of Trust or any other Loan Document or any FF&E Financing, Beneficiary may, but is not obligated to, to preserve its interest in the Trust Estate, perform or observe the same, but only upon not less than five (5) Business Days notice to Trustor and all payments made (whether such payments are regular or accelerated payments) and reasonable costs and expenses incurred or paid by Beneficiary in connection therewith shall become due and payable immediately. The amounts so incurred or paid by Beneficiary, together with interest thereon at the Default Rate from the date incurred until paid by Trustor, shall be added to the indebtedness and secured by the lien of this Deed of Trust. Beneficiary is hereby empowered to enter and to authorize others to enter upon the Site or any part thereof for the purpose of performing or observing any such defaulted covenant, condition or term, without thereby becoming liable to Trustor or any person in possession holding under Trustor. No exercise of any rights under this Section 1.16 by Beneficiary shall cure or waive any Event of Default or notice of default hereunder or invalidate any act done pursuant hereto or to any such notice, but shall be cumulative of all other rights and remedies. 32 q. Defense of Actions. Trustor shall appear in and defend any action or proceeding affecting or purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee, and shall pay all costs and expenses, including cost of title search and insurance or other evidence of title, preparation of survey, and reasonable attorneys' fees in any such action or proceeding in which Beneficiary or Trustee may appear or may be joined as a party and in any suit brought by Beneficiary based upon or in connection with this Deed of Trust or any Loan Document. Nothing contained in this Section shall, however, limit the right of Beneficiary to appear in such action or proceeding with counsel of its own choice, either on its own behalf or on behalf of Trustor. ARTICLE 2. CORPORATE LOAN PROVISIONS a. Interaction with Credit Agreement. i. Incorporation by Reference. All terms, covenants, conditions, provisions and requirements of the Credit Agreement are incorporated by reference in this Deed of Trust. ii. Conflicts. In the event of any conflict or inconsistency between the provisions of this Deed of Trust and those of the Credit Agreement, the provisions of the Credit Agreement shall govern. b. Other Collateral. This Deed of Trust is one of a number of security agreements to secure the debt delivered by or on behalf of Trustor pursuant to the Credit Agreement and the other Loan Documents and securing the Obligations secured hereunder. All potential junior Lien claimants are placed on notice that, under the Credit Agreement and each other Loan Document granting a security interest to the Beneficiary or 33 otherwise (such as by separate future unrecorded agreement between Trustor and Beneficiary), other collateral for the Obligations secured hereunder (i.e., collateral other than the Trust Estate) may, under certain circumstances, be released without a corresponding reduction in the total principal amount secured by this Deed of Trust. Such a release would decrease the amount of collateral securing the same indebtedness, thereby increasing the burden on the remaining Trust Estate created and continued by this Deed of Trust. No such release shall impair the priority of the lien of this Deed of Trust. By accepting its interest in the Trust Estate, each and every junior Lien claimant shall be deemed to have acknowledged the possibility of, and consented to, any such release. Nothing in this paragraph shall impose any obligation upon Beneficiary. ARTICLE 3. DEFAULTS a. Event of Default. The term "Event of Default," wherever used in this Deed of Trust, shall mean any one or more of the events of default listed in Section 8 of the Credit Agreement (whether any such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body). ARTICLE 4. REMEDIES a. Acceleration of Maturity. If an Event of Default occurs, Beneficiary may (except that such acceleration shall be automatic if any Event of Default under clauses (a) through (e) of Section 8.1.10 of the Credit Agreement shall occur), declare 34 the Notes and all indebtedness or sums secured hereby, to be due and payable immediately, and upon such declaration such principal and interest and other sums shall immediately become due and payable without demand, presentment, notice or other requirements of any kind (all of which Trustor waives) notwithstanding anything in this Deed of Trust or any Loan Document or applicable law to the contrary. b. Protective Advances. If Trustor fails to make any payment or perform any other obligation under the Notes or any other Loan Documents, then without thereby limiting Beneficiary's other rights or remedies, waiving or releasing any of Trustor's obligations, or imposing any obligation on Beneficiary, Beneficiary may either advance any amount owing or perform any or all actions that Beneficiary considers necessary or appropriate to cure such default. All such advances shall constitute "Protective Advances." Protective Advances shall bear interest at the Default Rate from the date so advanced until paid in full. No sums advanced or performance rendered by Beneficiary shall cure, or be deemed a waiver of any Event of Default. c. Institution of Equity Proceedings. If an Event of Default occurs, Beneficiary may institute an action, suit or proceeding in equity for specific performance of this Deed of Trust, the Credit Agreement or any other Loan Document which grants a security interest for the benefit of the Beneficiary, all of which shall be specifically enforceable by injunction or other equitable remedy. Trustor waives any defense based on laches or any applicable statute of limitations. d. Beneficiary's Power of Enforcement. i. If an Event of Default occurs, Beneficiary shall be entitled, at its option and in its sole and absolute discretion, to prepare and record on its own behalf, or to deliver to Trustee for recording, if appropriate, written declaration of default and demand for sale and written Notice of 35 Breach and Election to Sell (NRS 107.080(3) (or other statutory notice) to cause the Trust Estate to be sold to satisfy the obligations hereof, and in the case of delivery to Trustee, Trustee shall cause said notice to be filed for record. ii. After the lapse of such time as may then be required by law following the recordation of said Notice of Breach and Election to Sell, and notice of sale having been given as then required by law, including compliance with all applicable Nevada Gaming Laws, Trustee without demand on Trustor, shall sell the Trust Estate or any portion thereof at the time and place fixed by it in said notice, either as a whole or in separate parcels, and in such order as it may determine, at public auction to the highest bidder, of cash in lawful money of the United States payable at the time of sale. Trustee may, for any cause it deems expedient, postpone the sale of all or any portion of said property until it shall be completed and, in every case, notice of postponement shall be given by public announcement thereof at the time and place last appointed for the sale and from time to time thereafter Trustee may postpone such sale by public announcement at the time fixed by the preceding postponement. Trustee shall execute and deliver to the purchaser its Deed, Bill of Sale, or other instrument conveying said property so sold, but without any covenant or warranty, express or implied. The recitals in such instrument of conveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Beneficiary, may bid at the sale. 36 iii. After deducting all costs, fees and expenses of Trustee and of this Deed of Trust, including, without limitation, costs of evidence of title and reasonable attorneys' fees of Trustee or Beneficiary in connection with a sale, Trustee shall apply the proceeds of such sale to payment of all sums expended under the terms hereof not then repaid, with accrued interest at the Default Rate to the payment of all other sums then secured hereby and the remainder, if any, to the person or persons legally entitled thereto as provided in NRS 40.462. iv. Subject to compliance with applicable Nevada Gaming Laws, if any Event of Default occurs, Beneficiary may, either with or without entry or taking possession of the Trust Estate, and without regard to whether or not the indebtedness and other sums secured hereby shall be due and without prejudice to the right of Beneficiary thereafter to bring an action or proceeding to foreclose or any other action for any default existing at the time such earlier action was commenced, proceed by any appropriate action or proceeding: (1) to enforce payment of the Notes, to the extent permitted by law, or the performance of any term hereof or any other right; (2) to foreclose this Deed of Trust in any manner provided by law for the foreclosure of mortgages or deeds of trust on real property and to sell, as an entirety or in separate lots or parcels, the Trust Estate or any portion thereof pursuant to the laws of the State of Nevada or under the judgment or decree of a court or courts of competent jurisdiction, and Beneficiary shall be entitled to recover in any such proceeding all costs and expenses incident thereto, including reasonable attorneys' fees in such amount as shall be awarded by the court; 37 (3) to exercise any or all of the rights and remedies available to it under the Credit Agreement; and (4) to pursue any other remedy available to it. Beneficiary shall take action either by such proceedings or by the exercise of its powers with respect to entry or taking possession, or both, as Beneficiary may determine. v. The remedies described in this Section 4.4 may be exercised with respect to all or any portion of the Personal Property, either simultaneously with the sale of any real property encumbered hereby or independent thereof. Beneficiary shall at any time be permitted to proceed with respect to all or any portion of the Personal Property in any manner permitted by the UCC. Trustor agrees that Beneficiary's inclusion of all or any portion of the Personal Property (and all personal property that is subject to a security interest in favor, or for the benefit, of Beneficiary) in a sale or other remedy exercised with respect to the real property encumbered hereby, as permitted by the UCC, is a commercially reasonable disposition of such property. e. Beneficiary's Right to Enter and Take Possession, Operate and Apply Income. i. Subject to compliance with applicable Nevada Gaming Laws, if an Event of Default occurs, (i) Trustor, upon demand of Beneficiary, shall forthwith surrender to Beneficiary the actual possession and, if and to the extent permitted by law, Beneficiary itself, or by such officers or agents as it may appoint, may enter and take possession of all the Trust Estate including the Personal Property, without liability for trespass, damages or otherwise, and may exclude Trustor and its agents and employees wholly therefrom 38 and may have joint access with Trustor to the books, papers and accounts of Trustor; and (ii) Trustor shall pay monthly in advance to Beneficiary on Beneficiary's entry into possession, or to any receiver appointed to collect the Rents, all Rents then due and payable. ii. If Trustor shall for any reason fail to surrender or deliver the Trust Estate, the Personal Property or any part thereof after Beneficiary's demand, Beneficiary may obtain a judgment or decree conferring on Beneficiary or Trustee the right to immediate possession or requiring Trustor to deliver immediate possession of all or part of such property to Beneficiary or Trustee and Trustor hereby specifically consents to the entry of such judgment or decree. Trustor shall pay to Beneficiary or Trustee, upon demand, all reasonable costs and expenses of obtaining such judgment or decree and reasonable compensation to Beneficiary or Trustee, their attorneys 'and agents, and all such costs, expenses and compensation shall, until paid, be secured by the lien of this Deed of Trust. iii. Subject to compliance with applicable Nevada Gaming Laws, upon every such entering upon or taking of possession, Beneficiary or Trustee may hold, store, use, operate, manage and control the Trust Estate and conduct the business thereof, and, from time to time in its sole and absolute discretion and without being under any duty to so act: (1) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements 39 thereto and thereon and purchase or otherwise acquire additional fixtures, personalty and other property; (2) insure or keep the Trust Estate insured; (3) manage and operate the Trust Estate and exercise all the rights and powers of Trustor in their name or otherwise with respect to the same; (4) enter into agreements with others to exercise the powers herein granted Beneficiary or Trustee, all as Beneficiary or Trustee from time to time may determine; and, subject to the absolute assignment of the Rents and Leases to Beneficiary, Beneficiary or Trustee may collect and receive all the Rents, including those past due as well as those accruing thereafter; and shall apply the monies so received by Beneficiary or Trustee in such priority as Beneficiary may determine to (1) the payment of interest and principal due and payable on the Notes, (2) the deposits for taxes and assessments and insurance premiums due, (3) the cost of insurance, taxes, assessments and other proper charges upon the Trust Estate or any part thereof; (4) the compensation, expenses and 40 disbursements of the agents, attorneys and other representatives of Beneficiary or Trustee; and (5) any other charges or costs required to be paid by Trustor under the terms hereof; and (5) rent or sublet the Trust Estate or any portion thereof for any purpose permitted by this Deed of Trust. Beneficiary, or Trustee shall surrender possession of the Trust Estate and the Personal Property to Trustor only when all accrued and unpaid such interest and principal, tax and insurance deposits, and all amounts under any of the terms of the Credit Agreement, this Deed of Trust or any other Loan Document, shall have been paid in full. The same right of taking possession, however, shall exist if any subsequent Event of Default shall occur and be continuing. f. Leases. Beneficiary is authorized to foreclose this Deed of Trust subject to the rights of any tenants of the Trust Estate, and the failure to make any such tenants parties defendant to any such foreclosure proceedings and to foreclose their rights shall not be, nor be asserted by Trustor to be, a defense to any proceedings instituted by Beneficiary to collect the sums secured hereby or to collect any deficiency remaining unpaid after the foreclosure sale of the Trust Estate, or any portion thereof. Unless otherwise agreed by Beneficiary, in writing, all Space Leases executed subsequent to the date hereof, or any part thereof, shall be subordinate and inferior to the lien of this Deed of Trust; provided, however that (i) Beneficiary may require that a non-disturbance and attornment agreement in connection with certain Space Leases; and (ii) from time to time Beneficiary may execute and record among the land records of the jurisdiction where this Deed of Trust is recorded, subordination statements with respect to such of said Space Leases as Beneficiary may designate in its sole discretion, whereby the Space Leases so designated by Beneficiary 41 shall be made superior to the lien of this Deed of Trust for the term set forth in such subordination statement. From and after the recordation of such subordination statements, and for the respective periods as may be set forth therein, the Space Leases therein referred to shall be superior to the lien of this Deed of Trust and shall not be affected by any foreclosure hereof. All such Space Leases shall contain a provision to the effect that the Trustor and Space Lessee recognize the right of Beneficiary to elect and to effect such subordination of this Deed of Trust and consents thereto. g. Purchase by Beneficiary. Upon any foreclosure sale (whether judicial or nonjudicial), Beneficiary may bid for and purchase the property subject to such sale and, upon compliance with the terms of sale, may hold, retain and possess and dispose of such property in its own absolute right without further accountability. h. Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws. Trustor agrees to the full extent permitted by law that if an Event of Default occurs, neither Trustor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Deed of Trust or the absolute sale of the Trust Estate or any portion thereof or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereof, and Trustor for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may lawfully so do, the benefit of all such laws, and any and all right to have the assets comprising the Trust Estate marshaled upon any foreclosure of the lien hereof and agrees that Trustee or any court having jurisdiction to foreclose such lien may sell the Trust Estate in part or as an entirety. i. Receiver. If an Event of Default occurs, Beneficiary, to the extent permitted by law and subject to compliance with all applicable Nevada Gaming Laws, and without regard to the 42 value, adequacy or occupancy of the security for the indebtedness and other sums secured hereby, shall be entitled as a matter of right if it so elects to the appointment of a receiver to enter upon and take possession of the Trust Estate and to collect all Rents and apply the same as the court may direct, and such receiver may be appointed by any court of competent jurisdiction upon application by Beneficiary. Beneficiary may have a receiver appointed without notice to Trustor or any third party, and Beneficiary may waive any requirement that the receiver post a bond. Beneficiary shall have the power to designate and select the Person who shall serve as the receiver and to negotiate all terms and conditions under which such receiver shall serve. Any receiver appointed on Beneficiary's behalf may be an Affiliate of Beneficiary. The expenses, including receiver's fees, attorneys' fees, costs and agent's compensation, incurred pursuant to the powers herein contained shall be secured by this Deed of Trust. The right to enter and take possession of and to manage and operate the Trust Estate and to collect all Rents, whether by a receiver or otherwise, shall be cumulative to any other right or remedy available to Beneficiary under this Deed of Trust, the Credit Agreement or otherwise available to Beneficiary and may be exercised concurrently therewith or independently thereof. Beneficiary shall be liable to account only for such Rents (including, without limitation, security deposits) actually received by Beneficiary, whether received pursuant to this Section or any other provision hereof. Notwithstanding the appointment of any receiver or other custodian, Beneficiary shall be entitled as pledgee to the possession and control of any cash, deposits, or instruments at the time held by, or payable or deliverable under the terms of this Deed of Trust to, Beneficiary. j. Suits to Protect the Trust Estate. Beneficiary shall have the power and authority to institute and maintain any suits and proceedings as Beneficiary, in its sole and absolute discretion, may deem advisable (a) to prevent any impairment of the Trust Estate by any acts which may be unlawful or in violation of this Deed of Trust, (b) to preserve or protect its interest in 43 the Trust Estate, or (c) to restrain the enforcement of or compliance with any legislation or other Legal Requirement that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order might impair the security hereunder or be prejudicial to Beneficiary's interest. k. Proofs of Claim. In the case of any receivership, Insolvency, Bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceedings affecting Trustor, or, to the extent the same would result in an Event of Default hereunder, any Subsidiary, or any guarantor, co-maker or endorser of any of Trustor's obligations, its creditors or its property, Beneficiary, to the extent permitted by law, shall be entitled to file such proofs of claim or other documents as it may deem to be necessary or advisable in order to have its claims allowed in such proceedings for the entire amount due and payable by Trustor under the Notes, any other Loan Document, at the date of the institution of such proceedings, and for any additional amounts which may become due and payable by Trustor after such date. l. Trustor to Pay the Notes on Any Default in Payment: Application of Monies by Beneficiary. i. In case of a foreclosure sale of all or any part of the Trust Estate and of the application of the proceeds of sale to the payment of the sums secured hereby, Beneficiary shall be entitled to enforce payment from Trustor of any additional amounts then remaining due and unpaid and to recover judgment against Trustor for any portion thereof remaining unpaid, with interest at the Default Rate in accordance with Section 4.19 hereof. ii. Trustor hereby agrees to the extent permitted by law, that no recovery of any such judgment by Beneficiary or other action by Beneficiary and no attachment or levy of any execution upon any of the Trust Estate or 44 any other property shall in any way affect the Lien and security interest of this Deed of Trust upon the Trust Estate or any part thereof or any Lien, rights, powers or remedies of Beneficiary hereunder, but such Lien, rights, powers and remedies shall continue unimpaired as before. iii. Any monies collected or received by Beneficiary under this Section 4.12 shall be first applied to the payment of reasonable compensation, expenses and disbursements of the agents, attorneys and other representatives of Beneficiary, and the balance remaining shall be applied to the payment of amounts due and unpaid under the Notes. iv. The provisions of this Section shall not be deemed to limit or otherwise modify the provisions of any guaranty of the indebtedness evidenced by the Notes. m. Delay or Omission; No Waiver. No delay or omission of Beneficiary to exercise any right, power or remedy upon any Event of Default shall exhaust or impair any such right, power or remedy or shall be construed to waive any such Event of Default or to constitute acquiescence therein. Every right, power and remedy given to Beneficiary whether contained herein or in the Credit Agreement or otherwise available to Beneficiary may be exercised from time to time and as often as may be deemed expedient by Beneficiary. n. No Waiver of One Default to Affect Another. No waiver of any Event of Default hereunder shall extend to or affect any subsequent or any other Event of Default then existing, or impair any rights, powers or remedies consequent thereon. If Beneficiary (a) grants forbearance or an extension of time for the payment of any sums secured hereby; (b) takes other or additional security for the payment thereof; (c) waives or does not exercise any right granted in the Notes, the Credit Agreement, this Deed of Trust, or any other Loan Document; (d) releases any part of the Trust Estate from the lien or security 45 interest of this Deed of Trust or any other instrument securing the Notes; (e) consents to the filing of any map, plat or replat of the Site (to the extent such consent is required); (f) consents to the granting of any easement on the Site (to the extent such consent is required); or (g) makes or consents to any agreement changing the terms of this Deed of Trust, the Credit Agreement or any other Loan Document for the benefit of Beneficiary subordinating the lien or any charge hereof, no such act or omission shall release, discharge, modify, change or affect the original liability under the Notes, this Deed of Trust, the Credit Agreement or any other Loan Document for the benefit of Beneficiary or otherwise of Trustor, or any subsequent purchaser of the Trust Estate or any part thereof or any maker, co-signer, surety or guarantor. No such act or omission shall preclude Beneficiary from exercising any right, power or privilege herein granted or intended to be ranted in case of any Event of Default then existing or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by Beneficiary, shall the lien or security interest of this Deed of Trust be altered thereby, except to the extent expressly provided in any releases, maps, easements or subordinations described in clause (d), (e), (f) or (g) above of this Section 4.14. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Trust Estate, Beneficiary, without notice to any person, firm or corporation, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Trust Estate or the indebtedness secured hereby, or with reference to any of the terms or conditions hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any of the liabilities or undertakings hereunder, or waiving its right to declare such sale or transfer an Event of Default as provided herein. Notwithstanding anything to the contrary contained in this Deed of Trust, the Credit Agreement or any other Loan Documents, (i) in the case of any nonmonetary Event of Default, Beneficiary may continue to accept payments due hereunder without thereby waiving the existence of such or any other Event of Default and (ii) in the 46 case of any monetary Event of Default, Beneficiary may accept partial payments of any sums due hereunder without thereby waiving the existence of such Event of Default if the partial payment is not sufficient to completely cure such Event of Default. o. Discontinuance of Proceedings; Position of Parties Restored. If Beneficiary shall have proceeded to enforce any right or remedy under this Deed of Trust by foreclosure, entry of judgement or otherwise and such proceedings shall have been discontinued or abandoned for any reason, or such proceedings shall have resulted in a final determination adverse to Beneficiary, then and in every such case Trustor and Beneficiary shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of Beneficiary shall continue as if no such proceedings had occurred or had been taken. p. Remedies Cumulative. No right, power or remedy, including without limitation remedies with respect to any security for the Notes, conferred upon or reserved to Beneficiary by this Deed of Trust, the Credit Agreement or any other Loan Document is exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or under the Credit Agreement or any other Loan Document, now or hereafter existing at law, in equity or by statute, and Beneficiary shall be entitled to resort to such rights, powers, remedies or security as Beneficiary shall in its sole and absolute discretion deem advisable. q. Interest After Event of Default. If an Event of Default shall have occurred and is continuing, all sums outstanding and unpaid under the Notes and this Deed of Trust shall, at Beneficiary's option, bear interest at the Default Rate until such Event of Default has been cured. Trustor's obligation to pay such interest shall be secured by this Deed of Trust. 47 r. Foreclosure; Expenses of Litigation. If Trustee forecloses, reasonable attorneys' fees for services in the supervision of said foreclosure proceeding shall be allowed to the Trustee and Beneficiary as part of the foreclosure costs. In the event of foreclosure of the lien hereof, there shall be allowed and included as additional indebtedness all reasonable expenditures and expenses which may be paid or incurred by or on behalf of Beneficiary for attorneys' fees, appraiser's fees, outlays for documentary and expert evidence, stenographers' charges, publication costs, and costs (which may be estimated as to items to be expended after foreclosure sale or entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies and guarantees, and similar data and assurances with respect to title as Beneficiary may deem reasonably advisable either to prosecute such suit or to evidence to a bidder at any sale which may be had pursuant to such decree the true condition of the title to or the value of the Trust Estate or any portion thereof. All expenditures and expenses of the nature in this section mentioned, and such expenses and fees as may be incurred in the protection of the Trust Estate and the maintenance of the lien and security interest of this Deed of Trust, including the fees of any attorney employed by Beneficiary in any litigation or proceeding affecting this Deed of Trust or any Loan Document, the Trust Estate or any portion thereof, including, without limitation, civil, probate, appellate and bankruptcy proceedings, or in preparation for the commencement or defense of any proceeding or threatened suit or proceeding, shall be immediately due and payable by Trustor, with interest thereon at the Default Rate, and shall be secured by this Deed of Trust. Trustee waives its right to any statutory fee in connection with any judicial or nonjudicial foreclosure of the lien hereof and agrees to accept a reasonable fee for such services. s. Deficiency Judgments. If after foreclosure of this Deed of Trust or Trustee's sale hereunder, there shall remain any deficiency with respect to any amounts payable under the Notes or hereunder or any amounts secured hereby, and Beneficiary shall institute any proceedings to recover such defi- 48 ciency or deficiencies, all such amounts shall continue to bear interest at the Default Rate. Trustor waives any defense to Beneficiary's recovery against Trustor of any deficiency after any foreclosure sale of the Trust Estate. Trustor expressly waives any defense or benefits that may be derived from any statute granting Trustor any defense to any such recovery by Beneficiary. In addition, Beneficiary and Trustee shall be entitled to recovery of all of their reasonable costs and expenditures (including without limitation any court imposed costs) in connection with such proceedings, including their reasonable attorneys' fees, appraisal fees and the other costs, fees and expenditures referred to in Section 4.18 above. This provision shall survive any foreclosure or sale of the Trust Estate, any portion thereof and/or the extinguishment of the lien hereof. t. Waiver of Jury Trial. The waiver of jury trial contained in the Credit Agreement is hereby incorporated herein by this reference. u. Exculpation of Beneficiary. The acceptance by Beneficiary of the assignment contained herein with all of the rights, powers, privileges and authority created hereby shall not, prior to entry upon and taking possession of the Trust Estate by Beneficiary, be deemed or construed to make Beneficiary a "mortgagee in possession"; nor thereafter or at any time or in any event obligate Beneficiary to appear in or defend any action or proceeding relating to the Space Leases, the Rents or the Trust Estate, or to take any action hereunder or to expend any money or incur any expenses or perform or discharge any obligation, duty or liability under any Ground Lease or any Space Lease or to assume any obligation or responsibility for any security deposits or other deposits except to the extent such deposits are actually received by Beneficiary, nor shall Beneficiary, prior to such entry and taking, be liable in any way for any injury or damage to person or property sustained by any Person in or about the Trust Estate. 49 ARTICLE 5. RIGHTS AND RESPONSIBILITIES OF TRUSTEE; OTHER PROVISIONS RELATING TO TRUSTEE Notwithstanding anything to the contrary in this Deed of Trust, Trustor and Beneficiary agree as follows. a. Exercise of Remedies by Trustee. To the extent that this Deed of Trust or applicable law authorizes or empowers, or does not require approval for, Beneficiary to exercise any remedies set forth in Article 4 hereof or otherwise, or perform any acts in connection therewith, Trustee (but not to the exclusion of Beneficiary unless so required under the law of the State of Nevada) shall have the power to exercise any or all such remedies, and to perform any acts provided for in this Deed of Trust in connection therewith, all for the benefit of Beneficiary and on Beneficiary's behalf in accordance with applicable law of the State of Nevada. In connection therewith, Trustee: (a) shall not exercise, or waive the exercise of, any Beneficiary's remedies (other than any rights of Trustee to any indemnity or reimbursement), except at Beneficiary's request, and (b) shall exercise, or waive the exercise of, any or all of Beneficiary's remedies at Beneficiary's request, and in accordance with Beneficiary's directions as to the manner of such exercise or waiver. Trustee may, however, decline to follow Beneficiary's request or direction if Trustee shall be advised by counsel that the action or proceeding, or manner thereof, so directed may not lawfully be taken or waived. b. Rights and Privileges of Trustee. To the extent that this Deed of Trust requires Trustor to indemnify Beneficiary or reimburse Beneficiary for any expenditures Beneficiary may incur, Trustee shall be entitled to the same indemnity and the same rights to reimbursement of expenses as Beneficiary, subject to such limitations and conditions as would apply in the case of Beneficiary. To the extent that this Deed of Trust negates or limits Beneficiary's liability as to any matter, Trustee shall be entitled to the same negation or limitation of 50 liability. To the extent that Trustor, pursuant to this Deed of Trust, appoints Beneficiary as Trustor's attorney in fact for any purpose, Beneficiary or (when so instructed by Beneficiary) Trustee shall be entitled to act on Trustor's behalf without joinder or confirmation by the other. c. Resignation or Replacement of Trustee. Trustee may resign by an instrument in writing addressed to Beneficiary, and Trustee may be removed at any time with or without cause (i.e., in Beneficiary's sole and absolute discretion) by an instrument in writing executed by Beneficiary. In case of the death, resignation, removal or disqualification of Trustee or if for any reason Beneficiary shall deem it desirable to appoint a substitute, successor or replacement Trustee to act instead of Trustee originally named (or in place of any substitute, successor or replacement Trustee), then Beneficiary shall have the right and is hereby authorized and empowered to appoint a successor, substitute or replacement Trustee, without any formality other than appointment and designation in writing executed by Beneficiary, which instrument shall be recorded if required by the law of the State of Nevada. The laws of the State of Nevada shall govern the qualifications of any Trustee. The authority conferred upon Trustee by this Deed of Trust shall automatically extend to any and all other successor, substitute and replacement Trustee(s) successively until the obligations secured hereunder have been paid in full or the Trust Estate has been sold hereunder or released in accordance with the provisions of the Credit Agreement and each other Loan Document to which the Beneficiary is a party or which grants a security for the benefit of the Beneficiary. Beneficiary's written appointment and designation of any Trustee shall be full evidence of Beneficiary's right and authority to make the same and of all facts therein recited. No confirmation, authorization, approval or other action by Trustor shall be required in connection with any resignation or other replacement of Trustee. d. Authority of Beneficiary. If Beneficiary is a banking corporation, state banking corporation or a national banking associa- 51 tion and the instrument of appointment of any successor or replacement Trustee is executed on Beneficiary's behalf by an officer of such corporation, state banking corporation or national banking association, then such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of Beneficiary. e. Effect of Appointment of Successor Trustee. Upon the appointment and designation of any successor, substitute or replacement Trustee, and subject to compliance with applicable laws, Trustee's entire estate and title in the Trust Estate shall vest in the designated successor, substitute or replacement Trustee. Such successor, substitute or replacement Trustee shall thereupon succeed to and shall hold, possess and execute all the rights, powers, privileges, immunities and duties herein conferred upon Trustee. All references herein to Trustee shall be deemed to refer to Trustee (including any successor or substitute appointed and designated as herein provided) from time to time acting hereunder. f. Confirmation of Transfer and Succession. Upon the written request of Beneficiary or of any successor, substitute or replacement Trustee, any former Trustee ceasing to act shall execute and deliver an instrument transferring to such successor, substitute or replacement Trustee all of the right, title, estate and interest in the Trust Estate of Trustee so ceasing to act, together with all the rights, powers, privileges, immunities and duties herein conferred upon Trustee, and shall duly assign, transfer and deliver all properties and moneys held by said Trustee hereunder to said successor, substitute or replacement Trustee. g. Exculpation. Trustee shall not be liable for any error of judgment or act done by Trustee in good faith, or otherwise be responsible or accountable under any circumstances whatsoever, except for Trustee's negligence, misconduct or knowing violation of law. Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting 52 any action taken or proposed to be taken by it hereunder, believed by it in good faith to be genuine. All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law). Trustee shall be under no liability for interest on any moneys received by it hereunder. h. Endorsement and Execution of Documents. Upon Beneficiary's written request, Trustee shall, without liability or notice to Trustor, execute, consent to, or join in any instrument or agreement in connection with or necessary to effectuate the purposes of the Credit Agreement and each other Loan Document to which the Beneficiary is a party or which grants a security interest for the benefit of the Beneficiary. Trustor hereby irrevocably designates Trustee as its attorney in fact to execute, acknowledge and deliver, on Trustor's behalf and in Trustor's name, all instruments or agreements necessary to implement any provision(s) of this Deed of Trust or to further perfect the lien created by this Deed of Trust on the Trust Estate. This power of attorney shall be deemed to be coupled with an interest and shall survive any disability of Trustor. i. Multiple Trustees. If Beneficiary appoints multiple trustees, then any Trustee, individually, may exercise all powers granted to Trustee under this instrument, without the need for action by any other Trustee(s). j. Terms of Trustee's Acceptance. Trustee accepts the trust created by this Deed of Trust upon the following terms and conditions: i. Delegation. Trustee may exercise any of its powers through appointment of attorneys) in fact or agents. ii. Counsel. Trustee may select and employ legal counsel (including any law firm representing 53 Beneficiary). Trustor shall reimburse all reasonable legal fees and expenses that Trustee may thereby incur. iii. Security. Trustee shall be under no obligation to take any action upon any Event of Default unless furnished security or indemnity, in form satisfactory to Trustee, against costs, expenses, and liabilities that Trustee may incur. iv. Costs and Expenses. Trustor shall reimburse Trustee, as part of the Obligations secured hereunder, for all reasonable disbursements and expenses incurred by reason of and as provided for in this Deed of Trust, including any of the foregoing incurred in Trustee's administering and executing the trust created by this Deed of Trust and performing Trustee's duties and exercising Trustee's powers under this Deed of Trust. v. Release. Upon satisfaction of the conditions for reconveyance contained in Section 6.10 hereof, Beneficiary shall request that Trustee release this Deed of Trust and Trustee shall release this Deed of Trust and reconvey to the Trust Estate in accordance with Section 6. 10 hereof, provided, however, that Trustor shall pay all costs of recordation, if any, and all of Trustee's and Beneficiary's costs and expenses in connection with such release, including, but not limited to, reasonable attorneys' fees. 54 ARTICLE 6. MISCELLANEOUS PROVISIONS a. Heirs, Successors and Assigns Included in Parties. Whenever one of the parties hereto is named or referred to herein, the heirs, successors and assigns of such party shall be included, and subject to the limitations set forth in the Credit Agreement, all covenants and agreements contained in this Deed of Trust, by or on behalf of Trustor or Beneficiary shall bind and inure to the benefit of its heirs, successors and assigns, whether so expressed or not. b. Addresses for Notices, Etc. All notices and other communications provided to any party hereto under this Deed of Trust or any other Loan Document shall be in writing and addressed, delivered or transmitted to such party at the address or facsimile number set forth below or at such other address or facsimile number as may be designated by such party in a notice to the other parties. All such notices and communications shall be deemed to have been properly given if (x) hand delivered with receipt acknowledged by the recipient; (y) if mailed, upon the fifth (5th) Business Day after the date on which it is deposited in registered or certified mail, postage prepaid, return receipt requested or (z) if by Federal Express or other nationally-recognized express courier service with instructions to deliver on the following Business Day, on the next Business Day after delivery to such express courier service. Notices and other communications may be given by facsimile but shall be deemed to be received upon automatic facsimile confirmation of receipt thereof by the intended recipient machine therefor with the original of such notice or communication to be given in the manner provided in the second sentence of this Section; provided, however, that the failure to deliver a copy in accordance with the second sentence of this Section shall not invalidate the effectiveness of such facsimile notice. 55 Beneficiary: The Bank of Nova Scotia 580 California Street 21st Floor San Francisco, California 94104 Attention: Mr. Alan Pendergast Telephone: (415) 616-4155 Telefax: (415) 397-0791 With a copy to: The Bank of Nova Scotia Loan Administration 600 Peachtree Street, N.E. Suite 2700 Atlanta, Georgia 30308 Attention: Marianne Velker Telephone: (404) 877-1500 Telefax: (404) 888-8988 Trustor: Aladdin Gaming, LLC 2810 West Charleston Boulevard Suite F58 Las Vegas, Nevada 89102 Attention: Jack Sommer Telephone: (702) 870-1234 Telefax: (702) 870-8733 Trustee: Stewart Title of Nevada 3800 Howard Hughes Parkway Suite 500 Las Vegas, Nevada 89109 Attention: Linda J. Jones Telephone: (702) 791-7000 Telefax: (702) 733-6401 Any Person may change the address to which any such notice, report, demand or other instrument is to be delivered or mailed to that person, by furnishing written notice of such change to the other parties, but no such notice of change shall be effective unless and until received by such other parties. 56 c. Headings. The headings of the articles, sections, paragraphs and subdivisions of this Deed of Trust are for convenience of reference only, are not to be considered a part hereof, and shall not limit or expand or otherwise affect any of the terms hereof. d. Invalid Provisions to Affect No Others. In the event that any of the covenants, agreements, terms or provisions contained herein or in the Notes, the Credit Agreement or any other Loan Document shall be invalid, illegal or unenforceable in any respect, the validity of the lien hereof and the remaining covenants, agreements, terms or provisions contained herein or in the Notes, the Credit Agreement or any other Loan Document shall be in no way affected, prejudiced or disturbed thereby. To the extent permitted by law, Trustor waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. e. Changes and Priority Over Intervening Liens. Neither this Deed of Trust nor any term hereof may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. Any agreement hereafter made by Trustor and Beneficiary relating to this Deed of Trust shall be superior to the rights of the holder of any intervening lien or encumbrance. f. Estoppel Certificates. Within ten (10) Business Days after Beneficiary's written request, Trustor shall from time to time execute a certificate, in recordable form (an "Estoppel Certificate"), stating, except to the extent it would be inaccurate to so state: (a) the current amount of the Obligations secured hereunder and all elements thereof, including principal, interest, and all other elements; (b) that Trustor has no defense, offset, claim, counterclaim, right of recoupment, deduction, or reduction against any of the Obligations secured hereunder; (c) that none of the Loan Documents to which the Beneficiary is a party or which grants a security interest for the benefit of the Beneficiary have been amended, whether orally or in writing; 57 (d) that Trustor has no claims against Beneficiary of any kind; (e) that any Power of Attorney granted to Beneficiary is in full force and effect; and (f) such other matters relating to this Deed of Trust, and each other Loan Document to which the Beneficiary is a party or which grants a security interest for the benefit of the Beneficiary and the relationship of Trustor and Beneficiary as Beneficiary shall request. In addition, the Estoppel Certificate shall set forth the reasons why it would be inaccurate to make any of the foregoing assurances ("a" through "f"). g. Waiver of Setoff and Counterclaim. All amounts due under this Deed of Trust, the Notes, the Credit Agreement and each other Loan Document to which the Beneficiary is a party or which grants a security interest for the benefit of the Beneficiary shall be payable without setoff, counterclaim or any deduction whatsoever. Trustor hereby waives the right to assert a counterclaim (other than a compulsory counterclaim) in any action or proceeding brought against it by Beneficiary and/or any Lender under the Credit Agreement, or arising out of or in any way connected with this Deed of Trust, the other Loan Documents to which the Beneficiary is a party or which grants a security interest for the benefit of the Beneficiary or the Obligations. h. Governing Law. The Credit Agreement and the Notes provide that they are governed by, and construed and enforced in accordance with, the laws of the State of New York. This Deed of Trust shall also be construed under and governed by the laws of the State of New York; provided, however, that (i) the terms and provisions of this Deed of Trust pertaining to the priority, perfection, enforcement or realization by Beneficiary of its respective rights and remedies under this Deed of Trust with respect to the Trust Estate shall be governed and construed and enforced in accordance-with the internal laws of the State of Nevada (the "State") without giving effect to the conflicts-of-law rules and principles of the State; (ii) Trustor agrees that to the extent deficiency judgments are available under the laws of the State after a foreclosure (judicial or 58 nonjudicial) of the Trust Estate, or any portion thereof, or any other realization thereon by Beneficiary or any Lender under the Credit Agreement, Beneficiary or such Lender, as the case may be, shall have the right to seek such a deficiency judgment against Trustor in the State; and (iii) Trustor agrees that if Beneficiary or any Lender under the Credit Agreement obtains a deficiency judgment in another state against Trustor, then Beneficiary or such Lender, as the case may be, shall have the right to enforce such judgment in the State to the extent permitted under the laws of the State, as well as in other states. Nothing contained in this Section shall be deemed to expand the limitations set forth in Section 10.9 of the Credit Agreement. i. Required Notices. Trustor shall notify Beneficiary promptly of the occurrence of any of the following and shall immediately provide Beneficiary a copy of the notice or documents referred to: (i) receipt of notice from any Governmental Instrumentality relating to all or any material part of the Trust Estate if such notice relates to a default or act, omission or circumstance which would result in a default after notice or passage of time or both; or (ii) receipt of any notice from any tenant leasing all or any material portion of the Trust Estate if such notice relates to a default or act, omission or circumstance which would result in a default after notice or passage of time or both. j. Reconveyance. Upon written request of Trustor after the Obligations secured hereby have been satisfied in full, Beneficiary shall cause Trustee to reconvey, without warranty, the property then held hereunder. The recitals in such reconveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto." k. Attorneys' Fees. Without limiting any other provision contained herein, Trustor agrees to pay all costs of Beneficiary or Trustee incurred in connection with the enforcement of this 59 Deed of Trust, the Credit Agreement or any other Loan Document, including without limitation all reasonable attorneys' fees whether or not suit is commenced, and including, without limitation, fees incurred in connection with any probate, appellate, bankruptcy, deficiency or any other litigation proceedings, all of which sums shall be secured hereby. l. Late Charges. By accepting payment of any sum secured hereby after its due date, Beneficiary does not waive its right to collect any late charge thereon or interest thereon at the interest rate on the Notes, if so provided, not then paid or its right either to require prompt payment when due of all other sums so secured or to declare default for failure to pay any amounts not so paid. m. Cost of Accounting. Trustor shall pay to Beneficiary, for and on account of the preparation and rendition of any accounting, which Trustor may be entitled to require under any law or statute now or hereafter providing therefor, the reasonable costs thereof. n. Right of Entry. Beneficiary may at any reasonable time or times and on reasonable prior written notice to Trustor make or cause to be made entry upon and inspections of the Trust Estate or any part thereof in person or by agent. o. Corrections. Trustor shall, upon request of Beneficiary or Trustee, promptly correct any defect, error or omission which may be discovered in the contents of this Deed of Trust (including, but not limited to, in the exhibits and schedules attached hereto) or in the execution or acknowledgement hereof, and shall execute, acknowledge and deliver such further instruments and do such further acts as may be necessary or as may be reasonably requested by Trustee to carry out more effectively the purposes of this Deed of Trust, to subject to the lien and security interest hereby created any of Trustor's properties, rights or interest covered or intended to be covered hereby, and to perfect and maintain such lien and security interest. 60 p. Statute of Limitations. To the fullest extent allowed by the law, the right to plead, use or assert any statute of limitations as a plea or defense or bar of any kind, or for any purpose, to any debt, demand or obligation secured or to be secured hereby, or to any complaint or other pleading or proceeding filed, instituted or maintained for the purpose of enforcing this Deed of Trust or any rights hereunder, is hereby waived by Trustor. q. Subrogation. Should the proceeds of any loan or advance made by Beneficiary to Trustor, repayment of which is hereby secured, or any part thereof, or any amount paid out or advanced by Beneficiary, be used directly or indirectly to pay off, discharge, or satisfy, in whole or in part, any prior or superior lien or encumbrance upon the Trust Estate, or any part thereof, then, as additional security hereunder, Trustee, on behalf of Beneficiary, shall be subrogated to any and all rights, superior titles, liens, and equities owned or claimed by any owner or holder of said outstanding liens, charges, and indebtedness, however remote, regardless of whether said liens, charges, and indebtedness are acquired by assignment or have been released of record by the holder thereof upon payment. r. Joint and Several Liability. All obligations of Trustor hereunder, if more than one, are joint and several. Recourse for deficiency after sale hereunder may be had against the property of Trustor, without, however, creating a present or other lien or charge thereon. s. Homestead. Trustor hereby waives and renounces all homestead and exemption rights provided by the constitution and the laws of the United States and of any state, in and to the Trust Estate as against the collection of the Obligations, or any part hereof. t. Context. In this Deed of Trust, whenever the context so requires, the neuter includes the masculine and feminine, and the singular including the plural, and vice versa. 61 u. Time. Time is of the essence of each and every term, covenant and condition hereof. Unless otherwise specified herein, any reference to "days" in this Deed of Trust shall be deemed to mean "calendar days." v. Interpretation. As used in this Deed of Trust unless the context clearly requires otherwise: The terms "herein" or "hereunder" and similar terms without reference to a particular section shall refer to the entire Deed of Trust and not just to the section in which such terms appear; the term "lien" shall also mean a security interest, and the term "security interest" shall also mean a lien. w. Effect of NRS Section 107.030. To the extent not inconsistent herewith, the provisions of NRS Section 107.030 are included herein by reference. x. Amendments. This Deed of Trust cannot be waived, changed, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of any waiver, change, discharge or termination is sought and only as permitted by the provisions of the Credit Agreement. ARTICLE 7. POWER OF ATTORNEY a. Grant of Power. Trustor irrevocably appoints Beneficiary and any successor thereto as its attorney-in-fact (which appointment Trustor hereby acknowledges is coupled with an interest), with full power and authority, including the power of substitution, exercisable only during the continuance of an Event of Default to act for Trustor in its name, place and stead as hereinafter provided: 62 i. Possession and Completion. To take possession of the Site and the Improvements, remove all employees, contractors and agents of Trustor therefrom, complete or attempt to complete the work of construction, and market, sell or lease the Site and the Improvements. ii. Plans. To make such additions, changes and corrections in the current Plans and Specifications as may be necessary or desirable, in Beneficiary's reasonable discretion, or as it deems proper to complete the Main Project. iii. Employment of Others. To employ such contractors, subcontractors, suppliers, architects, inspectors, consultants, property managers and other agents as Beneficiary, in its discretion, deems proper for the completion of the Main Project, for the protection or clearance of title to the Site or Personal Property, or for the protection of Beneficiary's interests with respect thereto. iv. Security Guards. To employ watchmen to protect the Site and the Improvements from injury. v. Compromise Claims. To pay, settle or compromise all bills and claims then existing or thereafter arising against Trustor, which Beneficiary, in its discretion, deems proper for the protection or clearance of title to the Site or Personal Property, or for the protection of Beneficiary's interests with respect thereto. vi. Legal Proceedings. To prosecute and defend all actions and proceedings in connection with the Site or the Improvements. 63 vii. Other Acts. To execute, acknowledge and deliver all other instruments and documents in the name of Trustor that are necessary or desirable, to exercise Trustor's rights under all contracts concerning the Site or the Improvements, including, without limitation, under any Space Leases, and to do all other acts with respect to the Site or the Improvements that Trustor might do on its own behalf, as Beneficiary, in its reasonable discretion, deems proper. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 64 IN WITNESS WHEREOF, Trustor has executed this Deed of Trust, Assignment of Rents and Leases and Security Agreement to be effective as of the day and year first above written. TRUSTOR: ALADDIN GAMING, LLC, a Nevada limited-liability company, as Trustor By: /s/ Ronald Dictrow ------------------------------ Ronald Dictrow, Secretary S-1 ACKNOWLEDGMENT STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 26th day of February in the year 1998 before me, the undersigned, a Notary Public in and for said State, personally appeared Ronald Dictrow, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she executed same in his/her capacity, and that by his/her signature on the instrument, the entity upon behalf of which the individual acted, executed the instrument. /s/ Dawn M. Schoenig - --------------------- Notary Public My commission expires: August 3, 1999 Notarial Seal: EXHIBIT A Legal Description of the Site A-1 Table of Contents Section Page ARTICLE 1 COVENANTS OF TRUSTOR 1.1 Performance of Loan Documents. . . . . . . . . . . . . . . . 10 1.2 General Representations, Covenants and Warranties. . . . . . 10 1.3 Compliance With Legal Requirements.. . . . . . . . . . . . . 10 1.4 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.5.1 Hazard Insurance Requirements and Proceeds.. . . . 11 1.5.2 Notices Regarding Insurance Policies.. . . . . . . 11 1.6 Condemnation.. . . . . . . . . . . . . . . . . . . . . . . . 11 1.7 Care of Trust Estate.. . . . . . . . . . . . . . . . . . . . 12 1.8 Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.9 Further Encumbrance. . . . . . . . . . . . . . . . . . . . . 13 1.10 Actions with Respect to Permitted Liens. . . . . . . . . . . 13 1.11 Partial Releases of Trust Estate.. . . . . . . . . . . . . . 14 1.12 Further Assurances.. . . . . . . . . . . . . . . . . . . . . 15 1.13 Security Agreement and Financing Statements. . . . . . . . . 15 1.13.1 Fixture Filing. . . . . . . . . . . . . . . . . . 16 1.13.2 Remedies. . . . . . . . . . . . . . . . . . . . . 16 1.13.3 Derogation of Real Property. . . . . . . . . . . . 16 1.13.4 Priority; Permitted Financing of Tangible Collateral. . . . . . . . . . . . . . . . . . . . 17 1.13.5 Presentation of Contractual Rights of Collateral.. 17 1.13.6 Removal of Collateral. . . . . . . . . . . . . . . 17 1.13.7 Change of Name. . . . . . . . . . . . . . . . . . 18 1.14 Assignment of Rents and Leases. . . . . . . . . . . . . . . 18 1.15 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.16 Beneficiary's Cure of Trustor's Default. . . . . . . . . . . 19 1.17 Defense of Actions.. . . . . . . . . . . . . . . . . . . . . 19 ARTICLE 2 CORPORATE LOAN PROVISIONS 2.1 Interaction with Credit Agreement. . . . . . . . . . . . . . 20 2.1.1 Incorporation by Reference.. . . . . . . . . . . . 20 2.1.2 Conflicts . . . . . . . . . . . . . . . . . . . . 20 i 2.2 Other Collateral.. . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE 3 DEFAULTS 3.1 Event of Default.. . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE 4 REMEDIES 4.1 Acceleration of Maturity.. . . . . . . . . . . . . . . . . . 21 4.2 Protective Advances. . . . . . . . . . . . . . . . . . . . . 21 4.3 Institution of Equity Proceedings. . . . . . . . . . . . . . 21 4.4 Beneficiary's Power of Enforcement.. . . . . . . . . . . . . 21 4.5 Beneficiary's Right to Enter and Take Possession, Operate and Apply Income. . . . . . . . . . . . . . . . . . 23 4.6 Leases.. . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4.7 Purchase by Beneficiary. . . . . . . . . . . . . . . . . . . 24 4.8 Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws.. . . . . . . . . . . . . . . . . . . . . . 24 4.9 Receiver. . . . . . . . . . . . . . . . . . . . . . . . . . 25 4.10 Suits to Protect the Trust Estate. . . . . . . . . . . . . . 25 4.11 Proofs of Claim. . . . . . . . . . . . . . . . . . . . . . . 25 4.12 Trustor to Pay the Notes on Any Default in Payment: Application of Monies by Beneficiary. . . . . . . . . . . . 26 4.13 Delay or Omission; No Waiver.. . . . . . . . . . . . . . . . 26 4.14 No Waiver of One Default to Affect Another.. . . . . . . . . 26 4.15 Discontinuance of Proceedings; Position of Parties Restored. 27 4.16 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . 27 4.17 Interest After Event of Default. . . . . . . . . . . . . . . 28 4.18 Foreclosure; Expenses of Litigation. . . . . . . . . . . . . 28 4.19 Deficiency Judgments.. . . . . . . . . . . . . . . . . . . . 28 4.20 Waiver of Jury Trial.. . . . . . . . . . . . . . . . . . . . 29 4.21 Exculpation of Beneficiary.. . . . . . . . . . . . . . . . . 29 ARTICLE 5 ii RIGHTS AND RESPONSIBILITIES OF TRUSTEE; OTHER PROVISIONS RELATING TO TRUSTEE 5.1 Exercise of Remedies by Trustee. . . . . . . . . . . . . . . 29 5.2 Rights and Privileges of Trustee.. . . . . . . . . . . . . . 29 5.3 Resignation or Replacement of Trustee. . . . . . . . . . . . 30 5.4 Authority of Beneficiary.. . . . . . . . . . . . . . . . . . 30 5.5 Effect of Appointment of Successor Trustee.. . . . . . . . . 30 5.6 Confirmation of Transfer and Succession. . . . . . . . . . . 30 5.7 Exculpation. . . . . . . . . . . . . . . . . . . . . . . . . 31 5.8 Endorsement and Execution of Documents.. . . . . . . . . . . 31 5.9 Multiple Trustees. . . . . . . . . . . . . . . . . . . . . . 31 5.10 Terms of Trustee's Acceptance. . . . . . . . . . . . . . . . 31 5.10.1 Delegation.. . . . . . . . . . . . . . . . . . . . 31 5.10.2 Counsel. . . . . . . . . . . . . . . . . . . . . . 31 5.10.3 Security.. . . . . . . . . . . . . . . . . . . . . 31 5.10.4 Costs and Expenses.. . . . . . . . . . . . . . . . 32 5.10.5 Release. . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE 6 MISCELLANEOUS PROVISIONS 6.1 Heirs, Successors and Assigns Included in Parties. . . . . . 32 6.2 Addresses for Notices, Etc.. . . . . . . . . . . . . . . . . 32 6.3 Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.4 Invalid Provisions to Affect No Others. . . . . . . . . . . 33 6.5 Changes and Priority Over Intervening Liens. . . . . . . . . 34 6.6 Estoppel Certificates. . . . . . . . . . . . . . . . . . . . 34 6.7 Waiver of Setoff and Counterclaim. . . . . . . . . . . . . . 34 6.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 34 6.9 Required Notices.. . . . . . . . . . . . . . . . . . . . . . 35 6.10 Reconveyance.. . . . . . . . . . . . . . . . . . . . . . . . 35 6.11 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . 35 6.12 Late Charges.. . . . . . . . . . . . . . . . . . . . . . . . 35 6.13 Cost of Accounting.. . . . . . . . . . . . . . . . . . . . . 35 6.14 Right of Entry. . . . . . . . . . . . . . . . . . . . . . . 36 6.15 Corrections. . . . . . . . . . . . . . . . . . . . . . . . . 36 6.16 Statute of Limitations. . . . . . . . . . . . . . . . . . . 36 6.17 Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . 36 6.18 Joint and Several Liability. . . . . . . . . . . . . . . . . 36 iii 6.19 Homestead. . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.20 Context. . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.21 Time.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.22 Interpretation. . . . . . . . . . . . . . . . . . . . . . . 37 6.23 Effect of NRS Section 107.030. . . . . . . . . . . . . . . . 37 6.24 Amendments.. . . . . . . . . . . . . . . . . . . . . . . . . 37 ARTICLE 7 POWER OF ATTORNEY 7.1 Grant of Power. . . . . . . . . . . . . . . . . . . . . . . 37 7.1.1 Possession and Completion. . . . . . . . . . . . . 37 7.1.2 Plans. . . . . . . . . . . . . . . . . . . . . . . 37 7.1.3 Employment of Others.. . . . . . . . . . . . . . . 37 7.1.4 Security Guards. . . . . . . . . . . . . . . . . . 37 7.1.5 Compromise Claims. . . . . . . . . . . . . . . . . 38 7.1.6 Legal Proceedings. . . . . . . . . . . . . . . . . 38 7.1.7 Other Acts.. . . . . . . . . . . . . . . . . . . . 38 EXHIBIT A LEGAL DESCRIPTION OF THE SITE iv EX-10.32 21 EXHIBIT 10.32 MUSIC PROJECT MEMO/UNDERSTANDING Music Project Memorandum of Understanding Aladdin Gaming, LLC Proposed Development of the Sound Asylum Hotel and Casino Las Vegas, Nevada Memorandum of Understanding and Letter of Intent As of September 2, 1997 Set forth below is the Memorandum of Understanding and Letter of Intent ("MOU") between Planet Hollywood International, Inc. ("PH") and Aladdin Gaming, LLC ("Aladdin") relating to the planned Sound Asylum Hotel and Casino to be constructed at the corner of Audrie Street and Harmon Avenue in Las Vegas, Nevada. Except as otherwise specified herein, this MOU is a non-binding upon either party. Project size; scope and site: 1,000 room hotel with an approximately 50,000 square foot casino on the corner of Audrie Street and Harmon Avenue in Las Vegas (the "Hotel"). The site is approximately 4.7 acres. All parking and central utilities will be purchased from affiliated entities via a parking agreement and a utility metering agreement. The site will also be subject to a reciprocal easement agreement with Aladdin Bazaar, LLC (the "Shopping Mall") and Aladdin Hotel and Casino, LLC (the "Aladdin Hotel"), a wholly owned subsidiary of Aladdin. Theme: PH's new music theme currently anticipated to be named "Sound Asylum". Corporate organization: Aladdin shall form Aladdin Music, LLC, a Nevada limited liability company (the "LLC"). Board of Directors, corporate governance and management: Except as set forth below, the Board of Directors shall be voted upon by all holders of greater than 10% of the issued and outstanding common stock of the LLC. However, so long as PH has not exercised its right to purchase common stock of the LLC pursuant to its Warrant, as hereinafter defined, then PH shall be entitled to appoint one member to the Board of Directors in order to protect its tradenames and trademarks. At such time as PH exercises its right to Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 2 - -------------------------------------------------------------------------------- purchase common stock of the LLC and votes its shares in the election of the Board of Directors, its right to appoint one such member of the Board of Directors shall be terminated. The Board of Directors shall have a maximum of four members. Certain matters (to be determined by PH) deemed necessary to protect PH's trademarks and tradenames shall require the affirmative vote of a super-majority of 80% of the Board of Directors for approval. Such items deemed necessary to protect PH's trademarks and tradenames may include, but not be limited to, all major financial and operational decisions, approval of the annual budget, adopting a management compensation and stock option plan and approving certain items as described and set forth in the section labeled Reciprocal Easement Agreement. Executive management of the Hotel will report to management of Aladdin of which Richard Goeglein is the President and Chief Executive Officer. Management of Aladdin will in turn report to the Board of Directors of the LLC. All corporate events outside the ordinary course of business shall be approved by the Board of Directors. The Board of Directors shall have regular meetings, at least quarterly, at which time management of the Hotel and Aladdin shall advise the Board of Directors as to the Hotel's operations and financial condition as well as submit for Board approval and consideration any items that require the advice and consent of the Board. The LLC agreement shall detail a schedule of items that require the advice and consent of the Board of Directors. The affirmative vote of at least a majority of the Board of Directors is necessary to approve any proposal. Name of the Hotel: At the option of Aladdin, the name of the Hotel may be either the Sound Asylum (or other name adopted by PH for its music concept theme, however, for the purposes of this memorandum such name, whether Sound Asylum or other name selected by PH, shall be referred to as Sound Asylum) or another name mutually agreed upon by PH and Aladdin. However, in the event that the name of the Hotel is not Sound Asylum, then a Sound Asylum restaurant and showroom shall Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 3 - -------------------------------------------------------------------------------- be a featured as the Hotel's main attraction. To the extent that the name of the Hotel is not the Sound Asylum, then the name of the Hotel shall be the property of PH for use on other hotels other than in Clark County. Contribution of Aladdin Aladdin shall contribute the following to the Gaming to the LLC: LLC: (i) Approximately 4.7 acres at the corner of Audrie Street and Harmon Avenue (the "Land"), (ii) the TPA Lease (as hereinafter defined), (iii) the Parking Lease (as hereinafter defined), (iv) the Utility Agreement (as hereinafter defined), (v) the Reciprocal Easement Agreement (as hereinafter defined), (vi) the Management Agreement (as hereinafter defined), (vii) the Aladdin Hotel Management Services Agreement and (viii) $21.25 million in cash. Contribution of PH to the LLC: PH shall contribute the following to the LLC: (i) $41.25 million, (ii) all rights and trade name/trademark agreements necessary for the Hotel to operate as the Sound Asylum Hotel and maintain a Sound Asylum restaurant on its premises and (iii) the Marketing and Consulting Agreement (as hereinafter defined). Form of Interest Purchased By As hereinafter defined, Convertible Preferred Aladdin Gaming: Stock and Common Stock. Form of Interest Purchased by As herein defined, Subordinated Debt and Warrants. Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 4 - -------------------------------------------------------------------------------- PH: The TPA Lease: The Aladdin Theater for the Performing Arts (the "TPA") shall be leased from Aladdin to the LLC for a period of at least 30 years for nominal annual rent. Such lease shall be a triple net lease and will contain provisions relating to the Aladdin's right to leaseback the TPA for a reasonable number of weekend nights, holiday nights, weekday nights and days to promote special events. The leaseback price shall be the daily "going rate" lease amount charged to non-related third parties for similar time periods. In addition, the TPA Lease shall contain provisions for cooperation and coordination between the LLC, the Shopping Mall and the Aladdin Hotel relating to promotion and security of the TPA. Management of the Aladdin Hotel and the Hotel shall work together in a cooperative mode with the common goal to maximize utilization of the TPA throughout the year and for all "day-parts". Pursuant to the TPA Lease, the LLC shall have the obligation to use its good faith business efforts to maximize the utilization of the TPA. In addition, the LLC shall have the obligation to renovate the TPA for a "reopening" of the facility on the date that the Aladdin Hotel opens for business. The anticipated renovation costs for the TPA are approximately $8 million of hard construction and FF&E expenses plus "soft costs" and construction interest expense. The LLC shall have the obligation to maintain the TPA in a "first class" condition during the term of the TPA Lease. PH shall assist the LLC in obtaining commitments to perform at TPA from the various celebrities involved with the promotion of the Hotel and the Sound Asylum brand. The Parking Lease: The Parking Lease shall be between the LLC and the Shopping Mall and shall provide for access to an appropriate number of parking spaces for customers and guests of the Hotel and the TPA. The number of parking spaces for the Hotel and the TPA will be calculated in accordance with, among other things, the Clark County Use Permit governing the site and all applicable zoning regulations. The amount of rent to be paid by the LLC to the Shopping Mall will be equal to the LLC's and TPA's estimated allocable share of the use Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 5 - -------------------------------------------------------------------------------- of the parking facilities multiplied by the actual annual cost of operating the parking facilities (including financing the construction of the parking facilities and amortization and depreciation). Such allocable share shall be determined at the time of executing the lease. The first year parking rent is currently estimated to be approximately $1.12 million, however, such rent allocation for the parking may need to be adjusted to reflect the TPA parking allocation. Such additional parking rent is anticipated to be "revenue neutral" to the Hotel since it is anticipated to be paid for from event ticket sales and rental income from TPA. The Utility Agreement: Located on the current Aladdin site will be a co-generation or central utility plant that will be owned and operated by an independent third party. Such plant will provide electricity, hot water and chilled water to the Hotel, the Aladdin Hotel and the Shopping Mall. Utilities purchased by the Hotel will be metered with such rate charged to the Hotel to be the same as that charged to the Aladdin Hotel and the Shopping Mall. Such co-generation facility will be of size and scope to provide all peak demand electricity, hot water and chilled water to the Hotel, the Aladdin Hotel, the Shopping Mall and all other structures on the current Aladdin site and will contain appropriate redundancies. The Reciprocal Easement The LLC will execute a Reciprocal Easement Agreement: Agreement with the Shopping Mall and Aladdin relating to (i) vehicular access and maintenance of roads, (ii) pedestrian access, maintenance of sidewalks and internal circulation, (iii) the construction and rental of abutting space by the Shopping Mall from the Hotel and by the Hotel from the Shopping Mall, (iv) security and reciprocal access of Aladdin Hotel personnel and Hotel personnel and (v) Strip signage and visibility of the Hotel from the Strip. Through the Reciprocal Easement Agreement, among other documents and agreements, the Hotel, the Shopping Mall, the Aladdin Hotel and all other structures that are governed by the Reciprocal Easement Agreement, will comply with, among other things, the Clark County Use Permit governing the site and all applicable zoning regulations. In addition, the Reciprocal Easement Agreement Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 6 - -------------------------------------------------------------------------------- shall contain a specific list of actions and items that each party to such agreement must, prior to undertaking any of the actions or items on such list, obtain the consent of the other parties to such agreement, with such consent not to be unreasonably withheld. Such list shall contain actions and items which may cause irreparable harm to another party to the Reciprocal Easement Agreement. The Reciprocal Easement Agreement shall contain appropriate provisions to make possible a connection with the planned Las Vegas Regional Monorail System. In addition, to the extent that either the Aladdin, the Shopping Mall or an affiliate thereof is able to purchase the land adjacent to the Aladdin and the Mall and on Las Vegas Boulevard, (i) there shall be nothing constructed on such site that will block either access or reasonable visibility of the Hotel from Las Vegas Boulevard (expansion of the Mall in a low rise format (up to 3 stories) consistent with the architectural character of the rest of the Mall does not constitute blocking visibility) (ii) enhanced pedestrian access from Las Vegas Boulevard to the Hotel shall be constructed provided such access is commercially reasonable, does not interfere with the operation of either the Mall or the Aladdin Hotel, is approved by the Board of Directors, and is constructed at the LLC's expense. The Management Agreement: In exchange for providing certain management services and promotional services, Aladdin shall be paid fees as set forth below. The Aladdin Hotel Management Aladdin shall provide certain management Agreement: services to the Hotel and shall be reimbursed for its fully allocated cost of providing such services. Such services shall include, but not be limited to, accounting and financial services, MIS, general management, investor/lender relations, promotional services and other management services that may be agreed upon by the LLC in the ordinary course of business. The Marketing and Consulting In exchange for providing certain marketing Agreement: and consulting services, PH shall be paid fees as set forth below. Such services shall include arranging for a minimum amount of promotional spots and events for the Hotel (at no additional Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 7 - ------------------------------------------------------------------------------ cost to the Hotel), a minimum number of guest appearances by celebrities related to the Hotel, and the coordination of a public relations strategy and campaign. In addition, PH will consult with Aladdin on the design, development and operations of the Sound Asylum food and beverage, entertainment and merchandising activities at the Hotel and will provide basic interior design and architectural services consistent with the services provided in connection with PH's other themed entertainment restaurant properties. Reasonable out-of-pocket costs incurred by PH in connection with the provision of interior design and architectural services will be passed through to the LLC without mark-up or overhead charges and all budgets relating to the interior fit-up or the Sound Asylum components of the Hotel will be subject to the approval of the LLC's Board of Directors. PH shall be reimbursed for certain of its costs and expenses relating to the Marketing and Consulting Agreement. Such costs and expenses shall include out-of-pocket expenses as well as allocable overhead charges. PH's expense reimbursement shall be equal to .5% of the Hotel's net revenue (gross revenue adjusted for complementaries) (the "PH Expense Reimbursement") and shall be reimbursed on a quarterly basis without supporting documentation. In addition to the PH Expense Reimbursement, to the extent the management of the Hotel or the Board of Directors determines that it is in the best interests of the Hotel to incur certain promotional expenses relating to reimbursing the out-of-pocket expenses incurred by celebrities that are appearing at the Hotel and are related to PH or Sound Asylum (including but not limited to complementaries at the Hotel or travel expenses relating to a performance at the Hotel) such expense reimbursement shall be the obligation of the Hotel and not PH. Any such expenses must be pre-approved in writing by either the President of the Hotel or the President of Aladdin prior to being incurred. Also, to the extent that PH employees perform special services for the Hotel or the LLC not related to the Marketing and Consulting Agreement or PH's investment in the LLC, and such services are out-of the ordinary course of business, and such employees incur travel Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 8 - -------------------------------------------------------------------------------- or other out-of-pocket expenses, then the Hotel shall reimburse such employees for such expenses in accordance with the Hotel's established expense reimbursement policy (which may limit the type of travel, i.e., coach, and acceptable forms of documentation and receipts). Any such expenses must be pre-approved in writing by either the President of the Hotel or the President of Aladdin prior to being incurred. Aladdin Fees and PH Fees (i) PH and Aladdin shall receive fees equal to Relating to the Management 2.00% and 1.50%, respectively, of the Hotel's Agreement and the Marketing net revenue (gross revenue adjusted for Agreement: complementaries) on a pari passu basis, (ii) PH shall receive an additional fee equal to 6% of net revenue that is in excess of the net revenue which produces EBITDA equal to $35 million (calculated using the Hotel's actual EBITDA Margin for the period), which fee shall be waived for any period in which EBITDA from the Hotel is less than $35 million and (iii) Aladdin shall receive an additional fee equal to 6% of net revenue that is in excess of the net revenue which produces EBITDA equal to $40 million (calculated using the Hotel's actual EBITDA Margin for the period), which fee shall be waived for any period in which EBITDA from the Hotel is less than $40 million. For the purposes of the fee calculations set forth herein, EBITDA shall be before deducting the fees set forth in (ii) and (iii) (the "Additional Fees") and before any lease payments relating to furniture, fixtures or equipment. To the extent that EBITDA from the Hotel exceeds the thresholds set forth in (ii) and (iii), above, but there is either insufficient earning or cash flow to pay any or all of the Additional Fees, or the providers of debt financing to the LLC restrict the LLC's ability to pay the Additional Fees, then the LLC shall accrue any unpaid Additional Fees and shall pay them on a basis that gives priority to the Additional Fees owed to PH. The Subordinated Debt: Amount: $41.25 million. Coupon: 12% per annum. The coupon must be paid out of cash flow to the extent such cash flow is available and the payment of Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 9 - -------------------------------------------------------------------------------- such coupon does not violate the terms and conditions of any senior obligations of the LLC. To the extent the coupon is not paid currently it shall accrue but not compound. Term: 30 years. Periodic principal After 10 years the Subordinated Debt shall payments: receive annual periodic principal payments, in arrears, equal to 1% of its original principal balance. Mandatory redemption: Upon the occurrence of a merger or sale of substantially all of the assets of the LLC the Subordinated Debt shall be redeemed at an amount equal to the remaining outstanding principal amount of the Subordinated Debt. Subordination: The Subordinated Debt shall be junior to all other debt or operating obligations of the LLC. The Subordinated Debt shall be unsecured and shall have no right to declare any event of default or exercise any remedies during any period that any senior debt is outstanding. Accrued and Unpaid All accrued and unpaid interest upon a tender Interest Upon a Tender or or mandatory redemption of the Subordinated Mandatory Redemption: Debt shall remain due and owing, until actually paid, to the holder of the Subordinated Debt as if the Subordinated Debt had not been tendered or redeemed. The Warrants: Right to purchase common The Warrants shall initially entitle PH to stock: purchase up to 50% of the LLC's Common Stock. Strike price: The Strike Price of the Warrants shall equal $41.25 million for what is initially 50% of the LLC's Common Stock. The Strike Price of the Warrants may be paid either in cash or through the tender of the Subordinated Debt. To the extent that the Subordinated Debt is tendered it shall have a value equal to the then current outstanding face amount of such debt and any difference between the outstanding face amount of such debt and the Strike Price of the Warrants shall be paid in Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 10 - -------------------------------------------------------------------------------- cash. Anti-dilution provisions: The Warrants shall contain anti-dilution provisions that provide for either (i) the payment of all dividends, other than tax related dividends to the holder of the Warrant as if it had fully exercised its right to purchase the LLC's Common Stock or (ii) a two for one increase in the amount of the LLC's Common Stock that may be purchased for the Strike Price. For example, if the LLC pays a $10 million dividend to holders of its Common Stock, the LLC has the option to pay the holders of the Warrant either (i) $10 million or (ii) adjust the Warrant Strike Price so that upon a full exercise of the Warrant, the holder of the Warrant will be able to purchase the proportion of Common Stock equal to ((10x2)+41.25)/(41.25+41.25+10). However, as provided in "Management Stock Options", below, the Warrants will be diluted by the amount of any management stock options actually granted. Transfer restrictions: Except as set forth in the following sentence, the Warrants shall not be transferrable (i) without the consent of Aladdin, which consent shall not be unreasonably withheld, (ii) to any "Prohibited Person" or (iii) before the opening of the Hotel. However, the Warrants shall be transferrable in connection with the merger of PH, the payment by PH of a liquidating dividend to its shareholders, the spin-off or spin-out by PH of its interest in the LLC to its shareholders or the sale or liquidation of substantially all of the assets of PH. The Warrants may not be transferred to any person except as a unit with the Subordinated Debt in a simultaneous transfer to the same person. A "Prohibited Person" shall be any person that the Nevada Gaming authorities do not find suitable for obtaining a gaming license. No transfer is effective until the Nevada Gaming authorities confirm that such transferee is suitable for obtaining a gaming license. The Convertible Preferred Aladdin shall purchase the Convertible Stock: Preferred Stock in exchange for its contribution to the LLC Face Amount: $41.25 million. Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 11 - -------------------------------------------------------------------------------- Coupon: 12% per annum. To the extent the coupon is not paid currently it shall accrue but not compound. Optional Conversion: At any time into 50% of the LLC's Common Stock (subject to any adjustment required by either the grant of management stock options or the anti-dilution provisions of the Warrants). Mandatory Conversion: Upon the exercise of the Warrants, the Convertible Preferred Stock shall be mandatorily converted into 50% of the LLC's Common Stock (subject to any adjustment required by either the grant of management stock options or the anti-dilution provisions of the Warrants). Accrued and Unpaid All accrued and unpaid dividends upon a Dividends Upon a conversion of the Convertible Preferred Stock Conversion to Common into Common Stock of the LLC shall remain due Stock: and owing, until actually paid, to the holder of the Convertible Preferred Stock as if the Convertible Preferred Stock had not been converted. Term: Perpetual. Transfer restrictions: Except as set forth in the following sentence, the Convertible Preferred Stock shall not be transferrable without (i) the consent of PH, which consent shall not be unreasonably withheld, (ii) to any Prohibited Person, or (iii) before the opening of the Hotel. However, the Convertible Preferred Stock shall be transferable in connection the merger of Aladdin, the sale or liquidation of substantially all of the assets of Aladdin, the payment by Aladdin to its shareholders of a liquidating dividend, the spin-off or spin-out by Aladdin to its shareholders of its interest in Convertible Preferred Stock or the initial public offering of Aladdin. No transfer is effective until the Nevada Gaming authorities confirm that such transferee is suitable for obtaining a gaming license. In addition, all costs of gaming licensure for either Aladdin or PH will be payable at each parties sole cost and expense. Management stock options: To the extent that all members of the Board of Directors determine that it is in the best interests of the Hotel to offer to key members of management stock grants, warrants or stock Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 12 - -------------------------------------------------------------------------------- options as a form of compensation, the amount of dilution represented by such compensation shall be shared ratably by the Warrants and the Convertible Preferred Stock. The LLC Common Stock: At the time of formation of the LLC, Aladdin shall purchase all of the issued and outstanding shares of Common Stock of the LLC for nominal consideration. Miscellaneous: Right of first negotiation If either Aladdin or PH decides that it on the sale of interest in desires to sell, convey or otherwise liquidate the LLC: its interest in the LLC, other than in connection with the merger, sale or liquidation of substantially all of its assets, the payment of a liquidating dividend to shareholders, a spin-off or spin-out to shareholders or initial public offering of stock, then the other party shall have a 30 day exclusive period to negotiate for the purchase of such interest to be sold. At the end of such 30 day period the non-selling party shall have no rights, in law or equity, other than those outlined above in "Transfer Restrictions", relating to the sale of such interest. Opening dates for the The parties shall agree upon an appropriate Aladdin Hotel and the opening date for the Hotel and Aladdin shall Hotel: commit to a date by which the Aladdin Hotel shall be opened. It is currently anticipated that the opening date for the Hotel shall not be more than six months before or after the opening date of the Aladdin Hotel. Land condominiumization: The land underlying the Hotel shall initially be owned by Aladdin subject to a lease to the LLC at a nominal rent. Ownership of the Land underlying the Hotel together with the LLC's rights under the Reciprocal Easement Agreement and other related agreements shall be converted into an ownership interest under a condominium regime as soon as possible and practical following construction of the Hotel. The costs of such condominiumization shall be shared by the LLC based upon the Hotel's pro rata amount of acreage to the overall condominiumization plan for the entire current Aladdin site. Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 13 - -------------------------------------------------------------------------------- Pre-development Upon execution of the LLC agreement, both PH expenses: and Aladdin shall contribute equally to the funding of pre-development expenses including, but not limited to, architectural and pre-construction expenses. All pre-development expense shall be subject to a budget that is reasonably agreed upon between Aladdin and PH. Such pre-development expenses shall include expenses incurred after execution of this agreement but prior to the execution of the LLC agreement. Such expenses shall not include legal fees or the fees of financial advisors in connection with the negotiation or execution of the LLC agreement but shall include expenses such as architectural and design expenses. Upon the completion of the major portion of the funding of the LLC, e.g., debt, all such legal and financial advisory fees shall be the obligation of the LLC. The aggregate of pre-development expenses (excluding legal and financial advisory fees) incurred after execution of this agreement but prior to execution of the LLC agreement shall be limited to $100,000. Financial advisors: Each of PH and Aladdin agree that Westwood Capital shall act as the LLC's financial advisor for the purpose of securing appropriate financing commitments. Upon the formation of the LLC, Westwood Capital and the LLC shall execute an engagement letter that sets forth the fees payable to Westwood Capital. Such fees and terms of engagement shall be materially the same as those under which Westwood Capital acts as the financial advisor to Aladdin Gaming. As part of its due diligence, PH shall have the right to review and reasonably approve such engagement letter. Financial guarantees: It is understood that the lenders to the project may require certain cash flow maintenance and construction completion guarantees. The LLC will attempt to mitigate such construction completion guarantees through a guaranteed fixed price "design/build" contract from a construction company, currently anticipated to be Fluor Corporation and a guarantee from Aladdin. The LLC will attempt to limit the amount and term of any cash flow maintenance guarantees that may be required from the parties but the parties acknowledge that certain guarantees may be necessary from Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 14 - -------------------------------------------------------------------------------- each of them to achieve appropriate financing for the project; provided, however, that Aladdin hereby acknowledges PH's extreme reluctance to be required to provide such cash flow maintenance guarantees. In order to induce PH to consider providing such cash flow maintenance guarantees, Aladdin Holdings, LLC will consider indemnifying PH for any or all exposure it may be required to bear under such cash flow maintenance guarantee. In addition, Aladdin acknowledges that after due diligence PH may require either another affiliate of Aladdin Holdings, LLC to also provide such indemnity. With regard to indemnities provided by Aladdin Holdings, LLC or other parties, Aladdin Holdings, LLC or such other party will execute all documents necessary for PH to be assured of appropriate indemnification. Exclusive period: Upon the execution of this letter and until October 15, 1997 (the "Exclusive Period"), Aladdin agrees not to negotiate with any other party in connection with the development of the Land and PH agrees not to negotiate for the development of any restaurant or hotel that will be connected with the Sound Asylum concept in Clark County, Nevada. The parties will use their best efforts, with time being of the essence, to complete and execute a binding agreement setting forth the foregoing by the conclusion of the Exclusive Period. If however, both parties agree that the Hotel is not economically feasible prior to October 15, 1997, then the Exclusive Period shall terminate on such date. This provision is binding upon the parties. Due diligence: During the Exclusive Period, each of Aladdin and PH agree to grant the other the right to perform reasonable due diligence for the purpose of entering into the LLC. Reasonable due diligence on the part of PH includes access to all Aladdin personnel and representatives and books and records of Aladdin and the personnel and representatives of the Shopping Mall. Reasonable due diligence on the part of Aladdin on PH includes access to all of PH's personnel and representatives, contracts and other agreements (executed, being negotiated, planned or under consideration) and books and records relating to the Sound Asylum or otherwise Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 15 - -------------------------------------------------------------------------------- materially impacted upon PH's execution of its expected obligations under the various agreements relating to the LLC and the Hotel. Confidentiality: Except as otherwise compelled by a court of competent jurisdiction, each of PH and Aladdin agree to keep this agreement and all matters relating to this agreement confidential. Each party may, however, disclose this agreement and related matters to affiliates and representatives and agents of themselves (or in the case of the Aladdin to representatives of the Shopping Mall, LCI and financing sources for the Aladdin Hotel) solely for the purpose of performing due diligence, obtaining required consents, negotiating the LLC or determining the economic feasibility of the Hotel. To the extent either party discloses this agreement to representatives or agents or representatives of the Shopping Mall, it shall inform such representatives and agents as to the confidential nature of such disclosure. It is understood that Aladdin, and its parent, Aladdin Holdings, LLC, are pursuing the transaction described herein in part to be able to make reference to PH's participation in the Hotel so as to facilitate the leasing of the Shopping Mall. Consequently, every effort will be made, provided it does not jeopardize PH's business operations in any way, and in PH's sole discretion, to permit Aladdin to publically discuss the proposed development of the Hotel with PH at the earliest possible date. This provision is binding upon the parties. Memorandum of Understanding and Letter of Intent As of September 2, 1997 Page 16 - -------------------------------------------------------------------------------- AGREED AND ACCEPTED AS OF THE DATE HEREOF: ALADDIN GAMING, LLC By: /s/ Jack Sommer --------------------------- Jack Sommer, Chairman ALADDIN HOLDINGS, LLC By: /s/ Jack Sommer --------------------------- Jack Sommer, Vice President PLANET HOLLYWOOD INTERNATIONAL, INC. By: /s/ Robert Earl -------------------------------------- Robert Earl, Chief Executive Officer EX-10.33 22 AMENDMENT TO MUSIC PROJECT MEMO OF UNDERSTANDING Amendment to Music Project Memo. of Understanding Planet Hollywood International, Inc. 7380 Sand Lake Road Suite 650 Orlando, FL 32819 October 15, 1997 Aladdin Gaming LLC Project Development Office 3667 Las Vegas Boulevard South Las Vegas, NV 89109 Attention: Sound Asylum Hotel and Casino Amendment to Memorandum of Understanding and Letter of Intent Dear Sirs: Reference is made to the Memorandum of Understanding and Letter of Intent dated as of September 2, 1997 (the "Letter of Intent"), between us and you. Terms used but not defined in this letter agreement have the meanings assigned thereto in the Letter of Intent. You and we hereby agree that the last sentence of the first paragraph and the section under the caption "Exclusive Period" in the Letter of Intent shall be deleted in their entirety. You and we also agree that the following sections shall be added at the end of the Letter of Intent immediately prior to the signature block: "Binding Agreement; The parties will use their best efforts Documentation: promptly to complete and execute all agreements and other documents that may be reasonably necessary to carry out the provisions of this MOU. Such agreements will contain, among other things, such terms, covenants, representations, warranties and conditions as are customary for transactions of this nature. However, it is expressly agreed that our agreement set forth in this MOU is not conditioned upon the signing of any such agreements or other documents, but is intended to create a legally binding obligation of each of us, subject only to the conditions that (i) on or prior to December 31, 1997, the LLC shall have obtained written proposal(s) from one or more lenders with respect to at least $120 million of conventional construction financing at an interest rate not exceeding 10% per annum and containing such other terms, covenants, representations, warranties and conditions as are customary for transactions of this nature (the "Financing") and (ii) on or prior to March 31, 1998, the LLC shall have obtained written commitment(s) from one or more lenders to provide the Financing. Purchase Right and If (a) either party, any beneficial owner of Indemnity in Event of an interest in either party, or any officer or Licensing Problem: director of either party is denied a gaming license or is found unsuitable or unqualified to have a gaming license pursuant to a determination by the Nevada Gaming Authorities and (b) such problem is not cured within 30 days after such determination (by transferring the interest of such party or beneficial owner, by terminating such officer or director, or otherwise), the other party may elect within 120 days (or such shorter period as may be required by the Nevada Gaming Authorities) to purchase the entire interest of such party in the LLC at a price equal to the fair market value of such interest (as determined by a qualified independent appraiser). Each party will indemnify the other party from and against all losses, claims, damages and liabilities arising out of or based upon any determination by the Nevada Gaming Authorities referred to in clause (a) above (whether or not final). Disputes: If any controversy, dispute or claim shall arise under this MOU, such controversy, dispute or claim shall be determined by arbitration conducted in New York City, before one arbitrator and in accordance with the then-existing Rules for Commercial Arbitration of the American Arbitration Association (the "Rules"), and any judgment or award rendered by the arbitrator shall be final, binding and unappealable, and judgment may be entered by any court having jurisdiction thereof. The parties hereby agree to the institution of any available "fast track" or other mechanisms or procedures that would have the effect of streamlining or increasing the speed of the arbitration. The parties hereto intend that the provisions to arbitrate set forth herein be valid, enforceable and irrevocable. In his award the arbitrator shall allocate, in his discretion, among the parties to the arbitration at all costs of the arbitration, including the fees and expenses of the arbitrator and reasonable attorneys' fees, costs and expert witness expenses of the parties. The parties hereto agree to comply with any award made in any such arbitration proceedings that has become final in accordance with the Rules and agree to the entry of a judgment in any jurisdiction upon any award rendered in such proceedings becoming final under the Rules. The arbitrator shall be entitled, if appropriate, to award any remedy in such proceedings, including monetary damages, specific performance, temporary restraining order, preliminary 2 injunction, injunction and all other forms of legal and equitable relief, including punitive damages." If the foregoing meets with your approval, please evidence your acceptance by executing the enclosed copy of this letter agreement. This letter agreement may be signed in any number of counterparts, each of which shall be an original and all of which, when taken together, shall constitute one agreement. Delivery of an executed counterpart of a signature page of this letter by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. Sincerely, PLANET HOLLYWOOD INTERNATIONAL, INC., By: /s/ Robert Earl --------------------------------- Name: Robert Earl Title: Chief Executive Officer ACCEPTED AND AGREED: ALADDIN GAMING, LLC, By: /s/ Jack Sommer -------------------------- Name: Jack Sommer Title: Chairman ALADDIN HOLDINGS, LLC, By: /s/ Jack Sommer -------------------------- Name: Jack Sommer Title: Vice President 3 EX-10.40 23 GAI CONSULTING AGMT GAI Consulting Agreement ALADDIN GAMING, LLC CONSULTING AGREEMENT This consulting agreement (the "Agreement") is made between and among Aladdin Gaming, LLC (the "Company"), Aladdin Holdings, LLC ("Aladdin Holdings") and GAI, LLC ("Consultant"). The Company desires to retain Consultant as an independent contractor to perform consulting services for the Company and Consultant is willing to perform such services, on terms set forth more fully below. In consideration of the mutual promises contained herein, the parties agree as follows. 1. Commencement Date; Term. Consultant's provision of services to the Company pursuant to this Agreement shall commence on January 1, 1997 (the "Effective Date") and shall continue for five years and six months thereafter subject to the terms and conditions herein set forth (the "Consulting Term"). 2. Services to be Rendered. The Company shall engage the Consultant to render such consulting services as are reasonably requested by the Board of Directors of the Company (the "Board"). 3. Employee Benefits. Consultant acknowledges and agrees and it is the intent of the parties hereto that Consultant receive no Company-sponsored benefits from the Company either as a Consultant or employee. Such benefits include, but are not limited to, paid vacation, sick leave, medical insurance, and 401(k) participation. 4. Compensation. (a) Retainer. During the Consulting Term, the Company shall pay to Consultant, on the first day of each month, a retainer of $12,500 as payment for remaining on call to provide services and expertise for such month (as in effect from time to time, the "Base Rate"). Such Base Rate shall not be reduced. (b) LLC Membership Interest Purchase. (i) Initial Purchase. On the date of signing of this Agreement by the parties hereto, Consultant shall purchase a membership interest equal to three percent of the total membership interest of the Company, for a purchase price of $1800, which amount equals 100% of the fair market value of Consultant's membership interest on the date of purchase (the "Membership Interest"). The Membership Interest shall be 100% vested as of the date of purchase. (ii) Anti-Dilution Purchases. Upon the Company's closing of a financing transaction or transactions involving the sale of membership interests, equity (or securities convertible into membership interests or equity) of the Company (a "Financing Transaction"), and if Consultant is still providing services to the Company upon such closing date or dates, Consultant shall have the right to purchase that number of such instruments that would result in Consultant being able to purchase, in the aggregate, (including pursuant to Consultant's initial purchase under the preceding paragraph) three percent of the fully-diluted membership interest or equity of the Company, as measured on the date of such closing or closings; provided, however, that such right to purchase shall only be effective with respect to non-compensatory Financing Transactions (i.e., Consultant shall not have the right to make anti-dilutive purchases with respect to ordinary course of business compensatory sales of stock or membership interests to Company employees). Any such right of Consultant to make an anti-dilutive purchase of stock hereunder shall be at the most favorable price and on the most favorable terms and conditions as are provided to any party in the Financing Transaction. For purposes of this Agreement, "fully diluted equity of the Company" shall mean the aggregate amount of membership interests (or the aggregate number of shares of all outstanding common and preferred stock) plus the aggregate amount of membership interests (or the number of shares of common and preferred stock) that could be obtained through the exercise or conversion of rights, options, warrants and convertible securities (other than employee equity compensation). Notwithstanding the foregoing, Consultant shall not have the right to make anti-dilutive purchases (i) in any Financing Transaction in which Consultant's equity ownership interest in the Company is diluted to the same extent as the equity interest in the Company held by The Trust Under Article Sixth u/w/o Sigmund Sommer or its affiliates (the "Trust"),or (ii) as a result of any sales or transfers arising as a result of the death of Mrs. Viola Sommer or for the purpose of satisfying attendant estate tax liabilities. (iii) Put Right. In the event that, that (i) the IPO has not occurred by the end of the Consulting Term, or (ii) during the Consulting Term, Richard J. Goeglein is terminated from his employment with the Company other than for "Cause" or voluntarily terminates for "Good Reason" (both as defined in Section 9 of the employment agreement by and between Richard J. Goeglein and the Company (the "Employment Agreement")) on or after the date upon which substantially complete project financing sufficient for substantially full renovation and construction has been secured for the Aladdin Hotel and Casino Redevelopment and Expansion project set forth in the presentation to GW Vegas prepared by Westwood Capital LLC and dated July 1996 (or as subsequently modified) and as finally approved by the Clark County Commission (the "Funding"), then Consultant shall have the right (but not the obligation) to sell any shares purchased hereunder back to the Company on the date that is the one year anniversary of the date of such termination of employment or end of the Consulting Term (the "Anniversary Date") (so long as the IPO has not occurred by such date) at a price equal to the fair market value of such shares on the Anniversary Date, as determined by an independent appraisal firm mutually agreed to by and between the Company and Consultant, with the costs of such appraisal being paid by the Company (the "Put Right"). The Put Right must be exercised in writing by Consultant by the Anniversary Date or it shall become void and without further effect. If the Put Right is exercised, the Company must purchase the shares subject to the Put Right within ninety days following the Anniversary Date. (iv) LLC Distributions. While the Company remains an LLC, the Company will distribute sufficient cash for Consultant to satisfy the tax obligations arising from Consultant's membership interest. -2- 5. Piggyback Registration Rights. (i) Certain Definitions. As used in this Section 5, the following terms shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Registrable Securities" means the Stock. The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses incurred by the Company in complying with this Section 5, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Consultant and all fees and disbursements of counsel for the Consultant. (ii) Company Registration. a. Notice of Registration. If at any time the Company shall determine to register any of its securities, either for its own account or the account of a security holder, other than (i) a registration relating solely to employee benefit plans, or (ii) a registration relating solely to a Commission Rule 145 transaction, the Company will: b. promptly give to the Consultant written notice thereof; and c. include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Secu rities specified in a written request or requests, made within 15 days after receipt of such written notice from the Company, by the Consultant subject to the provisions of Section 5(iii). -3- (iii) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Consultant as a part of the written notice given pursuant to this Section 5. In such event the right of the Consultant to registration pursuant to this Section 5 shall be conditioned upon the Consultant's participation in such underwriting and the inclusion of the Consultant's Registrable Securities in the underwriting to the extent provided herein. The Consultant shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 5, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may limit the number of the Registrable Securities to be included in such registration and underwriting. In such event, the Company shall so advise all holders distributing their securities through such underwriting, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all holders thereof, including the Consultant, in proportion, as nearly as practicable, to the respective amounts of equity interests in the Company held by all such holders at the time of filing the registration statement. If the Consultant disapproves of the terms of any such underwriting, the Consultant may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, but shall not be transferred in a public distribution prior to ninety (90) days after the effective date of the registration statement relating thereto. (iv) Expenses of Registration. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 5 shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities registered by the Consultant shall be borne by the Consultant. (v) Registration Procedures. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 5, the Company will keep the Consultant advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will furnish such number of prospectuses and other documents incident thereto as the Consultant from time to time may reasonably request. (vi) Indemnification. a. The Company will indemnify the Consultant, each of its officers and directors and the Consultant's legal counsel and independent accountants, and each person controlling the Consultant within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Section 5, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced -4- or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse the Consultant, each of its officers and directors and the Consultant's legal counsel and independent accountants, and each person controlling the Consultant, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or alleged omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by the Consultant or underwriter and stated to be specifically for use therein. b. Each party entitled to indemnification under this Section 5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought. The Company shall be entitled to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnified Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld). The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 5, unless the Indemnifying Party is materially prejudiced by the failure to give notice promptly. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. (vii) Information by Consultant. The Consultant shall furnish to the Company such information regarding the Consultant and the distribution proposed by the Consultant as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 5. (viii) Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Securities and Exchange Commission which may at any time permit the sale of the restricted securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to: -5- a. Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; b. Use its best efforts to then file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act of 1934, as amended (at any time after it has become subject to such reporting requirements); and c. So long as the Consultant owns any Registrable Securities, to furnish to the Consultant upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and of the Securities Exchange Act of 1934 (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company as the Consultant may reasonably request in availing itself of any rule or regulation of the Securities and Exchange Commission allowing the Consultant to sell any such securities without registration. (ix) Transfer and Expiration of Registration Rights. The rights to cause the Company to register securities granted the Consultant under this Section 5 may not be assigned to a transferee or assignee in connection with the transfer or assignment of shares of the Restricted Securities. The registration rights granted to the Consultant under this Section 5 shall expire when the Consultant is able to sell all its Registrable Securities in any three month period. 6. Special Right of Company to Terminate Agreement. In the event that the Company terminates the Employment Agreement pursuant to its "Special Right," as defined in the Employment Agreement, this Agreement shall become void and without further effect. The exercise of the Special Right shall not affect compensation previously earned by Consultant hereunder, including the Stock. 7. Legal Fee Reimbursement. The Company agrees to pay Consultant's legal fees associated with entering into this Agreement up to $2,500 upon receiving an invoice for such legal services. 8. Indemnification. The Company shall indemnify Consultant to the same extent as other senior management and directors of the Company are indemnified. The foregoing indemnification shall not be inclusive of any other right which Consultant may have or hereafter acquire under any statute, provision of the Certificate of Incorporation or Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. The foregoing indemnification shall not be deemed to affect any rights to subrogation which may exist in any policy of directors and officers liability. -6- 9. Full Settlement; No Mitigation. The Company's obligation to make payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right or action which the Company may have against the Consultant or others. In no event shall the Consultant be obligated to take any action to mitigate the amounts payable to the Consultant hereunder. The Company agrees to pay for any legal fees and expenses reasonably incurred by the Consultant in connection with any breach of this Agreement by the Company. 10. Assignment. This Agreement shall be binding upon and inure to the benefit of any successor of the Company. Any such successor of the Company shall be deemed substituted for the Company under the terms of this Agreement for all purposes. As used herein, "successor" shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. 11. Notices. All notices, requests, demands and other communications called for hereunder shall be in writing and shall be deemed given if delivered personally or three (3) days after being mailed by registered or certified mail, or sent by Federal Express or a similar private delivery company, return receipt requested, prepaid and addressed to the parties or their successors in interest at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: If to the Company: Aladdin Holdings LLC Sigmund Sommer Properties 280 Park Avenue, 38th Floor New York, New York 10017 Attn: Ron Dictrow If to Consultant: GAI, LLC 2688 So. Rainbow Blvd., Suite D Las Vegas, NV 89102 Attn: President 12. Guarantee. Aladdin Holdings LLC hereby unconditionally and irrevocably guarantees to Consultant the performance of all payment obligations of the Company, its successors and assigns with respect to the Agreement; provided, however, that (i) such guarantee shall become void and without further effect, and (ii) Aladdin Holdings LLC shall cease being a party to this Agreement, as of the date, if any, of the "Funding," as such term is defined in the Employment Agreement. 13. Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. -7- 14. Entire Agreement. This Agreement represent the entire agreement and understanding between the Company and Consultant concerning Consultant's service relationship with the Company, and supersedes and replace any and all prior agreements and understandings concerning Consultant's service relationship with the Company. 15. No Oral Modification, Cancellation or Discharge. This Agreement may only be amended, canceled or discharged in writing signed by Consultant and the Company. 16. Governing Law. This Agreement shall be governed by the laws of the State of Nevada. IN WITNESS WHEREOF, the undersigned have executed this Agreement. ALADDIN GAMING, LLC By: Jack Sommer /s/ Jack Sommer --------------------------- ------------------------------ Signature Date: 7/1/97 ------------------------- GAI, LLC Date: July, 1997 /s/ Richard J. Goeglein --------------------------- ------------------------------ Richard J. Goeglein ALADDIN HOLDINGS, LLC By: Jack Sommer /s/ Jack Sommer --------------------------- ------------------------------ Signature Date: 7/1/97 ------------------------- -8- ALADDIN GAMING, LLC AMENDMENT TO CONSULTING AGREEMENT This Amendment (the "Amendment") is made this _____ day of January, 1998, between and among GAI, LLC ("Consultant"), Aladdin Gaming, LLC (the "Company") and Aladdin Holdings, LLC ("Holdings"). WHEREAS, it was initially agreed that Consultant would be given certain put rights with respect to certain LLC membership interests purchased by Consultant pursuant to the Consulting Agreement made between and among the Company, Holdings and Consultant as of January 1, 1997 (the "Consulting Agreement") upon the end of the "Employment Term" (as such term is defined in the Employment Agreement made between and among the Company, Holdings and Executive as of January 1, 1997 (the "Employment Agreement")) if, upon such date, the Company (or an affiliate of the Company) has not effected an "IPO" (as such term is defined in the Consulting Agreement); and WHEREAS, the Consulting Agreement did not properly reflect such initial agreement; NOW, THEREFORE, the Company, Holdings and Consultant agree that the Consulting Agreement is hereby amended to properly reflect the initial agreement. 1. Consulting Agreement Amendment. Section 4(c)(iii) of the Consulting Agreement is hereby amended in its entirety to read as follows: "(iii) Put Rights. (A) Certain Terminations During Consulting Term. In the event that, that during the Consulting Term, Richard J. Goeglein is terminated from his employment with the Company other than for "Cause" or voluntarily terminates for "Good Reason" (both as defined in Section 9 of the employment agreement by and between Richard J. Goeglein and the Company (the "Employment Agreement")) on or after the date upon which substantially complete project financing sufficient for substantially full renovation and construction has been secured for the Aladdin Hotel and Casino Redevelopment and Expansion project set forth in the presentation to GW Vegas prepared by Westwood Capital LLC and dated July 1996 (or as subsequently modified) and as finally approved by the Clark County Commission (the "Funding"), then Consultant shall have the right (but not the obligation) to sell any shares purchased hereunder back to the Company on the date that is the one year anniversary of the date of such termination of employment or end of the Consulting Term (the "Anniversary Date") (so long as the IPO has not occurred by such date) at a price equal to the fair market value of such shares on the Anniversary Date, as determined by an independent appraisal firm mutually agreed to by and between the Company and Consultant, with the costs of such appraisal being paid by the Company (the "Put Right"). The Put Right must be exercised in writing by Consultant by the Anniversary Date or it shall become void and without -9- further effect. If the Put Right is exercised, the Company must purchase the shares subject to the Put Right within ninety days following the Anniversary Date. (B) Lapsing of Consulting Term Prior to IPO. In the event that the IPO has not occurred by the end of the Consulting Term (the "Consulting Term Lapse Date"), then Consultant shall have the right (but not the obligation) to sell any membership interest (or shares exchanged for such interest) purchased hereunder back to the Company at a price equal to the fair market value of such membership interest or shares on the Consulting Term Lapse Date, as determined by an independent appraisal firm mutually agreed to by and between the Company and Consultant, with the costs of such appraisal being paid by the Company (the "Consulting Term Lapse Put Right"). The Consulting Term Lapse Put Right must be exercised in writing by Consultant within thirty (30) days following the Consulting Term Lapse Date or it shall become void and without further effect. If the Consulting Term Lapse Put Right is exercised, the Company must purchase the membership interest or shares subject to the Consulting Term Lapse Put Right within ninety (90) days following receipt of Consultant's exercise thereof." 2. Other Consulting Agreement Provisions. To the extent not expressly amended hereby, the Consulting Agreement remains in full force and effect. 3. Entire Agreement. This Amendment, taken together with the Consulting Agreement (to the extent not expressly amended hereby), represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the parties with respect to the Consultant's provision of services (the "Agreement"). The Agreement may be amended at any time only by mutual written agreement of the parties hereto. -10- IN WITNESS WHEREOF, this Amendment has been entered into as of the date and year first set forth above. ALADDIN GAMING, LLC By: Jack Sommer /s/ Jack Sommer ---------------------- -------------------------------- Signature Date: 7/1/97 -------------------- GAI, LLC Date: 7/1/97 /s/ Richard J. Goeglein ---------------------- -------------------------------- Richard J. Goeglein ALADDIN HOLDINGS, LLC By: Jack Sommer /s/ Jack Sommer ---------------------- -------------------------------- Signature Date: 7/1/97 -------------------- -11- ALADDIN GAMING, LLC AMENDMENT TO CONSULTING AGREEMENT This Amendment (the "Amendment") is made this _____ day of January, 1998, between and among GAI, LLC ("Consultant"), Aladdin Gaming, LLC (the "Company") and Aladdin Holdings, LLC ("Holdings"). WHEREAS, it was initially agreed that Consultant would be given certain put rights with respect to certain LLC membership interests purchased by Consultant pursuant to the Consulting Agreement made between and among the Company, Holdings and Consultant as of January 1, 1997 (the "Consulting Agreement") upon the end of the "Employment Term" (as such term is defined in the Employment Agreement made between and among the Company, Holdings and Executive as of January 1, 1997 (the "Employment Agreement")) if, upon such date, the Company (or an affiliate of the Company) has not effected an "IPO" (as such term is defined in the Consulting Agreement); and WHEREAS, the Consulting Agreement did not properly reflect such initial agreement; NOW, THEREFORE, the Company, Holdings and Consultant agree that the Consulting Agreement is hereby amended to properly reflect the initial agreement. 1. Consulting Agreement Amendment. Section 4(c)(iii) of the Consulting Agreement is hereby amended in its entirety to read as follows: "(iii) Put Rights. (A) Certain Terminations During Consulting Term. In the event that, that during the Consulting Term, Richard J. Goeglein is terminated from his employment with the Company other than for "Cause" or voluntarily terminates for "Good Reason" (both as defined in Section 9 of the employment agreement by and between Richard J. Goeglein and the Company (the "Employment Agreement")) on or after the date upon which substantially complete project financing sufficient for substantially full renovation and construction has been secured for the Aladdin Hotel and Casino Redevelopment and Expansion project set forth in the presentation to GW Vegas prepared by Westwood Capital LLC and dated July 1996 (or as subsequently modified) and as finally approved by the Clark County Commission (the "Funding"), then Consultant shall have the right (but not the obligation) to sell any shares purchased hereunder back to the Company on the date that is the one year anniversary of the date of such termination of employment or end of the Consulting Term (the "Anniversary Date") (so long as the IPO has not occurred by such date) at a price equal to the fair market value of such shares on the Anniversary Date, as determined by an independent appraisal firm mutually agreed to by and between the Company and Consultant, with the costs of such appraisal being paid by the Company (the "Put Right"). The Put Right must be exercised in writing by Consultant by the Anniversary Date or it shall become void and without -12- further effect. If the Put Right is exercised, the Company must purchase the shares subject to the Put Right within ninety days following the Anniversary Date. (B) Lapsing of Consulting Term Prior to IPO. In the event that the IPO has not occurred by the end of the Consulting Term (the "Consulting Term Lapse Date"), then Consultant shall have the right (but not the obligation) to sell any membership interest (or shares exchanged for such interest) purchased hereunder back to the Company at a price equal to the fair market value of such membership interest or shares on the Consulting Term Lapse Date, as determined by an independent appraisal firm mutually agreed to by and between the Company and Consultant, with the costs of such appraisal being paid by the Company (the "Consulting Term Lapse Put Right"). The Consulting Term Lapse Put Right must be exercised in writing by Consultant within thirty (30) days following the Consulting Term Lapse Date or it shall become void and without further effect. If the Consulting Term Lapse Put Right is exercised, the Company must purchase the membership interest or shares subject to the Consulting Term Lapse Put Right within ninety (90) days following receipt of Consultant's exercise thereof." 2. Other Consulting Agreement Provisions. To the extent not expressly amended hereby, the Consulting Agreement remains in full force and effect. 3. Entire Agreement. This Amendment, taken together with the Consulting Agreement (to the extent not expressly amended hereby), represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the parties with respect to the Consultant's provision of services (the "Agreement"). The Agreement may be amended at any time only by mutual written agreement of the parties hereto. -13- IN WITNESS WHEREOF, this Amendment has been entered into as of the date and year first set forth above. ALADDIN GAMING, LLC By: Jack Sommer /s/ Jack Sommer ------------------------ -------------------------- Signature Date: 7/1/97 ---------------------- GAI, LLC Date: 7/1/97 /s/ Richard J. Goeglein ------------------------ -------------------------- Richard J. Goeglein ALADDIN HOLDINGS, LLC By: Jack Sommer /s/ Jack Sommer ------------------------ -------------------------- Signature Date: 7/1/97 ---------------------- -14- EX-10.41 24 EMPLOYMENT & CONSULTING AGMT Employment and Consulting Agreement ALADDIN GAMING, LLC EMPLOYMENT & CONSULTING AGREEMENT This Agreement is made between and among Aladdin Gaming, LLC (the "Company"), Aladdin Holdings, LLC ("Aladdin Holdings") and Richard J. Goeglein ("Executive"). 1. Term. Executive's employment with the Company pursuant to this Agreement shall commence on January 1, 1997 (the "Effective Date") and shall continue for five years and six months thereafter subject to the terms and conditions herein set forth (the Employment Term"). For a period of five years following the termination of the Employment Term, Executive shall be retained as a consultant and as a member of the Board of Directors of the Company (the "Consulting Term") with an annual retainer of $100,000 (paid no less frequently than monthly); provided, however, that the Company, in its sole discretion, may terminate the Consulting Term at any time by notifying Executive thereof and along with such notification making a lump-sum payment to Executive equal to $500,000 less the amount of any retainers previously paid to Executive by the Company during the Consulting Term. 2. Duties and Scope of Employment. (a) Position; Employment Commencement Date. From the Effective Date until the first date that the Company operates the newly renovated and expanded Aladdin Hotel and Casino (the "Operational Date"), the Company shall employ the Executive as the President of the Company reporting to the Chief Executive Officer of the Company and the Board of Directors of the Company (the "Board"). On and after the Operational Date, the Company shall employ the Executive as the sole Chief Executive Officer and President of the Company, reporting only to the Board. Additionally, Executive shall serve as a member of the Board during the Employment Term and the Consulting Term. As President and Chief Executive Officer of the Company, Executive shall have the duties and responsibilities customarily associated with such positions, including senior management powers and responsibilities for the Company's business and affairs. (b) Obligations. Except in connection with his employment as President of Gaming Associates, Inc., his provision of services to GAI, LLC and his provision of services as a member of the Gaming Oversight Committee of the Marriott Corporation, Executive agrees, during the Employment Term, not to actively engage in any other employment, occupation or consulting activity for any direct or indirect remuneration without the prior approval of the Board; provided, however, that Executive may serve in any capacity with any civic, educational or charitable organization, or as a member of corporate Boards of Directors or committees thereof, including those upon which Executive currently serves, all of which are listed on Exhibit A hereto, without the approval of the Board, so long as such activities do not substantially interfere with Executive's ability to discharge his duties to the Company hereunder. If the Board reasonably and in good faith determines that the time Executive is devoting to such activities materially interferes with or impairs his ability to properly discharge his duties to the Company and so notifies Executive, then the Executive will promptly take such action as is necessary to eliminate such interference or impairment, including curtailing or ceasing such activities. If the Board reasonably and in good faith determines that Executive's activities for other entities or organizations give rise to a conflict of interest with the business of the Company, then the parties agree to address such conflict issues on a mutually approved and a reasonable basis to eliminate the conflict; provided, however, Executive will comply with reasonable Board directives in this respect. Specifically, if the Board reasonably determines that a company upon which Executive serves as a member of the board of directors or in another capacity, is a competing company as such term is defined in Section 23(b) hereof with the Company, the Board may ask Executive to resign from such membership or cease services to such a company, and Executive shall promptly comply with such request. 3. Employee Benefits. Except as specified in the next sentence, during the Employment Term, Executive shall be eligible to participate in (i) all employee benefit plans currently and hereafter maintained by the Company for senior management, including, without limitation, life, group health and disability insurance, incentive, profit-sharing, savings, deferred compensation and retirement plans, practices, policies and programs according to their terms, and (ii) such other employee benefits as are set forth in this Agreement. During the Employment Term and while Executive, his spouse and dependent child receive comparable health care benefits at no cost from an entity other than the Company, the Company shall not be required to provide group health insurance benefits to Executive, his spouse and dependent child; provided, however, that should Executive, his spouse or dependent child lose such health care coverage (or in the event that it is provided on other than a no cost basis), then the Company shall provide replacement coverage under the Company's group health plans according to their terms. 4. Compensation. (a) Base Salary. During the Employment Term, the Company shall pay the Executive as compensation for his services a base salary at the minimum annualized rate of $500,000, which shall increase to the minimum annualized rate of $600,000 as of the Operational Date (as in effect from time to time, the "Base Salary"). The Base Salary shall be paid periodically in accordance with normal Company payroll practices and subject to the usual, required withholding. Executive's salary shall be reviewed annually for possible raises in light of Executive's performance of his duties, as determined by the Board or its Compensation Committee. Such Base Salary shall not be reduced after any increase thereto pursuant to this Section 4(a). (b) Bonus. As of the Operational Date and during the Employment Term, Executive shall be eligible to receive an annual bonus with "on target" performance resulting in a payment equal to 50% of one year's Base Salary and with a potential payout equal to 75% of one years' Base Salary (the "Annual Bonus"); provided, however, that if the payment of the Annual Bonus would result in the loss of a Company corporate income tax deduction by virtue of the provisions of Internal Revenue Code Section 162(m) (a "162(m) Deduction Loss"), then the otherwise non-deductible portion of such Annual Bonus shall have its payment deferred until the -2- earlier of (i) the end of any calendar year in which Executive's compensation for such calendar year would not result in a 162(m) Deduction Loss (but only to the extent that such deferred payment would not result in a 162(m) Deduction Loss), or (ii) the date upon which Executive ceases to be a "covered employee" as defined in Internal Revenue Code Section 162(m)(3). Any such deferred amount shall earn interest from the Company at the mid-term applicable federal rate under Internal Revenue Code Section 1274(d) as in effect upon the date of deferral, compounded monthly from the date of deferral until the date of payment. The performance milestones for earning the Annual Bonus shall be established in good faith by the Board or its Compensation Committee in conjunction with Executive so as to have a probability of attainment comparable to that of the annual target bonuses of the chief executive officers of corporations or entities similar to the Company. The Annual Bonus shall be prorated for the first year and for any subsequent partial fiscal years of employment hereunder. (c) LLC Membership Interest Purchase. (i) Initial Purchase. On the date of signing of this Agreement by the parties hereto, Executive shall purchase a membership interest equal to two percent of the total membership interest of the Company, for a purchase price of $1200, which amount equals 100% of the fair market value of Executive's membership interest on the date of purchase (the "Restricted Membership Interest"). Subject to acceleration as set forth elsewhere in this Agreement, the Restricted Membership Interest shall become 100% vested on the earlier of (i) July 1, 2002, (ii) the date upon which securities that have been exchanged for the Restricted Membership Interest become publicly traded on an established securities market, conditioned upon Executive's continued employment, consulting or director relationship with the Company as of such vesting date. Any unvested portion of the Restricted Membership Interest shall be subject to repurchase by the Company for the purchase price originally paid by Executive if Executive terminates his employment, consulting or director relationship with the Company. (ii) Anti-Dilution Purchases. Upon the Company's closing of a financing transaction or transactions involving the sale of membership interests, equity (or securities convertible into membership interests or equity) of the Company (a "Financing Transaction"), and if Executive is employed by the Company upon such closing date or dates, Executive shall have the right to purchase that number of such instruments that would result in Executive being able to purchase, in the aggregate, (including pursuant to his initial purchase under the preceding paragraph) two percent of the fully-diluted membership interest or equity of the Company, as measured on the date of such closing or closings; provided, however, that such right to purchase shall only be effective with respect to non-compensatory Financing Transactions (i.e., Executive shall not have the right to make anti-dilutive purchases with respect to ordinary course of business compensatory sales of stock or membership interests to Company employees). Any such right of Executive to make an anti-dilutive purchase of stock hereunder shall be at the most favorable price and on the most favorable terms and conditions as are provided to any party in the Financing Transaction. For purposes of this Agreement, "fully diluted equity of the Company" shall mean -3- the aggregate amount of membership interests (or the aggregate number of shares of all outstanding common and preferred stock) plus the aggregate amount of membership interests (or the number of shares of common and preferred stock) that could be obtained through the exercise or conversion of rights, options, warrants and convertible securities (other than employee equity compensation). Notwithstanding the foregoing, Executive shall not have the right to make anti-dilutive purchases (i) in any Financing Transaction in which his equity ownership interest in the Company is diluted to the same extent as the equity interest in the Company held by The Trust Under Article Sixth u/w/o Sigmund Sommer or its affiliates (the "Trust"),or (ii) as a result of any sales or transfers arising as a result of the death of Mrs. Viola Sommer or for the purpose of satisfying attendant estate tax liabilities. If, in the event of a public offering, underwriters take issue with Executive's rights under this paragraph, the underwriters, Company and Executive will address such issues on a mutually approved and reasonable basis, taking into account the interests of all involved. (iii) Put Right. In the event that (i) the IPO has not occurred by the end of the Employment Term, or (ii) during the Employment Term, Executive is terminated other than for "Cause" or voluntarily terminates for "Good Reason" (both as defined in Section 9 hereof) on or after the date upon which substantially complete project financing sufficient for substantially full renovation and construction has been secured for the Aladdin Hotel and Casino Redevelopment and Expansion project set forth in the presentation to GW Vegas prepared by Westwood Capital LLC and dated July 1996 (or as subsequently modified) and as finally approved by the Clark County Commission (the "Funding"), then Executive shall have the right (but not the obligation) to sell any membership interest (or shares exchanged for such interest) purchased hereunder back to the Company on the date that is the one year anniversary of the date of such termination of employment or end of the Employment Term (the "Anniversary Date") (so long as the IPO has not occurred by such date) at a price equal to the fair market value of such membership interest or shares on the Anniversary Date, as determined by an independent appraisal firm mutually agreed to by and between the Company and Executive, with the costs of such appraisal being paid by the Company (the "Put Right"). The Put Right must be exercised in writing by Executive by the Anniversary Date or it shall become void and without further effect. If the Put Right is exercised, the Company must purchase the membership interest or shares subject to the Put Right within ninety days following the Anniversary Date. (iv) LLC Distributions. While the Company remains an LLC, the Company will distribute sufficient cash for Executive to satisfy the tax obligations arising from his membership interest. (d) Stock Option. On the date, if any, upon which the Company (or an affiliate of the Company) effects an initial public offering for its securities (the "IPO"), Executive shall be granted a stock option covering such securities (the "Stock Option"). The number of shares subject to such option shall be equal to the number derived by dividing the 125% of the Base Salary by the "Price to Public" share price in such offering. The Stock Option per share exercise -4- price shall be equal to the "Price to Public" share price. The Stock Option, shall qualify, to the maximum extent permitted by Internal Revenue Code Section 422(d) or its successor provision, as an "incentive stock option." Subject to accelerated vesting as set forth elsewhere herein, the Stock Option shall vest as to one third of the shares subject to the Stock Option as of the date of grant, and as to an additional one third of such shares on each anniversary of the date of grant, so as to be 100% vested on the second anniversary of the date of grant, conditioned upon Executive's continued employment, consulting or director relationship with the Company as of each vesting date. The Company agrees to register the Stock Option and the stock issuable thereunder on a Form S-8 (or its successor form) with the Securities and Exchange Commission following the date of grant. In good faith and giving consideration to Executive's interests, the Company and Executive will agree upon the registration date(s). (e) Retainer. The Company has previously paid Executive a one-time retainer in the amount of $50,000. 5. Expenses. During the Employment Term, the Company will pay or reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in the furtherance of or in connection with the performance of Executive's duties hereunder in accordance with the Company's established policies. 6. Life Insurance. During the Employment Term, the Company will obtain term life insurance for Executive in the amount of Executive's annual Base Salary, payable to the beneficiary designated by Executive. 7. Disability Insurance. During the Employment Term, the Company will obtain the greatest amount of disability insurance reasonably available to Executive, provided that the Company shall not be required to provide long-term disability insurance coverage in excess of 66 and 2/3% of Executive's annual Base Salary. 8. Special Right of Company to Terminate Agreement. In exchange for a lump-sum payment to Executive of $650,000, the Company shall have the right to terminate the Agreement without payment of severance benefits under Section 9 hereof if, as of January 1, 1999, the Funding has not been secured (the "Special Right"). The Special Right must be exercised in writing by the Company by February 1, 1999 or it shall become void and without further effect. The exercise of the Special Right shall not affect compensation previously earned by Executive hereunder, including all vested Equity Compensation. 9. Severance Benefits. If, prior to the end of the Employment Term, Executive's employment with the Company terminates involuntarily other than for death, disability, exercise of the Special Right or "Cause," or if Executive terminates his employment with the Company voluntarily for "Good Reason" (both as defined herein), then (i) Executive shall be entitled to a lump-sum payment equal to the Base Salary that he would have been paid had he remained -5- employed by the Company through the end of the Employment Term, with such amount paid to Executive within thirty (30) days of such termination, (ii) to make Executive whole for any foregone Annual Bonus, Executive shall be entitled to an additional lump-sum payment equal to 50% of the Base Salary he would have been paid had he remained employed by the Company after the Operational Date and through the end of the Employment Term, with such amount paid to Executive within thirty (30) days of such termination (or, if Executive's termination is prior to the Operational Date, the amount shall be paid within thirty (30) days following the Operational Date), (iii) Executive's Stock Option, Restricted Membership Interest and any equity compensation granted to Executive by the Company or exchanged for the Restricted Membership Interest or Stock Option ("Equity Compensation") shall have their vesting accelerated in full so as to become 100% vested as of the date of termination, (iv) if such termination occurs prior to the IPO and the IPO occurs within twelve months following such termination, Executive shall be granted a 100% vested Stock Option on the date of the IPO, and (v) for the duration of the Employment Term, the Company shall provide to Executive and his spouse and daughter one hundred percent (100%) Company-paid health and life insurance coverage at the same level of coverage as was provided to Executive immediately prior to the date of termination (the "Company-Paid Coverage"). For this purpose, "Good Reason" is defined as (i) the assignment to Executive of duties incommensurate with his status as President and Chief Executive Officer, or any material reduc tion of the Executive's duties, authority or responsibilities or any reduction, whether material or not, in Executive's title or reporting responsibilities, relative to the Executive's duties, authority, responsibilities, title or reporting responsibilities as in effect immediately prior to such reduction, except if agreed to in writing by the Executive; (ii) a reduction by the Company in the Base Salary, or Annual Bonus as in effect immediately prior to such reduction; (iii) the relocation of the Executive to a facility or a location more than thirty-five (35) miles from the Executive's then present location, without the Executive's written consent; or (iv)any material breach of this Agreement by the Company (if such breach is not cured within 60 days following receipt by the Company of written notice from the Executive specifying the facts relating to the breach). For this purpose, "Cause" is defined as Executive's (i) gross negligence in connection with the performance of his duties hereunder which materially adversely affects the Company and is not cured within a reasonable period of time after receipt by Executive of written notice from the Board, (ii) loss of Executive's key license issued by the Nevada Gaming Commission, (iii) any material breach of this Agreement by the Executive (if such breach is not cured within 60 days following receipt by the Company of written notice from the Company specifying the facts relating to the breach), (iv) misappropriation of funds or embezzlement by the Executive of the Company, or (v) conviction of Executive of a felony. 10. Change of Control. In the event of a "Change of Control" of the Company (as defined herein) occurring while Executive is employed by the Company, Executive's Equity Compensation shall have its vesting accelerated in full so as to become 100% vested as of the date -6- of the Change of Control; provided, however, that if such potential vesting acceleration would cause a contemplated Change of Control transaction that was intended to be accounted for as a "pooling-of-interests" transaction to become ineligible for such accounting treatment under generally accepted accounting principles, as determined by the Company's independent public accountants (the "Accountants") prior to the Change of Control, Executive's Equity Compensation shall not have its vesting so accelerated. For this purpose, "Change of Control" of the Company is defined as: (a) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (other than a group consisting of the members of the Board as of the Effective Date and their affiliated investment funds and the partners thereof) becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company's then outstanding voting securities; provided, however, that a "Change of Control" will not be deemed to occur under this paragraph with respect to (i) intra-family transfers among the Sommer family, or (ii) sales or transfers arising as a result of the death of Mrs. Viola Sommer or for the purpose of satisfying attendant estate tax liabilities; or (b) The consummation of a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (c) A change in the composition of the Board of Directors of the Company occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board of Directors of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (d) The approval by the Board of a plan of complete liquidation of the Company or of an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. 11. Golden Parachute Excise Tax Gross-Up. In the event that the benefits provided for in this Agreement or otherwise payable to the Executive constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") and will be subject to the excise tax imposed by Section 4999 of the Code, then the Executive shall -7- receive (i) a payment from the Company sufficient to pay such excise tax, and (ii) an additional payment from the Company sufficient to pay the excise tax and federal and state income taxes arising from the payments made by the Company to Executive pursuant to this sentence; provided, however, that in the aggregate such payments shall not exceed $1,000,000. Unless the Company and the Executive otherwise agree in writing, the determination of Executive's excise tax liability and the amount required to be paid under this Section 11 shall be made in writing by the Accountants. For purposes of making the calculations required by this Section 11, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 11. 12. Automobile. During the Employment Term, the Company shall, in its discretion, either make available to Executive a 1997 or newer model Lexus LS 400 or pay Executive a monthly auto allowance sufficient to lease such automobile and reimburse Executive for the maintenance and insurance costs of such automobile. 13. Death and Disability. If Executive dies or becomes permanently disabled while employed by the Company, then (i) then Executive shall cease to be employed hereunder, and (ii) Executive's Equity Compensation shall have its vesting accelerated in full so as to become 100% vested. Executive shall be considered permanently disabled if Executive is absent from employment or unable to render services hereunder on a full-time basis by reason of physical or mental illness or disability for six (6) months or more in the aggregate in any twelve (12) month period. Any question as to the existence or extent of Executive's disability upon which Executive and the Company cannot agree shall be determined by a qualified independent physician selected by the Board and approved by Executive, which approval shall not be unreasonably withheld. 14. Relocation Expense Reimbursement. The Company will reimburse Executive for the following reasonable costs: (a) Reasonable hotel or housing costs for Executive and his immediate family for up to two years; provided, however, that the Company shall not reimburse Executive for any such costs arising more than fifteen days following the Company's provision of a loan to Executive as specified in Section 15. (b) Reasonable transaction costs associated with buying or renting Executive's new residence (closing costs, inspections, title insurance, legal expenses, brokerage and related fees, etc.). -8- (c) Reasonable transaction costs associated with selling Executive's old residence (closing costs, inspections, title insurance, legal expenses, brokerage and related fees, etc.). (c) Reasonable costs associated with moving household furnishings, automobiles and personal effects. (d) Reasonable travel expenses incurred by Executive and family traveling to and from Las Vegas during the first two years of this Agreement. 15. Relocation Loan. In connection with the transfer of Executive's principal place of employment to Las Vegas from California, the Company shall provide Executive with a five (5) year interest-free mortgage loan in the amount of up to $500,000 for purposes of Executive's acquisition of a new principal residence (the "Loan"). The Loan shall not be for more than the purchase price of the residence. The Loan shall be subject to, and governed by, the terms and conditions of a loan agreement and mortgage between the Executive and the Company. The Company shall retain a mortgage security interest in the residence during the term of the Loan. The Loan is intended to satisfy the Requirements of Proposed Treasury Regulation Section 1.7872-5T(c)(1) and the Executive and the Company agree to execute such documents as are necessary to comply therewith. The term of the Loan shall be shortened to two years in the event Executive is terminated for Cause. 16. Legal Fee Reimbursement. The Company agrees to pay Executive's legal fees associated with entering into this Agreement up to $15,000 upon receiving an invoice for such legal services. 17. Withholding. The Company shall be entitled to withhold, or cause to be withheld, from payment any amount of withholding taxes required by law with respect to payments made to Executive in connection with his employment hereunder. 18. D&O Insurance. During the Employment Term and the Consulting Term, the Company agrees to maintain director and officer liability insurance in scope and amounts reasonably satisfactory to Executive, to the extent available. 19. Indemnification. The Company shall indemnify Executive to the same extent as other senior executives and directors of the Company are indemnified. The foregoing indemnification shall not be inclusive of any other right which Executive may have or hereafter acquire under any statute, provision of the Certificate of Incorporation or Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. The foregoing indemnification shall not be deemed to affect any rights to subrogation which may exist in any policy of directors and officers liability. -9- 20. Vacation. Executive shall be entitled to paid vacation of four weeks per year in accordance with the Company's vacation policy, with the timing and duration of specific vacations mutually and reasonably agreed to by the parties hereto. 21. Fringe Benefit Gross-Up. Executive will be fully "grossed-up"by the Company for any imputed income required to be recognized under Sections 6, 7, 12, and 14 hereof so that the economic effect to Executive is the same as if these benefits were provided to Executive on a non-taxable basis; provided, however, that the total of such gross-up payments shall not exceed $100,000 in the aggregate. 22. Full Settlement; No Mitigation. The Company's obligation to make payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action to mitigate the amounts payable to the Executive hereunder. The Company agrees to pay for any legal fees and expenses reasonably incurred by the Executive in connection with any breach of this Agreement by the Company. 23. Covenant Not to Compete. (a) Covenant Not to Compete. For a period of one year following Executive's termination of employment with the Company (i) by the Company for Cause, or (ii) by Executive for other than Good Reason, Executive will not render services as an employee, consultant, director, partner, owner to, or participate as more than a 2% shareholder in, any Competing Company, as such term is defined immediately below. This covenant shall not apply in the event of any other termination of Executive's employment with the Company. (b) Competing Company. "Competing Company" shall mean another company, corporation, partnership, limited liability corporation or other entity any portion of who is a business competitor of the Company in Clark County, Nevada. 24. Assignment. This Agreement shall be binding upon and inure to the benefit of any successor of the Company. Any such successor of the Company shall be deemed substituted for the Company under the terms of this Agreement for all purposes. As used herein, "successor" shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. 25. Notices. All notices, requests, demands and other communications called for hereunder shall be in writing and shall be deemed given if delivered personally or three (3) days after being mailed by registered or certified mail, or sent by Federal Express or a similar private -10- delivery company, return receipt requested, prepaid and addressed to the parties or their successors in interest at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: If to the Company: Aladdin Holdings LLC Sigmund Sommer Properties 280 Park Avenue, 38th Floor New York, New York 10017 Attn: Ron Dictrow If to Executive: Richard J. Goeglein at the last residential address known by the Company 26. Guarantee. Aladdin Holdings LLC hereby unconditionally and irrevocably guarantees to Executive the performance of all payment obligations of the Company, its successors and assigns with respect to the Agreement; provided, however, that (i) such guarantee shall become void and without further effect, and (ii) Aladdin Holdings LLC shall cease being a party to this Agreement, as of the date, if any, of the Funding. 27. Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 28. Entire Agreement. This Agreement represent the entire agreement and understanding between the Company and Executive concerning Executive's employment and director relationship with the Company, and supersedes and replace any and all prior agreements and understandings concerning Executive's employment relationship with the Company. 29. No Oral Modification, Cancellation or Discharge. This Agreement may only be amended, canceled or discharged in writing signed by Executive and the Company. 30. Governing Law. This Agreement shall be governed by the laws of the State of Nevada. -11- IN WITNESS WHEREOF, the undersigned have executed this Agreement. ALADDIN GAMING, LLC By: Jack Sommer /s/ Jack Sommer ------------------------ ------------------------ Signature Date: 7/1/97 RICHARD J. GOEGLEIN Date: July, 1997 /s/ Richard J. Goelein ------------------------ ALADDIN HOLDINGS, LLC By: Jack Sommer /s/ Jack Sommer ------------------------ ------------------------ Signature Date: 7/1/97 -12- EXHIBIT A BOARD MEMBERSHIPS Platinum Software Corporation AST Research, Inc. Hollywood Park Diamond Seal -13- ALADDIN GAMING, LLC AMENDMENT TO EMPLOYMENT & CONSULTING AGREEMENT This Amendment (the "Amendment") is made this _____ day of January, 1998, between and among Richard J. Goeglein ("Executive"), Aladdin Gaming, LLC (the "Company") and Aladdin Holdings, LLC ("Holdings"). WHEREAS, it was initially agreed that Executive would be given certain put rights with respect to certain LLC membership interests purchased by Executive pursuant to the Employment Agreement made between and among the Company, Holdings and Executive as of January 1, 1997 (the "Employment Agreement") upon the end of his "Employment Term" (as such term is defined in the Employment Agreement) if, upon such date, the Company (or an affiliate of the Company) has not effected an "IPO" (as such term is defined in the Employment Agreement); and WHEREAS, the Employment Agreement did not properly reflect such initial agreement; NOW, THEREFORE, the Company, Holdings and Executive agree that the Employment Agreement is hereby amended to properly reflect the initial agreement. 1. Employment Agreement Amendment. Section 4(c)(iii) of the Employment Agreement is hereby amended in its entirety to read as follows: "(iii) Put Rights. (A) Certain Terminations During Employment Term. In the event that, during the Employment Term, Executive is terminated other than for "Cause" or voluntarily terminates for "Good Reason" (both as defined in Section 9 hereof) on or after the date upon which substantially complete project financing sufficient for substantially full renovation and construction has been secured for the Aladdin Hotel and Casino Redevelopment and Expansion project set forth in the presentation to GW Vegas prepared by Westwood Capital LLC and dated July 1996 (or as subsequently modified) and as finally approved by the Clark County Commission (the "Funding"), then Executive shall have the right (but not the obligation) to sell any membership interest (or shares exchanged for such interest) purchased hereunder back to the Company on the date that is the one year anniversary of the date of such termination of employment (the "Anniversary Date") (so long as the IPO has not occurred by such date) at a price equal to the fair market value of such membership interest or shares on the Anniversary Date, as determined by an independent appraisal firm mutually agreed to by and between the Company and Executive, with the costs of such appraisal being paid by the Company (the -14- "Employment Term Put Right"). The Employment Term Put Right must be exercised in writing by Executive by the Anniversary Date or it shall become void and without further effect. If the Employment Term Put Right is exercised, the Company must purchase the membership interest or shares subject to the Employment Term Put Right within ninety (90) days following the Anniversary Date. (B) Lapsing of Employment Term Prior to IPO. In the event that the IPO has not occurred by the end of the Employment Term (the "Employment Term Lapse Date"), then Executive shall have the right (but not the obligation) to sell any membership interest (or shares exchanged for such interest) purchased hereunder back to the Company at a price equal to the fair market value of such membership interest or shares on the Employment Term Lapse Date, as determined by an independent appraisal firm mutually agreed to by and between the Company and Executive, with the costs of such appraisal being paid by the Company (the "Employment Term Lapse Put Right"). The Employment Term Lapse Put Right must be exercised in writing by Executive within thirty (30) days following the Employment Term Lapse Date or it shall become void and without further effect. If the Employment Term Lapse Put Right is exercised, the Company must purchase the membership interest or shares subject to the Employment Term Lapse Put Right within ninety (90) days following receipt of Executive's exercise thereof." 2. Other Employment Agreement Provisions. To the extent not expressly amended hereby, the Employment Agreement remains in full force and effect. 3. Entire Agreement. This Amendment, taken together with the Employment Agreement (to the extent not expressly amended hereby), represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the parties with respect to the Executive's employment (the "Agreement"). The Agreement may be amended at any time only by mutual written agreement of the parties hereto. -15- IN WITNESS WHEREOF, this Amendment has been entered into as of the date and year first set forth above. ALADDIN GAMING, LLC By: Jack Sommer /s/ Jack Sommer -------------------------- --------------------------- Signature Date: 7/1/97 RICHARD J. GOEGLEIN Date: July, 1997 /s/ Richard J. Goelein --------------------------- ALADDIN HOLDINGS, LLC By: Jack Sommer /s/ Jack Sommer -------------------------- --------------------------- Signature Date: 7/1/97 -16- EX-10.42 25 JAMES H. MCKENNON EMPLOYMENT AGMT Employment Agreement EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement"), is made and entered into by and between Aladdin Gaming LLC ("Company"), Aladdin Holdings, LLC, ("Aladdin Holdings") and James H. McKennon ("Executive"). WHEREAS, the Company considers it important and in its best interest and the best interest of its owners to foster the employment of key management personnel and desires to retain the services of Executive on the terms and subject to the conditions in this Agreement; WHEREAS, the Executive desires to accept employment by the Company to render services to the Company on the terms and subject to the conditions in this Agreement; NOW, THEREFORE, in consideration of the foregoing and the following mutual covenants and agreements, the parties agree as follows: 1. Employment. The Company hereby employs Executive as President of the Aladdin Hotel and Casino and Executive hereby accepts such employment with the Company for the compensation and on the terms and subject to the conditions in this Agreement. 2. Term. The term of the Executive's employment under this Agreement ("Term") shall commence on April 15, 1997 ("Commencement Date") and shall continue for four (4) years, to and including April 14, 2001, unless earlier terminated as provided in this Agreement. (The date of any termination of this Agreement as provided herein is the "Termination Date".) 3. Duties and Responsibilities. During the Term, Executive will serve as President of the Aladdin Hotel and Casino and will have such authority, responsibilities and duties as are customarily associated with this position. At all times Executive shall faithfully and to the best of his abilities perform his duties and responsibilities hereunder to the reasonable satisfaction of the Board of Directors. In addition, Executive shall devote his full time, efforts and attention to the business and affairs of the Company, use his best efforts to further the interest of the Company and at all times conduct himself in a manner which reflects credit upon the Company. 1 4. Compensation. a. Salary. For his services hereunder, the Company shall pay Executive a base salary ("Base Salary") of $325,000.00 for each consecutive 12-month period during the Term beginning with the Commencement Date. (Each such consecutive 12-month period is an "Employment Year"). Executive's Base Salary will be prorated for any partial Employment Year. The Board of Directors will consider increases in the Base Salary no less frequently than annually, commencing at the end of the first Employment Year hereunder and will be based upon criteria determined by the Board of Directors and applicable to other members of the executive management group. Any such increases, however, shall be in the sole discretion of the Board of Directors, but there shall be no reduction in Base Salary during the Term. The Base Salary shall be payable in equal periodic installments subject to customary deductions for social security, other taxes and amounts customarily withheld from salaries of employees of the Company, all in accordance with the Company's usual and customary payroll practices. b. Annual Bonus. From and after the Operational Date as defined in Section 4(f)(1)(i) hereof, Executive is eligible to receive from the Company an annual cash bonus, provided Executive is employed by the Company on the date the Board of Directors grants the bonus. The bonus will be based on relevant criteria or performance standards as determined by the Board of Directors in a bonus plan which will be competitive with industry standards. c. Benefits. During the Term, Executive shall be entitled to receive from the Company such health, pension, retirement and other employee benefits as the Company provides to other members of the executive management group. During the Term, the Company at its expense will provide Executive with term life insurance in the amount of Executive's annual Base Salary. During the Term, the Company at its expense will provide Executive with long-term disability coverage under a group long-term disability plan the Company provides other members of the executive management group. d. Vacation. Executive shall be entitled to two (2) weeks paid vacation for each Employment Year, prorated for any partial Employment Year. The Board of Directors in its discretion may increase Executive's vacation entitlement. The timing and duration of specific vacations will take into account the business needs of the Company and will be mutually agreed to by the parties. In the event any such vacation is not used by Executive in any Employment Year, the Executive has a 2 right to accumulate and carry forward such number of unused vacation days from year to year as may be consistent with the Company's policy therefor for other members of the executive management group, in effect from time to time. Upon termination of employment, all unused vacation time shall be paid to Executive. e. Reimbursement of Expenses. The Company shall pay all reasonable expenses incurred by Executive in the performance of his duties and responsibilities for the Company. Executive shall submit to the Company statements and documentation reflecting such expenses so incurred, with such detail, backup and confirmation as the Company may reasonably require. Subject to any audit the Company deems necessary, the Company shall promptly reimburse Executive the full amount of any such expenses incurred by Executive. f. Right to Purchase LLC Membership Interest. On the Execution Date, Executive has the right to purchase a membership interest equal to one (1%) percent of the total membership interests of the Company for a total purchase price of $600.00, which amount equals 100% of the fair market value of Executive's membership interest on the date of purchase (the "Restricted Membership Interest"). (1) During the Term, the Restricted Membership Interest vests as follows: (i) 25% of the Restricted Membership Interest on the date that the Company opens and begins operating the newly renovated and expanded Aladdin Hotel & Casino (the "Operational Date") and Executive executes and agrees to be bound by the Company's Operating Agreement; and (ii) 25% of the Restricted Membership Interest on each succeeding annual anniversary of the Operational Date to the Termination Date; (2) Upon expiration of the four-year term of this Agreement (provided Executive was employed by the Company at such expiration), any unvested Restricted Membership Interest vests only as follows: (i) if the Company does not continue to employ Executive for reason(s) not constituting Cause as defined in Section 5(d)(1-4) 3 hereof or if the Executive does not continue his employment at the request of the Company for reason(s) constituting Good Reason as defined in Section 5(d)(5), then an additional 25% of the Restricted Membership Interest vests; or (ii) if the Executive's employment with the Company continues, the 25% of the Restricted Membership Interest continues to vest in accordance with Section 4(f)(1)(ii) above as though there had been no Termination Date. (3) If Executive's employment terminates, the Company has the right to repurchase any unvested portion of the Restricted Membership Interest for the purchase price originally paid by Executive. (4) If, after the Operational Date, the Company remains an LLC, has profits from operations but does not make Executive membership distributions sufficient to pay Executive's tax obligations from such profits, then the Company will distribute sufficient cash for Executive to satisfy such obligations, but only to the extent such distributions are not sufficient to meet such tax obligations. g. Executive's Put Right. Executive has the right but not the obligation to sell his vested Restricted Membership Interest (or shares exchanged by such Interest) back to the Company only in the following circumstances: (1) the Company's IPO has not occurred upon expiration of the original four-year term of this Agreement and Company does not continue to employ Executive for reason(s) not constituting Cause as defined in Section 5(d)(1-4) hereof or the Executive does not continue his employment at the request of the Company for reason(s) constituting Good Reason as defined in Section 5(d)(5). This Put right must be exercised in writing by Executive within thirty (30) days of the expiration of the four-year term hereunder or it shall become void and without further effect. (2) The Company's IPO has not occurred upon Executive becoming 100% vested in Restricted Membership Interest. This Put right must be exercised in writing by Executive within 30 days of Executive being 100% vested or it shall become void and without further effect. 4 The Put purchase price is the fair market value of such Interest (or shares) on the Valuation Date. Under this Agreement, the Valuation Date is: (i) the expiration of the four-year term of this Agreement, in the event of a Put under Section 4(g)(i), or (ii) the date Executive becomes 100% vested, in the event of a Put under Section 4(g)(2). In either case of (i) or (ii) in the preceding sentence, the fair market value shall be determined by an independent appraisal firm mutually agreed to by the Company and Executive, with the cost of such appraisal being paid by the Company. If Executive exercises the Put hereunder, the Company must purchase the Restricted Membership Interest or shares within ninety (90) days of Executive's exercise of the Put. h. Company's Call Right. If, prior to the date of the Company's IPO, the Company terminates Executive for Cause as defined in Section 5(d) hereof (including Executive quitting without Good Reason under Section 5(d)(5)), then the Company shall have the right but not the obligation to purchase any vested Restricted Membership Interest (or shares exchanged by such Interest) within thirty (30) days of the Termination Date at a price equal to two (2) times the price Executive originally paid the Company for such Restricted Membership Interest. The Call right must be exercised in writing by the Company within thirty (30) days of the Termination Date or it shall become void and without further effect. If the Company exercises the Call hereunder, Executive must tender such Interest or shares and otherwise complete the transaction hereunder within thirty (30) days of the Company's exercise of the Call. i. Auto Allowance. During the Term, the Company shall pay Executive an auto allowance of $600.00 per month. 5. Termination. This Agreement shall terminate in accordance with the following provisions: a. Expiration of the Term. Unless earlier terminated in accordance with the provisions hereof, this Agreement shall terminate upon expiration of the four-year term as provided in Section 2. b. Death. If the Executive dies during the Term, this Agreement shall terminate, with the Termination Date being the date of the Executive's death. 5 c. Disability. If the Executive has been absent from service to the Company as required in this Agreement for a period of ninety (90) days or more during any one-hundred eighty (180) day period during the Term as a result of any physical or mental disability, the Company has the right to terminate this Agreement, the Termination Date being ten (10) days after notice thereof is given to Executive. d. Termination by Company for Cause. The Company has the right to terminate this Agreement for Cause as defined herein, such termination to be effective immediately upon notice thereof from the Company to Executive. For purposes of this Agreement, Cause shall mean Executive's (1) conviction of any felony; (2) embezzlement or misappropriation of money or property of the Company; (3) denial, rejection, suspension or revocation of any gaming license or permit; (4) Executive's material breach of Section 6 hereof which material breach has an adverse impact on the Company; (5) Executive quits his employment with the Company without Good Reason. Good Reason is defined as (i) the assignment to Executive of duties materially inconsistent with his position and title without his consent, or (ii) a material reduction in Executive's duties, authorities and responsibilities without his consent, or (iii) a reduction by the Company in Executive's Base Salary, in effect immediately prior to such reduction, without his consent, provided Executive gives the Company written notice specifying such assignment or reduction and the Company has not cured or abated such assignment or reduction within 20 days thereafter. e. Termination by Company Without Cause (Termination by Executive With Good Reason). Subject to Section 5(f), the Company has the right to terminate this Agreement without Cause (and the Executive has the right to terminate this Agreement for Good Reason as defined in Section 5(d) hereof) by giving the other party written notice thereof and the Company shall provide Executive with the benefits set forth in Section 8(e). A termination under this Section 5(e) includes Executive's termination without Cause following a Change of Control. For purposes of this Agreement, a Change of Control shall be deemed to occur only if any two of the three directors who are serving on the Board of Directors of the Company as representatives of the Sommer Family Trust or related entities on the date of the execution of this Agreement cease to be directors of the Company. f. Special Right of Company to Terminate this Agreement. If, within twelve (12) months from the Commencement Date, substantially complete 6 project financing sufficient for substantially full renovation and construction for the Aladdin Hotel & Casino Redevelopment and Expansion Project as set forth in the presentation to GW Vegas prepared by Westwood Capital LLC and dated July, 1996 (or as subsequently modified) and as finally approved by the Clark County Commission, has not been secured, the Company shall have the right but not the obligation to terminate Executive and this Agreement and Executive shall only be entitled to the benefits in Section 8(f) hereof. 6. Executive's Covenants: The Executive acknowledges that the Company has a substantial, legitimate and continuing interest in the protection of its business relationships with others including without limitation current and prospective employees, consultants, advisors, customers, vendors, suppliers, partners or joint venturers, and financing sources, and in the protection of its Confidential Information, and has invested substantial sums, time and effort and will continue to invest substantial sums, time and effort to develop, maintain and protect such relationships and Information. Accordingly, Executive covenants and agrees as follows: a. Confidentiality. During the Term and thereafter, Executive shall keep secret and retain in strictest confidence and shall not, without the prior written consent of the Company, furnish, make available or disclose to any third party or use for the benefit of himself or any third party any Confidential Information. Confidential Information is information related to or concerning the Company and its businesses which is confidential, proprietary or not generally known to and cannot be readily ascertained through proper means by persons or entities (including the Company's present or future competitors), who can obtain any type of value from its disclosure or use. Confidential Information includes all secret, confidential or proprietary information, knowledge or data relating to the Company, such as, without limitation, finances and financing methods, sources, proposals or plans; operational methods; marketing or development proposals, plans or strategies; pricing strategies; business or property acquisition or development proposals or plans; new personnel acquisition proposals or plans; customer lists and any descriptions or data concerning current or prospective customers; provided, however, while employed by the Company and in furtherance of the business and for the benefit of the Company, Executive may provide Confidential Information as appropriate to attorneys, accountants, financial institutions and other persons or entities engaged in business with the Company. b. Non-Competition. Executive covenants and agrees that he will not compete with the Company, its affiliates or subsidiaries at any time during the 7 Term, or for one (1) year from the Termination Date upon a Termination by the Company for Cause under Section 5(d) (including Executive quitting without Good Reason under Section 5(d)(5)). Under this paragraph, Executive agrees that he will not, directly or indirectly, whether as employee, owner, partner, agent, director, officer, consultant, independent consultant or stockholder (except as the beneficial owner of not more than 2% of the outstanding shares of a corporation, any of the capital stock of which is listed on any national or regional securities exchange or quoted in the daily listing of over-the-counter market securities and, in each case, in which the Executive does not undertake any management or operational or advisory role) or in any other capacity, for his own account or for the benefit of any other person or entity, establish, engage, work for or be connected in any manner with any person or entity which is, at the time, engaged in a business which is in competition with the business of the Company (or any of its subsidiaries or affiliates); it being understood that for purposes of this Section 6(b), the business of owning, managing, operating or financing a casino or similar gaming activities in Clark County, Nevada, shall be deemed to be business in which the Company is engaged; provided, however, nothing herein prohibits Executive from working for a competing business outside Clark County, Nevada, so long as Executive's work outside Clark County, Nevada, does not involve competition with the business of the Company in Clark County, Nevada. c. Employees of the Company. For one (1) year following the Termination Date, Executive shall not, directly or indirectly, solicit, or cause others to solicit, for employment by any person or entity other than the Company, any employee of the Company or encourage any such employee to leave employment with the Company. d. Property of the Company. Executive acknowledges and agrees that all memoranda, notes, lists, records and other documents or papers, including copies thereof, containing or reflecting Confidential Information (whether or not such items are kept or stored in computer memories, microfiche, hard copy or any other manner) made or compiled by Executive or made available to Executive are and remain the property of the Company ("Company Property") and shall be delivered to the Company promptly upon any termination of this Agreement under Section 5 hereof. Executive shall retain no copies of Company Property following the Termination Date. e. Reasonableness and Severability of Covenants. The Executive acknowledges and agrees that the Executive's Covenants herein are necessary for 8 the protection of the Company's legitimate interests, are reasonable and valid in duration and geographical scope, and in all other respects. If any court determines that any of the Executive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions. f. Blue-Pencilling. If any court determines that any of the Executive Covenants, or any part thereof, is unenforceable because of the duration or geographical scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable. 7. Non-Disparagement. Each of the parties agrees that after the Termination Date, neither shall, publicly or privately, disparage or make any statements (written or oral) that could impugn the integrity, acumen (business or otherwise), ethics or business practices, of the other, except in each case, to the extent (but solely to the extent) necessary (i) in any judicial or arbitral action to enforce the provisions of this Agreement or (ii) in connection with any judicial or administrative proceeding to the extent required by applicable law. 8. Effect of Termination. The following provisions shall apply in the event of the termination of this Agreement as provided in Section 5 above, and neither party shall have any further liability or obligation to the other, except as provided herein: a. Expiration of Term. Upon expiration of the four (4) year term under Section 5(a) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 4(f), 4(g), 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; b. Death. Upon termination of this Agreement as provided in Section 5(b) hereof, this Agreement shall terminate and be of no further force and effect except as provided in Sections 4(f) and 4(g)(2); provided further that the Company shall pay to Executive's estate any salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; 9 c. Disability. Upon termination of this Agreement as provided in Section 5(c) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 4(f), 4(g)(2), 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; d. Termination by Company for Cause. Upon termination of this Agreement as provided in Section 5(d) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 4(f), 4(h), 6 and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; e. Termination by the Company Without Cause. Upon termination of this Agreement as provided in Section 5(e), this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6 and 7; provided further that Executive shall be entitled to such salary, bonus and benefits to which Executive would have been entitled for the remainder of the four-year term or twelve (12) months, whichever is longer, as if there had been no earlier termination. f. Termination By Special Right of the Company. Upon termination of this Agreement as provided in Section 5(f), this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided further that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, any expense reimbursement amounts accrued to the Termination Date, and additional benefits as follows: Company paid COBRA premiums for twelve (12) months and Base Salary for twelve (12) months, payable in lump sum less customary deductions. 9. General Provisions. a. Assignment. Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive or the Company without the prior written consent of the other; provided, that (i) in the event of the Executive's Death during the Term, the Executive's estate and his heirs, executors, administrators, legatees and distributees shall have the rights and obligations set forth herein, as provided herein, and (ii) nothing contained in this Agreement shall limit or restrict 10 the Company's ability (A) to merge or consolidate or effect any similar transaction with any other entity, irrespective of whether the Company is the surviving entity (including a split up, spin off or similar type transaction), provided, that one or more of such surviving entities shall continue to be bound by the provisions hereof binding upon the Company; (B) to assign this Agreement in conjunction with a sale of all or substantially all of the Company's assets; or (C) an assignment of this Agreement to an affiliate controlled by or under common control with Company. b. Binding Agreement. This Agreement shall be binding upon, and inure to the benefit of, the Executive and the Company and their respective heirs, executors, administrators, legatees and distributees, successors and permitted assigns. c. Guarantee. Aladdin Holdings hereby unconditionally and irrevocably guarantees to Executive the performance of all payment obligations of the Company, its successors and assigns with respect to the Agreement; provided, however, that (i) such guarantee shall become void and without further effect, and (ii) Aladdin Holdings shall cease being a party to this Agreement, as of the date, if any, of the Funding, defined as substantially complete project financing sufficient for substantially full renovation and construction for the Aladdin Hotel and Casino Redevelopment and Expansion project as set forth in the presentation to GW Vegas prepared by Westwood Capital LLC and dated July 1996 (or as subsequently modified) and as finally approved by the Clark County Commission. d. Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. e. Severability. If, for any reason, any provision of this Agreement is determined to be invalid or unenforceable, such invalidity or lack of enforceability shall not affect any other provision of this Agreement not so determined to be invalid or unenforceable, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect, irrespective of such invalid or unenforceable provision. f. Effect of Prior Agreements. This Agreement contains the entire understanding between the parties hereto respecting the Executive's employment by the Company, and supersedes any prior understandings or agreements between the parties hereto. 11 g. Indemnification. The Company shall indemnify and hold Executive harmless to the full extent permitted by Chapter 86 of the Nevada Revised Statutes against costs, expenses, liabilities and losses, including reasonable attorney's fees and disbursements of counsel, incurred or suffered by him in connection with his serves as an employee of the Company during the Term of this Agreement. h. Notices. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (i) when delivered, if sent by telecopy or by hand, (ii) one business day after sending, if sent by reputable overnight courier service, such as Federal Express, or (iii) three business days after being mailed, if sent by United States certified or registered mail, return receipt requested, postage prepaid. Notices shall be sent by one of the methods described above; provided, that any notice sent by telecopy shall also be sent by any other method permitted above. Notices shall be sent: If to the Executive: James McKennon 22 Burning Tree Ct. Las Vegas, NV 89113 with a copy to: If to the Company: Aladdin Holdings LLC 280 Park Avenue New York, NY 10017 Attn: Ron Dictrow directed to the attention of the Board of Directors with copies to the Chairman thereof; or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. i. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 12 j. Indulgences, Etc. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. k. Binding Arbitration. Except for an action by the company for injunctive or other equitable relief, any dispute or controversy arising under or in connection to this Employment Agreement shall be resolved through binding arbitration, conducted in Las Vegas, Nevada, in accordance with the rules of the American Arbitration Association. Judgment may be entered on the arbitration award in any court of competent jurisdiction. l. Headings. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. m. Neutral Construction: Each party to this Agreement has had the opportunity to retain counsel, and to review and participate in the drafting of this Agreement, and, accordingly, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting parties will not be employed or used in any interpretation or enforcement of this Agreement. n. Gaming Law. Anything to the contrary herein notwithstanding, the parties hereto agree and acknowledge that they are subject to and that they shall comply in all respects with the gaming laws of the State of Nevada including the Nevada Gaming Control Act and the rules and regulations promulgated by the Nevada Gaming Commission and the State Gaming Control Board. To the extent anything in this Agreement is inconsistent with any gaming laws or regulations, the gaming laws and regulations shall control. 13 o. Governing Law. This Agreement has been executed and delivered in the State of Nevada, and its validity, interpretation, performance, and enforcement shall be governed by the laws of such state, without regard to principals of conflicts of laws. EXECUTION DATE ALADDIN GAMING LLC July 28, 1997 By: /s/ Jack Sommer ----------------------------- Its: President ALADDIN HOLDINGS, LLC By: /s/ Jack Sommer ----------------------------- Its: President /s/ James H. McKennon ----------------------------- James H. McKennon, Executive 14 EX-10.43 26 CORNELIUS T. KLERK EMPLOYMENT AGMT Employment Agreement EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement"), is made and entered into by and between Aladdin Gaming LLC ("Company"), Aladdin Holdings, LLC, ("Aladdin Holdings") and Cornelius T. Klerk ("Executive"). WHEREAS, the Company considers it important and in its best interest and the best interest of its owners to foster the employment of key management personnel and desires to retain the services of Executive on the terms and subject to the conditions in this Agreement; WHEREAS, the Executive desires to accept employment by the Company to render services to the Company on the terms and subject to the conditions in this Agreement; NOW, THEREFORE, in consideration of the foregoing and the following mutual covenants and agreements, the parties agree as follows: 1. Employment. The Company hereby employs Executive as Senior Vice President and Chief Financial Officer of the Aladdin Hotel and Casino and Executive hereby accepts such employment with the Company for the compensation and on the terms and subject to the conditions in this Agreement. 2. Term. a. On-Call Period. Beginning July 1, 1997, Company will employ Executive in a consulting/on call capacity, which will not interfere with Executive's duties and commitments elsewhere and with others. During this on call period, the Company will pay Executive as his sole compensation five-hundred ($500.00) dollars per month and Executive will be reasonably available to confer with the Company on matters related to Executive's duties under Section 3 hereof. b. Full-Time Period. Following the On-Call Period, the full term of the Executive's employment under this Agreement ("Term") shall commence on July 14, 1997 ("Commencement Date") and shall continue for four (4) years, to and including July 13, 2001, unless earlier terminated as provided in this Agreement. (The date of any termination of this Agreement as provided herein is the "Termination Date".) 1 3. Duties and Responsibilities. During the Term, Executive will serve as Senior Vice President and Chief Financial Officer of the Aladdin Hotel and Casino and will have such authority, responsibilities and duties as are customarily associated with this position. At all times Executive shall faithfully and to the best of his abilities perform his duties and responsibilities hereunder to the reasonable satisfaction of the Board of Directors. In addition, Executive shall devote his full time, efforts and attention to the business and affairs of the Company, use his best efforts to further the interest of the Company and at all times conduct himself in a manner which reflects credit upon the Company. 4. Compensation. a. Salary. For his services hereunder, the Company shall pay Executive a base salary ("Base Salary") of $200,000.00 for each consecutive 12-month period during the Term beginning with the Commencement Date. (Each such consecutive 12-month period is an "Employment Year"). Executive's Base Salary will be prorated for any partial Employment Year. The Board of Directors will consider increases in the Base Salary no less frequently than annually, commencing at the end of the first Employment Year hereunder and will be based upon criteria determined by the Board of Directors and applicable to other members of the executive management group. Any such increases, however, shall be in the sole discretion of the Board of Directors, but there shall be no reduction in Base Salary during the Term. The Base Salary shall be payable in equal periodic installments subject to customary deductions for social security, other taxes and amounts customarily withheld from salaries of employees of the Company, all in accordance with the Company's usual and customary payroll practices. b. Annual Bonus. From and after the Operational Date as defined in Section 4(f)(1)(i) hereof, Executive is eligible to receive from the Company an annual cash bonus, provided Executive is employed by the Company on the date the Board of Directors grants the bonus. The bonus will be based on relevant criteria or performance standards as determined by the Board of Directors in a bonus plan which will be competitive with industry standards. c. Benefits. During the Term, Executive shall be entitled to receive from the Company such health, pension, retirement and other employee benefits as the Company provides to other members of the executive management group. During the Term, the Company at its expense will provide Executive with term life insurance in the amount of Executive's annual Base Salary. During the Term, the Company at its expense will provide Executive with long-term disability coverage 2 under a group long-term disability plan the Company provides other members of the executive management group. d. Vacation. Executive shall be entitled to two (2) weeks paid vacation for each Employment Year, prorated for any partial Employment Year. The Board of Directors in its discretion may increase Executive's vacation entitlement. The timing and duration of specific vacations will take into account the business needs of the Company and will be mutually agreed to by the parties. In the event any such vacation is not used by Executive in any Employment Year, the Executive has a right to accumulate and carry forward such number of unused vacation days from year to year as may be consistent with the Company's policy therefor for other members of the executive management group, in effect from time to time. Upon termination of employment, all unused vacation time shall be paid to Executive. e. Reimbursement of Expenses. The Company shall pay all reasonable expenses incurred by Executive in the performance of his duties and responsibilities for the Company. Executive shall submit to the Company statements and documentation reflecting such expenses so incurred, with such detail, backup and confirmation as the Company may reasonably require. Subject to any audit the Company deems necessary, the Company shall promptly reimburse Executive the full amount of any such expenses incurred by Executive. f. Right to Purchase LLC Membership Interest. On the date the On-Call Period commences, Executive has the right to purchase a membership interest equal to seventy-five hundredths (0.75%) percent of the total membership interests of the Company for a total purchase price of $450.00, which amount equals 100% of the fair market value of Executive's membership interest on the date of purchase (the "Restricted Membership Interest"). (1) During the Term, the Restricted Membership Interest vests as follows: (i) 25% of the Restricted Membership Interest on the date that the Company opens and begins operating the newly renovated and expanded Aladdin Hotel & Casino (the "Operational Date") and Executive executes and agrees to be bound by the Company's Operating Agreement; and 3 (ii) 25% of the Restricted Membership Interest on each succeeding annual anniversary of the Operational Date to the Termination Date; (2) Upon expiration of the four-year term of this Agreement (provided Executive was employed by the Company at such expiration), any unvested Restricted Membership Interest vests only as follows: (i) if the Company does not continue to employ Executive for reason(s) not constituting Cause as defined in Section 5(d)(1-4) hereof or if the Executive does not continue his employment at the request of the Company for reason(s) constituting Good Reason as defined in Section 5(d)(5), then an additional 25% of the Restricted Membership Interest vests; or (ii) if the Executive's employment with the Company continues, the 25% of the Restricted Membership Interest continues to vest in accordance with Section 4(f)(1)(ii) above as though there had been no Termination Date. (3) If Executive's employment terminates, the Company has the right to repurchase any unvested portion of the Restricted Membership Interest for the purchase price originally paid by Executive. (4) If, after the Operational Date, the Company remains an LLC, has profits from operations but does not make Executive membership distributions sufficient to pay Executive's tax obligations from such profits, then the Company will distribute sufficient cash for Executive to satisfy such obligations, but only to the extent such distributions are not sufficient to meet such tax obligations. g. Executive's Put Right. Executive has the right but not the obligation to sell his vested Restricted Membership Interest (or shares exchanged by such Interest) back to the Company only in the following circumstances: (1) the Company's IPO has not occurred upon expiration of the original four-year term of this Agreement and Company does not continue to employ Executive for reason(s) not constituting Cause as defined in Section 5(d)(1-4) hereof or the Executive does not continue his employment at the request of the Company for reason(s) constituting 4 Good Reason as defined in Section 5(d)(5). This Put right must be exercised in writing by Executive within thirty (30) days of the expiration of the four-year term hereunder or it shall become void and without further effect. (2) The Company's IPO has not occurred upon Executive becoming 100% vested in Restricted Membership Interest. This Put right must be exercised in writing by Executive within 30 days of Executive being 100% vested or it shall become void and without further effect. The Put purchase price is the fair market value of such Interest (or shares) on the Valuation Date. Under this Agreement, the Valuation Date is (i) the expiration of the four-year term of this Agreement, in the event of a Put under Section 4(g)(i), or (ii) the date Executive becomes 100% vested, in the event of a Put under Section 4(g)(2). In either case of (i) or (ii) in the preceding sentence, the fair market value shall be determined by an independent appraisal firm mutually agreed to by the Company and Executive, with the cost of such appraisal being paid by the Company. If Executive exercises the Put hereunder, the Company must purchase the Restricted Membership Interest or shares within ninety (90) days of Executive's exercise of the Put. h. Company's Call Right. If, prior to the date of the Company's IPO, the Company terminates Executive for Cause as defined in Section 5(d) hereof (including Executive quitting without Good Reason under Section 5(d)(5)), then the Company shall have the right but not the obligation to purchase any vested Restricted Membership Interest (or shares exchanged by such Interest) within thirty (30) days of the Termination Date at a price equal to two (2) times the price Executive originally paid the Company for such Restricted Membership Interest. The Call right must be exercised in writing by the Company within thirty (30) days of the Termination Date or it shall become void and without further effect. If the Company exercises the Call hereunder, Executive must tender such Interest or shares and otherwise complete the transaction hereunder within thirty (30) days of the Company's exercise of the Call. i. Auto Allowance. During the Term, the Company shall pay Executive an auto allowance of $500.00 per month. 5. Termination. This Agreement shall terminate in accordance with the following provisions: 5 a. Expiration of the Term. Unless earlier terminated in accordance with the provisions hereof, this Agreement shall terminate upon expiration of the four-year term as provided in Section 2. b. Death. If the Executive dies during the Term, this Agreement shall terminate, with the Termination Date being the date of the Executive's death. c. Disability. If the Executive has been absent from service to the Company as required in this Agreement for a period of ninety (90) days or more during any one-hundred eighty (180) day period during the Term as a result of any physical or mental disability, the Company has the right to terminate this Agreement, the Termination Date being ten (10) days after notice thereof is given to Executive. d. Termination by Company for Cause. The Company has the right to terminate this Agreement for Cause as defined herein, such termination to be effective immediately upon notice thereof from the Company to Executive. For purposes of this Agreement, Cause shall mean Executive's (1) conviction of any felony; (2) embezzlement or misappropriation of money or property of the Company; (3) denial, rejection, suspension or revocation of any gaming license or permit; (4) Executive's material breach of Section 6 hereof which material breach has an adverse impact on the Company; (5) Executive quits his employment with the Company without Good Reason. Good Reason is defined as (i) the assignment to Executive of duties materially inconsistent with his position and title without his consent, or (ii) a material reduction in Executive's duties, authorities and responsibilities without his consent, or (iii) a reduction by the Company in Executive's Base Salary, in effect immediately prior to such reduction, without his consent, provided Executive gives the Company written notice specifying such assignment or reduction and the Company has not cured or abated such assignment or reduction within 20 days thereafter. e. Termination by Company Without Cause (Termination by Executive With Good Reason). Subject to Section 5(f), the Company has the right to terminate this Agreement without Cause (and the Executive has the right to terminate this Agreement for Good Reason as defined in Section 5(d) hereof) by giving the other party written notice thereof and the Company shall provide Executive with the benefits set forth in Section 8(e). A termination under this Section 5(e) includes Executive's termination without Cause following a Change of Control. For purposes of this Agreement, a Change of Control shall be deemed to occur only if any two of the three directors who are serving on the Board of 6 Directors of the Company as representatives of the Sommer Family Trust or related entities on the date of the execution of this Agreement cease to be directors of the Company. f. Special Right of Company to Terminate this Agreement. If, within twelve (12) months from the Commencement Date, substantially complete project financing sufficient for substantially full renovation and construction for the Aladdin Hotel & Casino Redevelopment and Expansion Project as set forth in the presentation to GW Vegas prepared by Westwood Capital LLC and dated July, 1996 (or as subsequently modified) and as finally approved by the Clark County Commission, has not been secured, the Company shall have the right but not the obligation to terminate Executive and this Agreement and Executive shall only be entitled to the benefits in Section 8(f) hereof. 6. Executive's Covenants: The Executive acknowledges that the Company has a substantial, legitimate and continuing interest in the protection of its business relationships with others including without limitation current and prospective employees, consultants, advisors, customers, vendors, suppliers, partners or joint venturers, and financing sources, and in the protection of its Confidential Information, and has invested substantial sums, time and effort and will continue to invest substantial sums, time and effort to develop, maintain and protect such relationships and Information. Accordingly, Executive covenants and agrees as follows: a. Confidentiality. During the Term and thereafter, Executive shall keep secret and retain in strictest confidence and shall not, without the prior written consent of the Company, furnish, make available or disclose to any third party or use for the benefit of himself or any third party any Confidential Information. Confidential Information is information related to or concerning the Company and its businesses which is confidential, proprietary or not generally known to and cannot be readily ascertained through proper means by persons or entities (including the Company's present or future competitors), who can obtain any type of value from its disclosure or use. Confidential Information includes all secret, confidential or proprietary information, knowledge or data relating to the Company, such as, without limitation, finances and financing methods, sources, proposals or plans; operational methods; marketing or development proposals, plans or strategies; pricing strategies; business or property acquisition or development proposals or plans; new personnel acquisition proposals or plans; customer lists and any descriptions or data concerning current or prospective customers; provided, however, while employed by the Company and in furtherance of the business and for the benefit of the Company, Executive may provide Confidential Information as 7 appropriate to attorneys, accountants, financial institutions and other persons or entities engaged in business with the Company. b. Non-Competition. Executive covenants and agrees that he will not compete with the Company, its affiliates or subsidiaries at any time during the Term, or for one (1) year from the Termination Date upon a Termination by the Company for Cause under Section 5(d) (including Executive quitting without Good Reason under Section 5(d)(5)). Under this paragraph, Executive agrees that he will not, directly or indirectly, whether as employee, owner, partner, agent, director, officer, consultant, independent consultant or stockholder (except as the beneficial owner of not more than 2% of the outstanding shares of a corporation, any of the capital stock of which is listed on any national or regional securities exchange or quoted in the daily listing of over-the-counter market securities and, in each case, in which the Executive does not undertake any management or operational or advisory role) or in any other capacity, for his own account or for the benefit of any other person or entity, establish, engage, work for or be connected in any manner with any person or entity which is, at the time, engaged in a business which is in competition with the business of the Company (or any of its subsidiaries or affiliates); it being understood that for purposes of this Section 6(b), the business of owning, managing, operating or financing a casino or similar gaming activities in Clark County, Nevada, shall be deemed to be business in which the Company is engaged; provided, however, nothing herein prohibits Executive from working for a competing business outside Clark County, Nevada, so long as Executive's work does not involve competition with the business of the Company in Clark County, Nevada. c. Employees of the Company. For one (1) year following the Termination Date, Executive shall not, directly or indirectly, solicit, or cause others to solicit, for employment by any person or entity other than the Company, any employee of the Company or encourage any such employee to leave employment with the Company. d. Property of the Company. Executive acknowledges and agrees that all memoranda, notes, lists, records and other documents or papers, including copies thereof, containing or reflecting Confidential Information (whether or not such items are kept or stored in computer memories, microfiche, hard copy or any other manner) made or compiled by Executive or made available to Executive are and remain the property of the Company ("Company Property") and shall be delivered to the Company promptly upon any termination of this Agreement under 8 Section 5 hereof. Executive shall retain no copies of Company Property following the Termination Date. e. Reasonableness and Severability of Covenants. The Executive acknowledges and agrees that the Executive's Covenants herein are necessary for the protection of the Company's legitimate interests, are reasonable and valid in duration and geographical scope, and in all other respects. If any court determines that any of the Executive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions. f. Blue-Pencilling. If any court determines that any of the Executive Covenants, or any part thereof, is unenforceable because of the duration or geographical scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable. 7. Non-Disparagement. Each of the parties agrees that after the Termination Date, neither shall, publicly or privately, disparage or make any statements (written or oral) that could impugn the integrity, acumen (business or otherwise), ethics or business practices, of the other, except in each case, to the extent (but solely to the extent) necessary (i) in any judicial or arbitral action to enforce the provisions of this Agreement or (ii) in connection with any judicial or administrative proceeding to the extent required by applicable law. 8. Effect of Termination. The following provisions shall apply in the event of the termination of this Agreement as provided in Section 5 above, and neither party shall have any further liability or obligation to the other, except as provided herein: a. Expiration of Term. Upon expiration of the four (4) year term under Section 5(a) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 4(f), 4(g), 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; b. Death. Upon termination of this Agreement as provided in Section 5(b) hereof, this Agreement shall terminate and be of no further force and effect except as provided in Sections 4(f) and 4(g)(2); provided further that the Company shall pay to Executive's estate any salary, bonus and benefits then accrued or vested 9 to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; c. Disability. Upon termination of this Agreement as provided in Section 5(c) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 4(f), 4(g)(2), 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; d. Termination by Company for Cause. Upon termination of this Agreement as provided in Section 5(d) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 4(f), 4(h), 6 and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; e. Termination by the Company Without Cause. Upon termination of this Agreement as provided in Section 5(e), this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6 and 7; provided further that Executive shall be entitled to such salary, bonus and benefits to which Executive would have been entitled for the remainder of the four-year term or twelve (12) months, whichever is longer, as if there had been no earlier termination. f. Termination By Special Right of the Company. Upon termination of this Agreement as provided in Section 5(f), this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided further that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, any expense reimbursement amounts accrued to the Termination Date, and additional benefits as follows: Company paid COBRA premiums for twelve (12) months and Base Salary for twelve (12) months, payable in lump sum less customary deductions. 9. General Provisions. a. Assignment. Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive or the Company without the prior written consent of the other; provided, that (i) in the event of the Executive's Death during the Term, the Executive's estate and his heirs, executors, administrators, 10 legatees and distributees shall have the rights and obligations set forth herein, as provided herein, and (ii) nothing contained in this Agreement shall limit or restrict the Company's ability (A) to merge or consolidate or effect any similar transaction with any other entity, irrespective of whether the Company is the surviving entity (including a split up, spin off or similar type transaction), provided, that one or more of such surviving entities shall continue to be bound by the provisions hereof binding upon the Company; (B) to assign this Agreement in conjunction with a sale of all or substantially all of the Company's assets; or (C) an assignment of this Agreement to an affiliate controlled by or under common control with Company. b. Binding Agreement. This Agreement shall be binding upon, and inure to the benefit of, the Executive and the Company and their respective heirs, executors, administrators, legatees and distributees, successors and permitted assigns. c. Guarantee. Aladdin Holdings hereby unconditionally and irrevocably guarantees to Executive the performance of all payment obligations of the Company, its successors and assigns with respect to the Agreement; provided, however, that (i) such guarantee shall become void and without further effect, and (ii) Aladdin Holdings shall cease being a party to this Agreement, as of the date, if any, of the Funding, defined as substantially complete project financing sufficient for substantially full renovation and construction for the Aladdin Hotel and Casino Redevelopment and Expansion project as set forth in the presentation to GW Vegas prepared by Westwood Capital LLC and dated July 1996 (or as subsequently modified) and as finally approved by the Clark County Commission. d. Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. e. Severability. If, for any reason, any provision of this Agreement is determined to be invalid or unenforceable, such invalidity or lack of enforceability shall not affect any other provision of this Agreement not so determined to be invalid or unenforceable, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect, irrespective of such invalid or unenforceable provision. f. Effect of Prior Agreements. This Agreement contains the entire understanding between the parties hereto respecting the Executive's employment by the Company, and supersedes any prior understandings or agreements between the parties hereto. 11 g. Indemnification. The Company shall indemnify and hold Executive harmless to the full extent permitted by Chapter 78 of the Nevada Revised Statutes against costs, expenses, liabilities and losses, including reasonable attorney's fees and disbursements of counsel, incurred or suffered by him in connection with his serves as an employee of the Company during the Term of this Agreement. h. Notices. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (i) when delivered, if sent by telecopy or by hand, (ii) one business day after sending, if sent by reputable overnight courier service, such as Federal Express, or (iii) three business days after being mailed, if sent by United States certified or registered mail, return receipt requested, postage prepaid. Notices shall be sent by one of the methods described above; provided, that any notice sent by telecopy shall also be sent by any other method permitted above. Notices shall be sent: If to the Executive: Cornelius T. Klerk 440 Wedgewood Drive Henderson, NV 89014 with a copy to: If to the Company: Aladdin Holdings LLC 280 Park Avenue New York, NY 100170 Attn: Ron Dictrow directed to the attention of the Board of Directors with copies to the Chairman thereof; or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. i. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 12 j. Indulgences, Etc. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. k. Binding Arbitration. Except for an action by the company for injunctive or other equitable relief, any dispute or controversy arising under or in connection to this Employment Agreement shall be resolved through binding arbitration, conducted in Las Vegas, Nevada, in accordance with the rules of the American Arbitration Association. Judgment may be entered on the arbitration award in any court of competent jurisdiction. l. Headings. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. m. Neutral Construction: Each party to this Agreement has had the opportunity to retain counsel, and to review and participate in the drafting of this Agreement, and, accordingly, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting parties will not be employed or used in any interpretation or enforcement of this Agreement. n. Gaming Law. Anything to the contrary herein notwithstanding, the parties hereto agree and acknowledge that they are subject to and that they shall comply in all respects with the gaming laws of the State of Nevada including the Nevada Gaming Control Act and the rules and regulations promulgated by the Nevada Gaming Commission and the State Gaming Control Board. To the extent anything in this Agreement is inconsistent with any gaming laws or regulations, the gaming laws and regulations shall control. 13 o. Governing Law. This Agreement has been executed and delivered in the State of Nevada, and its validity, interpretation, performance, and enforcement shall be governed by the laws of such state, without regard to principals of conflicts of laws. EXECUTION DATE ALADDIN GAMING LLC ______________________, 1997 By: /s/ Jack Sommer -------------------------- Its: President ALADDIN HOLDINGS, LLC By: /s/ Jack Sommer -------------------------- Its: President /s/ Cornelius T. Klerk ------------------------------ Cornelius T. Klerk, Executive 14 EX-10.44 27 LEE A. GALATI EMPLOYMENT AGMT Employment Agreement EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement"), is made and entered into by and between Aladdin Gaming LLC ("Company"), Aladdin Holdings, LLC, ("Aladdin Holdings") and Lee Galati ("Executive"). WHEREAS, the Company considers it important and in its best interest and the best interest of its owners to foster the employment of key management personnel and desires to retain the services of Executive on the terms and subject to the conditions in this Agreement; WHEREAS, the Executive desires to accept employment by the Company to render services to the Company on the terms and subject to the conditions in this Agreement; NOW, THEREFORE, in consideration of the foregoing and the following mutual covenants and agreements, the parties agree as follows: 1. Employment. The Company hereby employs Executive as Senior Vice President - Human Resources of the Aladdin Hotel and Casino and Executive hereby accepts such employment with the Company for the compensation and on the terms and subject to the conditions in this Agreement. 2. Term. The term of the Executive's employment under this Agreement ("Term") shall commence on July 1, 1997 ("Commencement Date") and shall continue for four (4) years, to and including June 30, 2001, unless earlier terminated as provided in this Agreement. (The date of any termination of this Agreement as provided herein is the "Termination Date".) 3. Duties and Responsibilities. During the Term, Executive will serve as Senior Vice President - Human Resources of the Aladdin Hotel and Casino and will have such authority, responsibilities and duties as are customarily associated with this position. At all times Executive shall faithfully and to the best of his abilities perform his duties and responsibilities hereunder to the reasonable satisfaction of the Board of Directors. In addition, Executive shall devote his full time, efforts and attention to the business and affairs of the Company, use his best efforts to further the interest of the Company and at all times conduct himself in a manner which reflects credit upon the Company. 1 4. Compensation. a. Salary. For his services hereunder, the Company shall pay Executive a base salary ("Base Salary") of $150,000.00 for each consecutive 12-month period during the Term beginning with the Commencement Date. (Each such consecutive 12-month period is an "Employment Year"). Executive's Base Salary will be prorated for any partial Employment Year. The Board of Directors will consider increases in the Base Salary no less frequently than annually, commencing at the end of the first Employment Year hereunder and will be based upon criteria determined by the Board of Directors and applicable to other members of the executive management group. Any such increases, however, shall be in the sole discretion of the Board of Directors, but there shall be no reduction in Base Salary during the Term. The Base Salary shall be payable in equal periodic installments subject to customary deductions for social security, other taxes and amounts customarily withheld from salaries of employees of the Company, all in accordance with the Company's usual and customary payroll practices. b. Annual Bonus. From and after the Operational Date as defined in Section 4(f)(1)(i) hereof, Executive is eligible to receive from the Company an annual cash bonus, provided Executive is employed by the Company on the date the Board of Directors grants the bonus. The bonus will be based on relevant criteria or performance standards as determined by the Board of Directors in a bonus plan which will be competitive with industry standards. c. Benefits. During the Term, Executive shall be entitled to receive from the Company such health, pension, retirement and other employee benefits as the Company provides to other members of the executive management group. During the Term, the Company at its expense will provide Executive with term life insurance in the amount of Executive's annual Base Salary. During the Term, the Company at its expense will provide Executive with long-term disability coverage under a group long-term disability plan the Company provides other members of the executive management group. d. Vacation. Executive shall be entitled to two (2) weeks paid vacation for each Employment Year, prorated for any partial Employment Year. The Board of Directors in its discretion may increase Executive's vacation entitlement. The timing and duration of specific vacations will take into account the business needs of the Company and will be mutually agreed to by the parties. In the event any such vacation is not used by Executive in any Employment Year, the Executive has a right to accumulate and carry forward such number of unused vacation days from year to year as may be consistent with the Company's policy therefor for other 2 members of the executive management group, in effect from time to time. Upon termination of employment, all unused vacation time shall be paid to Executive. e. Reimbursement of Expenses. The Company shall pay all reasonable expenses incurred by Executive in the performance of his duties and responsibilities for the Company. Executive shall submit to the Company statements and documentation reflecting such expenses so incurred, with such detail, backup and confirmation as the Company may reasonably require. Subject to any audit the Company deems necessary, the Company shall promptly reimburse Executive the full amount of any such expenses incurred by Executive. f. Right to Purchase LLC Membership Interest. On the Commencement Date, Executive has the right to purchase a membership interest equal to twenty-five hundredths (0.25%) percent of the total membership interests of the Company for a total purchase price of $150.00, which amount equals 100% of the fair market value of Executive's membership interest on the date of purchase (the "Restricted Membership Interest"). (1) During the Term, the Restricted Membership Interest vests as follows: (i) 25% of the Restricted Membership Interest on the date that the Company opens and begins operating the newly renovated and expanded Aladdin Hotel & Casino (the "Operational Date"); and (ii) 25% of the Restricted Membership Interest on each succeeding annual anniversary of the Operational Date to the Termination Date; (2) Upon expiration of the four-year term of this Agreement (provided Executive was employed by the Company at such expiration), any unvested Restricted Membership Interest vests only as follows: (i) if the Company does not continue to employ Executive for reason(s) not constituting Cause as defined in Section 5(d)(1-4) hereof or if the Executive does not continue his employment at the request of the Company for reason(s) constituting Good Reason as defined in Section 5(d)(5), then an additional 25% of the Restricted Membership Interest vests; or 3 (ii) if the Executive's employment with the Company continues, the 25% of the Restricted Membership Interest continues to vest in accordance with Section 4(f)(1)(ii) above as though there had been no Termination Date. (3) If Executive's employment terminates, the Company has the right to repurchase any unvested portion of the Restricted Membership Interest for the purchase price originally paid by Executive. (4) If, after the Operational Date, the Company remains an LLC, has profits from operations but does not make to Executive membership distributions sufficient to pay Executive's tax obligations from such profits, then the Company will distribute sufficient cash for Executive to satisfy such obligations, but only to the extent such distributions are not sufficient to meet such tax obligations. g. Executive's Put Right. Executive has the right but not the obligation to sell his vested Restricted Membership Interest (or shares exchanged by such Interest) back to the Company only in the following circumstances: (1) The Company's IPO has not occurred upon expiration of the original four-year term of this Agreement and Company does not continue to employ Executive for reason(s) not constituting Cause as defined in Section 5(d)(1-4) hereof or the Executive does not continue his employment at the request of the Company for reason(s) constituting Good Reason as defined in Section 5(d)(5). This Put right must be exercised in writing by Executive within thirty (30) days of the expiration of the four-year term hereunder or it shall become void and without further effect. (2) The Company's IPO has not occurred upon Executive becoming 100% vested in Restricted Membership Interest. This Put right must be exercised in writing by Executive within 30 days of Executive being 100% vested or it shall become void and without further effect. The Put purchase price is the fair market value of such Interest (or shares) on the Valuation Date. Under this Agreement, the Valuation Date is (i) the expiration of the four-year term of this Agreement, in the event of a Put under Section 4(g)(i), or (ii) the date Executive becomes 100% vested, in the event of a Put under Section 4(g)(2). In either case of (i) or (ii) in the preceding sentence, the fair market value shall be determined by an independent appraisal firm mutually agreed to by the 4 Company and Executive, with the cost of such appraisal being paid by the Company. If Executive exercises the Put hereunder, the Company must purchase the Restricted Membership Interest or shares within ninety (90) days of Executive's exercise of the Put. h. Company's Call Right. If, prior to the date of the Company's IPO, the Company terminates Executive for Cause as defined in Section 5(d) hereof (including Executive quitting without Good Reason under Section 5(d)(5)), then the Company shall have the right but not the obligation to purchase any vested Restricted Membership Interest (or shares exchanged by such Interest) within thirty (30) days of the Termination Date at a price equal to two (2) times the price Executive originally paid the Company for such Restricted Membership Interest. The Call right must be exercised in writing by the Company within thirty (30) days of the Termination Date or it shall become void and without further effect. If the Company exercises the Call hereunder, Executive must tender such Interest or shares and otherwise complete the transaction hereunder within thirty (30) days of the Company's exercise of the Call. i. Auto Allowance. During the Term, the Company shall pay Executive an auto allowance of $300.00 per month. 5. Termination. This Agreement shall terminate in accordance with the following provisions: a. Expiration of the Term. Unless earlier terminated in accordance with the provisions hereof, this Agreement shall terminate upon expiration of the four-year term as provided in Section 2. b. Death. If the Executive dies during the Term, this Agreement shall terminate, with the Termination Date being the date of the Executive's death. c. Disability. If the Executive has been absent from service to the Company as required in this Agreement for a period of ninety (90) days or more during any one-hundred eighty (180) day period during the Term as a result of any physical or mental disability, the Company has the right to terminate this Agreement, the Termination Date being ten (10) days after notice thereof is given to Executive. d. Termination by Company for Cause. The Company has the right to terminate this Agreement for Cause as defined herein, such termination to be effective immediately upon notice thereof from the Company to Executive. For 5 purposes of this Agreement, Cause shall mean Executive's (1) conviction of any felony; (2) embezzlement or misappropriation of money or property of the Company; (3) denial, rejection, suspension or revocation of any gaming license or permit; (4) Executive's material breach of Section 6 hereof which material breach has an adverse impact on the Company; (5) Executive quits his employment with the Company without Good Reason. Good Reason is defined as (i) the assignment to Executive of duties materially inconsistent with his position and title without his consent, or (ii) a material reduction in Executive's duties, authorities and responsibilities without his consent, or (iii) a reduction by the Company in Executive's Base Salary, in effect immediately prior to such reduction, without his consent, provided Executive gives the Company written notice specifying such assignment or reduction and the Company has not cured or abated such assignment or reduction within 20 days thereafter. e. Termination by Company Without Cause (Termination by Executive With Good Reason). Subject to Section 5(f), the Company has the right to terminate this Agreement without Cause (and the Executive has the right to terminate this Agreement for Good Reason as defined in Section 5(d) hereof) by giving the other party written notice thereof and the Company shall provide Executive with the benefits set forth in Section 8(e). A termination under this Section 5(e) includes Executive's termination without Cause following a Change of Control. For purposes of this Agreement, a Change of Control shall be deemed to occur only if any two of the three directors who are serving on the Board of Directors of the Company as representatives of the Sommer Family Trust or related entities on the date of the execution of this Agreement cease to be directors of the Company. f. Special Right of Company to Terminate this Agreement. If, within twelve (12) months from the Commencement Date, substantially complete project financing sufficient for substantially full renovation and construction for the Aladdin Hotel & Casino Redevelopment and Expansion Project as set forth in the presentation to GW Vegas prepared by Westwood Capital LLC and dated July, 1996 (or as subsequently modified) and as finally approved by the Clark County Commission, has not been secured, the Company shall have the right but not the obligation to terminate Executive and this Agreement and Executive shall only be entitled to the benefits in Section 8(f) hereof. 6. Executive's Covenants: The Executive acknowledges that the Company has a substantial, legitimate and continuing interest in the protection of its business relationships with others including without limitation current and prospective employees, consultants, advisors, customers, vendors, suppliers, partners or joint venturers, and 6 financing sources, and in the protection of its Confidential Information, and has invested substantial sums, time and effort and will continue to invest substantial sums, time and effort to develop, maintain and protect such relationships and Information. Accordingly, Executive covenants and agrees as follows: a. Confidentiality. During the Term and thereafter, Executive shall keep secret and retain in strictest confidence and shall not, without the prior written consent of the Company, furnish, make available or disclose to any third party or use for the benefit of himself or any third party any Confidential Information. Confidential Information is information related to or concerning the Company and its businesses which is confidential, proprietary or not generally known to and cannot be readily ascertained through proper means by persons or entities (including the Company's present or future competitors), who can obtain any type of value from its disclosure or use. Confidential Information includes all secret, confidential or proprietary information, knowledge or data relating to the Company, such as, without limitation, finances and financing methods, sources, proposals or plans; operational methods; marketing or development proposals, plans or strategies; pricing strategies; business or property acquisition or development proposals or plans; new personnel acquisition proposals or plans; customer lists and any descriptions or data concerning current or prospective customers; provided, however, while employed by the Company and in furtherance of the business and for the benefit of the Company, Executive may provide Confidential Information as appropriate to attorneys, accountants, financial institutions and other persons or entities engaged in business with the Company. b. Non-Competition. Executive covenants and agrees that he will not compete with the Company, its affiliates or subsidiaries at any time during the Term, or for one (1) year from the Termination Date upon a Termination by the Company for Cause under Section 5(d) (including Executive quitting without Good Reason under Section 5(d)(5)). Under this paragraph, Executive agrees that he will not, directly or indirectly, whether as employee, owner, partner, agent, director, officer, consultant, independent consultant or stockholder (except as the beneficial owner of not more than 2% of the outstanding shares of a corporation, any of the capital stock of which is listed on any national or regional securities exchange or quoted in the daily listing of over-the-counter market securities and, in each case, in which the Executive does not undertake any management or operational or advisory role) or in any other capacity, for his own account or for the benefit of any other person or entity, establish, engage, work for or be connected in any manner with any person or entity which is, at the time, engaged in a business which is in competition with the business of the Company (or any of its subsidiaries or affiliates); it being understood that for purposes of this Section 6(b), the business of 7 owning, managing, operating or financing a casino or similar gaming activities in Clark County, Nevada, shall be deemed to be business in which the Company is engaged; provided, however, nothing herein prohibits Executive from working for a competing business outside Clark County, Nevada, so long as Executive's work outside Clark County, Nevada, does not involve competition with the business of the Company in Clark County, Nevada. c. Employees of the Company. For one (1) year following the Termination Date, Executive shall not, directly or indirectly, solicit, or cause others to solicit, for employment by any person or entity other than the Company, any employee of the Company or encourage any such employee to leave employment with the Company. d. Property of the Company. Executive acknowledges and agrees that all memoranda, notes, lists, records and other documents or papers, including copies thereof, containing or reflecting Confidential Information (whether or not such items are kept or stored in computer memories, microfiche, hard copy or any other manner) made or compiled by Executive or made available to Executive are and remain the property of the Company ("Company Property") and shall be delivered to the Company promptly upon any termination of this Agreement under Section 5 hereof. Executive shall retain no copies of Company Property following the Termination Date. e. Reasonableness and Severability of Covenants. The Executive acknowledges and agrees that the Executive's Covenants herein are necessary for the protection of the Company's legitimate interests, are reasonable and valid in duration and geographical scope, and in all other respects. If any court determines that any of the Executive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions. f. Blue-Pencilling. If any court determines that any of the Executive Covenants, or any part thereof, is unenforceable because of the duration or geographical scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable. 7. Non-Disparagement. Each of the parties agrees that after the Termination Date, neither shall, publicly or privately, disparage or make any statements (written or oral) that could impugn the integrity, acumen (business or otherwise), ethics or business practices, of the other, except in each case, to the extent (but solely to the extent) 8 necessary (i) in any judicial or arbitral action to enforce the provisions of this Agreement or (ii) in connection with any judicial or administrative proceeding to the extent required by applicable law. 8. Effect of Termination. The following provisions shall apply in the event of the termination of this Agreement as provided in Section 5 above, and neither party shall have any further liability or obligation to the other, except as provided herein: a. Expiration of Term. Upon expiration of the four (4) year term under Section 5(a) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 4(f), 4(g), 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; b. Death. Upon termination of this Agreement as provided in Section 5(b) hereof, this Agreement shall terminate and be of no further force and effect except as provided in Sections 4(f) and 4(g)(2); provided further that the Company shall pay to Executive's estate any salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; c. Disability. Upon termination of this Agreement as provided in Section 5(c) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 4(f), 4(g)(2), 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; d. Termination by Company for Cause. Upon termination of this Agreement as provided in Section 5(d) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 4(f), 4(h), 6 and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; e. Termination by the Company Without Cause. Upon termination of this Agreement as provided in Section 5(e), this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6 and 7; provided further that Executive shall be entitled to such salary, bonus and benefits to which Executive would have been entitled for the remainder of the four-year term or 9 twelve (12) months, whichever is longer, as if there had been no earlier termination. f. Termination By Special Right of the Company. Upon termination of this Agreement as provided in Section 5(f), this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided further that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, any expense reimbursement amounts accrued to the Termination Date, and additional benefits as follows: Company paid COBRA premiums for twelve (12) months and Base Salary for twelve (12) months, payable in lump sum less customary deductions. 9. General Provisions. a. Assignment. Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive or the Company without the prior written consent of the other; provided, that (i) in the event of the Executive's Death during the Term, the Executive's estate and his heirs, executors, administrators, legatees and distributees shall have the rights and obligations set forth herein, as provided herein, and (ii) nothing contained in this Agreement shall limit or restrict the Company's ability (A) to merge or consolidate or effect any similar transaction with any other entity, irrespective of whether the Company is the surviving entity (including a split up, spin off or similar type transaction), provided, that one or more of such surviving entities shall continue to be bound by the provisions hereof binding upon the Company; (B) to assign this Agreement in conjunction with a sale of all or substantially all of the Company's assets; or (C) an assignment of this Agreement to an affiliate controlled by or under common control with Company. b. Binding Agreement. This Agreement shall be binding upon, and inure to the benefit of, the Executive and the Company and their respective heirs, executors, administrators, legatees and distributees, successors and permitted assigns. c. Guarantee. Aladdin Holdings hereby unconditionally and irrevocably guarantees to Executive the performance of all payment obligations of the Company, its successors and assigns with respect to the Agreement; provided, however, that (i) such guarantee shall become void and without further effect, and (ii) Aladdin Holdings shall cease being a party to this Agreement, as of the date, if any, of the Funding, defined as substantially complete project financing sufficient for substantially full renovation and construction for the Aladdin Hotel and Casino Redevelopment and Expansion project as set forth in the presentation to GW Vegas 10 prepared by Westwood Capital LLC and dated July 1996 (or as subsequently modified) and as finally approved by the Clark County Commission. d. Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. e. Severability. If, for any reason, any provision of this Agreement is determined to be invalid or unenforceable, such invalidity or lack of enforceability shall not affect any other provision of this Agreement not so determined to be invalid or unenforceable, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect, irrespective of such invalid or unenforceable provision. f. Effect of Prior Agreements. This Agreement contains the entire understanding between the parties hereto respecting the Executive's employment by the Company, and supersedes any prior understandings or agreements between the parties hereto. g. Indemnification. The Company shall indemnify and hold Executive harmless to the full extent permitted by Chapter 86 of the Nevada Revised Statutes against costs, expenses, liabilities and losses, including reasonable attorney's fees and disbursements of counsel, incurred or suffered by him in connection with his serves as an employee of the Company during the Term of this Agreement. h. Notices. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (i) when delivered, if sent by telecopy or by hand, (ii) one business day after sending, if sent by reputable overnight courier service, such as Federal Express, or (iii) three business days after being mailed, if sent by United States certified or registered mail, return receipt requested, postage prepaid. 11 Notices shall be sent by one of the methods described above; provided, that any notice sent by telecopy shall also be sent by any other method permitted above. Notices shall be sent: If to the Executive: with a copy to: If to the Company: Aladdin Holdings LLC 280 Park Avenue New York, NY 10017 Attn: Ron Dictrow directed to the attention of the Board of Directors with copies to the Chairman thereof; or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. i. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. j. Indulgences, Etc. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. k. Binding Arbitration. Except for an action by the company for injunctive or other equitable relief, any dispute or controversy arising under or in connection to this Employment Agreement shall be resolved through binding arbitration, conducted in Las Vegas, Nevada, in accordance with the rules of the American Arbitration Association. Judgment may be entered on the arbitration award in any court of competent jurisdiction. 12 l. Headings. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. m. Neutral Construction: Each party to this Agreement has had the opportunity to retain counsel, and to review and participate in the drafting of this Agreement, and, accordingly, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting parties will not be employed or used in any interpretation or enforcement of this Agreement. n. Governing Law. This Agreement has been executed and delivered in the State of Nevada, and its validity, interpretation, performance, and enforcement shall be governed by the laws of such state, without regard to principals of conflicts of laws. EXECUTION DATE ALADDIN GAMING LLC ________________, 1997 By: /s/ Jack Sommer -------------------------- Its: President ALADDIN HOLDINGS, LLC By: /s/ Jack Sommer -------------------------- Its: President /s/ Lee Galati ------------------------------ Lee Galati, Executive 13 EX-10.45 28 JOSE A. RUEDA EMPLOYMENT AGMT Employment Agreement EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement"), is made and entered into by and between Aladdin Gaming LLC ("Company"), Aladdin Holdings, LLC, ("Aladdin Holdings") and Jose A. Rueda ("Executive"). WHEREAS, the Company considers it important and in its best interest and the best interest of its owners to foster the employment of key management personnel and desires to retain the services of Executive on the terms and subject to the conditions in this Agreement; WHEREAS, the Executive desires to accept employment by the Company to render services to the Company on the terms and subject to the conditions in this Agreement; NOW, THEREFORE, in consideration of the foregoing and the following mutual covenants and agreements, the parties agree as follows: 1. Employment. The Company hereby employs Executive as Senior Vice President - Electronic Gaming of the Aladdin Hotel and Casino and Executive hereby accepts such employment with the Company for the compensation and on the terms and subject to the conditions in this Agreement. 2. Term. a. On-Call Period. Beginning July 1, 1997, Company will employ Executive in a consulting/on call capacity, which will not interfere with Executive's duties and commitments elsewhere and with others. During this on call period, the Company will pay Executive as his sole compensation five-hundred ($500.00) dollars per month and Executive will be reasonably available to confer with the Company on matters related to Executive's duties under Section 3 hereof. b. Full-Time Period. Following the On-Call Period, the full term of the Executive's employment under this Agreement ("Term") shall commence on September 1, 1997 ("Commencement Date") and shall continue for four (4) years, to and including August 31, 2001, unless earlier terminated as provided in this Agreement. (The date of any termination of this Agreement as provided herein is the "Termination Date".) 1 3. Duties and Responsibilities. During the Term, Executive will serve as Senior Vice President - Electronic Gaming of the Aladdin Hotel and Casino and will have such authority, responsibilities and duties as are customarily associated with this position. At all times Executive shall faithfully and to the best of his abilities perform his duties and responsibilities hereunder to the reasonable satisfaction of the Board of Directors. In addition, Executive shall devote his full time, efforts and attention to the business and affairs of the Company, use his best efforts to further the interest of the Company and at all times conduct himself in a manner which reflects credit upon the Company. 4. Compensation. a. Salary. For his services hereunder, the Company shall pay Executive a base salary ("Base Salary") of $250,000 for each consecutive 12-month period during the Term beginning with the Commencement Date. (Each such consecutive 12-month period is an "Employment Year"). Executive's Base Salary will be prorated for any partial Employment Year. The Board of Directors will consider increases in the Base Salary no less frequently than annually, commencing at the end of the first Employment Year hereunder and will be based upon criteria determined by the Board of Directors and applicable to other members of the executive management group. Any such increases, however, shall be in the sole discretion of the Board of Directors, but there shall be no reduction in Base Salary during the Term. The Base Salary shall be payable in equal periodic installments subject to customary deductions for social security, other taxes and amounts customarily withheld from salaries of employees of the Company, all in accordance with the Company's usual and customary payroll practices. b. Annual Bonus. From and after the Operational Date as defined in Section 4(f)(1)(i) hereof, Executive is eligible to receive from the Company an annual cash bonus, provided Executive is employed by the Company on the date the Board of Directors grants the bonus. The bonus will be based on relevant criteria or performance standards as determined by the Board of Directors in a bonus plan which will be competitive with industry standards. c. Benefits. During the Term, Executive shall be entitled to receive from the Company such health, pension, retirement and other employee benefits as the Company provides to other members of the executive management group. During the Term, the Company at its expense will provide Executive with term life insurance in the amount of Executive's annual Base Salary. During the Term, the Company at its expense will provide Executive with long-term disability coverage 2 under a group long-term disability plan the Company provides other members of the executive management group. d. Vacation. Executive shall be entitled to two (2) weeks paid vacation for each Employment Year, prorated for any partial Employment Year. The Board of Directors in its discretion may increase Executive's vacation entitlement. The timing and duration of specific vacations will take into account the business needs of the Company and will be mutually agreed to by the parties. In the event any such vacation is not used by Executive in any Employment Year, the Executive has a right to accumulate and carry forward such number of unused vacation days from year to year as may be consistent with the Company's policy therefor for other members of the executive management group, in effect from time to time. Upon termination of employment, all unused vacation time shall be paid to Executive. e. Reimbursement of Expenses. The Company shall pay all reasonable expenses incurred by Executive in the performance of his duties and responsibilities for the Company. Executive shall submit to the Company statements and documentation reflecting such expenses so incurred, with such detail, backup and confirmation as the Company may reasonably require. Subject to any audit the Company deems necessary, the Company shall promptly reimburse Executive the full amount of any such expenses incurred by Executive. f. Right to Purchase LLC Membership Interest. On the date the On-Call Period commences, Executive has the right to purchase a membership interest equal to seventy-five hundredths (0.75%) percent of the total membership interests of the Company for a total purchase price of $450.00, which amount equals 100% of the fair market value of Executive's membership interest on the date of purchase (the "Restricted Membership Interest"). (1) During the Term, the Restricted Membership Interest vests as follows: (i) 25% of the Restricted Membership Interest on the date that the Company opens and begins operating the newly renovated and expanded Aladdin Hotel & Casino (the "Operational Date") and Executive executes and agrees to be bound by the Company's Operating Agreement; and 3 (ii) 25% of the Restricted Membership Interest on each succeeding annual anniversary of the Operational Date to the Termination Date; (2) Upon expiration of the four-year term of this Agreement (provided Executive was employed by the Company at such expiration), any unvested Restricted Membership Interest vests only as follows: (i) if the Company does not continue to employ Executive for reason(s) not constituting Cause as defined in Section 5(d)(1-4) hereof or if the Executive does not continue his employment at the request of the Company for reason(s) constituting Good Reason as defined in Section 5(d)(5), then an additional 25% of the Restricted Membership Interest vests; or (ii) if the Executive's employment with the Company continues, the 25% of the Restricted Membership Interest continues to vest in accordance with Section 4(f)(1)(ii) above as though there had been no Termination Date. (3) If Executive's employment terminates, the Company has the right to repurchase any unvested portion of the Restricted Membership Interest for the purchase price originally paid by Executive. (4) If, after the Operational Date, the Company remains an LLC, has profits from operations but does not make Executive membership distributions sufficient to pay Executive's tax obligations from such profits, then the Company will distribute sufficient cash for Executive to satisfy such obligations, but only to the extent such distributions are not sufficient to meet such tax obligations. g. Executive's Put Right. Executive has the right but not the obligation to sell his vested Restricted Membership Interest (or shares exchanged by such Interest) back to the Company only in the following circumstances: (1) the Company's IPO has not occurred upon expiration of the original four-year term of this Agreement and Company does not continue to employ Executive for reason(s) not constituting Cause as defined in Section 5(d)(1-4) hereof or the Executive does not continue his employment at the request of the Company for reason(s) constituting 4 Good Reason as defined in Section 5(d)(5). This Put right must be exercised in writing by Executive within thirty (30) days of the expiration of the four-year term hereunder or it shall become void and without further effect. (2) The Company's IPO has not occurred upon Executive becoming 100% vested in Restricted Membership Interest. This Put right must be exercised in writing by Executive within 30 days of Executive being 100% vested or it shall become void and without further effect. The Put purchase price is the fair market value of such Interest (or shares) on the Valuation Date. Under this Agreement, the Valuation Date is (i) the expiration of the four-year term of this Agreement, in the event of a Put under Section 4(g)(i), or (ii) the date Executive becomes 100% vested, in the event of a Put under Section 4(g)(2). In either case of (i) or (ii) in the preceding sentence, the fair market value shall be determined by an independent appraisal firm mutually agreed to by the Company and Executive, with the cost of such appraisal being paid by the Company. If Executive exercises the Put hereunder, the Company must purchase the Restricted Membership Interest or shares within ninety (90) days of Executive's exercise of the Put. h. Company's Call Right. If, prior to the date of the Company's IPO, the Company terminates Executive for Cause as defined in Section 5(d) hereof (including Executive quitting without Good Reason under Section 5(d)(5)), then the Company shall have the right but not the obligation to purchase any vested Restricted Membership Interest (or shares exchanged by such Interest) within thirty (30) days of the Termination Date at a price equal to two (2) times the price Executive originally paid the Company for such Restricted Membership Interest. The Call right must be exercised in writing by the Company within thirty (30) days of the Termination Date or it shall become void and without further effect. If the Company exercises the Call hereunder, Executive must tender such Interest or shares and otherwise complete the transaction hereunder within thirty (30) days of the Company's exercise of the Call. i. Auto Allowance. During the Term, the Company shall pay Executive an auto allowance of $500.00 per month. 5. Termination. This Agreement shall terminate in accordance with the following provisions: 5 a. Expiration of the Term. Unless earlier terminated in accordance with the provisions hereof, this Agreement shall terminate upon expiration of the four-year term as provided in Section 2. b. Death. If the Executive dies during the Term, this Agreement shall terminate, with the Termination Date being the date of the Executive's death. c. Disability. If the Executive has been absent from service to the Company as required in this Agreement for a period of ninety (90) days or more during any one-hundred eighty (180) day period during the Term as a result of any physical or mental disability, the Company has the right to terminate this Agreement, the Termination Date being ten (10) days after notice thereof is given to Executive. d. Termination by Company for Cause. The Company has the right to terminate this Agreement for Cause as defined herein, such termination to be effective immediately upon notice thereof from the Company to Executive. For purposes of this Agreement, Cause shall mean Executive's (1) conviction of any felony; (2) embezzlement or misappropriation of money or property of the Company; (3) denial, rejection, suspension or revocation of any gaming license or permit; (4) Executive's material breach of Section 6 hereof which material breach has an adverse impact on the Company; (5) Executive quits his employment with the Company without Good Reason. Good Reason is defined as (i) the assignment to Executive of duties materially inconsistent with his position and title without his consent, or (ii) a material reduction in Executive's duties, authorities and responsibilities without his consent, or (iii) a reduction by the Company in Executive's Base Salary, in effect immediately prior to such reduction, without his consent, provided Executive gives the Company written notice specifying such assignment or reduction and the Company has not cured or abated such assignment or reduction within 20 days thereafter. e. Termination by Company Without Cause (Termination by Executive With Good Reason). Subject to Section 5(f), the Company has the right to terminate this Agreement without Cause (and the Executive has the right to terminate this Agreement for Good Reason as defined in Section 5(d) hereof) by giving the other party written notice thereof and the Company shall provide Executive with the benefits set forth in Section 8(e). A termination under this Section 5(e) includes Executive's termination without Cause following a Change of Control. For purposes of this Agreement, a Change of Control shall be deemed to occur only if any two of the three directors who are serving on the Board of 6 Directors of the Company as representatives of the Sommer Family Trust or related entities on the date of the execution of this Agreement cease to be directors of the Company. f. Special Right of Company to Terminate this Agreement. If, within twelve (12) months from the Commencement Date, substantially complete project financing sufficient for substantially full renovation and construction for the Aladdin Hotel & Casino Redevelopment and Expansion Project as set forth in the presentation to GW Vegas prepared by Westwood Capital LLC and dated July, 1996 (or as subsequently modified) and as finally approved by the Clark County Commission, has not been secured, the Company shall have the right but not the obligation to terminate Executive and this Agreement and Executive shall only be entitled to the benefits in Section 8(f) hereof. 6. Executive's Covenants: The Executive acknowledges that the Company has a substantial, legitimate and continuing interest in the protection of its business relationships with others including without limitation current and prospective employees, consultants, advisors, customers, vendors, suppliers, partners or joint venturers, and financing sources, and in the protection of its Confidential Information, and has invested substantial sums, time and effort and will continue to invest substantial sums, time and effort to develop, maintain and protect such relationships and Information. Accordingly, Executive covenants and agrees as follows: a. Confidentiality. During the Term and thereafter, Executive shall keep secret and retain in strictest confidence and shall not, without the prior written consent of the Company, furnish, make available or disclose to any third party or use for the benefit of himself or any third party any Confidential Information. Confidential Information is information related to or concerning the Company and its businesses which is confidential, proprietary or not generally known to and cannot be readily ascertained through proper means by persons or entities (including the Company's present or future competitors), who can obtain any type of value from its disclosure or use. Confidential Information includes all secret, confidential or proprietary information, knowledge or data relating to the Company, such as, without limitation, finances and financing methods, sources, proposals or plans; operational methods; marketing or development proposals, plans or strategies; pricing strategies; business or property acquisition or development proposals or plans; new personnel acquisition proposals or plans; customer lists and any descriptions or data concerning current or prospective customers; provided, however, while employed by the Company and in furtherance of the business and for the benefit of the Company, Executive may provide Confidential Information as 7 appropriate to attorneys, accountants, financial institutions and other persons or entities engaged in business with the Company. b. Non-Competition. Executive covenants and agrees that he will not compete with the Company, its affiliates or subsidiaries at any time during the Term, or for one (1) year from the Termination Date upon a Termination by the Company for Cause under Section 5(d) (including Executive quitting without Good Reason under Section 5(d)(5)). Under this paragraph, Executive agrees that he will not, directly or indirectly, whether as employee, owner, partner, agent, director, officer, consultant, independent consultant or stockholder (except as the beneficial owner of not more than 2% of the outstanding shares of a corporation, any of the capital stock of which is listed on any national or regional securities exchange or quoted in the daily listing of over-the-counter market securities and, in each case, in which the Executive does not undertake any management or operational or advisory role) or in any other capacity, for his own account or for the benefit of any other person or entity, establish, engage, work for or be connected in any manner with any person or entity which is, at the time, engaged in a business which is in competition with the business of the Company (or any of its subsidiaries or affiliates); it being understood that for purposes of this Section 6(b), the business of owning, managing, operating or financing a casino or similar gaming activities in Clark County, Nevada, shall be deemed to be business in which the Company is engaged; provided, however, nothing herein prohibits Executive from working for a competing business outside Clark County, Nevada, so long as Executive's work does not involve competition with the business of the Company in Clark County, Nevada. c. Employees of the Company. For one (1) year following the Termination Date, Executive shall not, directly or indirectly, solicit, or cause others to solicit, for employment by any person or entity other than the Company, any employee of the Company or encourage any such employee to leave employment with the Company. d. Property of the Company. Executive acknowledges and agrees that all memoranda, notes, lists, records and other documents or papers, including copies thereof, containing or reflecting Confidential Information (whether or not such items are kept or stored in computer memories, microfiche, hard copy or any other manner) made or compiled by Executive or made available to Executive are and remain the property of the Company ("Company Property") and shall be delivered to the Company promptly upon any termination of this Agreement under 8 Section 5 hereof. Executive shall retain no copies of Company Property following the Termination Date. e. Reasonableness and Severability of Covenants. The Executive acknowledges and agrees that the Executive's Covenants herein are necessary for the protection of the Company's legitimate interests, are reasonable and valid in duration and geographical scope, and in all other respects. If any court determines that any of the Executive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions. f. Blue-Pencilling. If any court determines that any of the Executive Covenants, or any part thereof, is unenforceable because of the duration or geographical scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable. 7. Non-Disparagement. Each of the parties agrees that after the Termination Date, neither shall, publicly or privately, disparage or make any statements (written or oral) that could impugn the integrity, acumen (business or otherwise), ethics or business practices, of the other, except in each case, to the extent (but solely to the extent) necessary (i) in any judicial or arbitral action to enforce the provisions of this Agreement or (ii) in connection with any judicial or administrative proceeding to the extent required by applicable law. 8. Effect of Termination. The following provisions shall apply in the event of the termination of this Agreement as provided in Section 5 above, and neither party shall have any further liability or obligation to the other, except as provided herein: a. Expiration of Term. Upon expiration of the four (4) year term under Section 5(a) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 4(f), 4(g), 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; b. Death. Upon termination of this Agreement as provided in Section 5(b) hereof, this Agreement shall terminate and be of no further force and effect except as provided in Sections 4(f) and 4(g)(2); provided further that the Company shall pay to Executive's estate any salary, bonus and benefits then accrued or vested 9 to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; c. Disability. Upon termination of this Agreement as provided in Section 5(c) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 4(f), 4(g)(2), 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; d. Termination by Company for Cause. Upon termination of this Agreement as provided in Section 5(d) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 4(f), 4(h), 6 and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; e. Termination by the Company Without Cause. Upon termination of this Agreement as provided in Section 5(e), this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6 and 7; provided further that Executive shall be entitled to such salary, bonus and benefits to which Executive would have been entitled for the remainder of the four-year term or twelve (12) months, whichever is longer, as if there had been no earlier termination. f. Termination By Special Right of the Company. Upon termination of this Agreement as provided in Section 5(f), this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided further that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, any expense reimbursement amounts accrued to the Termination Date, and additional benefits as follows: Company paid COBRA premiums for twelve (12) months and Base Salary for twelve (12) months, payable in lump sum less customary deductions. 9. General Provisions. a. Assignment. Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive or the Company without the prior written consent of the other; provided, that (i) in the event of the Executive's Death during the Term, the Executive's estate and his heirs, executors, administrators, 10 legatees and distributees shall have the rights and obligations set forth herein, as provided herein, and (ii) nothing contained in this Agreement shall limit or restrict the Company's ability (A) to merge or consolidate or effect any similar transaction with any other entity, irrespective of whether the Company is the surviving entity (including a split up, spin off or similar type transaction), provided, that one or more of such surviving entities shall continue to be bound by the provisions hereof binding upon the Company; (B) to assign this Agreement in conjunction with a sale of all or substantially all of the Company's assets; or (C) an assignment of this Agreement to an affiliate controlled by or under common control with Company. b. Binding Agreement. This Agreement shall be binding upon, and inure to the benefit of, the Executive and the Company and their respective heirs, executors, administrators, legatees and distributees, successors and permitted assigns. c. Guarantee. Aladdin Holdings hereby unconditionally and irrevocably guarantees to Executive the performance of all payment obligations of the Company, its successors and assigns with respect to the Agreement; provided, however, that (i) such guarantee shall become void and without further effect, and (ii) Aladdin Holdings shall cease being a party to this Agreement, as of the date, if any, of the Funding, defined as substantially complete project financing sufficient for substantially full renovation and construction for the Aladdin Hotel and Casino Redevelopment and Expansion project as set forth in the presentation to GW Vegas prepared by Westwood Capital LLC and dated July 1996 (or as subsequently modified) and as finally approved by the Clark County Commission. d. Amendment of Agreement. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. e. Severability. If, for any reason, any provision of this Agreement is determined to be invalid or unenforceable, such invalidity or lack of enforceability shall not affect any other provision of this Agreement not so determined to be invalid or unenforceable, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect, irrespective of such invalid or unenforceable provision. f. Effect of Prior Agreements. This Agreement contains the entire understanding between the parties hereto respecting the Executive's employment by the Company, and supersedes any prior understandings or agreements between the parties hereto. 11 g. Indemnification. The Company shall indemnify and hold Executive harmless to the full extent permitted by Chapter 78 of the Nevada Revised Statutes against costs, expenses, liabilities and losses, including reasonable attorney's fees and disbursements of counsel, incurred or suffered by him in connection with his serves as an employee of the Company during the Term of this Agreement. h. Notices. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (i) when delivered, if sent by telecopy or by hand, (ii) one business day after sending, if sent by reputable overnight courier service, such as Federal Express, or (iii) three business days after being mailed, if sent by United States certified or registered mail, return receipt requested, postage prepaid. Notices shall be sent by one of the methods described above; provided, that any notice sent by telecopy shall also be sent by any other method permitted above. Notices shall be sent: If to the Executive: with a copy to: If to the Company: Aladdin Holdings LLC 280 Park Avenue New York, NY 10017 Attn: Ron Dictrow directed to the attention of the Board of Directors with copies to the Chairman thereof; or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. i. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 12 j. Indulgences, Etc. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. k. Binding Arbitration. Except for an action by the company for injunctive or other equitable relief, any dispute or controversy arising under or in connection to this Employment Agreement shall be resolved through binding arbitration, conducted in Las Vegas, Nevada, in accordance with the rules of the American Arbitration Association. Judgment may be entered on the arbitration award in any court of competent jurisdiction. l. Headings. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. m. Neutral Construction: Each party to this Agreement has had the opportunity to retain counsel, and to review and participate in the drafting of this Agreement, and, accordingly, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting parties will not be employed or used in any interpretation or enforcement of this Agreement. n. Gaming Law. Anything to the contrary herein notwithstanding, the parties hereto agree and acknowledge that they are subject to and that they shall comply in all respects with the gaming laws of the State of Nevada including the Nevada Gaming Control Act and the rules and regulations promulgated by the Nevada Gaming Commission and the State Gaming Control Board. To the extent anything in this Agreement is inconsistent with any gaming laws or regulations, the gaming laws and regulations shall control. 13 o. Governing Law. This Agreement has been executed and delivered in the State of Nevada, and its validity, interpretation, performance, and enforcement shall be governed by the laws of such state, without regard to principals of conflicts of laws. EXECUTION DATE ALADDIN GAMING LLC July 1, 1997 By: /s/ Jack Sommer ------------------------- Its: President ALADDIN HOLDINGS, LLC By: /s/ Jack Sommer ------------------------- Its: President /s/ Jose A. Rueda ----------------------------- Jose A. Rueda, Executive 14 EX-10.47 29 MALL COMMITMENT LETTER Mall Commitment Letter December 29, 1997 Aladdin Bazaar, LLC c/o TrizecHahn Centers Inc. 4350 La Jolla Village Drive Suite 400 San Diego, California 92122 Attention: Mr. Gregory Bowen Re: Premises located at 3667 Las Vegas Boulevard South, Las Vegas, Clark County, Nevada and more particularly described on the site plan attached hereto as Exhibit A (the "Premises") Gentlemen: We (hereinafter and in the General Conditions attached hereto and made a part hereof, "Fleet"; this letter and the General Conditions, hereinafter and in the General Conditions, collectively, "this Commitment") agree to lend up to $194,000,000 to you (hereinafter and in the General Conditions, "Borrower"), in accordance with the terms set forth in this Commitment. Fleet, in its capacity as administrative agent under the loan (see the heading "Co-Lending" below) is sometimes referred to in this Commitment as "Agent". Borrower is a Delaware limited liability company owned 50% by TH Bazaar Centers Inc., a Delaware corporation, a wholly-owned subsidiary of TrizecHahn Centers Inc. ("THCI") and 50% by Aladdin Bazaar Holdings, LLC, a Nevada limited liability company, an affiliate of the Trust under Article Sixth under the Will of Sigmund Sommer (the "Trust"). Purpose. The loan shall be advanced for the construction on the Premises of improvements consisting of an approximately 462,000 square foot (gross leasable area) specialty retail center to be known as the Desert Passage at Aladdin, an approximately 4,000-space parking structure and additional surface or underground parking containing approximately 500 spaces (collectively, the "Improvements"). The Improvements will be adjacent to the to-be-developed approximately 2,600 room Aladdin hotel and approximately 100,000 sf casino. The Improvements shall be completed on or before December 31, 2000, as such date may be extended for force majeure, but in no event later than December 31, 2001. A Preliminary Development Cost Proforma setting forth costs to be incurred in connection with the development and construction of the Improvements (including certain fees to be paid to parties related to Borrower) is attached hereto as Exhibit B. Loan Amount. The amount of the loan shall be up to $194,000,000. The loan amount is subject to change based on a final budget but in any event is not to exceed the lesser of 75% of total budgeted costs (including value of contributed fee or leasehold interest) or 65% of the "as-stabilized" value of the Premises and Improvements, as determined by an independent MAI appraisal. The loan amount is subject to permanent reduction (at Borrower's option, subject, however, to the loan remaining in balance) through reductions in the commitment amount or prepayments of outstanding principal. Recourse. The loan shall be non-recourse except for liabilities pursuant to the Guaranty referred to below, the environmental indemnity referred to in the General Conditions, and customary carve-outs for wrongful conduct. Term. The loan shall mature five years from closing. Borrower shall have two one-year extension options as described below. At the end of the initial five-year term any unfunded commitment amount will be automatically canceled. Extension Options. The first extension option will be available provided the following conditions are satisfied: (a) at least 60 and no more than 180 days' written notice to Agent, (b) no default beyond applicable cure periods, (c) lien-free completion of the Improvements in conformance with approved plans and specifications, (d) minimum DSCR (as defined below) of 1.25x, (e) maximum ratio of the outstanding principal amount of the loan to the "as-stabilized" value of the Premises and Improvements, based on an updated independent MAI appraisal, acceptable to Agent, at Borrower's expense (the "LTV"), of 65% and (f) payment of a 10 bp fee on the outstanding principal amount (payable at the time the option is exercised). The second extension option will be available provided the following conditions are satisfied: (a) at least 60 and no more than 180 days' written notice to Agent, (b) no default beyond applicable cure periods, (c) the Improvements are at least 85% leased and occupied, (d) minimum DSCR of 1.40x, (d) maximum LTV of 65% and (e) payment of a 10 bp fee on the outstanding principal amount (payable at the time the option if exercised). Borrower shall have the right to prepay principal as necessary to qualify for either extension. 2 Interest Rate. Pricing will be a margin (expressed in basis points) above the Base Rate or LIBOR, based on the following grid (both pre-leasing and Pro forma DSCR must be satisfied for pricing reduction): -------------------------------------------------------------------- Pre-Leasing(1) Pro forma DSCR LIBOR Base Rate Spread Spread -------------------------------------------------------------------- < 25% Total GLA n/a 150 10 -------------------------------------------------------------------- >= 25% Total GLA n/a 135 10 -------------------------------------------------------------------- >= 50% Total GLA >= 1.00x 120 5 -------------------------------------------------------------------- >= 75% Total GLA >= 1.40x 100 0 -------------------------------------------------------------------- >= 90% Total GLA >= 1.50x 90 0 -------------------------------------------------------------------- After the Improvements are completed, and tenants are in occupancy and paying rent (to the extent required under their respective leases), the LIBOR Spread and the Base Rate Spread will not be adjusted upward once the subject test is achieved. For purposes of the chart above, "Pre-leasing" is defined as executed leases. Executed leases shall be subject to Agent's approval pursuant to the Lease Guidelines referred to below. "DSCR" will be defined as Net Operating Income divided by Pro forma Debt Service. "Net Operating Income," at any time, shall be determined for the prior four quarters based on: (a) the sum of (i) actual rental income from tenants in occupancy for a minimum of 12 months, (ii) annualized base rental income from tenants in occupancy for less than 12 months and (iii) actual reimbursement income and actual other income less (b) actual operating expenses, all determined in accordance with GAAP. "Pro forma Debt Service" will be calculated based on the then commitment amount, 25-year mortgage-style amortization and an interest rate derived based on the then prevailing 10 year Treasury rate plus a 150 bps spread. "Pro forma DSCR" will be defined as Pro forma Net Operating Income divided by Pro forma Debt Service. "Pro forma Net Operating Income" shall be determined based on (i) annualized total rental income provided by tenants with fully executed leases and (ii) reasonably acceptable proforma other income less pro forma operating expenses. "Base Rate" shall mean the greater of (a) the commercial lending rate announced by Fleet from time to time at its principal office in Boston as its "prime" or "base" rate or (b) the federal funds rate plus 1/2 of 1%, to be computed on an actual/360-day basis, each change in said rates to be effective as of the day of such change. For purposes hereof, "federal funds rate" shall mean, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions as published by the Federal Reserve Bank of New York for such day or, for any day that is not a banking day in New York City, for the immediately preceding banking day. 3 "LIBOR" shall mean the rate which appears on Dow Jones Markets Page 3750 at approximately 11 a.m. (London time) two business days prior to the first day of a given LIBOR interest period selected by Borrower for amounts comparable to the LIBOR amount in question and having the same term as the applicable LIBOR interest period, as adjusted for the maximum rate(s) at which reserves (including any marginal, supplemental or emergency reserves) are actually required to be maintained by Fleet or its co-lenders, as applicable, with respect to "Eurocurrency liabilities" under Regulation D of the Board of Governors of the Federal Reserve System. If such rate does not appear on Dow Jones Markets page 3750, the rate for that date will be determined on the basis of the offered rates for deposits in U.S. dollars for a period of time comparable to such LIBOR interest period for an amount comparable to such LIBOR amount which are offered by four major banks in the London interbank market at approximately 11:00 a.m. London time two business days prior to the first day of the LIBOR interest period. The principal London office of each of the four major London banks will be requested to provide a quotation of its U.S. dollar deposit offered rate. If at least two such quotations are provided, the rate for that date will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that date will be determined on the basis of the rates quoted for loans in U.S. dollars to leading European banks for a period of time comparable to such LIBOR interest period for an amount comparable to such LIBOR amount offered by major banks in New York City at approximately 11:00 a.m. New York time two business days prior to the first day of such LIBOR interest period. In the event that any such quotation cannot be obtained as provided above, it will be deemed that LIBOR cannot be determined. Available LIBOR interest periods shall be 30, 60, 90 or 180 days or, with Agent's approval, any other period available. There will be no more than six LIBOR contracts outstanding at any one time. The loan documents shall contain customary protective provisions relating to LIBOR pricing. Interest, whether based on the Base Rate or LIBOR, will be computed on an actual/360 day basis and will be payable monthly in arrears. Amortization. The loan will be interest-only during the initial term. During the extension terms, Borrower will be required to amortize principal based on 25-year (during the first extension term) and 24-year (during the second extension term) mortgage-style amortization and an interest rate derived based on the then prevailing 10 year treasury rate plus 150 bps spread. Prepayment. The loan shall be prepayable in whole or part (if in part, in integral multiples of $100,000) without penalty, provided that Borrower shall pay customary costs, if any, of breaking LIBOR contracts. Unused Fee. 4 Borrower will be required to pay a fee of 10 bps per annum on the unfunded loan amount (as the same may be reduced as described above under the heading "Loan Amount"). Such fee shall be computed on an actual/360-day basis and shall be payable quarterly in arrears from and after the loan closing. Administration Fee. Borrower will pay to Agent, for its own account, an administration fee of $35,000 per annum during the construction period. Upon completion of construction, the administration fee shall be reduced to $14,000 per annum. The administration fee shall be payable in quarterly installments, in advance, upon the closing date and at the commencement of each quarter thereafter. Collateral. The loan will be secured by a deed of trust, assignment of leases and rents and security agreement (the "Mortgage") which shall be a first lien on Borrower's interest in the Premises (which consist of a 11.4 acre (at ground level) site) and the Improvements. Borrower's interest in the Premises initially will be a ground and air rights leasehold estate which will be replaced with a fee interest in the same land and air rights following subdivision of the same from the adjacent Aladdin hotel-casino and Sound Asylum hotel-casino projects. If the Mortgage is recorded before such subdivision and Borrower's acquisition of a fee interest, then, following such subdivision and acquisition of a fee interest, Borrower shall enter into an agreement spreading the lien of the Mortgage to such fee interest (in connection with which any other mortgage or deed of trust of the fee shall be released). If the Mortgage is recorded after such subdivision and conveyance of a fee interest, then the Mortgage will encumber such fee interest rather than the leasehold. The ground lease creating Borrower's initial interest (the "Ground Lease") shall be subject to no mortgages, deeds of trust or other encumbrances not approved by Fleet. The Mortgage shall encumber all of Borrower's rights under (and be subject to) a Construction, Operation and Reciprocal Easement Agreement (the "REA"), a Site Work, Development and Construction Agreement (the "Site Work Agreement") and a Common Parking Area Use Agreement (the "Parking Agreement"), each between Borrower and the fee owner. The Mortgage shall also encumber (or Borrower shall assign to Agent in separate instruments) (i) all of Borrower's rights in, to and under all other underlying project documents, all construction, architectural and engineering contracts and plans and specifications with respect to the Improvements (including any contracts for construction of the Aladdin hotel-casino, only to the extent such contracts provide for the construction of the so-called mall "shoulders") and other related construction documents and (ii) other customary collateral. Project Financial Covenants. The LTV shall not exceed 65% at any time. In the event this covenant is violated, Borrower will have the option to pay down the loan or provide additional collateral, satisfactory to Fleet in its sole discretion, to bring the LTV into conformance. Agent has the right to re-appraise the property, at Borrower's expense, no more than annually (provided that such limit shall not apply following Borrower's default under the loan 5 documents beyond applicable grace periods). Beginning on the first anniversary of completion of the Improvements and through maturity (tested quarterly), unless a DSCR of at least 1.25x is achieved and maintained, Borrower will be obligated either, at Borrower's option, to deposit all Excess Cash Flow into an interest bearing cash collateral account maintained at and pledged to Agent or to apply Excess Cash Flow to outstanding principal under the loan. Unless previously applied to payment of the loan at Borrower's election, funds held in the cash collateral account will be released with interest to Borrower upon Borrower's achievement of the requisite DSCR for at least two consecutive quarters. After the release, should Borrower fail to maintain the DSCR designated above, the cash flow sweep will be reinstated until Borrower attains the requisite DSCR for at least two consecutive quarters. "Excess Cash Flow" is defined as Net Operating Income after debt service under the loan, adjusted for non-recurring items and straight-lining of rents, also adjusted to a cash basis, less, without duplication, (i) capital expenditures incurred, reasonably approved by Agent, (ii) reserves for committed capital expenditures, reasonably approved by Agent, and (iii) operating reserves for property taxes, insurance, utilities and other normal operating expenses. Financial Reporting. Borrower and Guarantors shall supply the following reports: Quarterly internally-prepared Borrower and Guarantor financial statements. Annual audited Borrower and Guarantor financial statements. Quarterly covenant compliance certificates of Borrower and THCI. Other standard reports as appropriate for this type of transaction. For purposes of clauses 1, 2 and 4 above, the only "financial statements" or reports required of the Trust will be an annual statement, prepared by the Trust's tax accountants and certified by the trustees, of the net worth of the trust based on the fair market value of its assets less liabilities (a "Fair Market Value Statement"). In addition, Borrower shall use reasonable efforts to deliver to Lender the semi-annual financial covenant compliance reports of London Clubs International plc ("LCI") required under the documents for (i) the Hotel Financing (as defined below) and (ii) the credit facility to LCI led by National Westminster Bank PLC. Transfer and Debt Restrictions. Borrower shall not incur additional indebtedness (other than the subordinated debt described in the succeeding paragraph), nor voluntarily or involuntarily sell, transfer, assign, pledge or encumber Borrower's assets without the consent of Fleet. No transfer of interests in Borrower shall be permitted without Fleet's consent, except as provided 6 below. Borrower will certify to Fleet compliance with these covenants prior to closing and quarterly thereafter. Transfers of ownership interests in Borrower or its constituent members shall be permitted so long as THCI retains, directly or indirectly, at least a 50% beneficial ownership interest and managing position in Borrower. Subordinated Debt. Subordinated debt in the amount of approximately $16,700,000 payable to Aladdin Bazaar Holdings by Borrower shall be permitted, provided the annual interest and principal payments shall not exceed $2,000,000 and shall be payable only to the extent of available cash flow after debt service on the loan, and the debt shall be unsecured and fully subordinated to the loan in every respect under terms acceptable to Fleet (which shall include elimination of the obligation upon foreclosure of the Mortgage). Lease Guidelines. Agent shall retain the right to approve all leases for space in the Improvements in excess of 7,500 square feet, and any leases which materially differ from an Agent-approved standard lease form or from proforma rents and terms set forth in lease guidelines to be mutually agreed upon. Co-Lending. Fleet shall have the right to syndicate the loan to other financial institutions through direct assignments of interests to co-lenders or through participations, either prior to the time of closing the loan or thereafter, subject (so long as there exists no default beyond the applicable grace period), in the case of assignments, to Borrower's approval as to the identity and number of assignees, such approval not to be unreasonably withheld. Fleet shall retain an interest in the loan at least equal to the next greatest interest. Fleet shall act as the administrative agent for the lenders in connection with the Loan. During construction and so long as there is no outstanding Borrower event of default, Fleet may not unilaterally resign as Agent without Borrower's consent, not to be unreasonably withheld. Borrower agrees to cooperate with Fleet in connection with the syndication of the loan by, for example, assisting in preparation of offering materials, allowing site visits and making documents and personnel available to prospective assignees and participants. This Commitment shall not be contingent upon Fleet's ability to syndicate the loan. Expenses. Whether or not the loan closes (unless the loan fails to close as a result of Fleet's gross negligence or breach of its obligations under this Commitment), and notwithstanding anything to the contrary contained in this Commitment or in the Fee Letter (as defined below), Borrower shall pay all reasonable third party costs and expenses incurred by Fleet in connection with the transaction and Fleet's ongoing due diligence in connection therewith (including, without limitation, reasonable fees and expenses of Fleet's counsel, appraiser and environmental, engineering and other consultants) as well as (i) up to $10,000 in syndication expenses of the loan incurred by Fleet and (ii) non-syndication related outside-service and travel expenses of Fleet personnel (such travel expenses not to 7 exceed $10,000 in the aggregate). Borrower will also pay any tax imposed by reason of the execution of the loan documents. Borrower will not pay for the fees or costs of assignees or participants. Consents and Waivers. Within the customary limitations inherent to syndicated loan transactions, Agent shall retain maximum administrative authority including the authority to grant waivers, consents or approvals to Borrower. Except as contemplated by this Commitment, only major events such as (i) reduction of principal, (ii) postponement of any date fixed for payment of principal or interest, (ii) release of any material portion of the mortgaged property, (iv) change in the interest rate or fees of the loan, (v) release of guarantors or (vi) change in the definition of the "Required Lenders" will require the consent or approval of all lenders. In all other circumstances requiring approval of the lenders (as opposed to Agent's approval), the approval of non-delinquent lenders having 66-2/3% of the commitments or outstanding loans of non-delinquent lenders (the "Required Lenders") shall be sufficient. Events of Default. All customary events of default for similar loan transactions, consistent with the following (provided the only cross-defaults will be those expressly identified below) shall constitute events of default under the loan documents: Insolvency or bankruptcy of Borrower; Insolvency or bankruptcy of THCI or breach of its guarantor covenants or judgments against THCI (unless the same are discharged within 60 days of entry or are being appealed (provided execution thereof is stayed pending such appeal)) in excess of $25,000,000 (individually or in the aggregate); Failure to pay debt service within five (5) days after due; Inaccuracy of any representation or warranty; and Breach of Borrower covenants, subject to reasonable notice and cure periods. Conditions Precedent. Fleet's obligation to make the initial advance of the loan shall be subject to the satisfaction of each of the following conditions: Equity Requirement. A minimum of 25% of total project costs shall be contributed as up-front equity prior to funding of the loan. Equity must include a minimum of $30,000,000 in the form of cash invested in the Improvements. Pre-Leasing Requirement. No pre-leasing is required. 8 Bonding. Agent shall receive payment and performance bonds for all major subcontractors (i.e., contracts equal to or greater than $250,000). The project will be bonded in an aggregate amount acceptable to Fleet (or the contractor's obligations shall be covered by a guaranty from a guarantor acceptable to Fleet), and will be constructed pursuant to a GMP contract or other contract acceptable to Fleet with a contractor acceptable to Fleet. Guaranties. Full joint and several lien-free completion and payment guaranties (collectively, the "Guaranty") shall be provided by THCI, Aladdin Bazaar Holdings, LLC, a Nevada limited liability company, Aladdin Holdings, LLC, a Nevada limited liability company, and the Trust (jointly and severally, "Guarantors"). Subsequent to achieving conditions "b" and "c" of the conditions for the first extension option, the payment guaranty will be reduced according to the following grid (both DSCR and LTV must be satisfied for guaranty reduction): ----------------------------------------------------------------- Payment Guaranty DSCR LTV ----------------------------------------------------------------- 50% of outstanding principal(1) 1.30x 65% ----------------------------------------------------------------- 25% of outstanding principal(1) 1.40x 65% ----------------------------------------------------------------- 15% of outstanding principal(1) 1.50x 60% ----------------------------------------------------------------- Debt Service only 1.60x 55%(2) ----------------------------------------------------------------- Released 1.75x 55%(2) ----------------------------------------------------------------- Notes: (1) Plus full liability as to Debt Service (i.e., interest plus required amortization and all other sums aside from principal). (2) Based on an updated FIRREA complying appraisal, at Borrower's expense. The payment guaranty may fluctuate either up or down as to principal liability, however, once the payment guaranty is reduced to a Debt Service only guarantee, it may not be increased. The guaranties from THCI shall contain financial covenants obligating THCI to maintain: 1. Minimum GAAP Net Worth of $400,000,000. 2. Minimum unrestricted cash and cash equivalents of $10,000,000 determined on a quarterly basis. 3. Maximum Leverage of 65%. 4. Minimum Fixed Charge coverage of 1.25x. Leverage shall be defined as Total Outstanding Long Term Debt (per the balance sheet) divided by Capitalization Value. Capitalization Value is defined as most 9 recent four quarters' Rental Income (per the income statement) capped at 8.25%, less $.15 psf cap ex on the amount of square feet owned by THCI (including ownership through affiliates, to the extent of THCI's fractional interest in the affiliate). Total Outstanding Long Term Debt shall exclude project construction debt until the relevant project has been completed and open for 12 months. Fixed Charge Coverage is defined as most recent four quarters' Rental Income (per the income statement) divided by most recent four quarters' Total Debt Service (per THCI's property operating statements) (excluding any balloon mortgage payments due at maturity). The guaranty from the Trust will contain a covenant that the Trust will maintain a minimum fair market value of assets less liabilities of $100,000,000. Other financial covenants for Aladdin Bazaar Holdings, LLC, Aladdin Holdings, LLC, and the Trust will be mutually agreed upon by Fleet and the Guarantors. Status of Hotel-Casino Project. The proceeds of the cash equity contributions from LCI and Aladdin Gaming Holdings, LLC ("Holdings") and the Discount Notes offering from Holdings, and the land contribution by Holdings (or other equity/financing/contributions for the Aladdin hotel-casino), all of which shall total approximately $224,000,000, shall have been expended on or contributed to the Aladdin hotel-casino project; construction financing in the amount of approximately $410,000,000 for the Aladdin hotel-casino (the "Hotel Construction Financing") shall have closed and funding from escrow of the proceeds of the "Term B Loan" and "Term C Loan" thereunder shall have commenced; and Aladdin Gaming, LLC shall have received and the lenders of the Hotel Construction Financing shall have approved a commitment for FF&E financing for the Aladdin hotel-casino of approximately $80,000,000. The provisions of the documentation for the Hotel Construction Financing relating to the conditions and procedures for the disbursement thereof shall be usual and customary for financings of that type and in form and substance reasonably satisfactory to Fleet. It shall be a condition precedent to the initial advance of the loan that Agent shall have received a letter, reasonably satisfactory to it, from the administrative agent for the lenders of the Hotel Construction Financing stating that it knows of no default or unsatisfied condition that would prevent further advances of the Hotel Construction Financing. Fleet's obligation to make the initial advance of the loan shall also be conditioned on a guaranteed maximum price construction contract being in place for the Aladdin hotel-casino project. Litigation. The absence of material litigation affecting Borrower, THCI or the Premises or Improvements that is likely to adversely affect Borrower's or THCI's ability to perform their obligations under the loan. Project Documents. Fleet's (i) review and approval of the Ground Lease, REA, Site Work Agreement, Parking Agreement and other underlying project documents 10 (including, without limitation, the Lease, Development Agreement, Guaranty, Energy Service Agreement and Cost-Sharing Agreement, all pertaining to the furnishing of electricity and chilled water to the Improvements), (ii) receipt of estoppel certificates from the parties to such documents, (iii) review and approval of such documents as Fleet may specify relating to the hotel-casino project and (iv) receipt of such information concerning the neighboring "Sound Asylum" project as Fleet may specify. General Conditions. The satisfaction of the General Conditions. Commitment Fee. Payment to Fleet of the commitment fee provided for in a separate letter agreement of even date herewith between Fleet and Borrower (the "Fee Letter"). Other Issues. The loan documents will contain other customary terms and conditions for facilities of this type. 11 If this Commitment is satisfactory, please indicate your and Guarantors' acceptance thereof by executing and returning to Fleet a copy of this covering letter with the General Conditions attached, as well as the Fee Letter, on or before December 31, 1997 (it being understood that this Commitment shall be irrevocable until the expiration of such period), together with any sums required above to be paid upon acceptance hereof. Otherwise this Commitment will, at Fleet's option, be of no force or effect. Very truly yours, FLEET NATIONAL BANK By /s/ Margaret A. Mulcahy ------------------------------- Name: Margaret A. Mulcahy Title: Senior Vice President Accepted and agreed to this 30th day of December, 1997. BORROWER: ALADDIN BAZAAR, LLC, a Delaware limited liability company By: TH Bazaar Centers, Inc., a Delaware corporation, Member By /s/ Wendy M. Godoy -------------------------- Name: Wendy M. Godoy Title: Senior Vice President, Finance By /s/ Mary Allman Boyle -------------------------- Name: Mary Allman Boyle Title: Assistant Secretary By: Aladdin Bazaar Holdings, LLC, a Nevada limited liability company, Member By: Aladdin Management Corporation, a Nevada corporation, Manager By /s/ Ronald Dictrow ---------------------- Name: Ronald Dictrow Title: Treasurer 12 GUARANTORS: TRIZECHAHN CENTERS INC., a California corporation By /s/ Wendy M. Godoy --------------------------------------- Name: Wendy M. Godoy Title: Senior Vice President, Finance By /s/ Mary Allman Boyle --------------------------------------- Name: Mary Allman Boyle Title: Vice President ALADDIN BAZAAR HOLDINGS, LLC, a Nevada limited liability company By: Aladdin Management Corporation, a Nevada corporation, Manager By: /s/ Ronald Dictrow ----------------------------------- Name: Ronald Dictrow Title: Treasurer ALADDIN HOLDINGS, LLC By: /s/ Ronald Dictrow --------------------------------------- Name: Ronald Dictrow Title: Treasurer TRUST UNDER ARTICLE SIXTH UNDER WILL OF SIGMUND SOMMER By /s/ Viola Sommer By /s/ Jack Sommer --------------------------------- --------------------------------- Name: Viola Sommer Name: Jack Sommer Title: Trustee, and not as an Title: Trustee, and not as an individual individual 13 EXHIBIT A Site Plan EXHIBIT B Preliminary Development Cost Pro Forma GENERAL CONDITIONS OF CONSTRUCTION LOAN COMMITMENTS The loan shall be evidenced by one or more notes (collectively, the "Note") and secured by the Mortgage which shall be a first lien on the Premises (or a first lien on a leasehold interest in an unencumbered fee (i.e., any mortgage or deed of trust of the fee shall be subordinated to the Ground Lease) if Borrower's interest in the Premises is a leasehold), and shall be advanced periodically in accordance with the terms of a building loan agreement (the "BLA") which shall require construction of the Improvements on the Premises and supervision of construction and approval of advances by an architect or engineer of Fleet's selection (the "Construction Consultant"). The funding of the loan shall be conditioned on Fleet's receipt and approval of the following: An independent M.A.I. appraisal conforming to the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, and a project cost statement (i.e., budget); Plans and specifications for the Improvements approved by the Construction Consultant, and a satisfactory report from the Construction Consultant; Certified copies of all then existing construction and architectural/engineering contracts (all of which shall be approved by the Construction Consultant), together with the undertakings of the general contractor (and the contractor(s) for the Aladdin hotel-casino, only to the extent their work includes the so-called mall "shoulders"), major subcontractors and Borrower's architect to continue performance on Fleet's behalf, without additional cost, in the event of a default by Borrower under the loan; The Note, Mortgage (and related UCC Financing Statements), BLA and Guaranty; A policy or policies of mortgage title insurance in ALTA Loan Policy 10/17/92 form, assignable to a permanent mortgagee, containing such endorsements as are required, and only such exceptions to coverage as are approved, by Fleet's counsel, together with such reinsurance agreements, in ALTA 1994 facultative form, as Fleet's counsel may require; A current survey certified to Fleet and the title insurer; A list, certified by the title insurer, of the prior owners, tenants and other users, during the period from January 1, 1940 to the date of such certification, of all or any portion of the Premises or the improvements thereon; Certified financial statements of Borrower and Guarantors (which, in the case of the Trust, shall mean a Fair Market Value Statement), together with, in the case of the financial statements of Borrower and THCI, evidence that there has occurred no material adverse change (i.e., a change that is apt to have a material adverse effect on the ability of Borrower or THCI to perform their respective obligations under the loan) in the respective financial conditions reflected therein between the respective dates thereof and the date of the initial funding of the loan; Evidence of compliance with all laws, ordinances, rules, regulations and restrictions affecting the Premises, the construction of the Improvements and the consummation of the loan, including, without limitation, evidence that Borrower is current in the payment of all real property taxes, water and/or sewer charges and any other taxes or assessments which, if not paid, could give rise to a lien against the Premises; Fully prepaid policies of insurance as are set forth on Schedule A attached hereto and made a part hereof; An opinion of counsel from the jurisdiction in which the Premises are located to the effect, inter alia, that the loan documents contemplated hereby will be valid and enforceable in such jurisdiction in accordance with their respective terms; (a)Evidence that the Premises are not located in an area that has been identified as an area having special flood hazards or, if it is, such flood hazard insurance as is set forth on Schedule A hereto (in such connection, the acceptance of this Commitment shall constitute Borrower's and Guarantors' authorization to Fleet to undertake a flood zone status determination and their agreement to pay Fleet's reasonable fees and expenses therefor); (b)A detailed report and certification by a properly qualified engineer, which shall include, inter alia, a certification that such engineer has obtained and examined the list of prior owners, tenants and other users referred to above, and has made an on-site physical examination of the Premises, and a visual observation of the surrounding areas, and has found no evidence of the presence of toxic or hazardous materials, substances or wastes (collectively, "Hazardous Materials") or of past or present Hazardous Materials activities; Borrower and Guarantors shall also deliver to Fleet an executed agreement wherein they shall, inter alia, agree to indemnify Fleet regarding Hazardous Materials; and (c)Such other documents, instruments, opinions and assurances as Fleet may request, including, without limitation, (i) to the extent they then exist, all management, leasing and other service contracts regarding the Premises, together with related "will-serve" letters, (ii) a certified copy of the standard form of lease Borrower intends to use for the leasing of the Improvements, (iii) leases, to the extent they then exist, together with estoppel certificates from the tenants thereunder and (iv) as applicable, Borrower's and Guarantor's organizational documents and evidence of authority. The loan documents shall provide, inter alia, that (a) Fleet shall be entitled to recover late fees of 4% for any payments received by it more than 15 days after than the due date thereof (other than principal due on maturity), (b) interest on the Note shall accrue, following default beyond applicable grace periods, at the per annum rate of 2% above the interest rate specified in the Note, and (c) Fleet shall be entitled to recover all costs, expenses and disbursements, including, but not limited to, reasonable attorneys' fees and expenses, incurred by it as a result of any default by Borrower and/or the enforcement by Fleet of its rights under the loan documents. The loan documents and all other instruments and documents required hereby or affecting the Premises, or relating to Borrower's capacity and authority to make the loan and to execute the loan documents and such other documents, instruments, opinions and assurances as Fleet may reasonably request and all procedures in connection herewith or therewith shall be subject to the 2 reasonable approval, as to form and substance, of Fleet and Fleet's counsel, Dewey Ballantine LLP, New York, New York, and Fleet's local counsel, if any. All persons or entities responsible for the preparation and/or execution of any required documents or instruments, all obligors thereunder and all persons or entities responsible for the construction of the Improvements, shall be satisfactory to Fleet. Except where Borrower or Guarantors are the prevailing parties, Borrower and Guarantors shall pay all reasonable legal fees or expenses incurred by Fleet in connection with any action or proceeding brought in respect of this Commitment. The acceptance of this Commitment shall constitute an undertaking on the part of Borrower and Guarantors to indemnify Fleet against claims of brokers (other than any brokers engaged or who claim to be engaged solely by Fleet) arising in connection with the execution of this Commitment or the consummation of the loan. The loan closing shall be held on a date within 120 days from the date of Borrower's and Guarantors' acceptance of this Commitment at Fleet's Real Estate Finance office, or such other place specified by Fleet. If the loan closing is not held within such 120-day period, Fleet's obligations hereunder shall terminate unless Fleet, at its option, extends the time for such closing in writing. Borrower and Guarantors recognize that Fleet may sell and transfer interests in the loan to one or more participants or assignees, as more particularly provided in the covering letter, and that all documentation, financial statements, appraisals and other data, or copies thereof, relevant to Borrower, Guarantors, the Premises or the loan, may be exhibited to and retained by any such participant or assignee or prospective participant or assignee. Financial statements shall be delivered to participants or assignees or prospective participants or assignees shall be delivered by Fleet on a confidential basis and on the condition that they be used for no other purpose than in connection with the loan. This Commitment and the rights and obligations of the parties hereunder shall in all respects be governed by, and construed and enforced in accordance with, the laws of the State of New York (without giving effect to New York's principles of conflicts of law). Borrower and Guarantors hereby irrevocably submit to the non-exclusive jurisdiction of any New York State or Federal court sitting in the city of New York over any suit, action or proceeding arising out of or relating to this Commitment, and Borrower and Guarantors hereby agree and consent that, in addition to any methods of service of process provided for under applicable law, all service of process in any such suit, action or proceeding in any New York State or Federal court sitting in the city of New York may be made by certified or registered mail, return receipt requested, directed to Borrower or Guarantors at the address indicated above to which this Commitment was sent, and service so made shall be complete five business days after the same shall have been so mailed. 3 SCHEDULE A The following insurance must be provided, maintained and kept in force: policies of insurance insuring the Premises, Improvements and chattels against loss or damage by fire and lightning; against loss or damage by other risks embraced by coverage of the type now known as All Risk Replacement Cost Insurance with agreed amount endorsement, including but not limited to riot and civil commotion, vandalism, malicious mischief and theft; and against such other risks or hazards as Fleet from time to time reasonably may designate in an amount sufficient to prevent Fleet or Borrower from becoming a co-insurer under the terms of the applicable policies, but in any event in an amount not less than 100% of the then full replacement cost of the Improvements (exclusive of the cost of excavations, foundations and footings below the lowest basement floor) without deduction for physical depreciation; policies of insurance insuring the Premises against the loss of "rental value" of the buildings which constitute a part of the Improvements on a "rented or vacant basis" arising out of the perils insured against pursuant to clause (i) above in an amount equal to not less than one year's gross "rental value" of the Improvements. "Rental value" as used herein is defined as the sum of (A) the total anticipated gross rental income from tenant occupancy of such buildings as furnished and equipped, (B) the amount of all charges which are the legal obligation of tenants and which would otherwise be the obligation of Borrower and (C) the fair rental value of any portion of such buildings which is occupied by Borrower; if all or part of the Premises are located in an area identified by the Secretary of the United States Department of Housing and Urban Development or by any applicable federal agency as a flood hazard area, flood insurance in an amount at least equal to the maximum limit of coverage available under the National Flood Insurance Act of 1968, provided, however, that Fleet reserves the right to require flood insurance in excess of said limit if such insurance is commercially available up to the amount provided in clause (i) above; throughout the course of construction of the "Improvements" to be constructed pursuant to the Building Loan Agreement, and during any period of restoration, a policy or policies of builder's "all risk" insurance, written on a Standard Builder's Risk Completed Value Form (100% non-reporting), in an amount not less than the full insurable value of the Premises against such risks (including, without limitation, fire and extended coverage, collapse and earthquake coverage to agreed limits) as Fleet may reasonably request, in form and substance acceptable to Fleet; (i)a policy or policies of workers' compensation insurance as required by workers' compensation insurance laws (including employer's liability insurance, if requested by Fleet) covering all employees of Borrower; (ii)comprehensive liability insurance on an "occurrence" basis against claims for "personal injury" liability, including, without limitation, bodily injury, death or property damage liability, with a limit of not less than $15,000,000 in the event of "personal injury" to any number of persons or of damage to property arising out of one "occurrence". Such policies shall name Fleet as additional insured by an endorsement, and shall contain cross-liability and severability of interest clauses, all satisfactory to Fleet; and (iii)such other insurance (including, but not limited to, earthquake insurance), and in such amounts, as may from time to time be reasonably required by Fleet against the same or other insurable hazards. All policies of insurance shall be issued by companies having Best's ratings of not less than A:VIII and being otherwise acceptable to Fleet, shall be subject to the reasonable approval of Fleet as to amount, content, form and expiration date and, except for the liability policies described in clauses (a)(v) and (vi) above, shall contain a Non-Contributory Standard Mortgagee Clause and Lender's Loss Payable Endorsement, or their equivalents, in favor of Fleet. The proceeds of all policies shall be assigned to Fleet and all policies shall provide that the proceeds thereof shall be payable to Lender. Fleet shall be furnished with original evidence of insurance with respect to each policy required hereunder, which policies shall provide that they shall not lapse, nor be modified or cancelled, without 30 days' written notice to Fleet. In addition, Borrower shall make available at its principal office, for review and inspection by Fleet, the original of each policy required hereby at reasonable times. At least 30 days prior to expiration of any policy, Borrower shall furnish Fleet appropriate proof of issuance of a policy continuing in force the insurance covered by the policy so expiring. Borrower shall furnish to Fleet, promptly upon request, receipts or other satisfactory evidence of the payment of the premiums on such insurance policies. A-2 EX-10.49 30 CONTRIBUTED LAND APPRAISAL October 7, 1997 Mr. Jim Riley The Bank of Nova Scotia, New York Agency One Liberty Plaza New York, New York 10005 (212) 225-5098 Re: Proposed Aladdin Hotel and Casino Las Vegas, Nevada HVS Ref.: #9710413 Dear Mr. Riley: Pursuant to your request, we herewith submit our self-contained appraisal report pertaining to the above-captioned property. We have inspected the site and analyzed the Las Vegas gaming market. Based on the available data, and our analysis and experience in the hotel industry, it is our opinion that the "prospective" market value of the fee simple interest in the proposed Aladdin Hotel and Casino, as of the date the project is complete and operational, assumed to be on or about January 1, 2000, will be: $825,000,000 EIGHT HUNDRED TWENTY-FIVE MILLION DOLLARS In addition, it is our opinion that the market value of the total +/- 34.31-acre subject site, as vacant and including the development rights and entitlements, as of August 7, 1997, is: $180,000,000 ONE HUNDRED EIGHTY MILLION DOLLARS In addition, it is our opinion that the market value of the +/- 18.16 acres of land allocated to the Aladdin Hotel and Casino portion of the development, as vacant and including the development rights and entitlements, as of August 7, 1997, is: $135,000,000 ONE HUNDRED THIRTY-FIVE MILLION DOLLARS Our report is made in conformance with, and subject to, the requirements of the Uniform Standards of Appraisal Practice (USPAP), as provided by the Appraisal Foundation, as well as the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). We do hereby certify that we have no undisclosed interest in the property, and our employment and compensation are not contingent upon our findings and valuation. The valuation is expressly made subject to all normal and specific assumptions and limiting conditions, a copy of which is included in the attached appraisal report. Very truly yours, HVS International Mark D. Capasso Senior Associate Anne R. Lloyd-Jones, CRE Senior Vice President /s/ Stephen Rushmore Stephen Rushmore, CRE, MAI, CHA President MDC/ALJ/SXR/nkw HVS International, Mineola, New York Quality Assurance Quality Assurance The HVS International division of Hotel Consulting, Inc., strives to achieve the highest standards of quality during all phases of the appraisal process. It is our goal to provide clients with the finest appraisal report available. The following staff members acknowledge their contribution to this report. Natalie K. Wysong - Editing and Report Production Editor (SF Office 415-896-0868, Extension 306) Mark D. Capasso - Fieldwork, Analysis, and Text Senior Associate (SF Office 415-896-0868, Extension 204) Anne R. Lloyd-Jones, CRE - Fieldwork, Analysis, and Review Senior Vice President (NY Office 516-248-8828, Extension 208) /s/ Stephen Rushmore Stephen Rushmore, CRE, MAI, CHA - Analysis, and Review President (NY Office 516-248-8828, Extension 204) We are available to answer any questions and are pleased to have provided you with the finest quality product available. Wendy Millward (NY Office 516-248-8828, extension 233) is available to answer any billing questions. We look forward to serving you again in the future. HVS International, Mineola, New York Summary of Salient Data and Conclusions 1 - -------------------------------------------------------------------------------- 1. Summary of Salient Data and Conclusions Property: Proposed Aladdin Hotel and Casino Location: 3667 Las Vegas Boulevard, Las Vegas, Nevada 89109 Dates of Inspection: August 7, 1997 Date of Value (Aladdin Hotel and Casino): January 1, 2000 Date of Value (Total Subject Land): August 7, 1997 Date of Value (Hotel and Casino Land): August 7, 1997 Stabilized Year: 2002 Interest Appraised: Fee simple Property Description Land Total Area: +/- 34.31 acres, or +/- 1,494,544 square feet Hotel and Casino Portion: +/- 18.16 acres, or +/- 791, 051 square feet Zoning: H1 - Limited Resort and Apartment District Flood Zone: A - Within the 100-year flood plain Proposed Improvements Hotel 2,600 rooms Meeting Space: 71,500 square feet Scheherazade Show Room: 1,400 seats Theater for the Performing Arts: 7,000 seats Casino 110,000 square feet Table Games: 117 Gaming Devices: 2,900 Sports Book: 5,000 square feet Keno Lounge: 1,200 square feet Food and Beverage Facilities Buffet and Food Plaza: 1,000 seats 24-Hour Coffee Shop: 575 seats High Energy Restaurant: 225 seats Italian Restaurant: 200 seats Themed Restaurant: 150 seats Steakhouse: 150 seats Sushi/Chinese Noodle Bar: 50 seats Casual Dining Coffee Bar: 50 seats Salle Prive Exclusive Restaurant: 100 seats HVS International, Mineola, New York Summary of Salient Data and Conclusions 2 - -------------------------------------------------------------------------------- Summary of Value Parameters Highest and Best Use (as if vacant): Land-based casino hotel facility Highest and Best Use (as improved): Land-based casino hotel facility Effective Date of the Appraisal (Hotel and Casino): January 1, 2000 Effective Date of the Appraisal (H&C Site): August 7, 1997 Marketing Period: Up to 6 months Stabilized Year: January 1, 2002 - December 31, 2002 Valuation Parameters Discount Rate: 19.1% Interest Rate: 9.0% Equity Yield: 31.0% Terminal Capitalization Rate: 18.0% Loan-to-Value Ratio: 60% Estimates of Value (Hotel and Casino) Income Capitalization Approach: $824,100,000 Sales Comparison Approach: Not applicable Cost Approach: $760,000,000 Prospective Market Value Conclusion: $825,000,000 Estimate of Value (Land Components) Total Site: $180,000,000 Hotel and Casino Site: $135,000,000 HVS International, Mineola, New York Market Area Analysis 1 4. Market Area Analysis The economic vitality of the market surrounding the subject property is an important consideration in forecasting gaming and lodging demand and income potential. Economic and demographic trends that reflect the amount of visitation provide a basis from which to project future demand for gaming and lodging facilities. The purpose of the market area analysis is to review available economic and demographic data to determine whether the local market will undergo economic growth, stabilize, or decline. Market Area Overview The subject site is situated in the Las Vegas, Nevada Metropolitan Statistical Area (MSA). The Las Vegas MSA includes Clark and Nye Counties and the incorporated Cities of Las Vegas, North Las Vegas, Henderson, Boulder City, and Mesquite. The subject site is situated at the northern tip of the City of Las Vegas. Las Vegas is an urban area encompassing approximately 84.272 square miles. The city was first founded in 1905 and incorporated on March 16, 1911. By virtue of its proximity to the Los Angeles metropolitan area and its destination resort appeal, Las Vegas has become known as the "Entertainment Capital of the World." Clark County covers 7,910 square miles and is bounded by California to the south and west and the Colorado River and Arizona to the east. Vacant land occupies approximately 84% of Clark County. Las Vegas, and southern Nevada in general, are expanding regional economic centers characterized primarily by tourism and related service sectors. In addition to tourism, Las Vegas's economic base continues to diversify into areas such as manufacturing, distribution, wholesale trade, and construction. In 1996, roughly 34 new companies came to the Las Vegas area, employing almost 3,000 people. These new employees were estimated to have a $136-million impact on the local economy. While the service sector is currently expanding at the most rapid rate (and contributes the largest share of total employment), higher value-added jobs continue to be created in the manufacturing and distribution sectors. These two areas make up the major employment classifications of firms relocating to the area. Nevada's tax structure is favorable for individuals and corporations and has provided the impetus for rapid corporate in-migration. While these sectors have emerged within Las Vegas, the area's driving force is, and will continue to be, gaming-related tourism. Between 1992 and 1996, Las Vegas experienced an expansion in room inventory of approximately 29.5% or almost 23,000 rooms. According to Las Vegas Perspective, 1996, published by the Las Vegas Review Journal, this expansion in rooms inventory is estimated to have created more than 30,000 new jobs. The total indirect economic impact was estimated to affect as many as 60,000 HVS International, Mineola, New York Market Area Analysis 2 individuals. This "boom" favorably impacted the commercial construction sub-segment of the local economy, which continues to fuel economic growth. Similarly, another round of room construction is underway, with approximately 10,000 to 15,000 more rooms expected to enter the market. This wave of construction is expected to create roughly 15,000 more new jobs. This type of growth creates a chain reaction impacting existing businesses, creating the demand for new business, increasing the number of housing permits, and ultimately growing the county's tax base. This results in an expanded and improved infrastructure. This expansion is anticipated to benefit the entire Las Vegas community. Demographic Review Based on fieldwork conducted in the area and our in-house sources, we have evaluated various economic and demographic statistics to determine trends in lodging demand. A primary source of economic and demographic statistics used in this analysis is the Complete Economic and Demographic Data Source published by Woods & Poole Economics, Inc., a well-regarded forecasting service based in Washington, DC. Using a data base containing more than 300 variables for each county in the nation, Woods & Poole employs a sophisticated regional model to forecast economic and demographic trends. Historical statistics are based on census data and information published by the Bureau of Economic Analysis. Projections are formulated by Woods and Poole. Population Historical and projected population trends often reflect the economic climate of a locale, and thus have an impact on the demand for hotels, office space, retail outlets, and recreational facilities. The catalysts for population growth in the Las Vegas area were the completion of the Hoover Dam and the legalization of gambling in 1931. The dam project provided affordable water and power and set the stage for the evolution of the gaming industry as the primary local industry. A major government presence was established with the creation of what is now Nellis Air Force Base (12 miles northeast of Las Vegas) and the Nevada Nuclear Test Site (20 miles to the north). Historically, population growth in Clark County and the Las Vegas MSA has exceeded national averages. Between 1980 and 1990, the population of Clark County increased at an average annual compounded rate of 4.9%, and the Las Vegas MSA registered a comparable growth rate of 5.0%. The state maintained a slightly lower increase of 4.2% annually, but all of these figures were significantly higher than the national rate of 0.9% per year during the same period. According to the Convention and Visitors Authority, between 4,000 and 6,000 people move into Clark County each month. Between 1990 and 1996, the county population rose by 5.3% annually, which was slightly higher than the 5.2% growth rate in the Las Vegas MSA. Nevada as a whole maintained an average annual compounded population increase of 4.3% during this period. The national gain was HVS International, Mineola, New York Market Area Analysis 3 far lower, at approximately 1.0% annually. It is estimated that approximately 65% of Nevada's population growth during the past five years has resulted from migration from other states. Projections indicate that population growth in the region will continue to outpace national averages. Between 1996 and 2000, Clark County is expected to undergo a population increase of 3.1% per year, which is similar to the anticipated MSA gain of 3.1%. The population of the state is projected to increase at an average annual compounded rate of 2.6% through the end of the decade, far outpacing the 0.9% annual growth rate in the nation as a whole. Retail Sales Trends in retail sales reflect changes in population and propensity of area residents to spend money on goods. Like population trends, retail sales tend to reflect the economic health and vitality of the market. Although retail sales in the United States increased at an average annual compounded rate of only 1.6% between 1980 and 1990 (following adjustments for inflation), far higher rates were apparent in Clark County (at 4.4%), the Las Vegas MSA (at 4.5%), and the State of Nevada (at 3.4%). Growth in retail sales surged between 1990 and 1996 for the county, MSA, and the state recording annual average growth of 6.2%, 6.2%, and 5.2%, respectively, continuing to outpace annual average growth in the nation (at 1.8%). Several retail centers and one regional shopping mall opened between 1993 and 1995, adding approximately 2,000,000 square feet of additional retail space to the area. As of December 1996, the inventory of gross leasable retail space in the city was estimated at roundly 22,000,000 square feet, and the overall vacancy rate was roughly 5.4%. There are several major developments that should boost the area's retail sector during the next several years. These include Phase III of the Forum Shops at Caesars Palace (450,000 square feet), a 500,000-square-foot shopping mall at the proposed Venetian Resort on the Strip, and the 450,000-square-foot Desert Passage Shopping Bazaar at the subject property. While several new retail centers are in the planning stages, projections indicate retail sales growth should moderate through 2000. Specifically, average annual compounded growth is anticipated at rates of 3.3% in Clark County, 3.3% in the Las Vegas MSA, and 2.8% in the State of Nevada. A more moderate increase of 1.1% annually is projected for the nation. Personal Income As with population and retail sales, Clark County and the Las Vegas MSA have far surpassed the nation in terms of historical personal income growth. Between 1980 and 1990, the county and the MSA maintained an average annual compounded growth rate of 6.0% and 6.1%, respectively. Nevada trailed somewhat, but still HVS International, Mineola, New York Market Area Analysis 4 maintained a significant growth rate of 5.2% annually after adjustment for inflation. Personal income in the United States increased at a substantially lower rate of 2.6% annually between 1980 and 1990. Similar trends were apparent during the shorter period of 1990 through 1996, when personal income growth rates equated to 6.6% in Clark County, 6.5% in the Las Vegas MSA, 5.6% in Nevada, and 2.1% in the United States. More moderate gains in personal income are anticipated in the subject property's area between 1996 and 2000. The county and Las Vegas MSA are projected to achieve an average annual compounded increase of 4.4% during this period, and the State of Nevada 3.8%. On a nationwide basis, personal income is expected to increase by 2.1% annually through the end of the decade. Employment With the exception of farming and the federal military government, virtually all employment sectors in Clark County exhibited significant growth between 1980 and 1996. The strongest gain was in the relatively small agricultural services sector, which exhibited an average annual compounded increase of 8.8%. Wholesale and retail trade employment rose at rates of 6.9% and 5.1%, respectively, yielding an overall 5.4% annual increase in the trade sector. Substantial gains of 7.7% and 5.9% were apparent in construction and service employment, and there was moderate growth in government, manufacturing, TCPU (transportation, communications, and public utilities), and FIRE (finance, insurance, and real estate) sectors. Total employment in Clark County increased at an average annual compounded rate of 5.5% between 1980 and 1996. Employment increases were more moderate during the short-term historical period. The agricultural services sector maintained the highest average annual compounded increase (at 6.0%) between 1990 and 1996. Slightly lower increases were registered in the manufacturing and services categories (at 5.9% and 5.7%, respectively). In addition, total trade at 5.1% and construction at 4.8% showed strong annual growth. There were also robust gains in the TCPU and FIRE categories. Overall employment growth in the county averaged 5.2% annually between 1990 and 1996. Employment growth in the county is expected to continue, albeit at rates lower than those achieved historically. Overall, employment growth is expected to average 2.9% per year throughout Clark County through 2000. Unemployment Statistics The following table presents historical average unemployment rates for Clark County, versus those of the state of Nevada and the nation, from 1987 to 1996. HVS International, Mineola, New York Market Area Analysis 5 Unemployment Statistics Clark State of United Year County Nevada States --------------------------------------------- 1987 6.5% 6.3% 6.2% 1988 5.4 5.2 5.5 1989 5.0 5.0 5.3 1990 6.0 4.9 5.5 1991 6.6 5.6 5.7 1992 7.6 6.7 7.4 1993 6.0 7.3 6.8 1994 4.7 6.2 6.0 1995 4.4 5.4 5.6 1996 5.0 5.4 5.4 Source: Nevada Department of Employment Security ------------------------------------------------- In the above chart, historical unemployment rates for the Clark County MSA are compared to those of the state and the nation. For the nation as a whole, unemployment rates continued to increase through 1992. A slight decrease was shown in 1993, indicating a sluggish economy and slow recovery from the early 1990s' recession. A modest increase in unemployment was recorded through 1993 in the state of Nevada; however, in 1994 and 1995 unemployment dropped noticeably in the county and state, mirroring a trend in the national unemployment level. According to state officials, the early 1990s' increase in unemployment was a function of job growth not keeping pace with rapid population growth. The continued expansion of the resort industry through the mid 1990s kept unemployment to a minimum. However, in 1996 county unemployment surged to 5.0% from 4.4%. This is related to a lack of resort industry growth in 1996. As several new resorts are currently in the planning stages, unemployment is expected to again decrease in the near future. Government Clark County operates as an independent political entity, and is administered by a County Manager who is, in turn, supervised by a seven-person Board of Commissioners. The various city administrations in the area consist of Mayors, five-person City Councils, City Managers, and support departments. Education The Clark County School District is undergoing rapid growth. Enrollment increased from 86,927 students in 1980 to 176,106 in 1996 and an anticipated 233,000 by 2000. The county is currently ranked as the tenth largest school district in the United States. The area is served by 194 schools with 11 new facilities planned to open in 1997. HVS International, Mineola, New York Market Area Analysis 6 Higher education is available at Clark County Community College, a multi-campus institution serving four counties in southern Nevada. Enrollment is estimated at 25,000. The University of Nevada at Las Vegas has a 335-acre campus located on Maryland Parkway, between Tropicana Avenue and Flamingo Road approximately two miles east of the proposed subject property. This school has a faculty of more than 600, 73% of whom hold doctorates. Current enrollment is roundly 20,000 students participating in more than 137 undergraduate, graduate, and doctoral degree programs. Water Water is supplied to the Las Vegas metropolitan area from two primary sources. Underground wells contribute approximately 25% of the water supply, and the remainder is provided by the Colorado River. Nevada is limited to 309,000 acre-feet of water from the Colorado River. The Las Vegas Valley Water District redistributes the supply to Clark County and the City of Las Vegas. North Las Vegas, Henderson, and Boulder City have their own water distribution systems. Water rates in the area are relatively low compared to those in other western cities. In the early spring of 1991, the Las Vegas Valley Water District stopped issuing will-serve letters for water service to land not yet planned for development; the moratorium lasted six months. Currently, will-serve letters and conditional commitment agreements are granted on a first-come, first-serve basis. If the developer does not build and exercise the water rights within a specified period, the agreement expires. It is too soon to evaluate this plan's impact on construction in the Las Vegas market, but it may have a negative impact on vacant land parcels by requiring developers to build within a specified time period. Officials of the Las Vegas Valley Water District are exploring ways to reduce consumption and increase supply, because additional water resources are necessary to sustain the area's growth. In 1991, the Southern Nevada Water Authority was established to address regional water issues, and it has acquired rights from Southern California Edison and is negotiating with Basic Management, Inc., for a portion of their Colorado River rights. Additional appropriations are being sought for the Virgin River. In 1993, 320,000,000 gallons of water were delivered from Lake Mead to the Las Vegas Valley each day. In 1994, the volume of river water available to Las Vegas was increased by 80,000,000 gallons per day, and the delivery system is scheduled for completion by the end of 1997. The Southern Nevada Water Authority has also established a committee to study water issues related to resources, conservation, and facilities. Given the extensive growth that is underway in the Las Vegas Valley, water availability is expected to become the most critical development constraint. Transportation Ease of transportation has a significant impact on a hotel and casino's level of visitation. As noted earlier, Las Vegas is easily accessible from a variety of HVS International, Mineola, New York Market Area Analysis 7 highways and McCarran International Airport. The following table summarizes the modes of transportation used by visitors arriving in Las Vegas, as compiled by the Las Vegas Convention and Visitors Authority. Modes of Transportation Used by Las Vegas Visitors
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 - ------------------------------------------------------------------------------------------------------------- Airlines 38.5% 40.9% 45.2% 43.7% 42.3% 41.7% 42.4% 42.3% 44.1% 44.3% 44.7% 45.7% Automobiles 49.0% 47.0% 44.7% 45.2% 47.2% 46.8% 46.9% 46.9% 45.1% 46.9% 47.0% 47.0% Bus 12.4% 12.1% 10.0% 11.0% 10.1% 11.2% 10.4% 10.4% 10.5% 8.5% 8.0% 7.0% Train 0.1% 0.1% 0.1% 0.1% 0.4% 0.4% 0.4% 0.4% 0.3% 0.3% 0.3% 0.3% Source: Las Vegas Convention and Visitors Authority - --------------------------------------------------------------------------------------------------------------
As shown, the percentage of visitors arriving in Las Vegas by airplane increased from 38.5% in 1985 to 45.7% in 1996, while the percentage of visitors relying on automobile transportation declined from 49.0% to 47.0%. Bus travel also decreased from 12.4% to 7.0%, and the number of visitors arriving by train rose slightly, from 0.1% in 1985 to 0.3% in 1996. Tourism and Visitation Tourism plays a crucial role in lodging demand. This is especially true in Las Vegas due to its status as the "Gaming Capital of the World." The following chart offers statistics highlighting the growth in tourism in Las Vegas. HVS International, Mineola, New York Market Area Analysis 8 Tourism Statistics - Las Vegas, Nevada
Visitor Volume McCarran Airport Convention Visitation ---------------------------------- --------------------------------------- -------------------------------- Annual Annual Annual % Compound % Compound % Total % Compound % Year Total Visitors Change % Change Total Passengers Change Change Attendance Change Change - ------------------------------------------------------------------------------------------------------------------------ 1983 12,348,270 --- --- 10,312,842 --- --- 943,611 --- --- 1984 12,843,433 4.0% 4.0% 10,141,809 (1.7)% (1.7)% 1,050,916 11.4% 11.4% 1985 14,194,189 10.5 7.2 10,924,047 7.7 2.9 1,072,629 2.1 6.6 1986 15,196,284 7.1 7.2 12,428,748 13.8 6.4 1,519,421 41.7 17.2 1987 16,216,102 6.7 7.0 15,582,302 25.4 10.9 1,677,716 10.4 15.5 1988 17,199,808 6.1 6.9 16,231,199 4.2 9.5 1,702,158 1.5 12.5 1989 18,129,684 5.4 6.6 17,106,948 5.4 8.8 1,508,842 (11.4) 8.1 1990 20,954,420 15.6 7.8 19,089,684 11.6 9.2 1,742,194 15.5 9.2 1991 21,315,116 1.7 7.1 20,171,557 5.7 8.7 1,794,444 3.0 8.4 1992 21,886,865 2.7 6.6 20,912,585 3.7 8.2 1,969,435 9.8 8.5 1993 23,522,593 7.5 6.7 22,492,156 7.6 8.1 2,439,734 23.9 10.0 1994 28,214,362 19.9 7.8 26,850,486 19.4 9.1 2,684,171 10.0 10.0 1995 29,002,122 2.8 7.4 28,027,239 4.4 8.7 2,924,879 9.0 9.9 1996 29,636,361 2.2 7.0 30,459,965 8.7 8.7 3,305,507 13.0 10.1 YTD 5/96 12,229,504 12,686,658 1,617,891 YTD 5/97 12,871,828 5.3% 12,808,522 1.0% 1,701,168 5.1%
Interstate 15 Traffic ------------------------------------- Annual Compound Year Total Vehicles % Change % Change - ---------------------------------------------- 1983 2,465,848 --- --- 1984 2,518,718 2.1% 2.1% 1985 2,596,633 3.1 2.6 1986 2,679,180 3.2 2.8 1987 2,908,674 8.6 4.2 1988 3,003,247 3.3 4.0 1989 3,444,577 14.7 5.7 1990 3,751,181 8.9 6.2 1991 3,757,233 0.2 5.4 1992 3,824,286 1.8 5.0 1993 3,943,857 3.1 4.8 1994 4,201,310 6.5 5.0 1995 4,276,658 1.8 4.7 1996 4,552,183 6.4 4.8 YTD 5/96 1,781,112 YTD 5/97 1,913,381 7.4% Source: Las Vegas Convention and Visitors Authority - -------------------------------------------------------------------------------- HVS International, Mineola, New York Market Area Analysis 9 Las Vegas Tourism Statistics [The following table was depicted as a bar chart in the printed material.] Year Total Visitors Total Passengers Total Attendance Total Vehicles - ---- -------------- ---------------- ---------------- -------------- 1983 12,348,270 10,312,842 943,611 2,465,848 1984 12,843,433 10,141,809 1,050,916 2,518,718 1985 14,194,189 10,924,047 1,072,629 2,596,633 1986 15,196,284 12,428,748 1,519,421 2,679,180 1987 16,216,102 15,582,302 1,677,716 2,908,674 1988 17,199,808 16,231,199 1,702,158 3,003,247 1989 18,129,684 17,106,948 1,508,842 3,444,577 1990 20,954,420 19,089,684 1,742,194 3,751,181 1991 21,315,116 20,171,557 1,794,444 3,757,233 1992 21,886,865 20,912,585 1,969,435 3,824,286 1993 23,522,593 22,492,156 2,439,734 3,943,857 1994 28,214,362 26,850,486 2,684,171 4,201,310 1995 29,002,122 28,027,239 2,924,879 4,276,658 1996 29,636,361 30,459,965 3,305,507 4,552,183 HVS International, Mineola, New York Market Area Analysis 10 As the preceding chart indicates, visitor volume in Las Vegas has been rising for the past decade. While 1990 showed a notable increase in the amount of people visiting Las Vegas, visitor volume growth in 1991 and 1992 slowed dramatically. The 1990 increase is attributable to two new mega-resorts (the Excalibur and Mirage) opening during this year. The subsequent slowing of growth is attributable to the nationwide economic recession, as well as the Persian Gulf War, both of which caused considerable declines in travel throughout the nation. In 1993, visitor volume began to increase sharply once again, with 7.5% growth over the 1992 level. In addition, 1994 statistics show a dramatic increase (of 19.9%) over 1993 levels due to low-cost air travel (brought about by price wars) as well as another round of mega-resort openings in late 1993 and 1994 (Treasure Island, Luxor, MGM Grand). In 1995 and 1996, growth in visitor volume again slowed, but posted positive overall growth rates of 2.8% and 2.2%, respectively. Through May 1997, total visitor counts have increased 5.3% over the same period in 1996, owing to the addition of yet another mega-resort, New York - New York, to Las Vegas. In the future, visitors are expected to flock to Las Vegas in the wake of another round of new mega-resort development. Airport volume statistics are also important indicators of lodging demand. Depending on the type of service provided by a particular airfield, a sizable percentage of arriving passengers may require hotel accommodations. Passenger count trends also reflect local business activity and the overall economic health of the area. As the previous chart indicates, passenger counts at McCarran International Airport, much like visitor volume, grew rapidly in 1990, then receded in 1991 and 1992 due to the Persian Gulf War. While 1991 and 1992 figures grew at a slower pace, 1993 figures grew significantly and 1994 figures show a dramatic 19.4% increase over 1993. Statistics for 1995 showed a slowing of the strong growth witnessed in 1994. However, passenger counts increased markedly in 1996 by 8.7%. According to McCarran International Airport's Planning Division, the increase in 1996 passenger levels is directly attributable to a multi-million dollar expansion of the airport. A tunnel connecting the airport with I-15 (to the south of the airport) opened in late 1995, providing easier access to and from the airport. In addition, a nine-story parking structure with a capacity for 8,000 vehicles opened in 1996. Furthermore, construction is underway for a new terminal building. According to McCarran officials, the airport expects to service approximately 35 million passengers annually by 2000. Convention visitation is also an important statistic in analyzing tourism and lodging demand. The Las Vegas Convention Center is a state-of-the-art facility which underwent a $45-million expansion and renovation in 1992. The convention center features 1.3 million square feet of exhibit and meeting space and is located roughly three miles from the subject property. Convention trade publications consistently HVS International, Mineola, New York Market Area Analysis 11 rank Las Vegas among the nation's top convention and meeting destinations. Delegate attendance, as depicted in the previous chart, increased rapidly in 1990, at a 15.5% rate; growth slowed in 1991 to a 3.0% rate. In 1992, attendance increased at a favorable rate of 9.8%, while 1993 figures indicate phenomenal 23.9% growth. While in 1994 and 1995 growth in convention attendance slowed to 10.0% and 9.0% respectively, these rates were still robust. In addition, convention attendance surged in 1996 by 13.0% and has increased by 5.1% through May 1997 as compared to the same period. In response to the tremendous growth witnessed in convention visitation, there are plans to expand the Las Vegas Convention Center. According to center officials, the plans call for approximately double the existing meeting and exhibit space. No time table has been set for the completion of the project, but it is expected by 2000. In addition, the Las Vegas Convention center is well pre-booked in the next few years. The following chart shows pre-booking statistics for the Las Vegas Convention Center for the next two years. HVS International, Mineola, New York Market Area Analysis 12 Major Conventions, Las Vegas Convention Center, 1998-1999 Expected Dates Convention Attendance - -------------------------------------------------------------------------------- 1998 Jan. 8 - Jan. 11 Consumer Electronics Show 100,000 Jan. 18 - Jan 21 Souvenier Super Show 50,000 Jan. 27 - Feb. 30 Shooting and Hunting Outdoor Convention 35,000 Feb. 17 - Feb. 20 MAGIC - Men's Apparel Guild 70,000 Feb. 22 - Feb. 26 Associated Surplus Dealers 50,000 May 4 - May 8 NETWORLD+ INTEROP 60,000 May 19 - May 21 Intl. Council of Shopping Centers 30,000 Aug. 31 - Sept. 1 MAGIC - Men's Apparel Guild 90,000 Nov. 3 - Nov. 6 Specialty Equipment Marketing Assoc. 60,000 Nov. 16 - Nov. 19 COMDEX 210,000 1999 Jan. 7 - Jan. 10 Consumer Electronics Show 100,000 Jan. 19 - Jan. 22 World of Concrete Exposition 30,000 Mar. 24 - Mar. 28 CONEXPO - CON/AGG 130,000 Aug. 15 - Aug 19 Associated Surplus Dealers 32,000 Nov. 15 - Nov. 19 COMDEX 190,000 Source: Las Vegas Convention and Visitors Authority - -------------------------------------------------------------------------------- As approximately 40% of visitors to Las Vegas arrive by car, the volume of traffic passing through the market can have a direct impact on gaming and lodging demand. As mentioned, access to Las Vegas from its primary feeder market of California is provided via I-15. Traffic counts along this freeway at the Nevada State Line have increased steadily over the past few years. Specifically, traffic counts increased by 3.1% in 1993, 6.5% in 1994, 1.8% in 1995, and 6.4% in 1996. In addition, through May 1997, traffic counts have surged 7.4% as compared to the same period in 1996. Overall, the increase in traffic along I-15 bodes well for the subject's market area. In light of the recent resurgence in visitor volume, McCarran International airport's expansion plans, the planned expansion and strong pre-bookings at the Las Vegas Convention Center, the significant increase in convention attendance over the past few years, and increasing traffic counts, Las Vegas appears poised to continue its success in attracting tourists. Conclusion Economic conditions in the subject market area tend to vary with tourism and visitation to the area. During the 1980s Las Vegas experienced substantial growth in tourism and the economy expanded. The growth slowed in the early 1990s but has resurged late, with the opening of several mega-resorts between 1993 and 1997. In addition, several new mega-resorts are slated to open before 2000. As such, Las Vegas is experiencing continued growth in tourism and additional growth is HVS International, Mineola, New York Market Area Analysis 13 expected. The following tables summarize the economic and demographic trends discussed throughout this section. All figures that reflect dollar amounts have been adjusted for inflation, and thus the growth rates reflect real change. HVS International, Mineola, New York Market Area Analysis 14 Economic and Demographic Data for the Subject Property's Market Area
Avg. Annual Data Type Period Data Point Data Point Comp. Change - ------------------------------------------------------------------------------------------------------------------------- Long-Term Historical Population Clark County 1980-1996 469.2 1,026.0 5.0% Las Vegas, NV-AZ MSA 1980-1996 535.1 1,177.2 5.1 State of Nevada 1980-1996 810.2 1,573.3 4.2 United States 1980-1996 227,225.6 265,225.5 1.0 Short-Term Historical Population Clark County 1990-1996 754.6 1,026.0 5.3 Las Vegas, NV-AZ MSA 1990-1996 867.8 1,177.2 5.2 State of Nevada 1990-1996 1,218.6 1,573.3 4.3 United States 1990-1996 249,403.0 265,225.5 1.0 Projected Population Clark County 1996-2000 1,026.0 1,157.1 3.1 Las Vegas, NV-AZ MSA 1996-2000 1,177.2 1,327.8 3.1 State of Nevada 1996-2000 1,573.3 1,741.6 2.6 United States 1996-2000 265,225.5 274,581.0 0.9 Long-Term Historical Retail Sales Clark County 1980-1996 4,443.3 9,806.1 5.1 Las Vegas, NV-AZ MSA 1980-1996 4,943.0 11,069.0 5.2 State of Nevada 1980-1996 7,811.2 14,813.0 4.1 United States 1980-1996 1,636,425.6 2,143,737.6 1.7 Short-Term Historical Retail Sales Clark County 1990-1996 6,832.5 9,806.1 6.2 Las Vegas, NV-AZ MSA 1990-1996 7,706.2 11,069.0 6.2 State of Nevada 1990-1996 10,936.8 14,813.0 5.2 United States 1990-1996 1,926,189.3 2,143,737.6 1.8 Projected Retail Sales Clark County 1996-2000 9,806.1 11,175.6 3.3 Las Vegas, NV-AZ MSA 1996-2000 11,069.0 12,615.2 3.3 State of Nevada 1996-2000 14,813.0 16,535.0 2.8 United States 1996-2000 2,143,737.6 2,239,888.5 1.1 Long-Term Historical Retail Sales Per Capita Clark County 1980-1996 9,470.0 9,557.6 0.1 Las Vegas, NV-AZ MSA 1980-1996 9,237.2 9,403.1 0.1 State of Nevada 1980-1996 9,640.8 9,415.1 (0.1) United States 1980-1996 7,201.8 8,082.7 0.7 Short-Term Historical Retail Sales Per Capita Clark County 1990-1996 9,054.9 9,557.6 0.9 Las Vegas, NV-AZ MSA 1990-1996 8,880.1 9,403.1 1.0 State of Nevada 1990-1996 8,974.6 9,415.1 0.8 United States 1990-1996 7,723.2 8,082.7 0.8 - --------------------------------------------------------------------------------------------------------------------------
HVS International, Mineola, New York Market Area Analysis 15 Economic and Demographic Data for the Subject Property's Market Area
Avg. Annual Data Type Period Data Point Data Point Comp. Change - ------------------------------------------------------------------------------------------------------------------------- Projected Personal Retail Sales Per Capita Clark County 1996-2000 9,557.6 9,658.3 0.3 Las Vegas, NV-AZ MSA 1996-2000 9,403.1 9,500.8 0.3 State of Nevada 1996-2000 9,415.1 9,494.4 0.2 United States 1996-2000 8,082.7 8,157.5 0.2 Long-Term Historical Eating and Drinking Place Sales Clark County 1980-1996 475.0 1,097.3 5.4 Las Vegas, NV-AZ MSA 1980-1996 519.5 1,210.5 5.4 State of Nevada 1980-1996 784.3 1,549.8 4.3 United States 1980-1996 153,945.2 225,235.6 2.4 Short-Term Historical Eating and Drinking Place Sales Clark County 1990-1996 777.6 1,097.3 5.9 Las Vegas, NV-AZ MSA 1990-1996 854.8 1,210.5 6.0 State of Nevada 1990-1996 1,147.0 1,549.8 5.1 United States 1990-1996 199,371.1 225,235.6 2.1 Projected Eating and Drinking Place Sales Clark County 1996-2000 1,097.3 1,295.6 4.2 Las Vegas, NV-AZ MSA 1996-2000 1,210.5 1,429.6 4.2 State of Nevada 1996-2000 1,549.8 1,798.6 3.8 United States 1996-2000 225,235.6 244,351.7 2.1 Long-Term Historical Eating and Drinking Place Sales Per Capita Clark County 1980-1996 1,012.3 1,069.5 0.3 Las Vegas, NV-AZ MSA 1980-1996 970.7 1,028.3 0.4 State of Nevada 1980-1996 968.0 985.1 0.1 United States 1980-1996 677.5 849.2 1.4 Short-Term Historical Eating and Drinking Place Sales Per Capita Clark County 1990-1996 1,030.5 1,069.5 0.6 Las Vegas, NV-AZ MSA 1990-1996 985.0 1,028.3 0.7 State of Nevada 1990-1996 941.2 985.1 0.8 United States 1990-1996 799.4 849.2 1.0 Projected Eating and Drinking Place Sales Per Capita Clark County 1996-2000 1,069.5 1,119.7 1.2 Las Vegas, NV-AZ MSA 1996-2000 1,028.3 1,076.7 1.2 State of Nevada 1996-2000 985.1 1,032.7 1.2 United States 1996-2000 849.2 889.9 1.2 Long-Term Historical Personal Income Clark County 1980-1996 8,873.4 23,417.1 6.3 Las Vegas, NV-AZ MSA 1980-1996 9,809.9 25,815.0 6.2 State of Nevada 1980-1996 16,003.1 36,775.7 5.3 United States 1980-1996 3,861,548.9 5,687,220.1 2.4 - -------------------------------------------------------------------------------------------------------------------------
HVS International, Mineola, New York Market Area Analysis 16 Economic and Demographic Data for the Subject Property's Market Area
Avg. Annual Data Type Period Data Point Data Point Comp. Change - ------------------------------------------------------------------------------------------------------------------------- Short-Term Historical Personal Income Clark County 1990-1996 15,944.8 23,417.1 6.6 Las Vegas, NV-AZ MSA 1990-1996 17,688.9 25,815.0 6.5 State of Nevada 1990-1996 26,568.5 36,775.7 5.6 United States 1990-1996 5,011,216.3 5,687,220.1 2.1 Projected Personal Income Clark County 1996-2000 23,417.1 27,826.0 4.4 Las Vegas, NV-AZ MSA 1996-2000 25,815.0 30,667.9 4.4 State of Nevada 1996-2000 36,775.7 42,764.1 3.8 United States 1996-2000 5,687,220.1 6,172,122.3 2.1 Long-Term Personal Income per Capita Clark County 1980-1996 18,912.0 22,824.0 1.2 Las Vegas, NV-AZ MSA 1980-1996 18,332.0 21,930.0 1.1 State of Nevada 1980-1996 19,751.0 23,375.0 1.1 United States 1980-1996 16,994.0 21,443.0 1.5 Short-Term Historical Personal Income per Capita Clark County 1990-1996 21,131.0 22,824.0 1.3 Las Vegas, NV-AZ MSA 1990-1996 20,383.0 21,930.0 1.2 State of Nevada 1990-1996 21,802.0 23,375.0 1.2 United States 1990-1996 20,093.0 21,443.0 1.1 Projected Personal Income per Capita Clark County 1996-2000 22,824.0 24,048.0 1.3 Las Vegas, NV-AZ MSA 1996-2000 21,930.0 23,097.0 1.3 State of Nevada 1996-2000 23,375.0 24,555.0 1.2 United States 1996-2000 21,443.0 22,478.0 1.2 Long-Term Historical Employment - Clark County Farm 1980-1996 0.4 0.4 (1.0) Agriculture Services, Other 1980-1996 1.3 5.1 8.8 Mining 1980-1996 0.6 0.9 3.0 Construction 1980-1996 16.3 53.0 7.7 Manufacturing 1980-1996 7.3 16.5 5.3 Trans., Comm. & Public Utils 1980-1996 13.7 28.4 4.6 Total Trade 1980-1996 50.8 117.0 5.4 Wholesale Trade 1980-1996 6.5 18.9 6.9 Retail Trade 1980-1996 44.2 98.0 5.1 Finance, Insurance, & Real Estate 1980-1996 19.9 43.1 4.9 Services 1980-1996 116.9 292.4 5.9 Total Government 1980-1996 37.7 63.1 3.3 Federal Civilian Govt 1980-1996 4.9 8.0 3.1 Federal Military Govt 1980-1996 10.3 9.9 (0.3) State & Local Govt 1980-1996 22.4 45.3 4.5 TOTAL 1980-1996 264.8 619.9 5.5
HVS International, Mineola, New York Market Area Analysis 17 Economic and Demographic Data for the Subject Property's Market Area
Avg. Annual Data Type Period Data Point Data Point Comp. Change - ------------------------------------------------------------------------------------------------------------------------- Short-Term Historical Employment - Clark County Farm 1990-1996 0.5 0.4 (3.9) Agriculture Services, Other 1990-1996 3.6 5.1 6.0 Mining 1990-1996 0.7 0.9 4.0 Construction 1990-1996 40.1 53.0 4.8 Manufacturing 1990-1996 11.7 16.5 5.9 Trans., Comm. & Public Utils 1990-1996 20.9 28.4 5.3 Total Trade 1990-1996 86.7 117.0 5.1 Wholesale Trade 1990-1996 14.3 18.9 4.8 Retail Trade 1990-1996 72.4 98.0 5.2 Finance, Insurance, & Real Estate 1990-1996 32.3 43.1 5.0 Services 1990-1996 209.2 292.4 5.7 Total Government 1990-1996 50.9 63.1 3.7 Federal Civilian Govt. 1990-1996 7.0 8.0 2.2 Federal Military Govt. 1990-1996 11.0 9.9 (1.8) State & Local Govt. 1990-1996 32.9 45.3 5.5 TOTAL 1990-1996 456.4 619.9 5.2 Projected Employment - Clark County Farm 1996-2000 0.4 0.4 (0.1) Agriculture Services, Other 1996-2000 5.1 5.7 3.0 Mining 1996-2000 0.9 1.1 3.0 Construction 1996-2000 53.0 60.2 3.2 Manufacturing 1996-2000 16.5 17.8 1.8 Trans., Comm. & Public Utils 1996-2000 28.4 30.6 2.0 Total Trade 1996-2000 117.0 131.5 3.0 Wholesale Trade 1996-2000 18.9 21.2 2.9 Retail Trade 1996-2000 98.0 110.2 3.0 Finance, Insurance, & Real Estate 1996-2000 43.1 49.7 3.6 Services 1996-2000 292.4 329.5 3.0 Total Government 1996-2000 63.1 67.8 1.8 Federal Civilian Govt 1996-2000 8.0 8.6 1.7 Federal Military Govt 1996-2000 9.9 9.9 0.1 State & Local Govt 1996-2000 45.3 49.4 2.2 TOTAL 1996-2000 619.9 694.3 2.9
HVS International, Mineola, New York Certification 1 16. Certification We the undersigned appraisers, hereby certify: A. that the statements and opinions presented in this restricted appraisal report subject to the limiting conditions set forth, are correct to the best of our knowledge and belief; B. that Mark D. Capasso and Anne R. Lloyd-Jones CRE, personally inspected the property described in this report and actively participated in the analysis; C. that the appraisers have extensive experience in the valuation of casino hotels and believe that they are competent to undertake this appraisal; D. that we have no current or contemplated interests in the real estate that is the subject of this restricted appraisal report; E. that we have no personal interest or bias with respect to the subject matter of this letter or the parties involved; F. that this restricted appraisal report sets forth all of the limiting conditions (imposed by the terms of this assignment) affecting the analyses, opinions, and conclusions presented herein; G. that the fee paid for the preparation of this study is not contingent upon the amount of the value estimate; H. that this restricted appraisal report has been prepared in accordance with and is subject to the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute; I. that the use of this letter is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives; J. that this letter has been prepared in accordance with the Uniform Standards of Professional Appraisal Practice (as adopted by the Appraisal Foundation); K. that no one other than the undersigned prepared the analyses, conclusions, and opinions concerning real estate that are set forth in this appraisal report; HVS International, Mineola, New York Certification 2 L. that as of the date of this restricted appraisal report, Stephen Rushmore, CRE, MAI, CHA has completed the requirements of the continuing education program of the Appraisal Institute; M. that this appraisal is not based on a requested minimum value, a specific value, or the approval of a loan. Mark D. Capasso, as an employee of Hotel Consulting Services, Inc. Anne R. Lloyd Jones, CRE, as an employee of Hotel Consulting Services, Inc. /s/ Stephen Rushmore Stephen Rushmore, CRE, MAI, CHA, as an employee of Hotel Consulting Services, Inc. November 25, 1997 Mr. Jim Riley Bank of Nova Scotia, New York Agency One Liberty Plaza New York, New York 10005 (212) 225-5098 Phone (212) 225-5172 Fax Re: Excess Land for the Proposed Aladdin Hotel and Casino Mixed-Use Development Las Vegas, Nevada HVS Ref.: #9710413 Dear Mr. Riley: Pursuant to your request, we submit this restricted appraisal report pertaining to the above-captioned property. This letter, which complies with the requirements set forth in the Uniform Standards of Professional Appraisal Practice for a restricted appraisal report, is a brief recapitulation of the appraisers' data, analyses, and conclusions and is intended to be read in tandem with the self-contained appraisal of the Proposed Aladdin Hotel and Casino dated October 7, 1997 that we prepared for you. This letter does not include full discussion of the data, reasoning, and analyses that were utilized in the appraisal process to develop the appraisers' opinion of value. Supporting documentation is retained in the appraisers' file and in the aforementioned self-contained appraisal of the Proposed Aladdin Hotel and Casino dated October 7, 1997. The valuation is expressly made subject to all normal assumptions and limiting conditions, a copy of which is provided along with the certification. Subject of the Appraisal The subject of this restricted appraisal report are the fee simple interests in a +/- 4.75-acre parcel of land and a +/- 12.42-acre parcel of land. These parcels are a part of the +/- 34.31-acre parcel of land currently improved with the Aladdin Hotel and Casino and Performing Arts Center. The subjects' civic address is 3667 Las Vegas Boulevard, Las Vegas, Nevada. The +/- 4.75-acre parcel is to be improved with a roughly 1,000-room hotel and casino with roughly 50,000 square feet of casino space, while the +/- 12.42-acre parcel will be improved with a +/- 450,000 square foot shopping center and parking garage (the Desert Passage). These two structures will be part of a larger mixed-use development consisting of a 2,600-room hotel and a 100,000-square-foot casino (the Aladdin Hotel and Casino), and the aforementioned smaller hotel casino and shopping center. Purpose of the Assignment 1 The purpose of the assignment is to estimate the market value of the +/- 4.75 acres of land allocated to the 1,000-room hotel and casino and the market value of the +/- 12.42 acres of land allocated to the Desert Passage Shopping Center. Market value is defined by the Office of the Comptroller of the Currency (OCC), 12CFR, Part 34 as follows: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their own best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Intended Use of the Report The valuation is being prepared for Bank of Nova Scotia, New York Agency for financing purposes. None of the information presented should be disseminated to the public or third parties without the express consent of HVS International. Date of Inspection The subject property was inspected on August 7, 1997 by Mark D. Capasso and Anne R. Lloyd Jones, CRE. Interest Valued The property rights appraised are the fee simple ownership of the two parcels of land. Effective Dates of Value The effective date of appraisal for both the +/- 4.75-acre site allocated to the 1,000 room hotel and casino and the +/- 12.45 acres of land allocated to the Dessert Passage Shopping Center is August 7, 1997. Scope of the Appraisal All information was collected and analyzed by staff of HVS International. Descriptive data and site plans for the subject property were supplied by the developers, Aladdin Holdings, LLC. The site has been inspected and the 2 developers and future management have been interviewed. We have gathered economic data and information on comparable land sales. We have spoken with buyers, sellers, brokers, developers and public officials. We have analyzed this information and have considered the sales comparison approach to value. In the development of the opinion of value, the appraisers performed a complete appraisal process as defined by the Uniform Standards of Professional Practice. This means that no departures from Standard 1 were invoked. This restricted appraisal report presents only the appraisers' conclusions. Supporting documentation is retained in the appraisers' file and is presented in our self-contained appraisal dated October 7, 1997. In addition, included as an addendum to this letter is a land sales adjustment grid detailing the various adjustments made to the comparable land sales in order to arrive at a land value conclusion. Highest and Best Use Highest and best use is defined as "the reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability."(1) Using these criteria, it is our opinion that the highest and best use of the subject land is to be improved with a hotel and casino and a shopping mall. Summary of Analysis and Valuation - ---------- (1) Appraisal Institute. The Dictionary of Real Estate Appraisal. 3rd ed. Chicago: Author, 1993, p. 171. 3 As mentioned in our self-contained appraisal of the proposed Aladdin Hotel and Casino, the market value of the entire mixed-use site was estimated to be $180,000,000. In addition, the market value of the roundly 16 acres allocated to the Aladdin Hotel and Casino was estimated to be $135,000,000. Based on the available data, our analysis, and experience in the hotel and casino industries, it is our opinion that the market value of the +/- 4.75 acres of land allocated to the 1,000-room hotel and casino portion of the development, as vacant and including the development rights and entitlements, as of August 7, 1997, is: $15,100,000 FIFTEEN MILLION ONE HUNDRED THOUSAND DOLLARS In addition, by subtracting the $135,000,000 value of the Aladdin Hotel and Casino portion of the site and the $15,100,000 value of the 1,000-room hotel and casino portion of the site from the $180,000,000 value of the entire site, we are of the opinion that the +/- 12.42 acres of land allocated to the Desert Passage Shopping Center portion of the development, as vacant and including the development rights and entitlements, as of August 7, 1997, is: $29,900,000 TWENTY-NINE MILLION NINE HUNDRED THOUSAND DOLLARS Exposure and Marketing Periods Based upon current market conditions, we believe the properties could transact at this price with exposure and marketing periods of up to six months. 4 We hereby certify that we have no undisclosed interest in the property, and our employment and compensation are not contingent upon our valuation. This restricted appraisal report is for internal use only and, as previously noted, does not include full discussion of the data, reasoning, and analyses that were utilized in the appraisal process. The valuation is expressly made subject to all normal and specific assumptions and limiting conditions, a copy of which is included in this restricted appraisal report. Very truly yours, HVS International A Division of Hotel Consulting Services, Inc. Mark D. Capasso Senior Associate Anne R. Lloyd-Jones, CRE Senior Vice President Stephen Rushmore, CRE, MAI, CHA President 5 Statement of Assumptions and Limiting Conditions This restricted appraisal report complies with the requirements set forth under Standards Rule 2-2(c) of the Uniform Standards of Professional Appraisal Practice for a restricted appraisal report. As such, it does not include discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraisers' opinion of value. Supporting documentation concerning the data, reasoning, and analyses is retained in the appraisers' file. The information contained in this letter is specific to the need of the client and for the intended use stated in this letter. The appraisers are not responsible for unauthorized use of this report. This restricted appraisal report is to be used in whole and not in part. No responsibility is assumed for matters of a legal nature, nor do we render any opinion as to title, which is assumed to be marketable and free of any deed restrictions and easements. The property is valued as though free and clear unless otherwise stated. There are no hidden or unapparent conditions of the property, sub-soil or structures, such as underground storage tanks, that would render it more or less valuable. No responsibility is assumed for these conditions or any engineering that may be required to discover them. We have not considered the existence of potentially hazardous materials used in the construction or maintenance of the building, such as asbestos, urea formaldehyde foam insulation, or PCBs, nor have we considered the presence of any form of toxic waste. Furthermore, we have also not considered polychlorinated biphengyls, pesticides, and lead-based paints. The appraisers are not qualified to detect any hazardous substances and urge the client to retain an expert in this field if desired. We have made no survey of the property, and assume no responsibility in connection with such matters. Any sketches, photographs, maps, and other exhibits are included only to assist the reader in visualizing the property. It is assumed that the use of the land and improvements is within the boundaries of the property described, and that there is no encroachment or trespass unless noted. All information, financial operating statements, estimates, and opinions obtained from parties not employed by HVS International are assumed to be true and correct. We can assume no liability resulting from misinformation. Unless noted, we assume that there are no encroachments, zoning violations, or building violations encumbering the subject property. The property is assumed to be in full compliance with all applicable federal, state, local, and private codes, laws, consents, licenses, and regulations (including a liquor license where appropriate), and that all licenses, permits, certificates, franchises, and so forth can be freely renewed or transferred to a purchaser. All mortgages, liens, encumbrances, leases, and servitude's have been disregarded unless specified otherwise. No portions of this restricted appraisal report may be reproduced in any form without our permission, and the report cannot be disseminated to the public through advertising, public relations, news, sales, or other media. We are not required to give testimony or attendance in court by reason of this analysis without previous arrangements, and only when our standard per-diem fees and travel costs are paid prior to the appearance. 6 If the reader is making a fiduciary or individual investment decision and has any questions concerning the material presented in this restricted appraisal report, it is recommended that the reader contact us. We take no responsibility for any events or circumstances that take place subsequent to either the date of value or the date of our field inspection, whichever occurs first. The quality of a casino hotel facility's on-site management has a direct effect on a property's economic viability and value. The financial forecasts presented in this analysis assume responsible ownership and competent management. Any variance from this assumption may have a significant impact on the projected operating results and value estimate. The value estimate developed for this restricted appraisal report is based on an evaluation of the overall economy, and neither takes into account, nor makes provision for, the effect of any sharp rise or decline in local or national economic conditions. To the extent that wages and other operating expenses may advance during the economic life of the property, we expect that the prices of rooms, food, beverages, and services will be adjusted to at least offset these advances. We do not warrant that the estimates will be attained, but they have been prepared on the basis of information obtained during the course of this study and are intended to reflect the expectations of typical investors. This analysis assumes continuation of all Internal Revenue Service tax code provisions as stated or interpreted on either the date of value or the date of our field inspection, whichever occurs first. Many of the figures developed for this restricted appraisal report were generated using sophisticated computer models that make calculations based on numbers carried out to three or more decimal places. In the interest of simplicity, most numbers have been rounded to the nearest tenth of a percent. Thus, these figures may be subject to small rounding errors. It is agreed that our liability to the client is limited to the amount of the fee paid as liquidated damages. Our responsibility is limited to the client, and use of this restricted appraisal report by third parties shall be solely at the risk of the client and/or third parties. Although this analysis employs various mathematical calculations to provide value indications, the final estimate is subjective and may be influenced by our experience and other factors not specifically set forth is this letter. Any distribution of the total value between the land and improvements or between partial ownership interests applies only under the stated use. Moreover, separate allocations between components are not valid if this restricted appraisal report is used in conjunction with any other analysis. The Americans with Disabilities Act (ADA) became effective on January 26, 1992. We have conducted no specific compliance survey to determine whether the subject property is in conformity with the various detailed requirements of the ADA. It is possible that the property does not comply with the requirements of the act, and this could have an unfavorable effect on the property value. Because we have no direct evidence regarding this issue, our estimate of value does not consider possible noncompliance with the ADA. This study was prepared by HVS International, a division of Hotel Consulting Services, Inc. All opinions, recommendations and conclusions expressed during this assignment have been rendered by the staff of Hotel Consulting Services, Inc. acting solely as employees and not as individuals. 7 CERTIFICATION We the undersigned appraisers, hereby certify: that the statements and opinions presented in this restricted appraisal report subject to the limiting conditions set forth, are correct to the best of our knowledge and belief; that Mark D. Capasso and Anne R. Lloyd-Jones CRE, personally inspected the property described in this report and actively participated in the analysis; that the appraisers have extensive experience in the valuation of casino hotels and believe that they are competent to undertake this appraisal; that we have no current or contemplated interests in the real estate that is the subject of this restricted appraisal report; that we have no personal interest or bias with respect to the subject matter of this letter or the parties involved; that this restricted appraisal report sets forth all of the limiting conditions (imposed by the terms of this assignment) affecting the analyses, opinions, and conclusions presented herein; that the fee paid for the preparation of this study is not contingent upon the amount of the value estimate; that this restricted appraisal report has been prepared in accordance with and is subject to the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute; that the use of this letter is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives; that this letter has been prepared in accordance with the Uniform Standards of Professional Appraisal Practice (as adopted by the Appraisal Foundation); that no one other than the undersigned prepared the analyses, conclusions, and opinions concerning real estate that are set forth in this appraisal report; that as of the date of this restricted appraisal report, Stephen Rushmore, CRE, MAI, CHA has completed the requirements of the continuing education program of the Appraisal Institute; that this appraisal is not based on a requested minimum value, a specific value, or the approval of a loan. /s/ Mark D. Capasso ----------------------------------------- Mark D. Capasso, as an employee of Hotel Consulting Services, Inc. /s/ Anne R. Lloyd ----------------------------------------- Anne R. Lloyd Jones, CRE, as an employee of Hotel Consulting Services, Inc. 8 ----------------------------------------- Stephen Rushmore, CRE, MAI, CHA, as an employee of Hotel Consulting Services, Inc. Land Sales Adjustment Grid
Subject Land Sale #1 Land Sale #2 Land Sale #3 Land Sale #4 Land Sale #5 Land Sale #6 - ---------------------------------------------------------------------------------------------------------------------------------- Sale Price N/A $13,500,000 $4,750,000 $73,000,000 $8,000,000 $3,700,000 $31,500,000 Size (Sq. Ft.) 206,910 89,734 188,719 3,212,114 90,169 109,366 767,482 Price per Sq. Ft. N/A $150.45 $25.17 $22.73 $88.72 $33.83 $41.04 Date of Sale 08/07/97 03/01/97 01/16/96 03/03/95 02/17/95 03/07/94 12/15/92 - ---------------------------------------------------------------------------------------------------------------------------------- Market Conditions (Sale 6) Adjustment 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% Adjusted Price $150.45 $25.17 $22.73 $88.72 $33.83 $82.09 - ---------------------------------------------------------------------------------------------------------------------------------- Market Conditions Months 5 19 30 30 42 57 Adjustment* 12.5% 47.5% 75.0% 75.0% 105.0% 142.5% Adjusted Price $169.25 $37.13 $39.77 $155.26 $69.35 $199.06 Cumulative Adjustment for Site Characteristics - ---------------------------------------------------------------------------------------------------------------------------------- Location superior inferior inferior superior inferior superior Adjustment -50.0% 30.0% 20.0% -50.0% 30.0% -50.0% Functional Utility inferior inferior similar inferior inferior superior Adjustment 30.0% 50.0% 0.0% 30.0% 20.0% -60.0% Size smaller similar larger smaller smaller larger Adjustment -35.0% 0.0% 60.0% -35.0% -35.0% 50.0% ----------- ---------- ----------- ---------- ---------- ----------- Total Cumulative Adjustment -55.0% 80.0% 80.0% -55.0% 15.0% -60.0% Net Adjusted Price $76.16 $66.83 $71.59 $69.87 $79.76 $79.62 =========== ========== =========== ========== ========== ===========
* Monthly adjustment factor of 2.50% ** Includes topography, configuration, offsite availability, and capacity 9 October 29, 1997 Mr. Jim Riley The Bank of Nova Scotia, New York Agency One Liberty Plaza New York, New York 10005 (212) 225-5098 Re: Proposed Aladdin Hotel and Casino Las Vegas, Nevada HVS Ref.: #9710413 Dear Mr. Riley: Enclosed please find ten final copies of the self-contained appraisal report pertaining to the above-captioned property. It has been a pleasure performing this assignment for you, and we look forward to working with you in the future. Very truly yours, HVS International Mark D. Capasso Senior Associate MDC/nkw November 3, 1997 Mr. Jim Riley The Bank of Nova Scotia, New York Agency One Liberty Plaza, 26th Floor New York, New York 10006 (212) 225-5098 Re: Proposed Aladdin Hotel and Casino Las Vegas, Nevada HVS Ref.: #9710413 Dear Mr. Riley: Enclosed please find one unbound final copy of the self-contained appraisal report pertaining to the above-captioned property. Federal Express is currently tracking our shipment of ten final copies. We regret the inconvenience this may have caused. Very truly yours, HVS International Mark D. Capasso Senior Associate MDC/nkw November 12, 1997 Mr. Jim Riley The Bank of Nova Scotia, New York Agency One Liberty Plaza, 26th Floor New York, New York 10006 (212) 225-5098 Re: Proposed Aladdin Hotel and Casino Las Vegas, Nevada HVS Ref.: #9710413 Dear Mr. Riley: Enclosed please find ten final copies of the self-contained appraisal report pertaining to the above-captioned property. It has been a pleasure performing this assignment for you, and we look forward to working with you in the future. Very truly yours, HVS International Mark D. Capasso Senior Associate MDC/nkw Land Sales Adjustment Grid
Subject Land Sale #1 Land Sale #2 Land Sale #3 Land Sale #4 Land Sale #5 Land Sale #6 - ---------------------------------------------------------------------------------------------------------------------------------- Sale Price N/A $13,500,000 $4,750,000 $73,000,000 $8,000,000 $3,700,000 $31,500,000 Size (Sq. Ft.) 207,346 89,734 188,719 3,212,114 90,169 109,366 767,482 Price per Sq. Ft. N/A $150.45 $25.17 $22.73 $88.72 $33.83 $41.04 Date of Sale 08/07/97 03/01/97 01/16/96 03/03/95 02/17/95 03/07/94 12/15/92 - ---------------------------------------------------------------------------------------------------------------------------------- Market Conditions (Sale 6) Adjustment 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% Adjusted Price $150.45 $25.17 $22.73 $88.72 $33.83 $82.09 - ---------------------------------------------------------------------------------------------------------------------------------- Market Conditions Months 5 19 30 30 42 57 Adjustment* 12.5% 47.5% 75.0% 75.0% 105.0% 142.5% Adjusted Price $169.25 $37.13 $39.77 $155.26 $69.35 $199.06 Cumulative Adjustment for Site Characteristics - ---------------------------------------------------------------------------------------------------------------------------------- Location superior inferior inferior superior inferior superior Adjustment -50.0% 30.0% 20.0% -50.0% 30.0% -50.0% Functional Utility inferior inferior similar inferior inferior superior Adjustment 30.0% 50.0% 0.0% 30.0% 20.0% -60.0% Size smaller similar larger smaller smaller larger Adjustment -35.0% 0.0% 60.0% -35.0% -35.0% 50.0% ----------- ---------- ----------- ---------- ---------- ----------- Total Cumulative Adjustment -55.0% 80.0% 80.0% -55.0% 15.0% -60.0% Net Adjusted Price $76.16 $66.83 $71.59 $69.87 $79.76 $79.62 =========== ========== =========== ========== ========== ===========
* Monthly adjustment factor of 2.50% ** Includes topography, configuration, offsite availability, and capacity HVS International, Mineola, New York Table of Contents ================================================================================ Table of Contents 1. Summary of Salient Data and Conclusions 1 2. Nature of the Assignment 3 3. Property Description 9 4. Market Area Analysis 28 5. U.S. Gaming Overview 46 6. Gaming Supply and Demand Analysis 58 7. Forecast of Gaming Revenue 74 8. Lodging Supply and Demand Analysis 87 9. Highest and Best Use 105 10. Approaches to Value 107 HVS International, Mineola, New York Table of Contents 11. Income Capitalization Approach 110 12. Cost Approach 147 13. Sales Comparison Approach 167 14. Reconciliation of Value Indications 173 15. Statement of Assumptions and Limiting Conditions 176 16. Certification 180 Addenda Engagement Letter Synopsis of LCI Agreement Photographs of the Subject Property Photographs of the Competitive Properties Qualifications Mark D. Capasso Anne R. Lloyd-Jones, CRE Stephen Rushmore, CRE, MAI, CHA HVS International, Mineola, New York Property Description 1 - -------------------------------------------------------------------------------- 3. Property Description The suitability of the site for the operation of a casino hotel is an important consideration affecting the property's economic viability. Factors such as size, topography, access, visibility, and the availability of utilities directly impact the desirability of a particular site. In addition, the quality of a facility's physical improvements directly influences marketability, visitation, gaming volume, occupancy, average rate, and gaming win. The design and functionality of the structure can also affect operating efficiency and overall profitability. This section investigates the land components of the subject property as well as the proposed physical improvements and personal property to determine how they contribute to the economic viability of the overall development. Description of the Site The subject site comprises two parcels, both owned in fee simple interest. According to the Clark County Assessor's Office, the two parcels total approximately +/- 34.83 acres, or +/- 1,517,195 square feet. However, according to officials with the Clark County Department of Planning, approximately 0.52 acres, or 22,651 square feet, will be deducted from this area for the widening of Harmon Street. As such, the total site area for purposes of this appraisal equates to +/- 34.31 acres, or +/- 1,494,544 square feet. As mentioned, the proposed Aladdin Hotel and Casino will use approximately 18.16 acres of the western portion of the site. The hotel and casino parcel will have frontage along Harmon Avenue and Las Vegas Boulevard. The remainder of the site, situated to the east of the hotel and casino parcel, will have frontage along Harmon Avenue and Audrie Street. This area will be developed with other components of the mixed-use development, including a parking garage, a second hotel with 1,000 rooms, a central utility plant, and a +/- 450,000-square-foot shopping bazaar called the Desert Passage. As mentioned, we have been asked to value only the hotel and casino portion of the mixed-use development. HVS International, Mineola, New York Property Description 2 - -------------------------------------------------------------------------------- INSERT ASSESSOR'S PARCEL MAP HVS International, Mineola, New York Property Description 3 - -------------------------------------------------------------------------------- The site's topography is flat; the shape of the site is slightly irregular, owing to an approximately 2.93-acre notch cut out of the southwestern corner of the site. This land is not owned by the subject site's owners and is currently improved with a small structure advertising the Rio Hotel and Casino. The reader is directed to the assessor's parcel map located on the preceding following page for an illustration of the site's irregular shape. Despite its irregular shape, the +/- 34.31-acre site offers ample space for a casino hotel development. An additional asset is the site's frontage along Las Vegas Boulevard, also known as "The Strip." According to the assessor's parcel map, the site's western boundary enjoys approximately 800 linear feet of frontage along Las Vegas Boulevard. The site is located at the northwestern corner of Las Vegas Boulevard and Harmon Avenue. The subject site's civic address is 3667 Las Vegas Boulevard, in the city of Las Vegas, county of Clark, and state of Nevada. The following map delineates the subject site's boundaries. Accessibility Access to Las Vegas is chiefly provided via Interstate 15 (I-15) and two U.S. Highways, U.S. Highway 95 (U.S. 95), and U.S. Highway 93 (U.S. 93). I-15 is a north-south route that originates in San Diego, California, and continues through Riverside to Las Vegas before proceeding north to the Canadian border. I-15 serves as the major connector between Las Vegas and its largest feeder market, Los Angeles; U.S. 95, also a north-south route, connects Las Vegas with a variety of small towns located in eastern California and northern Nevada. The major highway connecting Las Vegas with Arizona is U.S. 93, which connects Las Vegas to the Phoenix metropolitan area. Approximately 25 miles southeast of Las Vegas, proximate to the Arizona-Nevada border, U.S. 93 and 95 converge in Boulder City. I-15 bisects Las Vegas into eastern and western sections, serving as the major north-south thoroughfare. The subject property's main entrance will be accessed via Harmon Avenue, a major east-west arterial traversing the eastern section of Las Vegas. Currently, Harmon Avenue terminates at Las Vegas Boulevard; however, construction is underway to extend Harmon Avenue to I-15 and points west via a highway overpass bridge. In addition, there are plans to add a highway exit at Harmon Avenue and I-15. This exit would greatly alleviate traffic concerns along Flamingo Road and Tropicana Avenue, currently the two most traveled east-west thoroughfares in Las Vegas. In addition, the exit would provide motorists direct access from I-15 to the proposed subject property. As mentioned, Harmon Avenue will be widened from four lanes to six over an approximate two-block stretch at the subject site's southern border. While this street widening is expected to take away a portion of the subject site's developable area, we believe the widening of Harmon Avenue will provide a long-term benefit to the proposed subject property by alleviating traffic congestion. HVS International, Mineola, New York Property Description 4 - -------------------------------------------------------------------------------- The subject site's main entrance will be along Harmon Avenue and will consist of a large circular driveway. The driveway will provide direct access to the hotel and casino's lobby area, as well as to all portions of the mixed-use development. It is planned that Harmon Avenue will be improved with traffic lights and a dedicated left turn lane at the subject property's entrance, providing guests excellent access. In addition to the site's primary entrance along Harmon Avenue, several curb cuts will be located along Las Vegas Boulevard, providing secondary points of ingress and egress. These secondary access points will be unique in that pedestrian traffic will be diverted via arched walkways over the curb cuts, further adding to the site's access. No other casino located along the strip can boast this unique feature. The subject's access will also be benefited by a fixed rail system that is expected to stretch from the McCarran International Airport to the Strip. According to the Regional Transportation Commission, a terminal for the fixed rail system has been planned for the intersection of Audrie Road and Harmon Avenue, at the southern border of the subject site. Visibility Given the Proposed Aladdin Hotel and Casino's planned 35-story main tower and ample signage, the site will be highly visible from Las Vegas Boulevard and the surrounding area. In addition, exterior lighting of the main tower and two secondary 17-story towers will enhance the site's visibility along the Las Vegas skyline. Utilities The subject property will be served by all necessary utilities, supplied by the following entities. Natural Gas: Southwest Gas Sewage: Clark County Sanitation Telephone: U.S. West Communications Electricity and hot and chilled water will be provided to the subject property and other components of the mixed-use facility by the central utility plant, discussed previously in this narrative. Soil and Subsoil Conditions Based on our visual inspection, the bearing qualities of the level soils area appear adequate. No extraordinary conditions were apparent. However, the appraisers are not qualified to evaluate soils conditions other than by a visual inspection of surface conditions. HVS International, Mineola, New York Property Description 5 - -------------------------------------------------------------------------------- Nuisances and Hazards With the exception of some asbestos in the subject's existing improvements, the appraisers have not been informed of any other site-specific nuisances or hazards. According to the property's developers, the asbestos in the existing improvements will be removed prior to demolition. Flood Zone According to the Federal Emergency Management Agency (FEMA), panel #3200 3 2556 D, effective August 16, 1995, the subject site is located within flood zone A. Flood zone A is defined as "areas inside the 100-year flood plain as determined in a Flood Insurance Study." Legal Description A copy of the subject property's legal description, as provided by Aladdin Holdings LLC, is contained in the addenda to this report. Conclusion The subject site's size, shape, topography, access, visibility, potential hazards, and availability of utilities have been examined and evaluated, with the following advantages and a disadvantage noted. Advantages: o Entitlement of the site for mixed-use development; o Frontage along Las Vegas Boulevard, "The Strip"; o Frontage along Harmon Avenue; o Excellent accessibility from I-15 and Las Vegas Boulevard, Las Vegas's primary north-south thoroughfares; o Excellent accessibility from Harmon Avenue and Audrie Road, primary east-west thoroughfares; o Excellent visibility from Las Vegas Boulevard and the surrounding area; o Unique access features; and o Proximity to other casino hotels and tourist attractions. Disadvantage: HVS International, Mineola, New York Property Description 6 - -------------------------------------------------------------------------------- o Irregular shape of the site. The physical advantages of the site are considered to significantly outweigh the drawback. We conclude that the subject site is physically appropriate for improvement with a hotel and casino facility. Zoning According to the Clark County planning department, the subject property is zoned: H1 - Limited Resort and Apartment District In Clark County, H-1 zoning is devoted to the creation of a gaming enterprise district. To that end, commercial development specific to the hospitality and lodging markets is permitted. This zoning district also permits the development of multiple dwellings, dwelling groups, apartment houses, and time-share units. In the H-1 district, one parking space is required per guestroom, plus additional spaces in proportion to public and meeting space. According to the subject's developers, parking for roughly 6,000 cars will be available within the mixed-use development. According to discussions with Clark County Planning officials this will meet zoning requirements. In addition, the proposed subject property is expected to conform to the city's height and setback requirements. We assume that all necessary permits and approvals are in place, and that the proposed subject property will be in conformance with the local zoning ordinances, building codes, and all other applicable regulations. We further assume that all applicable licenses, including gaming and liquor, will be obtainable by the owners of the site. HVS International, Mineola, New York Property Description 7 - -------------------------------------------------------------------------------- Description of the The size, layout, and quality of the facility are Improvements integral to its market orientation, penetration, and win-per-unit levels. The quality and design of the hotel and casino and support facilities have a direct influence on the ability to attract and retain gaming customers. In addition, a property's design can have a significant effect on operating efficiencies and overall profitability. The proposed mixed-use development for the subject site is expected to consist of a 2,600-room hotel and a 110,000-square-foot casino (the Aladdin Hotel and Casino). The hotel and casino are also expected to include approximately 71,500 square feet of meeting space, a 1,400-seat show room, a 7,000-seat performing arts center, nine separate food and beverage outlets, and an expansive array of back-of-the-house facilities typical of a large hotel and casino. The remaining components of the mixed-use development will include a 450,000-square-foot shopping bazaar, a parking garage, and a central utility plant. As mentioned, a reciprocal easement agreement will provide for the free flow of pedestrian traffic between all components of the project. For purposes of this analysis, we have been asked to value only the 2,600-room casino hotel portion of the mixed-use development. Proposed Property Overview The Proposed Aladdin Hotel and Casino will contain one 35-story guestroom towers and two 17-story guestroom towers. In addition, the property will contain a vast amount of public and casino space located on three floors, one of which will be located below street grade. Access to the subject property will be provided via a circular driveway off either Harmon Avenue or Las Vegas Boulevard. The driveway will encircle the existing Theater for Performing Arts, the only remaining portion of the property's existing improvements. According to the property's developers, approximately $8,000,000 will be spent on upgrading and renovating the theater. This renovation is expected to address all cosmetic and building system issues. Note that a detailed renovation budget for the theater was not provided to the appraisers. The hotel and casino's main entrance will be one level below grade. Guest valet service will be provided at the main entrance, with approximately 500 valet parking stalls located on a subterranean level. The subject property's lobby area, front desk, concierge area, and bell stand will be located inside the main entrance. Another registration area, used exclusively for premium casino-invited guests, will also be located off the main lobby. In addition to these registration areas, the property's buffet food and beverage outlet and back-of-the-house areas will be located on this level. Two escalators at either side of the lobby will provide access to the ground floor of the structure. Two elevator banks, at the northern and southern ends of the lobby, will transport guests to the property's guestrooms. In addition, the southern elevator bank will provide two cars to transport VIP guests from the dedicated check-in area. HVS International, Mineola, New York Property Description 8 - -------------------------------------------------------------------------------- The property's main floor will contain the primary casino area, measuring approximately 95,000 square feet, the subject's 24-hour coffee shop, a high-energy specialty restaurant, and access to the shopping bazaar portion of the mixed-use development, as well as the Theater for the Performing Arts. In addition to the aforementioned escalators from the property's registration area, access to the property's casino level will be provided via two entrances on Las Vegas Boulevard at the northern and southern ends of the building. In order to maximize the capture of pedestrians along Las Vegas Boulevard, these entrances will be eye-catching, consistent with the theme of the casino. The subject's specialty restaurant will be located between the two Las Vegas Boulevard entrances, at the eastern edge of the structure. This restaurant will offer patio seating with views of the Strip and will provide additional exposure of the property to pedestrians walking along Las Vegas Boulevard. From the main floor of the property, guests can use any number of escalators or elevators to access the property's third floor. The third floor of the property will be open in the middle, providing a view of the main casino floor. The third floor will house the subject's production show theater in the northeastern portion of the building, two restaurants, and the property's meeting space in the northwestern portion of the structure. The subject's pool and full-service spa will be located in the southwestern portion of the third floor, while the property's high-end, 15,000-square-foot Salle Prive casino will be located in the southeastern portion of the third floor. The Salle Prive casino will cater to the property's premium players and offer its own food and beverage outlet exclusively for Salle Prive customers. Overall, the proposed Aladdin Hotel and Casino will be an attractive and efficiently laid-out building, designed to maximize guest access, as well as pedestrian flow and walk-in traffic. The site plans located on the following pages, provided by the property's developers, will provide further insight into the proposed subject's layout. In addition, each component of the proposed subject property will be discussed in greater detail in the following narrative. HVS International, Mineola, New York Property Description 9 - -------------------------------------------------------------------------------- INSERT FLOOR PLAN #1 HVS International, Mineola, New York Property Description 10 - -------------------------------------------------------------------------------- INSERT FLOOR PLAN #2 HVS International, Mineola, New York Property Description 11 - -------------------------------------------------------------------------------- INSERT FLOOR PLAN #3 HVS International, Mineola, New York Property Description 12 - -------------------------------------------------------------------------------- Casino Component The subject property's primary 95,000-square-foot casino will be located on the main floor of the property. The primary casino will contain 2,800 gaming devices and 87 table games, located throughout the casino floor. A sports book and keno lounge will provide additional gaming opportunities for customers. The property will offer the Salle Prive, a high-end gaming area for premium players. This gaming area will be located on the third floor of the facility and will offer 30 gaming tables including baccarat, double and single zero roulette, and high-end blackjack. One hundred high-denomination gaming devices will also be located in the Salle Prive gaming area. Access to the Salle Prive area will not be restricted but non-premium players are not expected to frequent this area due to its high limits and resultant atmosphere, as is the custom for high-end gaming areas. The subject's casino areas are designed in a logical manner, funneling both hotel guests and patrons of ancillary outlets through the casino floor. The following table presents a summary of the casino facilities. HVS International, Mineola, New York Property Description 13 - -------------------------------------------------------------------------------- Summary of Casino Facilities Casino ----------------------------------------------------- Square Feet 100,000 Table Game Inventory (Main Casino) Units Twenty-one 50 Craps 12 Roulette 7 Wheel 2 Baccarat 2 Mini Baccarat 2 Caribbean Stud 4 Let it Ride 2 Pai Gow 6 ------- Subtotal 87 Table Game Inventory (Salle Prive) Twenty-one 12 Craps 2 Roulette 6 Baccarat 4 Caribbean Stud 2 Pai Gow 2 Let it Ride 2 ------- Subtotal 30 Total Table Games 117 Gaming Device Inventory (Main Casino) 5 Cent 284 25 Cent 1,224 50 Cent 292 $1 Dollar 826 $5 Dollar 152 $25 Dollar 16 $100 Dollar 6 ------- Subtotal 2,800 Gaming Device Inventory (Salle Prive) $1 Dollar 74 $5 Dollar 16 $25 Dollar 6 $100 Dollar 4 ------- Subtotal 100 Total Gaming Devices 2,900 Sports Book Race Book Keno Lounge Poker Room ---------------------------------------------------------- HVS International, Mineola, New York Property Description 14 - -------------------------------------------------------------------------------- Hotel Component The subject property's hotel component will consist of a 35-story main tower flanked by two secondary 17-story towers. The secondary towers will extend east-west from the main tower. The Aladdin Hotel and Casino will offer 2,600 guestrooms of various sizes and configurations. According to information provided by the project's developers, there will be approximately 2,000 standard rooms of +/- 450 square feet, 425 king parlor rooms of +/- 620 square feet, and 175 suites ranging in size from +/- 600 square feet to +/- 3,500 square feet. In addition, approximately 25 suites will be dedicated to premium casino-invited guests. These suites will be located on the top five floors of the main tower and will have dedicated vertical access, as well as private guestroom access. The subject property's guestrooms will be appointed with high-quality furniture, fixtures, and equipment and cater to the upper-middle tier traveler. Typical guestroom appointments and fixtures will be as follows: Bedroom o One king or two queen beds with night stands and wall-mounted lamps and color-coordinated sheets and bedspreads; o Color-coordinated vinyl wallcovering and wall-to-wall carpeting; o Activity table with cushioned chairs; o Armoire with remote-controlled, color television and in-room movie system; o Walk-in closet; o Push-button telephone; and o Framed artwork. Bathroom o Distinctive four- or five-fixture bathroom amenities, including separate tub and shower stalls, flush ceramic commode, one or two sinks, and lighted vanity area; o Fully tiled tub and shower walls; o Tiled floor; o Hair Dryers; and o telephones. HVS International, Mineola, New York Property Description 15 - -------------------------------------------------------------------------------- Due to the proposed high-quality appointments and fixtures, the property is expected to successfully penetrate the upper-middle tier of travelers. The following table presents a summary of the hotel facilities. Summary of Hotel Facilities Hotel Number of Units -------------------------------------------------- Standard Rooms 2,000 King Parlor Rooms 425 Standard Suites 150 Salle Prive Suites 25 ----- Total 2,600 ----------------------------------------------------- Food and Beverage Component The Aladdin Hotel and Casino will offer nine food and beverage outlets to guests. Food and beverage choices will cover a wide variety of tastes and styles, from a buffet and food court to an exclusive high-end restaurant. Like the property's guestrooms, the food and beverage outlets will be appointed with high-quality furniture, fixtures, and equipment and provide patrons with a unique and pleasant dining experience. The following table presents a summary of the Aladdin's proposed food and beverage facilities. Summary of Food and Beverage Facilities Estimated Seating Food and Beverage Facilities Capacity ----------------------------------------------------- Restaurants Buffet and Food Plaza 1,000 24-hour Coffee Shop 575 High-Energy Restaurant 225 Italian Restaurant 200 Themed Restaurant 150 Steakhouse 150 Sushi/Chinese Noodle Bar 50 Casual Dining Coffee Bar 50 Salle Prive Exclusive Restaurant 100 ----- Total 2,500 ----------------------------------------------------- The aforementioned restaurants will be located throughout the Aladdin Hotel and Casino. Specifically, the Buffet and Food Plaza will be located on the subterranean level of the property. The coffee shop and high-energy restaurant will be located on the ground floor of the property. The steakhouse, themed restaurant, noodle shop, coffee bar, and Salle Prive restaurant will be located on the third floor of the property. In addition to the aforementioned restaurants, several bars and lounges HVS International, Mineola, New York Property Description 16 - -------------------------------------------------------------------------------- will be located throughout the Aladdin Hotel and Casino; however, the appraisers were not provided with detailed information concerning the number, style, or location of the bars and lounges. Meeting Space The Proposed Aladdin Hotel and Casino will contain a flexible supply of meeting and banquet space used to accommodate in-house groups and local functions. The conference center will be located in the northeastern section of the property's third floor and will include a main ballroom, prefunction space, and 16 breakout rooms. Similar to the other components of the subject property, the conference center will feature high-quality appointments and fixtures and have an efficient, functional design. The following table presents a summary of the proposed meeting and banquet space. Summary of Meeting Facilities Estimated Square Conference Facilities Footage ----------------------------------------------- Main Ballroom 28,500 Prefunction Space 25,600 Breakout Rooms (16) 17,400 ------ Total 71,500 ----------------------------------------------------- Retail Outlets The Proposed Aladdin Hotel and Casino will contain a small retail component separate from the 450,000-square-foot shopping bazaar. This retail component is expected to consist primarily of gift shops and sundry outlets. These outlets will be located throughout the property. Theater for Performing Arts As mentioned, the Theater for Performing Arts will be the only structure remaining of the subject property's existing improvements. The theater has seating for approximately 7,000 and boasts exceptional sight lines and acoustics. The center is expected to host major concerts, Broadway shows, and award shows. According to the developers of the Aladdin Hotel and Casino, approximately $8,000,000 will be spent on renovating and refurbishing the entire theater. This capital expenditure is expected to be sufficient. Production Show Theater HVS International, Mineola, New York Property Description 17 - -------------------------------------------------------------------------------- In addition to the Theater for Performing Arts, the subject property will offer a 1,400-seat production show theater. The production show is currently planned with a Scheherazade/1,001 Arabian Nights theme and will offer nightly performances. Spa and Health Club The proposed subject property will also feature a 20,000-square-foot spa and health club. The spa will offer a steam room, sauna, massage services, and other pampering amenities typically found in a full-service spa facility. The spa will be located adjacent to the subject property's pool area in the southeastern section of the third floor. Back-of-the-House Facilities The back-of-the-house facilities at the Proposed Aladdin Hotel and Casino will be expansive, consisting of several kitchens and preparation areas, the shipping and receiving dock, the mechanical and electrical equipment areas, the employee dining area, the executive, administrative and sales offices, and the security/surveillance area. Based on the site plans provided by the property's developers, the kitchen and preparation areas, offices, and employee areas are of sufficient size to handle the property's needs. The subject property will offer approximately 500 to 600 valet parking spaces, located on a subterranean level of the property. While this parking allotment will be inadequate to service the needs of the entire hotel and casino, a 6,000-stall parking garage will be part of the shopping bazaar portion of the entire mixed-use development. Access to this parking garage will be covered by the reciprocal easement agreement discussed earlier in this report. While we have not included the shopping bazaar and parking garage in our estimate of the prospective market value of the hotel and casino, it is assumed parking issues will not affect the subject property. The proposed subject property's HVAC and air exchange system will be a state-of-the-art, four-pipe system with individual guestroom controls. A breakdown of the equipment was not provided to the appraisers, but it is assumed the system will be sufficient to handle the needs of the subject property. An integral part of every casino operation is video surveillance. The subject property will have a state-of-the-art video surveillance room consisting of several videocassette recorders, a bank of video monitors, and a control panel which can manipulate any one of the video cameras located on the casino floor, in the casino cage, or in the back-of-the-house areas. Conclusion HVS International, Mineola, New York Property Description 18 - -------------------------------------------------------------------------------- We have evaluated the Aladdin Hotel and Casino's proposed improvements. Based on this evaluation, we believe the Aladdin Hotel and Casino will be an efficient, high-quality facility with appropriate casino, hotel, and ancillary spaces. Overall, the subject's proposed improvements are expected to make it a highly competitive and attractive hotel and casino facility. Neighborhood The neighborhood surrounding a casino hotel often has Analysis an impact on a property's status, image, class, style of operation, and sometimes its ability to attract and properly serve a particular market segment. The subject property's neighborhood can affect its casino win-per-unit and penetration levels, occupancy, average rate, food and beverage revenues, and overall profitability. As discussed, the subject site is located on Las Vegas Boulevard, also known as "the Strip." The neighborhood is characterized by the surrounding casino hotels such as MGM Grand, Bally's, Monte Carlo, New York - New York, Excalibur, Luxor, and the soon-to-open Paris and Bellagio. Ancillary development in the surrounding area consists of tourism-related retail development, other gaming venues, and themed restaurants such as the Country Star, Harley Davidson Cafe, and All Star Cafe. The immediate neighborhood is defined as the Las Vegas Boulevard Corridor, bounded to the north by Sahara Avenue and to the south by Russell. This stretch of Las Vegas Boulevard measures approximately three miles, with the subject site at the mid-point. This section of the Las Vegas Strip has become a high-demand area in recent years due to the opening of several mega-resorts (such as MGM and New York New York). As such, pedestrian traffic within the subject's neighborhood is excellent and visitation to the area from other resorts is also excellent. The area represents the highest quality hotel and casino properties and is the most favorable area for the development of a new hotel and casino in the world. In addition, the subject's Las Vegas Strip location places it proximate to most of Las Vegas' demand generators. These demand generators include McCarran International Airport (two miles southeast), University of Nevada, Las Vegas, the Thomas and Mack Center (two miles due east), and the Las Vegas Convention Center (three miles northeast). Overall, the subject neighborhood is considered to be appropriate and highly attractive for the subject property's use and target market. The subject neighborhood encompasses several key leisure demand generators and also offers a setting that can be perceived as very accessible and supportive of gaming. HVS International, Mineola, New York Gaming Supply and Demand Analysis 1 - -------------------------------------------------------------------------------- 6. Gaming Supply and Demand Analysis The initial step in analyzing supply and demand trends within a given gaming market is to quantify the existing level of gaming inventory, segmented by table games and gaming devices. To quantify gaming supply levels, a detailed review of all competitive gaming facilities is performed. Once the market's supply level and gaming mix are known, an analysis of the demand for gaming facilities is performed. Unlike traditional economic models of supply and demand, the price variable associated with gaming is largely determined by the consumer. Gaming is an intangible product: the consumer is purchasing the "experience" and "excitement" casino gaming offers. The price that the consumer is willing to pay for this experience is known as the "win," and is quantified on a per-unit basis known as the "win per unit per day" (WPUPD). Research indicates that the WPUPD, or the price a market can bear for gaming activity, is highly correlated to the level of available gaming inventory. The actual WPUPD attained by a market, say $250 per gaming device, provides an indication of the marketwide demand for gaming devices. As will be further discussed, these demand levels within a market can be estimated through an analysis of the actual WPUPD attained by the market. Historical fluctuations in the marketwide WPUPD at various levels of supply can provide insight into the future demand for gaming. Further impacting the demand for gaming facilities in the market are current and projected trends in economic and demographic factors such as population base, employment, disposable income levels, and visitation statistics. In addition, seasonal fluctuations must be taken into consideration when analyzing demand trends. Once the various demand trends have been identified, a variety of analytical methodologies may be employed to forecast gaming revenue for an overall market or an individual property. The employment of a specific methodology must take into consideration the reliability and availability of the data to be utilized. For the purposes of this analysis, the proposed Aladdin Hotel and Casino has been classified as a part of the Las Vegas Strip ($72 million and over) gaming market. The following procedures are employed in our analysis of gaming supply and demand trends. Analysis of Supply: o Identify all local and regional gaming facilities; o Determine whether additional gaming facilities will enter the market in the foreseeable future; and HVS International, Mineola, New York Gaming Supply and Demand Analysis 2 - -------------------------------------------------------------------------------- o Quantify the number of existing and proposed gaming facilities by gaming units (i.e., table games and gaming devices) available in the market area. Analysis of Demand: o Review the area and neighborhood economic and demographic data to determine the market's overall health and ability to support existing and proposed levels of gaming supply; o Examine the local and regional demand sources by market segment to determine potential market mix, demand levels, player gaming habits, and the populace's propensity to gamble; and o Review historical trends in WPUPD levels to determine the potential for growth, stabilization, or saturation. Existing Supply As of December 1996, there were 19 casinos operating within the Las Vegas Strip ($72 million and over) market; the 19 casinos contained an aggregate of 1,495 table games and 37,197 gaming devices. The Las Vegas Strip ($72 million and over) market is the largest gaming market in the world including such famous properties as the Mirage, the MGM Grand, Caesars Palace, and Circus Circus. The following table presents the Las Vegas Strip ($72 million and over) gaming inventory level as of December 1996. HVS International, Mineola, New York Gaming Supply and Demand Analysis 3 - -------------------------------------------------------------------------------- Existing Gaming Supply - Las Vegas Strip ($72 million and over)
Casino Square Casino SF Table Gaming Market/Casino Owner Rooms Footage per Room Games Devices - ----------------------------------------------------------------------------------------------------------------------------- Aladdin Casino Hotel Jack Sommer 1,100 34,452 31.3 26 1,005 Bally's Casino Resort Bally's Entertainment Corp. 2,814 54,603 19.4 86 1,860 Caesars Palace ITT Corp. 1,519 118,000 77.7 123 2,011 Circus Circus Circus Circus Enterprises 2,793 111,069 39.8 74 2,825 Excalibur Circus Circus Enterprises 4,032 123,944 30.7 80 2,600 Flamingo Hilton Hilton Corp. 3,642 80,334 22.1 86 1,800 Harrah's Las Vegas Harrah's Entertainment 1,711 73,754 43.1 78 1,777 Imperial Palace Imperial Palace, Inc. 2,636 47,625 18.1 43 1,900 Las Vegas Hilton Hilton Corp. 3,174 76,500 24.1 72 1,119 Luxor Circus Circus Enterprises 2,526 100,000 39.6 96 2,495 MGM Grand MGM Grand 5,005 171,500 34.3 170 3,720 The Mirage Mirage Resorts 3,049 95,300 31.3 120 2,225 Riviera Riviera Holding Corp. 2,109 102,300 48.5 43 1,389 Sahara Casino Hotel Gordon Gaming 2,045 26,956 13.2 41 1,550 Monte Carlo Circus & Mirage 715 36,438 51.0 95 2,312 Sheraton Desert Inn ITT Corp. 821 18,900 23.0 61 500 Stardust Resort and Casino Boyd Gaming Corp. 2,341 65,538 28.0 65 1,995 Treasure Island Mirage Resorts 2,900 75,294 26.0 86 2,320 Tropicana Resort and Casino Aztar Corp. 1,910 45,194 23.7 50 1,794 Totals 46,842 1,457,701 31.1 1,495 37,197 - -----------------------------------------------------------------------------------------------------------------------------
The overall competitive environment of the Las Vegas Strip is intense. The result of this intensity has been the evolution of the Las Vegas Strip into a group of diverse gaming properties each seeking to induce and capture a specific niche. Property types range from the $1.0-billion MGM Grand Hotel/Casino/Theme Park, to the aged Sahara Casino Hotel. Properties such as the Mirage, the Las Vegas Hilton, the MGM Grand, and Caesars Palace cater to the upper-middle and upper-income markets and high rollers, while Circus Circus and the Excalibur have successfully captured the lower-income "grind" players. While the lower-income markets may not be as glamorous, they do provide a steady stream of gaming win. Conversely, high rollers, or "whales," can impact an entire quarter's worth of gaming win in one evening. The recent expansion of the Las Vegas Strip has been designed to induce alternative demographic groups by offering alternatives to gaming such as theme parks, thrill rides, and high-tech entertainment options. The MGM Grand, Circus Circus, and the Luxor all have had varying degrees of success capturing these new types of visitors. HVS International, Mineola, New York Gaming Supply and Demand Analysis 4 - -------------------------------------------------------------------------------- The older properties located along the Strip have been challenged by the new mega-resorts and the shift in demand to the southern end of Las Vegas Boulevard. Functional obsolescence and the lack of necessary capital expenditures have severely impacted the competitiveness of properties such as the Riviera, the Sands, the Sahara, the Frontier, and the Tropicana. These properties cannot offer the new amenities that today's Las Vegas visitors crave and must survive by accommodating the older Las Vegas visitor demographic whose primary purpose is gaming. It should be noted however, that all of the Las Vegas Strip properties have benefited from the overall increase in tourist visitation created by the new mega-resorts. As will be further discussed, evidence suggests that the Las Vegas Strip gaming market is largely supply driven. The proposed subject property will primarily be marketed to the upper-middle income tier of Las Vegas visitors. In addition, the added amenities and high-quality product the subject will offer should allow it to capture the new demographic groups. Also, as mentioned, the subject property will joint venture with London Clubs International (LCI). LCI will greatly enhance the property's marketing to international clientele, especially in Europe and the Middle East. Overall, the existing gaming inventory of the Las Vegas Strip ($72 million and over) market ranges from high-end mega-resorts to aged casino hotels. Reflecting the migration of demand in the Las Vegas Strip ($72 million and over) market to the southern end of the Strip, as well as the desire of current Las Vegas visitors for amenities other than gaming, it is our opinion that the subject property will be ideally located and outfitted to maximize the capture of customers and subsequent revenue. Proposed Additions to Based on conversations with local officials and Supply knowledgeable parties, seven large additions to supply, including the subject property, are projected to enter the Las Vegas Strip ($72 million and over) market within the next three years. As MGM Grand's New York - New York opened in January 1997, its inventory and revenue levels were not included in the 1996 data used as our basis for forecasting. As such, for purposes of this analysis, it is considered an addition to supply. In addition, other smaller additions and expansions are expected to increase the market's gaming supply. The following chart lists the expected additions to supply in the Las Vegas Strip ($72 million and over) market. Note that the 1,000 room casino hotel proposed as part of the subject's mixed-use development has not been included in the following chart. Due to this property's size and location (removed from Las Vegas Boulevard) it is not expected to be included in the Las Vegas Strip ($72 million and over) category. Additions to Supply - Las Vegas Strip ($72 million and over) HVS International, Mineola, New York Gaming Supply and Demand Analysis 5 - --------------------------------------------------------------------------------
Estimated Opening # Days Into Table Gaming Casino Operator Date Projection Games Devices Guestrooms - ------------------------------------------------------------------------------------------------------------------ Bellagio Mirage Resorts 04/01/98 455 173 2,746 3,005 Project Paradise Circus Circus 10/01/98 638 110 2,400 3,800 Paris Hilton 04/01/99 820 75 3,000 3,000 Venetian Phase I Sheldon Adelson 06/01/99 881 100 3,000 3,000 Venetian Phase II Sheldon Adelson 01/01/2000 1095 50 1,000 3,000 Aladdin Aladdin Gaming, LLC 01/01/2000 1095 117 2,900 2,600 New York New York MGM 01/01/97 0 73 2,425 2,035 Other * N/A 01/01/97 0 104 976 0 * Represents expansions and additions to current properties - ------------------------------------------------------------------------------------------------------------------
Note that the "other casino" category in the above chart represents expansions and additions to current properties within the Las Vegas Strip ($72 million and over) category. These numbers have been utilized to bring the year-end 1996 gaming unit levels up to date with the year-to-date gaming unit levels. Bellagio is a $1.3-billion resort being developed by Mirage Resorts at the corner of Flamingo Road and Las Vegas Boulevard, which is the site of the old Dunes Hotel Casino just across Las Vegas Boulevard from the proposed subject site. Given its high cost per room, Bellagio will be marketed to the highest end of the gaming spectrum. Reportedly, rack rates will be in excess of $200 per night. We believe that Bellagio will not compete directly with the subject property; however, given its "must-see" appeal, it will bring pedestrian traffic and demand to the subject property's immediate area. Project Paradise, the proposed $1-billion casino hotel development by Circus Circus, recently began construction on a site adjacent to the Luxor hotel and casino. The project is expected to open in October 1998. The massive Project Paradise is expected to have as many as four different casinos and a high-end Four Seasons Hotel as the primary anchors. The first phase of development is expected to consist of a 3,800-room casino, catering to the upper income traveler. Average rates are expected to exceed $200. Due to its high end orientation, this property is expected to compete more with the Bellagio than the subject property. Paris, the proposed $420-million casino hotel development by Bally's Entertainment (now part of Hilton Hotels), recently began construction on a site adjacent to the subject. According to published reports, the project will open by the first quarter of 1998. Similar to the New York-New York theme, Paris will feature well-known attractions and replicas of Parisian origin. Proposed is a 540-foot facsimile of the Eiffel Tower, the Arc de Triomphe, and the Paris Opera House. The property will be marketed to the upper-middle tier of the Las Vegas gaming market and be priced HVS International, Mineola, New York Gaming Supply and Demand Analysis 6 - -------------------------------------------------------------------------------- above Bally's Hotel Casino. As such, it is expected to compete primarily with the subject property. The largest proposed addition to the Las Vegas gaming market is the planned Venetian Resort on the site of the old Sands Hotel and Casino. This development is expected to include roughly 6,000 guestrooms, 500,000 square feet of retail space, an expansion of the existing Sands Expo Center, and almost 200,000 square feet of gaming space. The project's estimated cost is $1.8 billion and it is expected to open in two phases, by mid-1999 and by 2000. The Venetian will be located at the northern end of the Strip and is expected to help invigorate this area by competing with the recent construction along the southern end of the Strip. This property is expected to compete directly with the subject property due to its intended market orientation, as well as its large retail component, similar to that of the subject. The final proposed addition to supply is the proposed subject property. As discussed, the subject is expected to open by January 2000 and consist of a 450,000-square-foot retail facility, 110,000 square feet of gaming space, and 2,600 guestrooms. The subject will be marketed to the upper-middle tier of Las Vegas visitors and is expected to compete to a high degree with similar existing and proposed hotel casinos located along the Las Vegas Strip. As mentioned, New York-New York opened in January 1997 and is located at the northwest corner of the Las Vegas Boulevard and Tropicana Avenue intersection. This intersection, which is also home to the Tropicana, the MGM Grand, and the Excalibur, is known as the "New Four Corners." The cost of the joint-venture between MGM Grand and Primadonna Resorts, Inc., was estimated at $400 million. The New York-New York is currently being marketed to the "upper" mid-priced segment, with average room rates between $100 and $150 per night. As such, we believe the subject property will compete primarily with the New York-New York. We have also included the addition of 104 table games and 976 gaming devices to account for the expansion of several existing facilities of gaming inventory within the proposed subject's market area. In addition to the aforementioned additions to supply, we have considered the demolition of the existing Aladdin Hotel and Casino. As discussed, the current Aladdin will be demolished in order for the new property to be constructed. As such, we have subtracted the gaming inventory of the current Aladdin (26 table games and 1,005 gaming devices) from our analysis beginning in January 1998, the anticipated construction start date for the subject property. Supply Conclusion Summarizing the preceding discussion of existing and proposed gaming supply, we believe that the Proposed Aladdin Hotel and Casino will compete to varying degrees HVS International, Mineola, New York Gaming Supply and Demand Analysis 7 - -------------------------------------------------------------------------------- with the existing casinos located within the Las Vegas Strip ($72 million and over) market. As of December 1996, the Las Vegas Strip ($72 million and over) market includes approximately 1,495 table games and 37,197 gaming devices. Upon stabilization of the Las Vegas Strip ($72 million and over) market in 2001, table game and gaming device inventory levels are projected to be 2,388 and 57,539, respectively. The following map shows the gaming supply located within the Las Vegas Strip ($72 million and over) market. HVS International, Mineola, New York Gaming Supply and Demand Analysis 8 - -------------------------------------------------------------------------------- INSERT COMP MAP HVS International, Mineola, New York Gaming Supply and Demand Analysis 9 - -------------------------------------------------------------------------------- Demand Analysis The proliferation of gaming throughout the United States and the tremendous expansion of gaming in southern Nevada have elevated gaming to a nationwide industry. The development of multiple markets across the nation has been spurred by state and local governments' desire to increase the tax base. As a result, aggregate gaming demand has been dispersed across the nation. Prior to the development of Native American reservation and riverboat gaming, the primary gaming markets were southern Nevada and Atlantic City, New Jersey; as such, aggregate gaming demand could be reasonably estimated via an analysis of these two markets. However, in today's prolific gaming environment, demand is now a function of available supply and the various economic and demographic characteristics impacting a given region. As such, the market as a whole is not as simple to analyze. With each emerging market competing for and capturing a portion of overall gaming demand, a regional analysis is necessary to determine a market's existing demand level and growth potential, as well as its propensity to attract demand from other regional and national gaming markets. Economic and As described previously in the "Market Area Analysis" Demographic Review section, the subject market appears well suited to support a gaming inventory based on the capturable adult population, the amount of discretionary income, the populace's propensity to spend discretionary income on entertainment and goods and services, and the expansive tourism industry. With an estimated local population of nearly 1.0 million people and almost 30 million tourists visiting the metropolitan Las Vegas area annually, the amount of existing and potential gaming activity is significant. Given its critical mass and billions of dollars in invested capital, no other destination will be able to duplicate the Las Vegas experience. As such, we believe that the Las Vegas market will continue to be the preeminent domestic and international gaming destination. Demand Sources Demand for gaming can be classified into four primary sources: the leisure segment, the local residents, tour and travel groups, and conventions. Each of these gaming demand segments has distinct characteristics which affect the market's potential capacity utilization levels and subsequent gaming revenues; these characteristics include gaming frequency, duration of play, gaming budgets, game preferences, and preferred facilities. With the exception of local residents, the demand generally originates from outside the subject property's primary market. As mentioned, the primary feeder market for the Las Vegas gaming market is Southern California. Leisure Demand As previously discussed, leisure visitation to Las Vegas is enormous, with visitors taking advantage of the year-round favorable climate and multitude of attractions. The leisure segment utilizes both table games and gaming devices and has a higher propensity to play table games than the other demand segments. Gaming propensity HVS International, Mineola, New York Gaming Supply and Demand Analysis 10 - -------------------------------------------------------------------------------- and frequency within the leisure segment vary significantly, from novices, or "grind" players, to rated players." Further, the gaming budgets of leisure patrons vary considerably, as do their average wagers. While the primary goal in attracting the leisure traveler is gaming activity, food and beverage outlets can also be priced to break even. According to the Las Vegas Convention and Visitors Authority, over 60% of visitors to Las Vegas were on vacation. Of those polled, 87% of visitors said they had gambled while in Las Vegas. The casino games most often played were the slot machines, at approximately 53%, twenty-one was a distant second at 16%, followed by video poker at 14%. Local Demand In emerging riverboat, dockside, and Native American gaming markets, local residents constitute a significant portion of the overall gaming demand. The majority of patronage, an estimated 65% to 75%, originates within a 50-mile radius. In markets such as Las Vegas and Atlantic City, which possess a critical mass of gaming, lodging, and entertainment facilities, local demand plays a secondary role to demand from the tour and travel, leisure, and convention segments. However, local patronage is necessary to provide a base level of annual demand, offsetting the effects of seasonality on revenues. In competitive markets, local patrons possess a high degree of loyalty, based on personal service and incentives. Such incentives include complimentary food and beverage service, bonus winnings, complimentary room nights, complimentary travel, and gift items. Gaming frequency among local patrons depends on a number of factors, including the convenience of the casinos, the average age of the populace, and disposable income levels. Typically, local residents can be expected to allot a higher percentage of discretionary income to gaming activities than other demand segments. However, due to higher frequency levels and longer play duration, local residents tend to make lower average wagers. Locals often possess superior gaming skills and seek tables and devices which offer the highest payouts and best odds. In certain markets, locals tend to be seasonal in an attempt to circumvent the crowds associated with peak demand periods of tourist and leisure visitation. The total contribution to Las Vegas' gaming revenue by the local demand segment has been estimated at $900 million per year. However, the local segment's impact on the Las Vegas Strip ($72 million and over) market is only moderate. According to the Las Vegas Convention and Visitors Authority, only 23% of locals gambled on the Strip, with the majority, 61%, gambling neither on the Strip or downtown. Of the locals polled, 20% gambled at least once a week and 33% gambled at least once a month. HVS International, Mineola, New York Gaming Supply and Demand Analysis 11 - -------------------------------------------------------------------------------- Tour and Travel Demand The seasonality of tour and travel demand varies, depending on the type and mode of transportation. Demand generated by the tour and travel segment is primarily a function of an individual property's marketing efforts, or their relationship with a wholesaler. Tours organized by outside wholesalers and recreational groups tend to be more seasonal, while motor-coach tours, gaming junkets, and all-inclusive vacations marketed by the individual properties are booked in the shoulder and off seasons to offset declining leisure visitation. The costs of marketing to this segment are high, and in some instances negate the potential gain in revenue. The primary goal in attracting tour and travel groups is gaming activity; rooms and food and beverage outlets tend to be loss leaders. Gaming frequency among tour and travel patrons is high, due to the purpose of the trip and the limited length of stay. Traditionally, tour and travel patrons favor gaming devices as opposed to table games. Depending on the type of group and predetermined gaming levels, tour and travel patrons allocate a considerable portion of their total travel budget for gaming activities and tend to make median-sized wagers per hand, or pull. The bus segment makes up a small portion of overall demand within the Las Vegas market compared to a market like Atlantic City, which is dependent on bus tours running from the major population centers. The wholesale market, which utilizes air transportation, is the major component of the Las Vegas tour and travel market. Convention Demand Convention demand within the Las Vegas market is significant. In 1996, Las Vegas hosted over 3.3 million conventioneers, a 13.0% increase over 1995. However, conventioneers tend to spend less time in the casino than other market segments. As such, casino hotels seeking to maximize occupied rooms in terms of casino win, are less likely to accommodate the convention segment. Demand Conclusion The Las Vegas market has evolved into a multi-faceted gaming and entertainment destination. As evidenced, new supply and "must-see" attractions have provided an impetus for new demand. In our opinion the Las Vegas market will continue to grow as new supply enters the area, albeit at slightly lower rates. The success of the proposed subject property is dependent on several factors, including, but not limited to, the following: o The continued growth in overall visitation to the Las Vegas area and Las Vegas's status as the eminent gaming destination; HVS International, Mineola, New York Gaming Supply and Demand Analysis 12 - -------------------------------------------------------------------------------- o The property's ability to attract and retain visitors with its high-quality product, high levels of customer service, and a diverse mix of gaming and other entertainment options; and o The region and nation's continued economic growth. WPUPD Analysis The win per unit per day (WPUPD) statistic provides the basis for the analysis and projection of table game and gaming device revenues. WPUPD is calculated by dividing total gaming revenues generated by a particular type of gaming unit by the number of gaming units available. Gaming statistics published in a majority of the gaming markets include the number of gaming units and total win figures by either table games and gaming devices or by individual games and devices (i.e., twenty-one tables, crap tables, five-cent devices, twenty-five-cent devices, etc.). As will be shown, the WPUPD figure provides insight into the efficiency of a market, demand levels, and saturation levels. In the forecast of gaming revenues, a WPUPD estimate is applied to the projected level of supply to arrive at an overall gaming win figure. Analysis of the Las The following WPUPD levels provide the basis for our Vegas Strip ($72 marketwide gaming revenue projections, as presented million and over market) in the subsequent section entitled "Forecast of Gaming Revenue." As mentioned, a detailed analysis has been performed on the Las Vegas Strip ($72 million and over) gaming market. The data utilized in our analysis have been derived from the Gaming Revenue Report, published by the State of Nevada Gaming Control Board. We have reviewed all the available data for the market and believe the figures presented in the following analysis to be accurate. The following table presents a yearly analysis of the Las Vegas Strip ($72 million and over) gaming market segmented into table games and gaming devices. The three primary statistics comprising the analysis are total win, the number of units, and WPUPD. HVS International, Mineola, New York Gaming Supply and Demand Analysis 13 - -------------------------------------------------------------------------------- Analysis of Las Vegas Strip ($72 million and over) Market
Table Games Gaming Devices --------------------------------------------------------- ------------------------------------------------------ Year Win % Change Units % Change WPUPD % Change Win % Change Units % Change WPUPD % Change - ------------------------------------------------------------------------------------------------------------------------------------ 1992 $ 974,174 --- 1,101 --- $2,424 --- $1,021,805 --- 26,525 --- $106 --- 1993 1,085,276 11.4% 1,116 1.4% 2,664 9.9% 1,078,632 5.6% 26,997 1.8% 109 3.7% 1994 1,441,155 32.8 1,476 32.3 2,675 0.4 1,428,500 32.4 37,245 38.0 105 (4.0) 1995 1,591,184 10.4 1,451 (1.7) 3,004 12.3 1,369,914 (4.1) 36,191 (2.8) 104 (1.3) 1996 1,515,105 (4.8) 1,495 3.0 2,777 (7.6) 1,442,373 5.3 37,197 2.8 106 2.4 Annual % Chg. 11.7% 7.9% 3.5% 9.0% 8.8% 0.2% YTD 6/96 $ 755,625 --- 1,468 --- 1,410 --- $ 729,654 --- 36,896 --- 54 --- YTD 6/97 827,644 9.5% 1,672 13.9% 1,356 (3.8)% 746,015 2.2% 40,598 10.0% 50 (7.1)% LTM through 7/96 $1,727,721 --- 1,560 --- $3,034 $1,467,537 --- 37,483 --- $107 LTM through 7/97 1,724,658 (0.2)% 1,779 14.0% 2,656 (12.5)% 1,535,213 4.6% 42,104 12.3% 100 (6.9)% - ------------------------------------------------------------------------------------------------------------------------------------
HVS International, Mineola, New York Gaming Supply and Demand Analysis 14 - -------------------------------------------------------------------------------- Overall, the Las Vegas Strip ($72 million and over) market for gaming devices has exhibited high levels of demand and absorption, as evidenced by relatively flat WPUPD levels during periods of increasing inventory. Specifically, WPUPD levels showed an average annual compounded percent change of only 0.2% from 1992 to 1996, while supply increased by 8.8% over the same period. In addition, total win increased at an average annual rate of 9.0% from 1992 to 1996, only slightly more than supply. Table game WPUPD levels appear to be more volatile and subject to external forces. The major factor influencing table game WPUPD volatility is the market mix of individual casinos and the subsequent amount of table game bets. While casinos catering to the lower income level player do not witness large table game volatility, the casinos that aggressively market to higher income players and high rollers often experience vast fluctuations in table game WPUPD levels. This fact is most evident in baccarat play. Typically baccarat players are high rollers, wagering up to $200,000 per hand. In one night, such players can win or lose $10,000,000. As such, table game play, especially in the Las Vegas Strip ($72 million and over) market can show vast WPUPD fluctuations. As mentioned throughout this report, the subject property is expected to cater to the upper-middle tier Las Vegas visitor and not the extreme high rollers. As such, the subject's table game revenues are not expected to be as volatile as those of the casinos that cater to higher end players. In addition, increases in total gaming win have mirrored the increase in available supply, an excellent sign of the market's health and growth potential. Given the area's favorable demographics and healthy tourism industry, the Las Vegas Strip ($72 million and over) market has the potential for further expansion. As evidenced, new supply has historically provided the impetus for large increases in demand. The next wave of new supply, including the subject property, the Venetian, and Bellagio, is anticipated to expand the overall market. Conclusion Our forecast of marketwide gaming win, presented in the following section of this report, factors in the historical WPUPD levels attained by the market, and the incremental change in WPUPD rates as inventory levels either increase or decrease. Additional factors impacting WPUPD levels are inflation, population growth, economic expansion, lodging supply, and tourism trends. In the following section of this report, growth rates are applied to the historical WPUPD levels in order to estimate future market WPUPD levels. The WPUPD estimates are then multiplied by the existing and proposed table game and gaming device inventory levels presented earlier in this section to arrive at a projection of marketwide gaming win. In addition, the estimated penetration rates attainable by the proposed Aladdin Hotel and Casino will be applied to the marketwide gaming win estimates in order to HVS International, Mineola, New York Gaming Supply and Demand Analysis 15 - -------------------------------------------------------------------------------- calculate the amount of gaming win projected to be captured by the proposed subject property. HVS International, Mineola, New York Forecast of Gaming Revenue 1 7. Forecast of Gaming Revenue Once the subject market has been defined, and the supply and demand factors analyzed and quantified, the anticipated amount of gaming revenue generated by a specific casino operating within this market can be determined. The compilation of supply and demand data combined with research into the various external factors impacting an individual property's market share has led to the development of a market penetration model. Utilizing the market derived data in the penetration model results in a forecasting tool that can be applied with a high degree of confidence. The market penetration model utilizes the following four steps in deriving a forecast of gaming revenue for the subject property. 1. The marketwide existing and proposed level of supply is quantified by table games and gaming devices throughout the projection period. The subject property's proposed level of supply is quantified by table games and gaming devices throughout the projection period. The subject property's fair share of marketwide gaming supply by table games and gaming devices is then calculated. 2. A forecast of marketwide gaming revenue is developed based on the WPUPD and supply trends presented in the section of this narrative entitled "Gaming Supply and Demand Analysis." Subjective factors such as latent demand levels, induced demand, and shifting demand patterns have been considered and included in the forecast of WPUPD levels and the resultant projection of marketwide gaming revenue. 3. Market penetration rates attainable by the subject property are projected for table games and gaming devices. The market penetration rates are then multiplied by the subject property's calculated fair share percentages to determine the subject's capture rate. The subject property's capture rate is then multiplied by the forecasted amount of marketwide gaming revenue, equating to the gaming revenue projected to be generated by the subject property. 4. The forecasted gaming win captured by the subject property is reconciled with a WPUPD analysis to check the reasonableness of the revenue projections. Combining the table game and gaming device win equates to an estimate of total gaming revenue. Step One The subject property's fair share is calculated by dividing the subject's gaming inventory by the marketwide gaming inventory. For example, if the subject property HVS International, Mineola, New York Forecast of Gaming Revenue 2 has 100 table games and the total number of table games in the market, including the subject property, is 1,000, the subject property's fair share is equal to 10% (100 / 1,000 = 10%). The level of existing and proposed supply by property, segmented by table games and gaming devices, was presented in the previous section entitled "Gaming Supply and Demand Analysis." For the purpose of this analysis, gaming revenues will be forecast on a calendar-year basis, commencing January 1, 2000. As such, all additions to supply have been adjusted to reflect the calendar year. The following table presents the historical and projected inventory levels of the Las Vegas Strip ($72 million and over) market and the Proposed Aladdin Hotel and Casino segmented by table games and gaming devices, as well as the subject property's calculated fair share percentages. HVS International, Mineola, New York Forecast of Gaming Revenue 3 Projected Gaming Inventory and Calculated Fair Share
1997 1998 1999 2000 2001 2002 2003 2004 - ------------------------------------------------------------------------------------------------------------------------------------ Table Games Supply - LV Strip $72 Million & Over Existing Table Games 1,495 1,646 1,804 2,045 2,388 2,388 2,388 2,388 Additions to Supply - Table Games 177 158 241 343 0 0 0 0 ----- ----- ----- ----- ----- ----- ----- ----- Total Table Games 1,672 1,804 2,045 2,388 2,388 2,388 2,388 2,388 % Change 11.8% 7.9% 13.4% 16.8% 0.0% 0.0% 0.0% 0.0% Aladdin Casino Hotel Existing Table Games N/A N/A N/A 0 117 117 117 117 Additions to Supply - Table Games N/A N/A N/A 117 0 0 0 0 ---- ---- ---- ---- ---- Total Table Games N/A N/A N/A 117 117 117 117 117 Calculated Fair Share - Table Games N/A N/A N/A 4.9% 4.9% 4.9% 4.9% 4.9% Gaming Devices Supply - LV Strip $72 Million & Over Existing Gaming Devices 37,197 39,593 42,267 48,758 57,539 57,539 57,539 57,539 Additions to Supply - Gaming Devices 3,401 2,674 6,491 8,781 0 0 0 0 ------ ------ ------ ------ ------ ------ ------ ------ Total Gaming Devices 40,598 42,267 48,758 57,539 57,539 57,539 57,539 57,539 % Change 9.1% 4.1% 15.4% 18.0% 0.0% 0.0% 0.0% 0.0% Aladdin Casino Hotel Existing Gaming Devices N/A N/A N/A 0 2,900 2,900 2,900 2,900 Additions to Supply - Gaming Devices N/A N/A N/A 2,900 0 0 0 0 ------ ----- ----- ----- ----- Total Gaming Devices N/A N/A N/A 2,900 2,900 2,900 2,900 2,900 Calculated Fair Share - Gaming Devices N/A N/A N/A 5.0% 5.0% 5.0% 5.0% 5.0% Overall Fair Share N/A N/A N/A 5.0% 5.0% 5.0% 5.0% 5.0% - ------------------------------------------------------------------------------------------------------------------------------------ 2005 2006 - -------------------------------------------------------------------------------- Table Games Supply - LV Strip $72 Million & Over Existing Table Games 2,388 2,388 Additions to Supply - Table Games 0 0 ------ ------ Total Table Games 2,388 2,388 % Change 0.0% 0.0% Aladdin Casino Hotel Existing Table Games 117 117 Additions to Supply - Table Games 0 0 ------ ------ Total Table Games 117 117 Calculated Fair Share - Table Games 4.9% 4.9% Gaming Devices Supply - LV Strip $72 Million & Over Existing Gaming Devices 57,539 57,539 Additions to Supply - Gaming Devices 0 0 ------ ------ Total Gaming Devices 57,539 57,539 % Change 0.0% 0.0% Aladdin Casino Hotel Existing Gaming Devices 2,900 2,900 Additions to Supply - Gaming Devices 0 0 ------ ------ Total Gaming Devices 2,900 2,900 Calculated Fair Share - Gaming Devices 5.0% 5.0% Overall Fair Share 5.0% 5.0% - --------------------------------------------------------------------------------
HVS International, Mineola, New York Forecast of Gaming Revenue 4 As evidenced,marketwide supply levels are expected to increase significantly in coming years as several new properties come on line. The proposed subject property is expected to open in January 2000 with 117 table games and 2,900 devices. The subject property's proposed inventory levels equate to a fair share percentage of 4.9% for table games and 5.0% for gaming devices. For the purposes of this analysis, marketwide table game and gaming device inventory levels are projected to stabilize in 2000 with the opening of the subject property and phase II of the Venetian. Step Two As discussed, step two involves the forecasting of marketwide gaming revenue in each year of the projection period. The annual revenue figures were divided by the average marketwide table game and gaming device inventory levels as of December 31, 1996. The base year table game WPUPD estimate is calculated as follows: Table Game Win / Average Units / 365 = WPUPD $1,515,105,000 / 1,495 / 365 = $2,776.57 Say $2,777 The calculated annual average WPUPD figure is used to derive a base-year figure from which to project future WPUPD amounts. Growth rates are applied to the base year figure to calculate marketwide gaming revenues. Based on the historical WPUPD trend of the market, the incremental changes in gaming supply, and the anticipated impact of the new supply on the demand trends within the market, capacity growth rates in WPUPD levels are estimated. The WPUPD figure is multiplied by the projected level of table game or gaming device inventory to arrive at a forecast of marketwide gaming revenue. The following table presents the 10-year forecast of Las Vegas Strip ($72 million and over) gaming revenues. HVS International, Mineola, New York Forecast of Gaming Revenue 5 Forecast of Marketwide Gaming Revenue - Las Vegas Strip ($72 million and over) Market
Historical Historical 1994 1995 BASE YEAR 1997 1998 1999 2000 - ----------------------------------------------------------------------------------------------------------------------- Table Games Estimated Growth Rate -2.0% 3.0% -5.0% -6.0% Estimated WPUPD $ 2,675 3,004 $ 2,777 $ 2,721 $ 2,803 $ 2,663 $ 2,503 Units 1,476 1,451 1,495 1,672 1,804 2,045 2,388 Win (000s) $1,441,155 $1,591,184 $1,515,228 $1,660,730 $1,845,596 $1,987,545 $2,181,654 Growth Rate 10.4% 9.6% 11.1% 7.7% 9.8% Gaming Devices Estimated Growth Rate -3.0% 1.0% -2.0% -2.0% Estimated WPUPD $ 105 $ 104 $ 106 $ 103 $ 104 $ 102 $ 100 Units 37,245 36,191 37,197 40,598 42,267 48,758 57,539 Win (000s) $1,428,500 $1,369,914 $1,442,566 $1,527,229 $1,605,914 $1,815,486 $2,099,594 Growth Rate -4.1% 5.9% 5.2% 13.1% 15.6% Total Gaming Win (000s) $2,869,655 $2,961,098 $2,957,794 $3,187,959 $3,451,510 $3,803,031 $4,281,248 Growth Rate 3.2% 7.8% 8.3% 10.2% 12.6% Revenue Mix Table Games 50.2% 53.7% 51.2% 52.1% 53.5% 52.3% 51.0% Gaming Devices 49.8% 46.3% 48.8% 47.9% 46.5% 47.7% 49.0% 2001 2002 2003 2004 2005 2006 - ------------------------------------------------------------------------------------------------------- Table Games Estimated Growth Rate 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Estimated WPUPD $ 2,578 $ 2,655 $ 2,735 $ 2,817 $ 2,902 $ 2,989 Units 2,388 2,388 2,388 2,388 2,388 2,388 Win (000s) $2,247,103 $2,314,516 $2,383,952 $2,455,470 $2,529,134 $2,605,008 Growth Rate 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Gaming Devices Estimated Growth Rate 2.0% 3.0% 3.0% 3.0% 3.0% 3.0% Estimated WPUPD $ 102 $ 105 $ 108 $ 111 $ 115 $ 118 Units 57,539 57,539 57,539 57,539 57,539 57,539 Win (000s) $2,141,586 $2,205,833 $2,272,008 $2,340,169 $2,410,374 $2,482,685 Growth Rate 2.0% 3.0% 3.0% 3.0% 3.0% 3.0% Total Gaming Win (000s) $4,388,689 $4,520,349 $4,655,960 $4,795,639 $4,939,508 $5,087,693 Growth Rate 2.5% 3.0% 3.0% 3.0% 3.0% 3.0% Revenue Mix Table Games 51.2% 51.2% 51.2% 51.2% 51.2% 51.2% Gaming Devices 48.8% 48.8% 48.8% 48.8% 48.8% 48.8%
HVS International, Mineola, New York Forecast of Gaming Revenue 6 As shown, table game WPUPD levels are forecast to decrease by 2.0% in 1997 reflecting the increase in supply brought about by the opening of New York -New York in January. This decrease in the WPUPD level is consistent with the year-to-date table game WPUPD trend shown previously in this section of the report. In 1998, the additional table game supply is expected to be absorbed by the market and WPUPD levels are forecast to increase by 3.0%, the underlying rate of inflation. Table game WPUPD levels are then forecast to decrease by 5.0% and 6.0% in 1999 and 2000, respectively, due to the large increases in supply forecast to enter the market in those years. These decreases are consistent with the market's historical reaction to supply increases of this magnitude. WPUPD levels are forecast to rebound in 2001, increasing 3.0% before stabilizing at 3.0% growth per year in 2002 and thereafter. Overall, table game WPUPD levels are forecast to stabilize at $2,578 in 2001. Given the historic stability of gaming device WPUPD levels discussed previously, they are not expected to fluctuate as drastically as table game WPUPD levels. Specifically, gaming device WPUPD levels are forecast to decrease by 3.0% in 1997, increase by 1.0% in 1998, decrease by 2.0% in 1999 and 2000, and increase by 2.0% in 2001 before stabilizing at 3.0% growth per year in 2002 and thereafter. The decreases in gaming device WPUPD levels in 1997, 1999, and 2000 are attributable to the forecasted increases in supply. However, as in the past, the Las Vegas Strip ($72 million and over) market is expected to quickly absorb the supply increases. Overall, the marketwide gaming device WPUPD is expected to reach a low of $100 in 2000 and to stabilize at $105 in 2002. Step Three Step three of the analysis includes projections of the subject property's market penetration rates. A penetration rate is defined as the percentage of marketwide gaming revenue the subject property will capture in relation to its fair share. For example, if the subject property's fair share of the marketwide gaming device inventory was 10%, and the property penetrates the gaming device segment at 110%, the subject would capture approximately 11% of marketwide gaming device revenue (1.10 x 0.10 = 0.11). The capture rate is then applied to the aggregate amount of marketwide gaming revenue to derive the subject property's gaming revenue forecast. The following chart shows the estimated 1996 penetration rates of hotel casinos located within the Las Vegas Strip ($72 million and over) market deemed most similar to the proposed subject property. HVS International, Mineola, New York Forecast of Gaming Revenue 7 1996 Estimated Penetration Rates for Selected Hotel Casinos - Las Vegas Strip ($72 million and over)
Market Mirage Treasure Island Caesars ---------------------------- ------------------------- ---------------------- ----------------------- Tables Devices Tables Devices Tables Devices Tables Devices --------------------------------------------------------------------------------------------------------- Revenue 1,545,405 1,442,373 179,300 120,000 58,900 86,600 144,000 97,000 Units 1,495 37,197 122 2,225 97 2,220 125 1,980 Fair Share 8.2% 6.0% 6.5% 6.0% 8.4% 5.3% Penetration 142.2% 139.1% 58.7% 100.6% 111.4% 126.3% Market Mix Tables 5% 4% 6% Market Mix Devices 95% 96% 94% Total Penetration 139% 99% 125% Source: Individual Company Forms 10K and 10Q, Nevada Gaming Control Board, HVS International MGM Luxor ------------------------ ---------------------- Tables Devices Tables Devices ------------------------------------------------ Revenue 340,000 145,000 71,100 47,400 Units 178 3,720 106 2,400 Fair Share 11.9% 10.0% 7.1% 6.5% Penetration 184.8% 100.5% 64.9% 50.9% Market Mix Tables 5% 4% Market Mix Devices 95% 96% Total Penetration 104% 52% Source: Individual Company Forms 10K and 10Q, Nevada Gaming Control Board, HVS International
HVS International, Mineola, New York Forecast of Gaming Revenue 8 As shown, the Mirage and Caesars Palace enjoy the highest penetration rates within the market, followed by the MGM, Treasure Island, and the Luxor. The Luxor's low overall penetration rate compared to the other selected properties is attributable to the historically low room count at the property. Based on published reports, the Luxor did not have a sufficient number of rooms to support its casino size. Consequently, Circus Circus Corporation recently completed an expansion of the property totaling 1,900 guestrooms. In the future, the Luxor is expected to benefit from this rooms expansion and increase its penetration of the market. As mentioned throughout this report, the proposed subject property will primarily target the upper-middle tier of the Las Vegas gaming market. As such, its market mix is expected to be most like that of the Treasure Island Casino. However, the proposed subject's high-quality product and superior amenities package are expected to enable it to penetrate the market at a higher level than Treasure Island. In addition, the subject property's penetration levels are expected to be higher than the Treasure Island due to the subject's joint venture with LCI and subsequent marketing efforts to international clientele. Specifically, the proposed subject is expected to penetrate the Las Vegas Strip ($72 million and over) market at a level equivalent to Caesars Palace but lower than the Mirage. Our forecast of the market penetration rates attainable by the Proposed Aladdin Hotel and Casino takes into consideration its proposed improvements, target market, LCI partnership, and the impact of new competitive facilities. We have forecast the proposed subject property to penetrate the table game segment at a stabilized level of 125% and the gaming device segment at a stabilized level of 130%. This equates to an overall stabilized penetration level of 129.8%. The following table presents the subject property's projected penetration rates and captured gaming revenue by table games and gaming devices. International, Mineola, New York Forecast of Gaming Revenue 9 Projected Penetration Rates and Captured Gaming Revenue - Proposed Aladdin Hotel and Casino
1997 1998 1999 2000 2001 2002 2003 - ------------------------------------------------------------------------------------------------------------------- Marketwide Gaming Win Table Games $1,660,730 $1,845,596 $1,987,545 $2,181,654 $2,247,103 $2,314,516 $2,383,952 Gaming Devices $1,527,229 $1,605,914 $1,815,486 $2,099,594 $2,141,586 $2,205,833 $2,272,008 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Gaming Win (000s) $3,187,959 $3,451,510 $3,803,031 $4,281,248 $4,388,689 $4,520,349 $4,655,960 Estimated Penetration Factors Table Games N/A N/A N/A 125.0% 125.0% 125.0% 125.0% Gaming Devices N/A N/A N/A 130.0% 130.0% 130.0% 130.0% ------- ------- ------- ------- Overall N/A N/A N/A 129.8% 129.8% 129.8% 129.8% Captured Gaming Win Table Games N/A N/A N/A $133,610 $137,620 $141,750 $146,000 Gaming Devices N/A N/A N/A $137,570 $140,320 $144,530 $148,860 -------- -------- -------- -------- Total N/A N/A N/A $271,180 $277,940 $286,280 $294,860 Growth Rate Table Games N/A N/A N/A 3.0% 3.0% 3.0% Gaming Devices N/A N/A N/A 2.0% 3.0% 3.0% ----- ----- ----- Total N/A N/A N/A 2.5% 3.0% 3.0% Revenue Mix Table Games N/A N/A N/A 49.3% 49.5% 49.5% 49.5% Gaming Devices N/A N/A N/A 50.7% 50.5% 50.5% 50.5% ------- ------ ------ ------ Total N/A N/A N/A 100.0% 100.0% 100.0% 100.0% 2004 2005 2006 - -------------------------------------------------------------------------------- Marketwide Gaming Win Table Games $2,455,470 $2,529,134 $2,605,008 Gaming Devices $2,340,169 $2,410,374 $2,482,685 ---------- ---------- ---------- Total Gaming Win (000s) $4,795,639 $4,939,508 $5,087,693 Estimated Penetration Factors Table Games 125.0% 125.0% 125.0% Gaming Devices 130.0% 130.0% 130.0% ------ ------ ------ Overall 129.8% 129.8% 129.8% Captured Gaming Win Table Games $150,380 $154,890 $159,540 Gaming Devices $153,330 $157,930 $162,670 -------- -------- -------- Total $303,710 $312,820 $322,210 Growth Rate Table Games 3.0% 3.0% 3.0% Gaming Devices 3.0% 3.0% 3.0% ----- ----- ----- Total 3.0% 3.0% 3.0% Revenue Mix Table Games 49.5% 49.5% 49.5% Gaming Devices 50.5% 50.5% 50.5% ------ ------ ------ Total 100.0% 100.0% 100.0%
HVS International, Mineola, New York Forecast of Gaming Revenue 10 As market conditions stabilize in 2002, total gaming revenue is projected to increase at an average annual compounded rate of 3.0% throughout the projection period. Reflecting the assumed market mix of the Proposed Aladdin Hotel and Casino, revenues generated by gaming devices are projected to account for 50.5% of total gaming revenue throughout the projection period, while revenue generated by table games is expected to generate 49.5% of total gaming revenue. Step Four In step four, the projection of gaming revenue derived via the market penetration analysis is reconciled with a WPUPD analysis. In addition, other gaming win derived from the race and sports book, poker, and keno lounge has been forecast based on the historical market operations of these ancillary outlets, as well as the proposed subject's intended market orientation. The following table presents a historical analysis of other gaming win as a percentage of table game and gaming device win for the Las Vegas Strip ($72 million and over) market. Analysis of Other Gaming Win
1993/94 1995/96 1995/96 - ------------------------------------------------------------------------------------------------------------ Table and Device Win $2,518,296 $2,956,165 $3,028,819 Keno 38,157 36,706 34,530 % of Table/Device Win 1.5% 1.2% 1.1% Poker 109,260 32,880 30,944 % of Table/Device Win 4.3% 1.1% 1.0% Race Book 53,409 48,760 50,799 % of Table/Device Win 2.1% 1.6% 1.7% Sports Book 41,295 48,290 49,436 % of Table/Device Win 1.6% 1.6% 1.6% Total Other Win 42,121 166,635 165,708 % of Table/Device Win 9.6% 5.6% 5.5% - ------------------------------------------------------------------------------------------------------------
Overall, the market's other gaming win has been relatively stable over the past two years ranging from 5.6% of table and device win in 1994/95 to 5.5% in 1995/96. Based on recent trends and the subject's intended market orientation and the limited nature of its other gaming outlets, we have projected other gaming win equal to 4.0% of table game and gaming device win throughout the projection period. The following table presents our estimated WPUPD projections for the subject property throughout the 10-year projection period. HVS International, Mineola, New York Forecast of Gaming Revenue 11 Projected Capacity Utilization Levels, WPUPD, and Total Gaming Win - Proposed Aladdin Hotel and Casino
2000 2001 2002 2003 ------------------------------------------------------------------------------------------------ Table Games WPUPD $3,129 $3,223 $3,319 $3,419 Units 117 117 117 117 Win $133,610 $137,620 $141,750 $146,000 Gaming Devices WPUPD $130 $133 $137 $141 Units 2,900 2,900 2,900 2,900 Win $137,570 $140,320 $144,530 $148,860 Table and Device Win $271,180 $277,940 $286,280 $294,860 Other Gaming Revenues @ 4.0% $10,850 $11,120 $11,450 $11,790 -------- -------- -------- -------- Total Gaming Win $282,030 $289,060 $297,730 $306,650 ======== ======== ======== ======== Growth Rate -- 2.5% 3.0% 3.0% 2004 2005 2006 ------------------------------------------------------------------------------ Table Games WPUPD $3,521 $3,627 $3,736 Units 117 117 117 Win $150,380 $154,890 $159,540 Gaming Devices WPUPD $145 $149 $154 Units 2,900 2,900 2,900 Win $153,330 $157,930 $162,670 Table and Device Win $303,710 $312,820 $322,210 Other Gaming Revenues @ 4.0% $12,150 $12,510 $12,890 -------- -------- -------- Total Gaming Win $315,860 $325,330 $335,100 ======== ======== ======== Growth Rate 3.0% 3.0% 3.0%
HVS International, Mineola, New York Forecast of Gaming Revenue 12 The projection of gaming revenues presented will be utilized in the "Income Capitalization Approach" section of the narrative to derive the market value of the Proposed Aladdin Hotel and Casino. HVS International, Mineola, New York Lodging Supply and Demand Analysis 1 8. Lodging Supply and Demand Analysis This section presents an overview of the Las Vegas lodging market through an analysis of annual and monthly inventory and occupancy levels. Market segmentation, competitive casino hotels, and additions to supply will be discussed and evaluated as they relate to the Proposed Aladdin Hotel and Casino. Historically, the Las Vegas lodging market has attained occupancy levels well above the national average. As presented in the following table, available inventory and occupied rooms have increased at average annual rates of 4.2% and 5.8%, respectively. As a result, occupancy has risen from the low-70% range to the low-90% range over the 13-year period. Growth in demand has historically been a function of new supply, as evidenced by the 17.4% increase in occupied rooms in 1993 and the 13.0% increase in 1996. In 1993, supply increased by 12.5%, or roundly 9,500 rooms, while in 1996, supply increased by 10.0% or roundly 9,000 rooms. The following table presents an analysis of the Las Vegas lodging market over the past 13 years. The subsequent charts illustrate the growth in the Las Vegas market on an annual and monthly basis. HVS International, Mineola, New York Lodging Supply and Demand Analysis 2
Analysis of Las Vegas Lodging Statistics Hotel Motel Year Inventory % Change Occupancy % Change Occupancy % Change - ------------------------------------------------------------------------------------------------------------ 1983 52,529 --- 77.4% --- 63.3% --- 1984 54,129 3.0% 78.1 0.9% 61.7 (2.5%) 1985 53,067 (2.0) 84.7 8.5 70.1 13.6 1986 56,494 6.5 86.3 1.9 70.9 1.1 1987 58,474 3.5 87.0 0.8 74.0 4.4 1988 61,394 5.0 89.3 2.6 73.7 (0.4) 1989 67,391 9.8 89.9 0.7 72.5 (1.6) 1990 73,730 9.4 89.1 (0.9) 69.8 (3.7) 1991 76,879 4.3 85.2 (4.4) 62.6 (10.3) 1992 76,523 (0.5) 88.8 4.2 66.1 5.6 1993 86,053 12.5 92.6 4.3 69.7 5.4 1994 88,560 2.9 92.6 0.0 73.2 5.0 1995 90,046 1.7 91.4 (1.3) 72.4 (1.1) 1996 99,072 10.0 93.4 2.2 75.7 4.6 YTD 5/96 91,720 --- 95.1 --- 79.2 --- YTD 5/97 102,536 11.8 92.6% (2.6) 74.5% (5.9) Average Annual % Change 4.2% 1.3% 1.0%
Total Total Year Occupancy % Change Rooms Occupied % Change - ------------------------------------------------------------------------------ 1983 72.6% --- 13,919,660 --- 1984 72.5 (0.1%) 14,323,887 2.9% 1985 79.8 10.1 15,456,825 7.9 1986 81.4 2.0 16,784,932 8.6 1987 83.4 2.5 17,800,070 6.0 1988 85.1 2.0 19,069,897 7.1 1989 85.2 0.1 20,957,253 9.9 1990 84.7 (0.6) 22,793,998 8.8 1991 80.3 (5.2) 22,532,851 (1.1) 1992 83.9 4.5 23,434,021 4.0 1993 87.6 4.4 27,514,586 17.4 1994 89.0 1.6 28,768,716 4.6 1995 88.0 (1.1) 28,922,775 0.5 1996 90.4 2.7 32,689,797 13.0 YTD 5/96 92.3 --- 12,688,051 --- YTD 5/97 89.4% (3.1) 13,723,378 8.2 1.5% 5.% Source: Las Vegas Convention and Visitors Authority HVS International, Mineola, New York Lodging Supply and Demand Analysis 3 Las Vegas Annual Lodging Trend [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH/BAR CHART IN THE PRINTED MATERIAL.] Room Motel Hotel Inventory Occupancy Occupancy - ----------------------------------------------------------- 1983 52,529 63.3% 77.4% 1984 54,129 61.7 78.1 1985 53,067 70.1 84.7 1986 56,494 70.9 86.3 1987 58,474 74.0 87.0 1988 61,394 73.7 89.3 1989 67,391 72.5 89.9 1990 73,730 69.8 89.1 1991 76,879 62.6 85.2 1992 76,523 66.1 88.8 1993 86,053 69.7 92.6 1994 88,560 73.2 92.6 1995 90,046 72.4 91.4 1996 99,072 75.7 93.4 YTD 5/96 91,720 79.2 95.1 YTD 5/97 102,536 74.5% 92.6% HVS International, Mineola, New York Lodging Supply and Demand Analysis 4 Las Vegas Room Inventory and Occupancy Percentage by Month [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.] Occupancy % Room Inventory - ----------------------------------------------- Jan 93 76.2% 75,475 Feb 88.8% 75,475 Mar 88.6% 75,475 Apr 90.5% 75,475 May 86.5% 75,475 Jun 86.9% 75,846 Jul 91.0% 75,846 Aug 94.0% 75,846 Sep 89.9% 76,145 Oct 92.3% 81,670 Nov 87.5% 86,053 Dec 79.2% 86,053 Jan 94 80.0% 86,053 Feb 90.6% 86,053 Mar 94.4% 86,053 Apr 93.3% 86,053 May 91.3% 86,603 Jun 89.7% 86,603 Jul 91.3% 86,759 Aug 91.0% 87,677 Sep 90.3% 87,845 Oct 91.6% 87,845 Nov 89.0% 87,845 Dec 83.0% 88,560 Jan 95 82.6% 88,737 Feb 88.9% 88,055 Mar 94.1% 88,720 Apr 91.8% 89,065 May 86.7% 89,065 Jun 88.9% 89,594 Jul 87.8% 89,723 Aug 90.5% 89,723 Sep 88.9% 89,723 Oct 91.4% 89,723 Nov 84.7% 89,723 Dec 79.9% 90,046 Jan 96 87.3% 90,046 Feb 92.4% 90,046 Mar 95.8% 90,266 Apr 94.8% 90,161 May 91.1% 91,720 Jun 90.1% 93,997 Jul 89.7% 94,056 Aug 93.2% 94,289 Sep 90.3% 95,092 Oct 92.9% 95,336 Nov 88.1% 94,776 Dec 78.7% 99,072 HVS International, Mineola, New York Lodging Supply and Demand Analysis 5 The following table presents the most recent market trends for the Las Vegas Strip ($72 million and over) market. Las Vegas Strip ($72 million and over) - Lodging Statistics
Fiscal Year Occupancy % Change Average Rule % Change REVPAR % Change - --------------------------------------------------------------------------------------------------------- 1990 90.6% --- $62.74 --- $56.81 --- 1991 89.0 (1.7)% 58.83 (6.2)% 52.35 (7.9)% 1992 89.9 1.0 57.32 (2.6) 51.51 (1.6) 1993 92.8 3.2 61.63 7.5 57.16 11.0 1994 95.5 3.0 66.20 7.4 63.25 10.6 1995 94.1 (1.6) 74.61 12.7 70.17 10.9 1996 94.8 0.8 79.19 6.1 75.05 7.0 Average Annual % Change 0.8% 3.5% 4.3% - ---------------------------------------------------------------------------------------------------------
As evidenced, occupancy within this segment has only grown at an annual average rate of 0.8%. However, the market has experienced the largest increase in supply during this period. Overall, occupancy levels are strong despite a moderate decline in 1995. Average rates have grown at an average annual rate of 3.5% since 1990, with the largest increase in 1995 at 12.7%. Revenue per available room (RevPAR) has increased at an average annual rate of 4.3%, reflecting gains in both occupancy and average rate. In addition, RevPAR has grown significantly since 1993, when the new mega-resorts began to open. Demand Segmentation Similar to our analysis of gaming demand, lodging demand within the Las Vegas market is generally classified into four major segments: leisure, casino, convention, and wholesale. The leisure segment is characterized by individuals and families drawn to the Las Vegas area for purposes of gaming, tourism, and recreation. In that leisure segment guests are price sensitive, this demand is often attracted by promotional activities that feature a high price-value relationship. This demand peaks on weekends, in the summer, and during holiday periods. The casino segment generally consists of those patrons classified as "casino-invited guests." A casino-invited guest can range from a rated slot player to a "high roller." Casino-invited guests are targeted by marketing campaigns and usually "comped" (given complimentary rooms, food, and/or beverages) in return for specific levels of casino play. The casino segment usually accounts for 25% to 50% of a casino hotel's total accommodated room nights. The convention segment includes citywide conventions, meetings, and trade association shows. Given the size and high price-value of the Las Vegas Convention HVS International, Mineola, New York Lodging Supply and Demand Analysis 6 Center, Las Vegas is home to some of the largest conventions and trade shows in the nation. The average length of stay for a typical convention ranges from three to five days. Room night demand generated by the wholesale market typically consist of a block of rooms sold by the casino hotel to an outside wholesaler at a lower rate ensuring a base occupancy level. The wholesaler packages the room with other amenities and charges a premium, profiting on the spread. Room blocks allocated to wholesalers will vary depending on the season and the day of the week. Competition An integral component of the supply and demand relationship that has a direct impact on the availability of lodging demand is the current and anticipated supply of competitive lodging facilities. Based on our evaluation of the market orientation, location, facilities, and amenities of the area's casino hotels, we have identified five properties that will compete most directly with the Proposed Aladdin Hotel and Casino. However, given the highly competitive nature of the Las Vegas market, the subject property competes indirectly with all casino hotels to some degree. The following chart describes the characteristics pertinent to the subject property and each of its competitors, including number of rooms, casino square footage, meeting space, and estimates of their 1996 market segmentation, occupancy, average rate. HVS International, Mineola, New York Lodging Supply and Demand Analysis 7 Competitive Review
Estimated 1996 Segmentation --------------------------------------------------------- Casino Number Square Meeting Property of Rooms Footage Space S.F. Leisure Casino Convention Wholesale - ------------------------------------------------------------------------------------------------------------------------ Mirage 3,044 95,900 71,000 30.0% 40.0% 20.0% 10.0% Caesars 1,400 118,000 100,000 20.0 40.0 30.0 10.0 MGM 5,005 171,500 50,000 20.0 40.0 20.0 20.0 Luxor 4,425 120,000 20,000 20.0 30.0 20.0 30.0 Treasure Island 2,891 82,000 16,000 30.0 40.0 20.0 10.0 ----- ------ ------ ---- ---- ---- ---- Total/Avg 16,765 587,400 257,000 24.0% 38.0% 22.0% 16.0% Estimated 1996 --------------------------------------------------------------------------------------- Occupancy Average Rate Yield Property Occupancy Average Rate RevPAR Penetration Penetration Penetration - --------------------------------------------------------------------------------------------------------- Mirage 97.0% $130.00 $126.10 104.1% 115.0% 119.7% Caesars 91.0 130.00 118.30 97.6 115.0 112.3 MGM 92.0 110.00 101.20 98.7 97.3 96.1 Luxor 92.0 95.00 87.40 98.7 84.1 83.0 Treasure Island 94.0 100.00 94.00 100.9 88.5 89.3$ ---- ------ ----- ----- ---- ----- Total/Avg 93.2% $113.00 $105.32 100.0% 100.0% 100.0%
- -------------------------------------------------------------------------------- HVS International, Mineola, New York Lodging Supply and Demand Analysis 8 These properties compete for the mid-to upper-priced segment of the leisure, casino, convention, and wholesale demand segments. Overall, these properties attained an occupancy of 93.2% and an average rate of $113 in 1996. The occupancy and average rate leader was the Mirage (97% and $130), with Caesars Palace obtaining a similar average rate at a lower occupancy (91%). All of the properties listed obtained occupancies above the 90% level and an average rate above $100, with the exception of the Luxor with an average rate of $95. The Luxor's average rate was below those of the other competitors primarily due to the owners' (Circus Circus), philosophy of selling rooms at a steep discount to maximize casino traffic. Additions to Similar to the additions to supply discussed in the "Gaming Supply Supply and Demand Analysis" section of this report, we believe the proposed mega-resorts slated for opening over the next several years will compete for lodging demand with the subject property. The following is a list of these properties. Additions to Supply - Las Vegas Strip ($72 million and over) market Estimated Cost Opening Name/Location (millions) Operator Date Rooms - -------------------------------------------------------------------- Bellagio 1,350.0 Mirage Resorts 4/1/98 3,005 Project Paradise 1,000.0 Circus Circus 10/1/98 3,800 Paris 750.0 Hilton 4/1/99 3,000 Venetian Phase I 1,800.0 Sheldon Adelson 6/1/99 3,000 Venetian Phase II -- Sheldon Adelson 1/1/00 3,000 New York - New York 460.0 MGM Grand 1/1/97 2,035 -------- ------ Total $5,360.0 17,840 Source: Las Vegas Convention and Visitors Authority - -------------------------------------------------------------------------------- As with gaming, the subject property is not expected to compete directly with the Bellagio and Project Paradise for lodging demand, due to these properties' high-end orientations. However, Hilton's Paris project and the Venetian project are expected to compete primarily with the proposed Aladdin Hotel and Casino. Lodging As mentioned throughout this study, Las Vegas is a one of the Seasonality top leisure destination markets in the world. In addition, Las Analysis Vegas is a leading convention market, hosting several of the nation's largest conventions and trade shows each year at the Las Vegas Convention Center. Reflecting the market's leisure orientation and large-scale conventions, demand and pricing levels fluctuate materially depending on the season, the level of convention activity, and between weekend and mid-week periods. Further, demand peaks during holiday periods and throughout the year over the course of various special events such as high-profile boxing matches, rodeos, and other sporting events. HVS International, Mineola, New York Lodging Supply and Demand Analysis 9 Our fieldwork and research indicate that the subject property's attainable occupancy level is a function of management's ability to attract and accommodate demand already present in the market, as well as capture demand induced by the new mega-resorts opening in the next few years. Successful penetration into the market is dependent on several factors including: The overall quality of the subject's physical improvements, including the exterior, interior design and layout, and room design and layout; The appeal and acceptance of the property's theme; Access to the property, including egress and ingress from Las Vegas Boulevard, and available parking; Promotional programs and public relations exposure; Targeted marketing programs; and Appropriate segmented pricing strategy. A seasonality model forecasts the overall occupancy of a lodging property based on attainable occupancy levels during specific periods of demand prevalent over the course of a typical year. Weekend and mid-week days are categorized as belonging to one of the four periods: peak, non-peak, city-wide convention, and special-event. Once demand levels are assessed, the subject's market mix is projected, resulting in a forecast of accommodated room nights by market segment. The subject property's average rate is then forecast based on a segmented pricing strategy. To derive a forecast of occupancy for the subject property, a seasonality analysis is performed. The first step in performing a seasonality analysis is to define the different periods of demand prevalent within the market. For the purpose of this analysis we have divided the year into the following three seasons: peak, shoulder, and off. Further, we have segmented the three seasons by weekend and mid-week, reflecting the weekly fluctuations in demand. The corresponding occupancy level for each demand period is then multiplied by the subject property's total number of available rooms to derive the number of occupied room nights during each demand period. Occupied Room Nights: Peak Weekend = (2,600 x 99.0% = 2,574) The number of days within each demand period by month is estimated and then multiplied by the calculated number of occupied room nights for the corresponding demand period. Occupied Room Nights: Peak Weekends in January = (3 x 2,574 = 7,722) This calculation is performed for each demand period, and the results are totaled. The total number of occupied room nights is then divided by the total number of available room nights to arrive at the monthly weighted average occupancy level. HVS International, Mineola, New York Lodging Supply and Demand Analysis 10 The monthly totals are then summed to arrive at an annual estimate of occupied room nights, which is divided by the annual number of available rooms equating to the subject property's annual occupancy figure. The total occupied room nights by month are then multiplied by the corresponding market mix percentages, and summed together, to arrive at the annual market mix for the property. Occupancy by The first process in deriving annual occupancy is to estimate Season the occupancy level the subject property is likely to achieve on weekend and mid-week days during the peak and non-peak seasons and throughout special event and convention demand periods. In order to gauge demand fluctuations between the peak and non-peak seasons, a review of monthly operating statistics was performed. The following table presents monthly marketwide occupancy levels by total properties, hotels, motels, mid-week, and weekend for 1995 and 1996, as published by the Las Vegas Convention and Visitors Authority. HVS International, Mineola, New York Lodging Supply and Demand Analysis 11 Marketwide Occupancy by Month - Las Vegas, NV
1995 1996 ------------------------------------------ ------------------------------------------ Month Total Hotel Motel Mid-week Weekend Total Hotel Motel Mid-week Weekend - -------------------------------------------------------------------------------------------------------- January 82.6% 86.1% 66.7% 78.0% 92.1% 87.3% 90.8% 71.0% 84.8% 93.5% February 88.9 91.9 75.5 85.8 95.6 92.4 94.7 81.7 90.3 97.1 March 94.1 96.0 85.4 92.9 97.1 95.8 97.8 86.6 94.7 98.2 April 91.8 95.1 76.6 90.0 95.9 94.8 97.4 82.7 93.8 97.5 May 86.7 90.2 70.6 83.3 94.9 91.1 94.7 74.1 88.8 96.1 June 88.9 92.7 71.7 86.9 93.8 90.1 93.8 72.1 88.2 94.5 July 87.8 91.5 70.5 86.5 91.1 89.7 92.9 73.9 88.3 92.6 August 90.5 93.8 74.9 89.1 94.6 93.2 96.1 79.1 92.6 94.5 September 88.9 92.3 73.0 86.4 93.4 90.3 93.2 76.1 88.3 94.8 October 91.4 94.3 77.8 89.4 97.2 92.9 95.7 79.4 91.1 98.0 November 84.7 88.6 65.9 81.6 91.9 88.1 91.0 74.2 86.5 90.9 December 79.9 84.1 60.5 77.4 84.0 78.7 83.1 57.6 76.5 85.0 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Average 88.0% 91.4% 72.4% 85.6% 93.5% 90.4% 93.4% 75.7% 88.7% 94.4%
Source: Las Vegas Convention and Visitors Authority - -------------------------------------------------------------------------------- As noted, occupancy levels generally peak in March, April, May, August, and October before dropping in November, December, and January. The difference between the high and low monthly occupancies, which was 17 percentage points in 1996, is low compared to other leisure destinations. Occupancy levels in Las Vegas are higher during the weekend periods, which is defined as Friday night and Saturday. As evidenced, the spread between weekend and mid-week occupancy was 5.7 percentage points in 1996. The fluctuations in marketwide demand on a weekly and seasonal basis mirror the anticipated results of the subject property. The following table presents our projections of the subject property's attainable occupancy level in each demand period. Projection of Seasonal Occupancy Levels 2000 2001 Estimated Estimated Demand Period Occupancy % Occupancy % ------------------------------------------------------------- Peak Weekend 99.0% 99.0% Peak Mid-week 94.0 94.0 Non-Peak Weekend 89.0 89.0 Non-Peak Mid-week 82.0 82.0 Convention 94.0 94.0 Special Event 99.0 99.0 ------------------------------------------------------------- Peak demand within the subject's market area occurs primarily during the months of March, April, May, August, and October. Peak weekend and mid-week occupancy HVS International, Mineola, New York Lodging Supply and Demand Analysis 12 rates of 99% and 94%, respectively, have been deemed attainable, given existing levels of unaccommodated and accommodated demand in the market. In addition, the subject property, through public relations and advertising, will induce a significant portion of demand. Fluctuations in the non-peak season are commensurate with weather conditions and demand softens through September, November, December, January, and February. During this period, demand is estimated to vary between weekend and mid-week by approximately 10%, with an attainable weekend occupancy estimated to be 89%, and an attainable mid-week occupancy of 82%. We have estimated the subject property to attain an average occupancy of 94% during citywide conventions and 98% during special events. For the purpose of this analysis we have included the top three citywide conventions, COMDEX, the Consumer Electronics Show, and National Association of Broadcasters, as special events. Estimated Demand The second process involves identifying each demand period by Periods day over the course of a year. For the purpose of this analysis we have utilized convention booking and special event reports published by the Las Vegas Convention and Visitors Authority to estimate the number of citywide convention days and special events. Peak and non-peak days have been estimated based on monthly trends and our conversations with local operators. Market The following projected market segmentation has been estimated Segmentation based on the current trends prevalent in the local area and our estimates of demand which the property will induce. The objective of a traditional hotel casino is to obtain an optimal demand mix throughout the year that will increase the overall utilization of the casino. As such, we have utilized a stabilized demand mix throughout the year. The following chart sets forth an estimate of the market segmentation by month for the proposed Aladdin Hotel and Casino. HVS International, Mineola, New York Lodging Supply and Demand Analysis 13 Estimated Market Segmentation by Month - Proposed Aladdin Hotel and Casino 2000 Market Segmentation -------------------------------------- FIT Casino Wholesale Group -------------------------------------------------- January 30.0% 30.0% 20.0% 20.0% February 30.0 30.0 20.0 20.0 March 30.0 30.0 20.0 20.0 April 30.0 30.0 20.0 20.0 May 30.0 30.0 20.0 20.0 June 30.0 30.0 20.0 20.0 July 30.0 30.0 20.0 20.0 August 30.0 30.0 20.0 20.0 September 30.0 30.0 20.0 20.0 October 30.0 30.0 20.0 20.0 November 30.0 30.0 20.0 20.0 December 30.0 30.0 20.0 20.0 ---- ---- ---- ---- Average 30.0% 30.0% 20.0% 20.0% -------------------------------------------------------------- As shown the subject property is expected to receive a majority of its lodging demand from the FIT and casino invited guest segments. This is typical of a hotel casino offering the high quality product and amenities package of the subject. The following table shows the forecast of the subject property's occupancy based on the preceding analysis. HVS International, Mineola, New York Lodging Supply and Demand Analysis 14 Occupancy Forecast - Proposed Aladdin Hotel and Casino
2000 Estimated Days of Each Type ------------------------------------------------------------- Peak Peak Non-Peak Non-Peak Special Nights Room Month Weekend Mid-week Weekend Mid-week Convention Event Available Nights Occupancy - ---------------------------------------------------------------------------------------------------------- January 3 0 3 11 6 8 80,600 73,372 91.0% February 2 7 2 3 10 4 72,800 68,016 93.4 March 4 17 0 0 5 5 80,600 76,934 95.5 April 4 13 0 1 4 8 78,000 74,568 95.6 May 6 12 0 0 6 7 80,600 77,454 96.1 June 8 19 0 0 3 0 78,000 74,360 95.3 July 8 9 0 11 0 3 80,600 73,762 91.5 August 8 15 0 0 8 0 80,600 76,804 95.3 September 2 6 4 7 7 4 78,000 71,396 91.5 October 10 13 0 4 4 0 80,600 75,816 94.1 November 0 0 6 16 0 8 78,000 68,588 87.9 December 0 0 6 16 0 9 80,000 71,162 88.3 - - - -- - - ------ ------ ---- Totals 55 111 21 69 53 56 949,000 832,232 93.0%
2000 Market Segmentation Segmented Room Nights ------------------------------------ ------------------------------------ Month Leisure Casino Wholesale Group Leisure Casino Wholesale Group - ---------------------------------------------------------------------------------------- January 30.0% 30.0% 20.0% 20.0% 22,012 22,012 14,674 14,674 February 30.0 30.0 20.0 20.0 20,405 20,405 13,603 13,603 March 30.0 30.0 20.0 20.0 23,080 23,080 15,387 15,387 April 30.0 30.0 20.0 20.0 22,370 22,370 14,914 14,914 May 30.0 30.0 20.0 20.0 23,236 23,236 15,491 15,491 June 30.0 30.0 20.0 20.0 22,308 22,308 14,872 14,872 July 30.0 30.0 20.0 20.0 22,129 22,129 14,752 14,752 August 30.0 30.0 20.0 20.0 23,041 23,041 15,361 15,361 September 30.0 30.0 20.0 20.0 21,419 21,419 14,279 14,279 October 30.0 30.0 20.0 20.0 22,475 22,475 15,163 15,163 November 30.0 30.0 20.0 20.0 20,576 20,576 13,718 13,718 December 30.0 30.0 20.0 20.0 21,349 21,349 14,232 14,232 ---- ---- ---- ---- ------ ------ ------ ------ Totals 30.0% 30.0% 20.0% 20.0% 264,670 264,670 176,446 176,446
HVS International, Mineola, New York Lodging Supply and Demand Analysis 15 We have forecast a stabilized occupancy level of 93% in 2000. The stabilized occupancy is intended to reflect the anticipated results of the property over its remaining economic life, given any and all changes in the life cycle of the property. Thus, the stabilized occupancy excludes from consideration any abnormal relationships between supply and demand, as well as any nonrecurring conditions that may result in unusually high or low occupancies. Although the subject property may operate at occupancies above this stabilized level, we believe it equally possible for new competition and temporary economic downturns to force the occupancy below this selected point of stability. Average Rate Forecast Average rate is more formally defined as the average rate per occupied room, and is calculated by dividing the total rooms revenue achieved during a specified period by the number of rooms sold during the same period. Where occupancy is a measure of rooms volume, average rate is a measure of price, and the two together equate to total rooms revenue. Although the average rate analysis presented here follows the occupancy analysis, these two statistics are highly correlated; in reality, occupancy cannot be projected without specific assumptions being made about average rate. Our forecast of average rate is based upon the most probable rate attainment for the subject property (segmented by demand period) and projected growth rates applied to this indicator. The following table presents the subject property's estimated average rate levels by market segment and demand period for the first projection year, 2000. The segmented rate projections have been deflated to year-end 1996 in order to compare our forecast to the actual operating results of the competitive properties. HVS International, Mineola, New York Lodging Supply and Demand Analysis 16 Estimated Average Rate by Segment and Period
Base Year Segmented Rate Assumptions ------------------------------------------- Annual Deflated Demand Period FIT Casino Wholesale Group Average ADR (1996) - ------------------------------------------------------------------------------------------- Peak Weekend $175.00 $150.00 $125.00 $140.00 $150.00 $133.72 Peak Mid-week 140.00 125.00 100.00 110.00 121.50 107.95 Non-Peak Weekend 110.00 100.00 85.00 90.00 98.00 87.07 Non-Peak Mid-week 95.00 85.00 80.00 85.00 87.00 77.30 Convention 200.00 150.00 120.00 160.00 161.00 143.05 Special Event 250.00 200.00 180.00 185.00 208.00 184.81 ------- ------- ------- ------- Annual Average $160.63 $134.90 $114.30 $127.41 Deflated ADR (1996) $142.72 $119.86 $101.56 $113.20 Total Average Rate $137.00 Deflated ADR (1996) $121.73
- -------------------------------------------------------------------------------- In positioning the average rate of the subject property in 1996 dollars, we assume that the hotel will be constructed in a first-class manner and that the property will achieve an occupancy level slightly below that of the current competitive market. Based on this premise, and considering the benefits of the subject property's theme and amenities package, we have conservatively positioned the average rate of the subject property at $137.00, or $121.73 in 1996 dollars. This represents an average rate above that of the competitive market ($113) but below that of the Mirage and Caesars Palace ($130). Although the subject property may attain a higher average rate, it is also possible that increased capacity in the market may result in a lower level. As indicated in the table, the FIT segment is projected to command the highest average rates throughout the entire year. The wholesale segment is projected to achieve the lowest average rate. As discussed, the degree to which a casino will discount and its complimentary policy are commensurate with the competitiveness of the market and the target market. The group and casino segments have been priced according to the type and amount of group and casino demand that will likely be pursued. Citywide conventions and special event periods are priced to maximize rate without gouging the consumer. HVS International, Mineola, New York Lodging Supply and Demand Analysis 17 Average Rate Growth Because average rates are affected by market conditions such as the relationship between supply and demand, increases do not necessarily mirror the underlying monetary inflation rate. A hotel's ability to raise room rates is affected by a number of factors, including the following. Supply and Demand Relationships - The relationship between supply and demand is one of the factors that determine hotel occupancies and average rates. Strong markets where lodging demand is increasing faster than supply are often characterized by rate growth that exceeds inflation. Markets that are overbuilt or suffering from declining demand are unlikely to exhibit any significant increases in average rates. Inflationary Pressures - Price increases caused by inflation affect hotel room rates by eroding profit margins and encouraging operators to raise prices. This strategy is effective only in markets that are characterized by a healthy supply and demand relationship. Improving the Competitive Standard - When a new facility enters a mature market, its rates may be set higher than the marketwide average in an effort to justify the development costs. This may allow other competitors to achieve corresponding gains by effectively raising the amount the market will bear. However, if the addition to supply has a severe impact on the occupancy levels of other hotels, price competition may ensue. Property-Specific Improvements - Changes that make a hotel more or less attractive to guests can have an impact on average rate. An expansion, renovation, upgrading, or the introduction of additional facilities and amenities may enable greater-than-inflationary room rate increases. Likewise, deferred maintenance may make a property less competitive, engendering a decline in room rates. In determining average rate projections, changes that occur prior to occupancy stabilization are generally attributable to factors that are specific to the property and the market. After a hotel achieves a stabilized occupancy, room rates are generally expected to continue to increase at the underlying inflation rate throughout the remainder of the projection period. Based on the topics discussed previously, as well as the historical performance of the Las Vegas hotel market, we believe average rate growth for the subject will mirror the rate of inflation throughout the projection period. As such, average rates have been forecast to increase by 3.0% per year for all segments. Projection of The following chart summarizes our forecast of Occupancy and occupancy and average rate for the proposed Average Rate Aladdin Hotel and Casino. Forecast of Occupancy and Average Rate HVS International, Mineola, New York Lodging Supply and Demand Analysis 18 2000 -------------------------------------------- Calendar Year Occupancy 93.0% Calendar Year Average Rate $137.00 -------------------------------------------------- We have chosen a stabilized occupancy and average rate level of 93.0% and $137, respectively, in 2000. The subject property's anticipated stabilized occupancy and average rate reflect the following key benefits and risks. The outlook for the Las Vegas lodging market is strong, and the health of the regional economy is likely to support further increases in demand as allowed by increases in supply. The subject site is located in a prime location of the Las Vegas Strip. The risks of future supply-side expansion are significant. Were the barriers to entry greater, a higher stabilized occupancy and average rate could reasonably be supported. xxxxx HVS International, Mineola, New York Income Capitalization Approach 1 11. Income Capitalization Approach The income capitalization approach is based on the principle that the value of a property is indicated by the net return to the going concern or what is also known as the present worth of future benefits. The future benefits from income-producing properties, such as casinos, casino hotels, hotels, and motels, are the net income before debt service and depreciation, derived from a forecast of income and expense. These future benefits can then be converted into an indication of market value through a mortgage equity capitalization process and a traditional discounted cash flow analysis. Using the income capitalization approach, we have estimated the subject property's market value. Based on an analysis of the Las Vegas Strip ($72 million and over) gaming market's existing and proposed gaming supply, followed by an examination of regional and local demand trends, we have developed a forecast of income and expense that reflects current and future anticipated income trends, as well as area cost components, up through a stabilized year of operation. The forecast of income and expense is expressed in current dollars as of the date of each forecasted year. The last forecasted year, or what is referred to as the stabilized year, is intended to reflect the anticipated operating results of the property over its remaining economic life, given any and all applicable stages of build-up, plateau, and decline in the life cycle of the gaming property. Therefore, such income and expense estimates from the stabilized year forward exclude from consideration any abnormal relation of supply and demand, and also any transitory or nonrecurring conditions which may result in unusual revenue or expenses of the property. As stated in the textbook entitled Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations, published by the Appraisal Institute, "of the three valuation approaches available to the appraiser, the income capitalization approach generally provides the most persuasive and supportable conclusions when valuing a lodging facility." This text notes that using a 10-year forecast and an equity yield rate "most accurately reflects the actions of typical hotel buyers, who purchase properties based on their leveraged discounted cash flow." The simpler procedure of using a 10-year forecast and a discount rate is "less reliable because the derivation of the discount rate has little support. Moreover, it is difficult to adjust the discount rate for changes in the cost of capital."(8) These same principles apply to the valuation of gaming properties due to the labor-intense nature of the entities. ------------ (8) Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations, Stephen Rushmore, Appraisal Institute, Chicago, IL, 1992, p. 236. HVS International, Mineola, New York Income Capitalization Approach 2 The subject property has been valued using both a traditional 10-year discounted cash flow analysis and a 10-year discounted cash flow analysis in which the cash flow to equity and the equity reversion are discounted to the present value at the equity yield rate and the income to the mortgagee is discounted at a mortgage interest rate. The sum of the equity and mortgage values is the total property value. To convert the forecasted income stream into an estimate of value, the anticipated net income (before debt service and depreciation) is allocated to the mortgage and equity components based on market rates of return and loan-to-value ratios. The total of the mortgage component and the equity component equals the value of the property. The process of estimating the value of the mortgage and equity components is described as follows. 1. The terms of typical gaming property investors financing are set forth, including interest rate, amortization term, and loan-to-value ratio. 2. An equity yield rate of return is established. Many gaming property investors base their equity investments on a 10-year equity yield rate projection that takes into account ownership benefits such as periodic cash flow distributions, residual sale or refinancing distributions that return any property appreciation and mortgage amortization, income tax benefits, and various non-financial considerations such as status and prestige. The equity yield rate is also known as the internal rate of return on equity. 3. The value of the equity component is calculated by first deducting the annual debt service from the projected net income before debt service, leaving the net income to equity for each projection year. The net income as of the 11th year is capitalized into a reversionary value. After deducting the mortgage balance at the end of the 10th year and the typical brokerage and legal costs, the equity residual is discounted back to the date of value at the equity yield rate. The net income to equity for each of the 10 projection years is also discounted to the present value. The sum of these discounted values equates to the value of the equity component. Adding the equity component to the initial mortgage balance yields the overall property value. Because the mortgage and the debt service amounts are unknown but the loan-to-value ratio was determined in step #1, the preceding calculation can be solved through an iterative process or by use of a linear algebraic equation that computes the total property value. The algebraic equation that solves for the total property value using a ten-year mortgage/equity technique was developed by Suzanne R. Mellen, CRE, MAI, managing director of the San Francisco office of HVS International. A complete HVS International, Mineola, New York Income Capitalization Approach 3 discussion of the technique is presented in her article entitled, "Simultaneous Valuation: A New Technique."(9) 4. The value is proven by allocating the total property value between the mortgage and equity components and verifying that the rates of return set forth in steps #1 and #2 can be met from the forecasted net income. Comparable In the forecast of income and expense, presented later in Income and this section, the composite statements will be utilized as Expense Statements a basis of comparison to ascertain the reasonableness of our forecast where applicable. We have presented a composite statement of casino hotels located within the Las Vegas Strip ($72 million & over) market as compiled by the Nevada Gaming Control Board and published in the Nevada Gaming Abstract, 1995 and 1996. Historical Statements of Income and Expense - Proposed Aladdin Hotel and Casino ---------- (9) Suzanne R. Mellen. "Simultaneous Valuation: A New Technique," Appraisal Journal, April, 1983. HVS International, Mineola, New York Income Capitalization Approach 4 Fiscal Year 1996 1995 Location Las Vegas Strip Las Vegas Strip Number of Locations 19 19 Number of Rooms 45,291 44,490 Occupancy 94.8% 94.1% Average Rate $79.19 $74.61 Occupied Rooms 15,666,731 15,272,638
(000s) % Gross PAR(1) POR(2) (000s) % Gross PAR(1) POR(2) - ----------------------------------------------------------------------------------------------------------------------------------- Revenues Gaming $3,194,527 52.6% $70,533 $203.91 $3,086,131 53.6% $69,367 $202.07 Rooms 1,240,619 20.4 27,392 79.19 1,139,558 19.8 25,614 74.61 Food 656,570 10.8 14,497 41.91 632,475 11.0 14,216 41.41 Beverage 277,885 4.6 6,136 17.74 273,743 4.8 6,153 17.92 Other Income 700,428 11.5 15,465 44.71 621,797 10.8 13,976 40.71 ---------- ---- ------- ------ ---------- ---- ------- ------ Total Revenues 6,070,029 100.0 134,022 387.45 5,753,705 100.0 129,326 376.73 Departmental Expense * Casino 1,826,188 57.2 40,321 116.56 1,768,141 57.3 39,742 115.77 Rooms 451,921 36.4 9,978 28.85 430,029 37.7 9,666 28.16 Food 678,850 103.4 14,989 43.33 669,096 105.8 15,039 43.81 Beverage 183,764 66.1 4,057 11.73 182,125 66.5 4,094 11.92 Other Income 427,180 61.0 9,432 27.27 422,055 67.9 9,487 27.63 ---------- ---- ------- ------ ---------- ---- ------- ------ Total Departmental Exp 3,567,904 58.8 78,777 227.74 3,471,445 60.3 78,028 227.30 Departmental Income 2,502,125 41.2 55,245 159.71 2,282,260 39.7 51,298 149.43 Undistributed Operating Expenses Administrative and General 663,174 10.9 14,642 42.33 640,544 11.1 14,397 41.94 Marketing 90,967 1.5 2,008 5.81 89,770 1.6 2,018 5.88 Energy 88,971 1.5 1,964 5.68 89,844 1.6 2,019 5.88 Complimentary/Promotions 40,152 0.7 887 2.56 35,979 0.6 809 2.36 Entertainment 63,314 1.0 1,398 4.04 55,473 1.0 1,247 3.63 ---------- ---- ------- ------ ---------- ---- ------- ------ Total 946,577 15.6 20,900 60.42 911,611 15.8 20,490 59.69 House Profit 1,555,549 25.6 34,345 99.29 1,370,649 23.8 30,808 89.75 Fixed Charges Property Tax 46,350 0.8 1,023 2.96 45,238 0.8 1,017 2.96 Rent of Premises 18,157 0.3 401 1.16 17,638 0.3 396 1.15 Equipment Lease 3,162 0.1 70 0.20 7,811 0.1 176 0.51 ---------- ---- ------- ------ ---------- ---- ------- ------ Total 67,670 1.1 1,494 4.32 70,687 1.2 1,589 4.63 Net Income $1,487,879 24.5% $32,851 $94.97 $1,299,962 22.6% $29,219 $85.12 ========== ==== ======= ====== ========== ==== ======= ====== Food as a % of Gaming Revenue 20.6% 20.5% Beverage as a % of Gaming Revenue 8.7 8.9 Other Income as a % of Gaming Revenue 21.9 20.1
* Departmental expenses expressed as a percentage of departmental revenues (1) Per Available Room (2) Per Occupied Room Sources: Nevada Gaming Abstract, State Gaming Control Board HVS Gaming Services - -------------------------------------------------------------------------------- HVS International, Mineola, New York Income Capitalization Approach 5 As shown, the Las Vegas Strip ($72 million and over) market has shown increasing profitability over the past two years. Specifically house profit equated to 25.6% of total revenue in 1996, up from 23.8% of total revenue in 1995. Similarly, net income increased from 22.6% of total revenue in 1995 to 24.5% of total revenue in 1996. The increased profitability of the Las Vegas Strip ($72 million and over) market is attributable to overall revenue increases as well as decreases in departmental and undistributed operating expenses. Revenue increases from 1995 to 1996 were spurred by a 3.5% increase in gaming revenue and a 8.9% increase in rooms revenue. The rooms revenue increase was achieved through a 6.1% increase in average rate and a minimal increase in occupancy. Departmental expenses ratios were pared from 60.3% of departmental income in 1995 to 58.8% in 1996, while undistributed operating expenses decreased minimally from 15.8% of total revenue to 15.6% of total revenue. In addition, we have investigated the performance of several of the larger casino companies operating within the Las Vegas Strip ($72 million and over) market. The following chart details operating expense ratios for these selected companies. Casino Department Expenses, Selected Properties Las Vegas Strip ($72 million and over) Casino Expenses Rooms Expenses Food & Beverage Expenses ----------------- ---------------- ------------------------ 1996 1995 1996 1995 1996 1995 ----------------- ---------------- ------------------------ Mirage 51.% 49.5% 29.2% 30.% 63.% 50.% Circus Circus 46.1 41.5 39.6 39.6 95.4 93.7 Hilton 54.4 50.6 N/A N/A N/A N/A Caesars 57.4 51.4 35.7 35.7 89.9 114.3 Source: Individual Company 10K Reports - -------------------------------------------------------------------------------- These ratios will also be used as a basis for forecasting the subject property's expense levels. Inflation Analysis To forecast income and expense levels, we must establish a general rate of inflation. The following table shows how the consumer price index for the urban consumer, all items, has changed in the Western United States between 1990 and 1996 (data specific to Las Vegas were not available). HVS International, Mineola, New York Income Capitalization Approach 6 Consumer Price Index - Western United States Area Consumer Percentage Year Price Index Change - ------------------------------------------------------------------------- 1990 131.5 --- 1991 137.3 4.4% 1992 142.0 3.4 1993 146.2 3.0 1994 149.6 2.3 1995 153.5 2.6 1996 157.6 2.7 Average Annual % Change 1990-96: 3.1% Source: Bureau of Labor Statistics - -------------------------------------------------------------------------------- In consideration of these data and the trends of the last three years, our assessment of probable property appreciation levels, and the subject property's ability to control costs, we have applied an underlying inflation rate of 3.0% to all appropriate revenue and expense items. This stabilized inflation rate takes into account normal, recurring inflation cycles. Inflation is likely to fluctuate above and below this level during the projection period. Fixed and In forecasting revenues and expenses for a gaming Variable Component property, HVS International uses a fixed and variable Analysis component model. The logic behind this model is based on the premise that gaming property revenue and expenses have a component that is fixed and another component that varies directly with gaming volume and facility use. Therefore, a projection can be made by taking a known level of revenue or expense and calculating the fixed component, as well as the variable portion. The fixed component is then held at a constant level, while the variable component is adjusted for the percentage change in either the projected gaming/lodging volume or facility use, which produces the known level of revenue or expense. The following table illustrates the revenue and expense categories that can be projected using this fixed and variable component model. These percentages show the portion of each category that is typically fixed and variable. The last column describes the basis for calculating the percentage of variability. HVS International, Mineola, New York Income Capitalization Approach 7 Range of Fixed and Variable Ratios
Revenue and Expense Category Percent Fixed Percent Variable Index of Variability - --------------------------------------------------------------------------------------------------------- Revenues Food 0 - 30 % 70 - 100 % Gaming/Occ. Beverage 0 - 30 70 - 100 Gaming/Food Rev. Retail 10 - 40 60 - 90 Gaming/Occ. Other Income 30 - 60 40 - 70 Gaming/Occ. Departmental Expenses Casino 60 - 90 10 - 40 Gaming Rooms 50 - 70 30 - 50 Occupancy Food and Beverage 35 - 60 40 - 65 Food & Bev. Rev. Other Income 30 - 60 40 - 70 Other Income Undistributed Operating Expenses Administrative & General 65 - 85 15 - 35 Total Revenue Marketing 65 - 85 15 - 35 Total Revenue Property Operation & Maintenance 65 - 85 15 - 35 Total Revenue Energy 65 - 85 15 - 35 Total Revenue Complimentary/Promo 65 - 85 15 - 35 Total Revenue Entertainment 60 - 80 20 - 40 Total Revenue Management Fees 0 - 40 60 - 100 Gam./Total Revenue Incentive Management Fees 0 100 EBITA Fixed Expenses Property Taxes 100 0 N/A Insurance 100 0 N/A Reserve for Replacement 0 100 Total Revenue - ----------------------------------------------------------------------------------------------------------
The forecast of revenue and expense is accomplished through a step-by-step approach. Each category of revenue and expense is estimated separately and combined at the end in the final statement of income and expense. Forecast of Income The following description sets forth the basis for the and Expense forecast of income and expense for the subject property. We anticipate that it will take three years for the subject property to reach a stabilized level of operation. The following text refers directly to the subsequent chart where the forecast of income and expense is shown through the 10-year holding period. Revenues Gaming Revenue As delineated in the "Forecast of Gaming Revenue" section of the narrative, gaming revenue has been forecast through the 10-year projection period based on a market penetration model and reconciled with a WPUPD analysis. Our forecast of gaming revenue reflects the historical performance of the Las Vegas Strip ($72 million and over) market and the anticipated performance and penetration of the subject HVS International, Mineola, New York Income Capitalization Approach 8 property. Gaming revenues are anticipated to stabilize in 2002, and WPUPD rates are anticipated to increase at a rate of 3.0% per year thereafter. Rooms Revenue Rooms revenue is determined by two variables: occupancy and average room rate. In the section entitled "Lodging Supply and Demand Analysis," we projected occupancy and average rate for the subject property. The Proposed Aladdin Hotel and Casino is expected to stabilize in the first projection year at an occupancy of 93% and an average daily rate of $137.00. From the stabilized year forward, the average rate is forecast to increase at an inflationary rate of 3.0% per year. Food and Beverage Revenue The subject property's food and beverage revenue will be captured by eight food and beverage outlets, the various beverage service areas located throughout the main casino floor, and the property's roughly 75,000 square feet of meeting space where banquet and catering charges will be generated. Food revenue is anticipated to mirror changes in gaming volume. Due to the subject property's Strip location, the food and beverage outlets are anticipated to draw only a moderate amount of patronage from the local community. The ratio of food revenue to gaming win for the Las Vegas Strip ($72 million and over) market equated to 20.6% in 1996, up from 20.5% in 1995. Based on these results, as well as the proposed subject's high-quality food and beverage outlets and amount of meeting space, food revenue has been projected at 21.7% of gaming revenue per year throughout the projection period. As mentioned, food revenue is projected to remain commensurate with gaming volume throughout the projection period. Beverage revenue has been forecast at 9.1% of gaming win per year throughout the projection period. This ratio compares to the historical performance of the Las Vegas Strip ($72 million and over) market, which recorded beverage revenue at 8.7% of gaming win in 1996. Based on the projected WPUPD rates, casino patrons' propensity to consume beverages, and the complimentary service granted to gamblers, these projections appear reasonable. HVS International, Mineola, New York Income Capitalization Approach 9 Telephone Income Telephone revenue is not individually tracked by the State Gaming Control Board; however, according to interviews with area managers, as well as our experience in the gaming and hotel industries, we have forecast telephone revenue for the subject property at 1.3% of gaming win, or 2.9% of rooms revenue throughout the projection period. Entertainment Income The subject property will derive entertainment income from the operation of its production show theater and the Center for Performing Arts. The subject property's production show is expected to have a 1,001 Arabian Nights/Scheherazade theme, while the Center for Performing Arts will continue to host Broadway Shows and mainstream concerts. Based on the proposed quality of the subject property's entertainment offerings, as well as interviews conducted with area managers, we have forecast entertainment income to equal 13.7% of gaming revenue per year throughout the projection period. Spa Income As mentioned previously in this report, the subject property will offer a +/-20,000-square-foot spa. The spa will include massage service, a sauna, steam rooms, and other pampering amenities. Based on our experience in the gaming and hotel industries, we have forecast spa revenue at 5.4% of gaming revenue per year throughout the projection period. Miscellaneous Income Miscellaneous income at the subject property is expected to be derived from card and dice sales, vending machines, various gift shops and retail outlets, and ATMs. Based on this, we have forecast miscellaneous income equal to approximately 5.5% of gaming revenue per year throughout the projection period. Note that in the composite statement of casinos in the Las Vegas Strip ($72 million and over) market, other income equated to 20.1% of gaming revenue in 1995 and 21.9% in 1996. While this ratio is higher than the ratio we have forecast for the subject property, other income in the composite statement includes telephone revenue, entertainment revenue, and other ancillary revenues which we have forecast separately. HVS International, Mineola, New York Income Capitalization Approach 10 Departmental Expenses Casino Expense Casino expense consists of items relating to the operation and general upkeep of the casino areas, including the table games and gaming devices. Salaries, wages, and employee benefits account for a substantial portion of this category. The wages paid to dealers and personnel tend to be variable; however, they are offset by the relatively fixed payroll for pit and slot supervisors, pit and slot managers, the casino manager, casino cage personnel, change personnel, and the casino host. Overall, salaries, wages, and employee benefits are somewhat dependent on management's scheduling and forecasting abilities. Other casino expenses include gaming equipment maintenance, gaming supplies, uniforms, and other miscellaneous departmental operating expenses for the casino and cage. Casino expenses as a ratio to casino revenue for the Las Vegas Strip ($72 million and over) market equated to 57.3% of gaming revenue in 1995 and 57.2% of gaming revenue in 1996. In addition, the selected casino companies presented previously reported casino expenses ranging from a low of 46.1% to a high of 57.4% in 1996. Based on these results as well as the forecasted gaming revenue levels for the subject property, we have forecast casino expenses to equate to 50.7% of casino revenue per year throughout the projection period. Rooms Expense Rooms expense consists of items relating to the sale and upkeep of guestrooms and public space. Salaries, wages, and employee benefits account for a substantial portion of this category. Although the wages paid to maids and housemen tend to be highly occupancy sensitive, they are somewhat offset by the relatively fixed payroll for front desk personnel, public area cleaners, the housekeeper, and the assistant manager. The overall result is that salaries, wages, and employee benefits are only moderately occupancy sensitive. Commissions and reservation expenses are usually based on room sales and are, therefore, highly occupancy and rate sensitive. Linen, operating supplies, other operating expenses, and uniforms are only slightly affected by changes in volume and are classified as very slightly occupancy sensitive. The Las Vegas Strip ($72 million and over) composite rooms expense ratio equated to 37.7% in 1995, decreasing to 36.4% in 1996. In addition, the selected casino companies reported a range of rooms expenses of 29.2% to 39.6% in 1996. Given the forecasted level of rooms revenue at the subject property and the comparable information, we have forecast the proposed subject's rooms expenses at 33.0% of rooms revenue per year throughout the projection period. Food and Beverage Expenses HVS International, Mineola, New York Income Capitalization Approach 11 Food expense for the Las Vegas Strip ($72 million and over) market has historically been quite high. Specifically, food expenses equated to 105.8% and 103.4% of food revenue in 1995 and 1996, respectively. Beverage expenses within the market equated to 66.1% of beverage revenue in 1996, down from 66.5% in 1995. Overall, food and beverage expenses equated to 93.9% of food and beverage revenue in 1995, decreasing to 92.3% in 1996. The selected casino companies reported food and beverage expense of between 63.5% of food and beverage revenues to 95.4% in 1996. Based on the aforementioned information, we have forecast food expenses at 97.0% of food revenue and beverage expenses at 64.0% of beverage revenue throughout the projection period. This equates to an overall food and beverage expense ratio of 87.2% per year, within the comparable range. Telephone Expense Telephone expense has had been forecast to stabilize at 40.0% of telephone revenue and increase at an inflationary rate of 3.0% per annum thereafter. Entertainment Expense As mentioned, the subject will generate entertainment revenue from the production show and the Center for Performing Arts. Given the high cost of producing shows in Las Vegas and attracting Broadway shows and concert headliners to the Center for Performing Arts, as well as the labor-intensive nature of operating theaters, we have forecast entertainment expenses at 90% of entertainment revenues throughout the projection period. Spa Expense Similar to the theaters, spas are labor-intensive operations which require staffing even during down-times. As such, we have forecast spa expenses at 75% of spa revenues throughout the projection period. HVS International, Mineola, New York Income Capitalization Approach 12 Miscellaneous Expense Miscellaneous expense is made up of labor costs and the costs of goods sold associated with the various retail outlets. We have forecast miscellaneous expense at 75.0% of miscellaneous revenue throughout the projection period. Undistributed Administrative and General Operating Expenses Administrative and general expenses include items related to the management and operation of the property such as management salaries and wages, human resources, data processing, collections, legal and consulting fees, equipment leases, and other service fees. Most administrative and general expenses are relatively fixed. The exceptions are cash overages and shortages; commissions on credit card charges; and credit and collection charges, which are moderately affected by the quantity of transactions or total revenue. Another significant expense incurred by casino hotels is the cost associated with surveillance. Administrative and general expenses for the Las Vegas Strip ($72 million and over) market equated to 11.1% of total revenue in 1995, decreasing to 10.9% of total revenue in 1996. We have projected administrative and general expense to be approximately 10.5% of total revenue per year throughout the projection period. Marketing The marketing category is unique in that all of the expense items, with the exception of commissions, are entirely controlled by management. Most gaming properties establish an annual marketing budget which sets forth all planned expenditures. If the budget is followed throughout the period, total marketing expenses can be accurately forecast. Although there is a lag period before results are realized, marketing expenditures are unusual because the benefits are often extended over a long period. Depending on the type and scope of the advertising program implemented, the lag time can be as short as a few weeks or as long as several years. However, the positive results of an effective marketing campaign tend to linger, and a property often enjoys the benefits of a concentrated sales effort for many months. The comparable statement of income and expense presented earlier shows marketing expenses equating to 1.5% of total revenues in 1996, down from 1.6% of total revenues in 1995. We have forecast marketing expenses for the subject property at 1.7% of total revenues in the first projection year, stabilizing at 1.5% of total revenue per year thereafter. The higher expense ratio in the first projection year is due to the increased marketing costs associated with opening a new hotel casino property. HVS International, Mineola, New York Income Capitalization Approach 13 Property Operations and Maintenance Property operations and maintenance (PO&M) is another expense category that is largely controlled by management. Except for repairs that are necessary to keep the facility open and to prevent damage (e.g., plumbing, heating, and electrical), most maintenance items can be deferred for varying lengths of time. All expense items in this category are relatively fixed. Maintenance is an accumulating expense. If management elects to postpone performing a required procedure, they have not eliminated or saved the expenditure, they have only deferred payment until a later date. We have forecast property operations and maintenance expenses at 1.8% of total revenues, or $3,867 per available room in the first projection year. These expenses are forecast to increase to a stabilized level of 2.1% of total revenues or $4,821 per available room in the third projection year, increasing in line with the underlying rate of inflation of 3.0% per year thereafter. The lower property operations and maintenance expenses forecast in the initial years are due to the relative newness of the facility. Typically, new properties incur lower maintenance expenses in the first years of operation and are still covered by several manufacturers' warranties. Energy As the casino is open 24 hours, the public areas are continually lighted and heated or air conditioned. The design and layout of a casino facility have a notable impact on the level of energy expense it incurs. Considering the subject's layout, design, and age, as well as the cost of energy in the Las Vegas area, we have forecast energy expense at 1.5% of total revenue or $3,247 per available room in the first projection year, with inflationary gains anticipated thereafter. This forecast is in line with the Las Vegas Strip ($72 million and over) comparables presented earlier. Complimentary and Promotion We have projected the promotions expense at 0.6% of total revenue, or roundly $3.6 million dollars in the first projection year. Promotions expense is projected to increase at an inflationary rate throughout the projection period. The level of promotions expense reflects the highly competitive market and the importance of promotions for maintaining market share. LCI Fee As mentioned previously in this report, the subject property will be jointly owned by Aladdin Holdings, LLC, and London Clubs International (LCI). LCI is one of the world's leading casino operators with seven casinos in London, one in France, three in Egypt, and one in Lebanon. In addition, they operate casinos on board three HVS International, Mineola, New York Income Capitalization Approach 14 cruise liners. According to the property's developers, Aladdin Gaming, LLC, will employ LCI professionals to operate the property's Salle Prive high-end casino. In return for LCI's operations expertise, Aladdin will pay LCI an incentive marketing and consulting fee. This fee is based on the EBITDA generated by the Salle Prive. The following chart dictates the terms of the agreement as provided by the property's developers. LCI Incentive Marketing and Consulting Fee EBITDA Percentage Entitlement ----------------------------------------------------------------- $0-$15M 10% $15M-$17M 12.5 $17M-$20M 25 > $20M 50 - -------------------------------------------------------------------------------- The chart on the following page shows our estimation of the Salle Prive EBITDA for the 10-year holding period. HVS International, Mineola, New York Income Capitalization Approach 15 Forecast of LCI Fees
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 --------------------------------------------------------------------------------------------------- Salle Prive Revenues* $73,157 $75,166 $77,421 $79,742 $82,135 $84,599 $87,138 $89,752 $92,445 $95,218 Salle Prive Expenses** 62,183 63,891 65,808 67,780 69,815 71,909 74,067 76,289 78,578 80,935 EBITDA 10,974 11,275 11,613 11,961 12,320 12,690 13,071 13,463 13,867 14,283 Terms - ---------------------- 10% up to 15M 1,097 1,127 1,161 1,196 1,232 1,269 1,307 1,346 1,387 1,428 12.5% 15M - 17M 0 0 0 0 0 0 0 0 0 0 25% 17M - 20M 0 0 0 0 0 0 0 0 0 0 50% 20M + 0 0 0 0 0 0 0 0 0 0 Total $ 1,097 $ 1,127 $ 1,161 $ 1,196 $ 1,232 $ 1,269 $ 1,307 $ 1,346 $ 1,387 $ 1,428
* Based on 13% of total gaming revenue ** Based on 85% of Salle Prive revenue - -------------------------------------------------------------------------------- HVS International, Mineola, New York Income Capitalization Approach 16 As shown, LCI Revenue has been forecast based on 13% of total revenue. According to the property's developers, the LCI fee is based on all gaming and non-gaming revenue generated by the Salle Prive, including the operation of the Salle Prive exclusive restaurant. Salle Prive expenses were forecast at 85% of revenues. This expense ratio includes the increased marketing and complimentary costs associated with operating a high-end casino. Overall, the Salle Prive EBITDA is not forecasted to a reach a level where higher incentive payments than the base 10% are due. As such, LCI fees have been forecast at 10% of the Salle Prive EBITDA per year, throughout the projection period. Fixed Charges Property Taxes According to the Clark County Assessor's Office, the assessed value of the Proposed Aladdin Hotel and Casino will be determined via the cost approach based on Marshall & Swift cost estimates. According to the property's developers, the construction cost of the subject property excluding land costs is estimated at roundly $630,000,000. In addition, we have estimated the land value of the proposed subject property at $7.4 million per acre, or roundly $134,400,000 for the +/-18.16 acre site. As such, the total budgeted development cost for the subject property equates to roundly $765,400,000. In addition, Clark County assesses property at 35% of market value for taxing purposes. As such, the forecasted taxable value of the proposed Aladdin Hotel and Casino equates to roundly $268,000,000. We have utilized a millage rate of 2.6% in our analysis for the first period. Property taxes are projected to increase at inflationary rates throughout the projection period. The following table presents the estimated first-year property tax burden of the subject property. Estimated Property Tax Burden - First Projection Year Cost (000,000) ---------------------------------------------- Project Development $ 462.2 Financial and Other 168.8 Land Value 135.0 ------------ Total $ 766.0 @ 35% assessment $ 268.1 Tax Rate 2.61% ------------ Taxes $ 6.99759 Say 7 - -------------------------------------------------------------------------------- Insurance Expense HVS International, Mineola, New York Income Capitalization Approach 17 The insurance expense category includes the cost of insuring the building and its contents against damage or destruction from fire, weather, sprinkler leakage, boiler explosion, plate glass breakage, and so forth. Insurance rates are based on many factors, including building design and construction, fire detection and extinguishing equipment, fire district, distance from fire house, and the area's fire experience. Based on our experience in the casino and hotel industries, we have forecast insurance expense at a total of $1,188,000 in the first projection year, or $457 per available room, with inflationary gains projected thereafter. EBITDA Margin As evidenced in the following income and expense statements, we project that earnings before interest, taxes, depreciation, and amortization (EBITDA) will equate to 25.8% of total revenues in the first projection year, decreasing to 25.7% of total revenues in the third projection year. The following table presents estimated EBITDA margins of Las Vegas and riverboat properties for 1996, as estimated by Donaldson, Lufkin, and Jennette. Comparable EBITDA Ratios MYSTERY TABLE MISSING - -------------------------------------------------------------------------------- As evidenced, the subject property's estimated stabilized EBITDA ratio of 25.7% is within the actual range of comparable EBITDA ratios. Capital Reserves Furniture, fixtures, and equipment are essential to the operation of a casino hotel, and their quality often influences the class of a property. Included in this category are all non-real estate items that are normally capitalized, not expensed. Furniture, HVS International, Mineola, New York Income Capitalization Approach 18 fixtures, and equipment are exposed to heavy use and must be replaced at regular intervals. The useful life of these items is determined by their quality and durability and the amount of guest traffic and use. Periodic replacement of furniture, fixtures, and equipment is essential to maintain the quality, image, and income of a casino hotel. Items specific to the casino operation include table game felts, upholstered chairs, surveillance equipment, and change carts. The replacement of these items generally depends on the volume of business and quality of the materials, while replacing the most important item in the casino, the gaming devices, is more uncertain. Gaming devices, like other computer equipment, generally have an economic life of five to ten years. However, with the advances in computerized gaming technology, devices may become obsolete within a few years. The replacement of technologically obsolete devices should reflect the competitive set, player preferences, and demand trends. Since capitalized expenditures are not included in the operating statement, but nevertheless affect an owner's cash flow, an appraisal should reflect these expenses in the form of an appropriate reserve for replacement. The annual deduction of a reserve for replacement from the projected income stream effectively provides for a return of furniture, fixtures, and equipment in both the casino and the hotel components. Reserves for replacement specific to the gaming industry are typically deducted at between 0.5% and 2.5% of total revenue. This deduction includes an allowance for both the hotel and the casino components. An annual capital reserve equal to 1.0% of total revenues has been deemed reasonable for the subject property, as it will be a high-quality new build product. Free Cash Flow We project the Aladdin Hotel and Casino will generate approximately $139,338,000 in free cash flow in the first projection year. In the second projection year, free cash flow is projected to increase to $143,143,000, or 24.8% of total revenue. As mentioned, the subject is anticipated to stabilize in the third year of the projection period and generate roundly $146,185,000 in free cash flow, or 24.5% of total revenue. HVS International, Mineola, New York Income Capitalization Approach 19 Forecast of Income Based on the preceding analyses, the forecast of income and Expense and expense has been formulated. The following chart presents a detailed forecast of income and expenses through the stabilized year of operation. Following the detailed income and expense statement, the 10-year forecast of income and expense is presented. The forecast pertains to fiscal operating years beginning January 1, 2000 and is expressed in inflated dollars for each year. Detailed Income and Expense Statement - Proposed Aladdin Hotel and Casino
Calendar Years Ending: 2000 2001 Number of Rooms: 2,600 2,600 Occupancy: 93.0% 93.0% Average Rate: $137.00 $141.11 Occupied Rooms: 882,570 882,570 $(000s) %Gross PAR(1) POR(2) $(000) %Gross PAR(1) - --------------------------------------------------------------------------------------------------------------------------- REVENUE Gaming $ 282,030 50.1% $ 108,473 $ 320.00 $ 289,060 50.0% $ 111,177 Rooms 120,912 21.5 46,505 137.00 124,539 21.5 47,900 Food 61,222 10.9 23,547 69.37 63,058 10.9 24,253 Beverage 25,777 4.6 9,914 29.21 26,551 4.6 10,212 Telephone 3,529 0.6 1,357 4.00 3,635 0.6 1,398 Entertainment 38,666 6.9 14,872 43.81 39,826 6.9 15,318 Spa 15,144 2.7 5,825 17.16 15,599 2.7 6,000 Miscellaneous 15,466 2.7 5,948 17.52 15,930 2.8 6,127 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenues 562,746 100.0 216,441 637.62 578,198 100.0 222,384 ---------- ---------- ---------- ---------- ---------- ---------- ---------- DEPARTMENTAL EXPENSES * Casino 142,881 50.7 54,954 161.89 146,525 50.7 56,356 Rooms 39,923 33.0 15,355 45.23 41,121 33.0 15,816 Food 59,385 97.0 22,840 67.29 61,166 97.0 23,525 Beverage 16,497 64.0 6,345 18.69 16,993 64.0 6,536 Telephone 1,412 40.0 543 1.60 1,454 40.0 559 Entertainment 34,800 90.0 13,385 39.43 35,844 90.0 13,786 Spa 11,358 75.0 4,368 12.87 11,699 75.0 4,500 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Dept. Expenses 317,856 56.5 122,252 360.15 326,750 56.5 125,673 ---------- ---------- ---------- ---------- ---------- ---------- ---------- DEPARTMENTAL INCOME 244,890 43.5 94,188 277.47 251,448 43.5 96,711 ---------- ---------- ---------- ---------- ---------- ---------- ---------- UNDISTRIBUTED EXPENSES Administrative and General 59,146 10.5 22,748 67.02 60,848 10.5 23,403 Marketing 9,380 1.7 3,608 10.63 8,764 1.5 3,371 Property Maintenance 10,055 1.8 3,867 11.39 10,953 1.9 4,213 Energy 8,441 1.5 3,247 9.56 8,673 1.5 3,336 Complimentary/Promo 3,618 0.6 1,392 4.10 3,724 0.6 1,432 LCI Fee 1,097 0.2 422 1.24 1,127 0.2 434 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses 91,737 16.3 35,283 103.94 94,089 16.2 36,188 ---------- ---------- ---------- ---------- ---------- ---------- ---------- HOUSE PROFIT 153,153 27.2 58,905 173.53 157,359 27.3 60,523 ---------- ---------- ---------- ---------- ---------- ---------- ---------- FIXED EXPENSES Property Taxes 7,000 1.2 2,692 7.93 7,210 1.2 2,773 Insurance 1,188 0.2 457 1.3 1,224 0.2 471 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total 8,188 1.5 3,149 9.28 8,434 1.5 3,244 EBITDA $ 144,965 25.7% $ 55,756 $ 164.25 $ 148,925 25.8% $ 57,279 Reserve for Replacement 5,627 1.0 2,164 6.38 5,782 1.0 2,224 Free Cash Flow $ 139,338 24.8% $ 53,591 $ 157.88 $ 143,143 24.8% $ 55,055 ========== ========== ========== ========== ========== ========== ========== Food as a % of Gaming Rev 21.7% 21.8% Beverage as a % of Gaming Rev 9.1 9.2 Beverage as a % of Food Rev 42.1 42.1 Telephone as a % of Gaming Rev 1.3 1.3 Telephone as a % of Rooms Rev 2.9 2.9 Entertainment as a % of Gaming Rev 13.7 13.8 Entertainment as a % of Rooms Rev 32.0 32.0 Calendar Years Ending: 2002 Number of Rooms: 2,600 Occupancy: 93.0% Average Rate: $145.34 Occupied Rooms: 882,570 POR(2) $(000) %Gross PAR(1) POR(2) - -------------------------------------------------------------------------------------------------- REVENUE Gaming $ 327.52 $ 297,730 50.0% $ 114,512 $ 337.34 Rooms 141.11 128,276 21.5 49,337 145.34 Food 71.45 64,950 10.9 24,981 73.59 Beverage 30.08 27,347 4.6 10,518 30.99 Telephone 4.12 3,744 0.6 1,440 4.24 Entertainment 45.13 41,021 6.9 15,777 46.48 Spa 17.67 16,067 2.7 6,180 18.20 Miscellaneous 18.05 16,408 2.8 6,311 18.59 ---------- ---------- ---------- ---------- ---------- Total Revenues 655.13 595,543 100.0 229,055 674.78 ---------- ---------- ---------- ---------- ---------- DEPARTMENTAL EXPENSES * Casino 166.02 150,920 50.7 58,046 171.00 Rooms 46.59 42,354 33.0 16,290 47.99 Food 69.30 63,001 97.0 24,231 71.38 Beverage 19.25 17,502 64.0 6,732 19.83 Telephone 1.65 1,498 40.0 576 1.70 Entertainment 40.61 36,919 90.0 14,200 41.83 Spa 13.26 12,050 75.0 4,635 13.65 ---------- ---------- ---------- ---------- ---------- Total Dept. Expenses 370.23 336,550 56.5 129,442 381.33 ---------- ---------- ---------- ---------- ---------- DEPARTMENTAL INCOME 284.90 258,993 43.5 99,613 293.45 ---------- ---------- ---------- ---------- ---------- UNDISTRIBUTED EXPENSES Administrative and General 68.94 62,674 10.5 24,105 71.01 Marketing 9.93 9,027 1.5 3,472 10.23 Property Maintenance 12.41 12,535 2.1 4,821 14.20 Energy 9.83 8,933 1.5 3,436 10.12 Complimentary/Promo 4.22 3,835 0.6 1,475 4.35 LCI Fee 1.28 1,161 0.2 447 1.32 ---------- ---------- ---------- ---------- ---------- Total Operating Expenses 106.61 98,165 16.4 37,756 111.23 ---------- ---------- ---------- ---------- ---------- HOUSE PROFIT 178.30 160,828 27.1 61,857 182.23 ---------- ---------- ---------- ---------- ---------- FIXED EXPENSES Property Taxes 8.17 7,426 1.2 2,856 8.41 Insurance 1.4 1,261 0.2 485 1.43 ---------- ---------- ---------- ---------- ---------- Total 9.56 8,687 1.5 3,341 9.84 EBITDA $ 168.74 $ 152,140 25.6% $ 58,516 $ 172.38 Reserve for Replacement 6.55 5,955 1.0 2,291 6.75 Free Cash Flow $ 162.19 $ 146,185 24.5% $ 56,225 $ 165.64 ========== ========== ========== ========== ========== Food as a % of Gaming Rev 21.8% Beverage as a % of Gaming Rev 9.2 Beverage as a % of Food Rev 42.1 Telephone as a % of Gaming Rev 1.3 Telephone as a % of Rooms Rev 2.9 Entertainment as a % of Gaming Rev 13.8 Entertainment as a % of Rooms Rev 32.0
* Departmental expenses expressed as a percentage of departmental revenues (1) Per Available Room (2) Per Occupied Room - -------------------------------------------------------------------------------- 10-Year Forecast of Income and Expense - Proposed Aladdin Hotel and Casino, Las Vegas, Nevada
Calendar Years Ending: 2000 2001 2002 2003 2004 ------------------- ------------------- ------------------- ------------------ ----------- Number of Rooms: 2600 2600 2600 2600 2600 Occupied Rooms: 882,570 882,570 882,570 882,570 882,570 Occupancy: 93.0% 93.0% 93.0% 93.0% 93.0% Average Rate: $137.00 $141.11 $145.34 $149.70 $154.19 % of % of % of % of $(000s) Gross $(000s) Gross $(000s) Gross $(000s) Gross $(000s) - ------------------------------------------------------------------------------------------------------------------------------------ REVENUE Gaming $282,030 50.1% $289,060 50.0% $297,730 50.0% $306,660 50.0% $315,860 Rooms 120,912 21.5 124,539 21.5 128,276 21.5 132,124 21.5 136,088 Food 61,222 10.9 63,058 10.9 64,950 10.9 66,898 10.9 68,905 Beverage 25,777 4.6 26,551 4.6 27,347 4.6 28,168 4.6 29,013 Telephone 3,529 0.6 3,635 0.6 3,744 0.6 3,856 0.6 3,972 Entertainment 38,666 6.9 39,826 6.9 41,021 6.9 42,252 6.9 43,519 Spa 15,144 2.7 15,599 2.7 16,067 2.7 16,549 2.7 17,045 Miscellaneous 15,466 2.7 15,930 2.8 16,408 2.8 16,901 2.8 17,408 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total 562,746 100.0 578,198 100.0 595,543 100.0 613,398 100.0 631,810 DEPT. EXPENSES* Casino 142,881 50.7 146,525 50.7 150,920 50.7 155,442 50.7 160,110 Rooms 39,923 33.0 41,121 33.0 42,354 33.0 43,625 33.0 44,934 Food 59,385 97.0 61,166 97.0 63,001 97.0 64,891 97.0 66,838 Beverage 16,497 64.0 16,993 64.0 17,502 64.0 18,027 64.0 18,568 Telephone 1,412 40.0 1,454 40.0 1,498 40.0 1,542 40.0 1,589 Entertainment 34,800 90.0 35,844 90.0 36,919 90.0 38,027 90.0 39,167 Spa 11,358 75.0 11,699 75.0 12,050 75.0 12,412 75.0 12,784 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total 317,856 56.5 326,750 56.5 336,550 56.5 346,642 56.5 357,046 DEPT. INCOME 244,890 43.5 251,448 43.5 258,993 43.5 266,756 43.5 274,764 OPER. EXPENSES Administrative and General 59,146 10.5 60,848 10.5 62,674 10.5 64,553 10.5 66,491 Marketing 9,380 1.7 8,764 1.5 9,027 1.5 9,297 1.5 9,576 Property Maintenance 10,055 1.8 10,953 1.9 12,535 2.1 12,911 2.1 13,298 Energy 8,441 1.5 8,673 1.5 8,933 1.5 9,201 1.5 9,477 Complimentary/Promo 3,618 0.6 3,724 0.6 3,835 0.6 3,950 0.6 4,069 LCI Fee 1,097 0.2 1,127 0.2 1,161 0.2 1,196 0.2 1,232 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total 91,737 16.3 94,089 16.2 98,165 16.4 101,108 16.4 104,143 HOUSE PROFIT 153,153 27.2 157,359 27.3 160,828 27.1 165,648 27.1 170,621 FIXED EXPENSES Property Taxes 7,000 1.2 7,210 1.2 7,426 1.2 7,649 1.2 7,879 Insurance 1188 0.2 1,224 0.2 1,261 0.2 1,298 0.2 1,337 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total 8,188 1.4 8,434 1.4 8,687 1.4 8,947 1.4 9,216 EBITDA 144,965 25.8 148,925 25.9 152,140 25.7 156,701 25.7 161,405 Reserve for Repl 5,627 1.0 5,782 1.0 5,955 1.0 6,134 1.0 6,318 -------- -------- -------- -------- -------- -------- -------- -------- -------- Free Cash Flow $139,338 24.8% $143,143 24.9% $146,185 24.7% $150,567 24.7% $155,087 ======== ==== ======== ==== ======== ==== ======== ==== ======== Calendar Years Ending: 2004 2005 2006 2007 2008 --------- ------------------- ------------------- -------------------- ---------- Number of Rooms: 2600 2600 2600 2600 Occupied Rooms: 882,570 882,570 882,570 882,570 Occupancy: 93.0% 93.0% 93.0% 93.0% Average Rate: $158.82 $163.59 $168.49 $173.55 % of % of % of % of Gross $(000s) Gross $(000s) Gross $(000s) Gross $(000s) - ------------------------------------------------------------------------------------------------------------------------- REVENUE Gaming 50.0% $325,330 50.0% $335,100 50.0% $345,153 50.0% $355,508 Rooms 21.5 140,170 21.5 144,375 21.5 148,707 21.5 153,168 Food 10.9 70,973 10.9 73,102 10.9 75,295 10.9 77,554 Beverage 4.6 29,883 4.6 30,780 4.6 31,703 4.6 32,654 Telephone 0.6 4,091 0.6 4,214 0.6 4,340 0.6 4,471 Entertainment 6.9 44,825 6.9 46,170 6.9 47,555 6.9 48,981 Spa 2.7 17,556 2.7 18,083 2.7 18,626 2.7 19,184 Miscellaneous 2.8 17,930 2.8 18,468 2.8 19,022 2.8 19,592 -------- -------- -------- -------- -------- -------- -------- -------- Total 100.0 650,758 100.0 670,292 100.0 690,401 100.0 711,112 DEPT. EXPENSES* Casino 50.7 164,910 50.7 169,862 50.7 174,958 50.7 180,207 Rooms 33.0 46,282 33.0 47,670 33.0 49,100 33.0 50,573 Food 97.0 68,844 97.0 70,909 97.0 73,036 97.0 75,227 Beverage 64.0 19,125 64.0 19,699 64.0 20,290 64.0 20,899 Telephone 40.0 1,636 40.0 1,686 40.0 1,736 40.0 1,788 Entertainment 90.0 40,342 90.0 41,553 90.0 42,799 90.0 44,083 Spa 75.0 13,167 75.0 13,562 75.0 13,969 75.0 14,388 -------- -------- -------- -------- -------- -------- -------- -------- Total 56.5 367,753 56.5 378,792 56.5 390,154 56.5 401,859 DEPT. INCOME 43.5 283,005 43.5 291,500 43.5 300,247 43.5 309,253 OPER. EXPENSES Administrative and General 10.5 68,485 10.5 70,540 10.5 72,656 10.5 74,836 Marketing 1.5 9,864 1.5 10,160 1.5 10,465 1.5 10,778 Property Maintenance 2.1 13,697 2.1 14,108 2.1 14,531 2.1 14,967 Energy 1.5 9,761 1.5 10,054 1.5 10,356 1.5 10,667 Complimentary/Promo 0.6 4,191 0.6 4,317 0.6 4,446 0.6 4,580 LCI Fee 0.2 1,269 0.2 1,307 0.2 1,346 0.2 1,387 -------- -------- -------- -------- -------- -------- -------- -------- Total 16.4 107,267 16.4 110,486 16.4 113,800 16.4 117,215 HOUSE PROFIT 27.1 175,738 27.1 181,014 27.1 186,447 27.1 192,038 FIXED EXPENSES Property Taxes 1.2 8,115 1.2 8,358 1.2 8,609 1.2 8,867 Insurance 0.2 1,377 0.2 1,419 0.2 1,461 0.2 1,505 -------- -------- -------- -------- -------- -------- -------- -------- Total 1.4 9,492 1.4 9,777 1.4 10,070 1.4 10,372 EBITDA 25.7 166,246 25.7 171,237 25.7 176,377 25.7 181,666 Reserve for Repl 1.0 6,508 1.0 6,703 1.0 6,904 1.0 7,111 -------- -------- -------- -------- -------- -------- -------- -------- Free Cash Flow 24.7% $159,739 24.7% $164,534 24.7% $169,473 24.7% $174,554 ==== ======== ==== ======== ==== ======== ==== ========
Calendar Years Ending: 2008 2009 --------- ------------------ Number of Rooms: 2600 Occupied Rooms: 882,570 Occupancy: 93.0% Average Rate: $178.75 % of % of Gross $(000s) Gross - ---------------------------------------------------------------- REVENUE Gaming 50.0% $366,173 50.0% Rooms 21.5 157,763 21.5 Food 10.9 79,880 10.9 Beverage 4.6 33,634 4.6 Telephone 0.6 4,605 0.6 Entertainment 6.9 50,451 6.9 Spa 2.7 19,760 2.7 Miscellaneous 2.8 20,180 2.8 -------- -------- -------- Total 100.0 732,446 100.0 DEPT. EXPENSES* Casino 50.7 185,613 50.7 Rooms 33.0 52,090 33.0 Food 97.0 77,484 97.0 Beverage 64.0 21,526 64.0 Telephone 40.0 1,842 40.0 Entertainment 90.0 45,406 90.0 Spa 75.0 14,820 75.0 -------- -------- -------- Total 56.5 413,916 56.5 DEPT. INCOME 43.5 318,530 43.5 OPER. EXPENSES Administrative and General 10.5 77,081 10.5 Marketing 1.5 11,102 1.5 Property Maintenance 2.1 15,416 2.1 Energy 1.5 10,987 1.5 Complimentary/Promo 0.6 4,717 0.6 LCI Fee 0.2 1,428 0.2 -------- -------- -------- Total 16.4 120,731 16.4 HOUSE PROFIT 27.1 197,799 27.1 FIXED EXPENSES Property Taxes 1.2 9,133 1.2 Insurance 0.2 1,550 0.2 -------- -------- -------- Total 1.4 10,683 1.4 EBITDA 25.7 187,115 25.7 Reserve for Repl 1.0 7,324 1.0 -------- -------- -------- Free Cash Flow 24.7% $179,791 24.7 ==== ======== ==== * Departmental expenses expressed as a percentage of departmental revenues. - -------------------------------------------------------------------------------- HVS International, Mineola, New York Income Capitalization Approach 22 Capitalization of The conversion of a property's forecasted net income into Net Income Into an estimate of value is based on the premise that Market Value investors typically purchase real estate with a small Estimate amount of equity cash (25% to 50%) and a large amount of mortgage financing (50% to 75%). The amounts and terms of available mortgage financing and the rates of return that are required to attract sufficient equity capital form the basis for allocating the net income between the mortgage and equity components and deriving a value estimate. Other investment parameters used by the appraisers in the income capitalization approach include an overall capitalization rate and total property yield. An overall terminal capitalization rate is utilized to calculate the property's reversionary sales proceeds at the end of the assumed 10-year holding period in the discounted cash flow analysis. Once the value of the property is estimated via the mortgage-equity capitalization technique, the appraisers perform analyses to cross-check the appropriateness of the value estimate based upon other market derived parameters. The overall capitalization rate equating the subject's first-year net income to the estimated market value is compared with overall rates derived from comparable sales and investor surveys. The total property yield, which is the discount rate equating the property's forecasted net income before debt service to the estimated market value, is also compared with total property yields derived from comparable sales and investor surveys. Mortgage Component The appraisers have used financing data specific to the gaming industry in formulating an applicable interest rate, term, amortization period, and debt service constant for the valuation of the Proposed Aladdin Hotel and Casino. Our interviews with representatives from lending institutions indicate that financing is available to those companies with a proven track record of successful operations. We have found that investors view casinos and casino hotels as hybrid investments. Such an investment combines the attributes of traditional real estate with the business value inherent in a gaming enterprise. Therefore, investment collateral to secure the loan is largely constituted of the business and real estate value of the property as a going concern. Therefore, financed gaming investments typically have loan-to-value ratios, terms, amortization periods, and interest rates commensurate with the amount of risk inherent in the enterprise as a going concern. According to Loan Syndications and Trading, over 80% of gaming companies are rated as speculative grade credit. The following chart summarizes the borrower, loan purpose, facility type, facility size, risk premium, and term for a variety of gaming transactions in 1996. HVS International, Mineola, New York Income Capitalization Approach 23 1996 Gaming Transactions
Facility Basis Rating at Size Points Company Close Deal Purpose Facility Type (mm) (LIBOR plus) - ----------------------------------------------------------------------------------------------------------------- Boyd Gaming Corporation BB+ Debt Repay. Revolver/Line >=1 Yr. $ 500.0 175.0 Circus Circus - Eldorado Joint Venture NR Debt Repay. Revolver/Line >=1 Yr. 220.0 112.5 Circus Circus Enterprises BBB+ Debt Repay. Revolver/Line >=1 Yr. 1500.0 75.0 Dover Downs Entertainment NR Working Capital Revolver/Line >=1 Yr. 8.0 NA Dover Downs Entertainment NR Working Capital Revolver/Line >=1 Yr. 2.0 NA Dover Downs Entertainment NR Working Capital Standby Letter of Credit 0.1 NA Gem Gaming NR Corp. Purposes Revolver/Line < 1 Yr. 25.0 NA Grand Casinos Inc. NR Proj. Finance Term Loan 120.0 250.0 Harrah's Entertainment, Inc. NR Corp. Purposes Revolver/Line >=1 Yr. 150.0 75.0 Harrah's Entertainment, Inc. NR Corp. Purposes Revolver/Line >=1 Yr. 950.0 50.0 Hemmeter Enterprises, Inc. NR Debtor-in-poss. Revolver/Line < 1 Yr. 13.0 NA MGM Grand BB Debt Repay. Bridge Loan 125.0 150.0 MGM Grand BB Debt Repay. Revolver/Line >=1 Yr. 500.0 200.0 Nev Star Gaming Corp. NR Proj. Finance Term Loan 50.0 NA Nev Star Gaming Corp. NR Proj. Finance Term Loan 1.0 NA Penn National Gaming NR Corp. Purposes Revolver/Line >=1 Yr. 5.0 300.0 Penn National Gaming NR Corp. Purposes Term Loan 47.0 300.0 Penn National Gaming NR Corp. Purposes Term Loan 23.0 300.0 Rio Properties NR Working Capital Revolver/Line >=1 Yr. 200.0 NA Seven Feathers Gaming Corp. NR Corp. Purposes Revolver/Line >=1 Yr. 24.0 270.0 Sodak Gaming NR Working Capital Revolver/Line >=1 Yr. 20.0 200.0 Sodak Gaming NR Corp. Purposes Revolver/Line >=1 Yr. 30.0 200.0 Stanley Leisure NR Corp. Purposes Revolver/Line < 1 Yr. 108.0 NA Station Casinos BB Debt Repay. Revolver/Line >=1 Yr. 400.0 NA Station Casinos BB Proj. Finance Term Loan 110.0 375.0 Stratosphere NR Equip. Lease Other 37.5 NA Stuart Entertainment NR Corp. Purposes Revolver/Line < 1 Yr. 30.0 150.0 Sun International Bahamas Ltd. NR Proj. Finance Term Loan 200.0 250.0 Sun International Bahamas Ltd. NR Debt Repay. Term Loan 250.0 225.0 Sunset Station NR Corp. Purposes Revolver/Line < 1 Yr. 110.0 NA Sunset Station NR Corp. Purposes Revolver/Line < 1 Yr. 40.0 NA Average 203.2
Source: BancAmerica Securities, Inc. and Loan Pricing Corporation - -------------------------------------------------------------------------------- As indicated, the risk premiums range between 50 and 375 basis points over the London Interbank Offered Rate (LIBOR), with an average of 203 basis points. The majority of the loan facilities closed in 1996 were revolving credit lines with terms greater than one year. Of the 31 transactions in 1996, eight were term loans with risk premiums ranging between 225 and 375 basis points over LIBOR. The average length of a term loan transacted in 1996 is 57 months, or roundly five years. The following presents a range of calculated interest rates based on the current LIBOR as HVS International, Mineola, New York Income Capitalization Approach 24 published in the Wall Street Journal as of September 29, 1997, and a range of risk premiums. Risk Premium Range Calculated Range of LIBOR (Basis Points) Interest Rates ----- -------------- -------------- 6.0% plus 50 to 375 = 6.50% to 9.75% Based on the preceding analysis and adjusting for specific risk factors, we believe that a mortgage lender financing the Proposed Aladdin Hotel and Casino would require a risk premium of approximately 300 basis points over LIBOR. The risk premium is intended to reflect the creditworthiness of the borrower as well as the loan collateral. This spread equates to a 9.0% interest rate; applying a 20-year amortization and a ten-year term, the mortgage constant equates to 0.107967. We believe that a mortgage lender will lend up to 60% of the subject's market value, as determined by this appraisal. Equity Component The remaining capital required for investment generally comes from the equity investor. The rate of return that an equity investor expects over a 10-year holding period is known as the equity yield. Unlike the equity dividend, which is a short-term rate of return, an equity yield specifically considers a long-term holding period (generally 10 years), annual inflation-adjusted cash flows, property appreciation, mortgage amortization, and proceeds from a sale at the end of the holding period. The following table presents equity yield and discount rates derived from three major investor surveys that pertain specifically to the lodging industry. HVS International, Mineola, New York Income Capitalization Approach 25 Hotel Investor Surveys MISSING TABLE - -------------------------------------------------------------------------------- In Landauer Hospitality Services' Hotel Investment Outlook for 1997, leveraged yield rates ranged from 15.0% to 25.0%, with a survey average of 18.7%. The Korpacz Real Estate Investor Survey for the first quarter of 1997 indicates that leveraged equity internal rates of return (IRRs), assuming 50.0% to 60.0% debt, average between 20.0% and 26.0%. The Korpacz survey also provides a range of "free and clear" equity IRRs for full-service hotels, which is essentially a measure of appropriate discount rates, or overall property yields. The Korpacz survey cites a range from 11.0% to 16.0% for this indicator, with a survey average of 13.4%. Landauer's survey also provides a range of free and clear yield rates from 12.0% to 16.0%, with a survey average of 13.5%. CB Commercial's National Investor Survey for the first quarter of 1997 does not provide a range of equity yield rates, but provides a range of overall discount rates from 12.0% to 13.5%, with a survey average of 12.7%. It is difficult to quantify the rate of return required by equity investors who are seeking to purchase casino and casino hotel properties. To establish an appropriate equity yield rate, we have compared the rates of return as indicated in the investor surveys for hotel investments to the rates of return specific to the gaming community. From this information we extrapolated an equity yield rate for the subject property utilizing an iterative calculation via the Simultaneous Valuation Formula. Based on this analysis we have derived an equity yield of 31.0% for use in the valuation of the subject property. This equity yield rate reflects the assumed debt parameters and the risk inherent in achieving the projected income stream given the uncertainty regarding additional competition and economic growth over the holding period. HVS International, Mineola, New York Income Capitalization Approach 26 To check the reasonableness of our equity yield rate assumption, we have compared the derived overall "free and clear" discount rate of 19.1%, which is based on the estimated debt and equity rates of 9.0% and 31.0%, respectively, to the calculated discount rates based on investor surveys. According to a survey of gaming companies and lenders conducted by HVS Gaming Services, going-in capitalization rates range from 15% to 25% depending on the risk inherent in the location, market, and historical operation of the property. However, it should be noted that these rates do not reflect a deduction in cash flows for capital expenditures. Converting this range of going-in capitalization rates to discount rates can be accomplished by adding an inflation assumption. For the purposes of this analysis, a 3.0% inflation rate was added to the going-in rates. Combining the going-in rates with our inflation assumption results in a range of discount rates from 18.0% to 28.0%, compared to our derived discount rate of 19.1%. Both the applied equity yield rate and the discount rate are considered to be supported by the preceding data. As evidenced, our discount rate is at the low end of the acceptable range. However, adjusting for the reserve for replacement expense of 1.0% of total revenues, our discount rate equates to 20.1%. In addition, our discount rate reflects the stability of operating within the Las Vegas Strip ($72 million and over) gaming market. As will be discussed later in this section, the cash-on-cash rates of return and the debt coverage ratios provide further support for our yield conclusions. Terminal Capitalization Rate Inherent in this valuation process is the assumption of a sale at the end of the 10-year holding period. The estimated reversionary sales price as of this date is calculated by capitalizing the 11th year's net income by an overall terminal capitalization rate. An allocation for the seller's brokerage and legal fees is deducted from this sales price, and the net proceeds to the equity interest (also known as the equity residual) are calculated by deducting the outstanding mortgage balance from the reversion. Based on the risk associated with the uncertainty regarding sustaining the projected cash flow beyond the 10-year holding period, we have applied a terminal capitalization rate of 18.0%. Valuation of The terms and loan-to-value ratio of current financing Mortgage and applicable to the subject property have been selected. Equity Components However, the annual debt service and resultant net income to equity cannot be calculated without knowing the property's total value, the very unknown which we are attempting to calculate. In essence, the property's value must be determined by forecasting net income available for debt service, and by calculating, through an iterative process, the amount of the mortgage which the net income is capable of supporting at the assumed interest rate and a specified loan-to-value ratio. HVS International, Mineola, New York Income Capitalization Approach 27 The property's value may also be calculated directly through what is termed the Simultaneous Valuation Formula. Given the known variables of equity investor yield requirements, two equations may be set up to simultaneously solve for the unknown value. To illustrate the Simultaneous Valuation Formula, the following symbols are used: NI = Net income available for debt service V = Value M = Loan-to-value ratio f = Annual debt service constant n = Number of years in the projection period de = Annual cash available to equity dr = Residual equity value b = Brokerage and legal cost percentage P = Fraction of the loan paid off during the projection period fp = Annual constant required to amortize the entire loan during the projection period HVS International, Mineola, New York Income Capitalization Approach 27 Rr = Overall terminal capitalization rate applied to the net income to calculate the total property reversion (sales price at the end of the projection period) 1/Sn= Current worth of a $1 factor (discount factor) at the equity yield rate *P = (f-i)/(fp-i) where i=interest rate of mortgage **S = 1+i where i=equity yield rate Equation #1 Calculation of annual cash flow to equity (equity dividend and reversion): NI1 - (f x M x V) = de1 NI2 - (f x M x V) = de2... ... NI10 - (f x M x V) = de10 (NI11/Rr) - (b (NI11/Rr) - ((1 - P) x M x V) = dr Equation #2 Calculation of equity as sum of discounted cash flows: (de1 x 1/S1) + (de2 x 1/S2) +... + (de10 x 1/S10) + (dr x 1/S10) = (1 - M) V Simultaneous Valuation Formula Combination of Equations #1 and #2: ((NI1 - (f x M x V)) 1/S1) + ((NI2 - (f x M x V)) 1/S2) + . . . ((NI10 - (f x M x V)) 1/S10) + (((NI11/Rr) - (b (NI11/Rr)) - ((1 - P) x M x V)) 1/S10) = (1 -M) V The following values are assigned to the variable components for the purposes of this valuation. HVS International, Mineola, New York Income Capitalization Approach 29 Loan-To-Value Ratio M 60.0% Debt Service Constant f 0.107967 Equity Yield 1/Sn 31.0% Brokerage and Legal Fees b 5.0% Interest Rate i 9.0% Annual Constant Required to Amortize the Loan in Ten Years fp 0.152011 Terminal Capitalization Rate Rr 18.0% HVS International, Mineola, New York Income Capitalization Approach 30 Forecast of Net Income Period Net Operating Income - ----------------------------------------------------- 1 = $139,338,000 2 = 143,143,000 3 = 146,185,000 4 = 150,567,000 5 = 155,087,000 6 = 159,739,000 7 = 164,534,000 8 = 169,473,000 9 = 174,554,000 10 = 179,791,000 11 = 185,186,000 - -------------------------------------------------------------------------------- The Simultaneous Valuation Formula is applied to the subject property's forecasted net income as follows. Intermediary calculations: (f x M x V)= 0.107967 x 0.60 x V = 0.064780 V P = (0.107967 - 0.090) / (0.152011 - 0.090) = 0.289741 Expressing formula in terms of V: ( 139,338,000 - 0.064780 V ) x 0.763359 + ( 143,143,000 - 0.064780 V ) x 0.582717 + ( 146,185,000 - 0.064780 V ) x 0.444822 + ( 150,567,000 - 0.064780 V ) x 0.339559 + ( 155,087,000 - 0.064780 V ) x 0.259205 + ( 159,739,000 - 0.064780 V ) x 0.197866 + ( 164,534,000 - 0.064780 V ) x 0.151043 + ( 169,473,000 - 0.064780 V ) x 0.115300 + ( 174,554,000 - 0.064780 V ) x 0.088015 + ( 179,791,000 - 0.064780 V ) x 0.067187 + ((( 185,186,000 / 0.180 ) - ( 0.05 x ( 185,186,000 / 0.180 )) - HVS International, Mineola, New York Income Capitalization Approach 31 (( 1 - 0.289741 ) x 0.60 x V)) x 0.067187 )= ( 1 - 0.60 )V Like terms are combined and the equation is solved for "V": $515,237,579 - 0.223561 = V (1 - 0.60)V $515,237,579 = 0.62356 V V = $515,237,579 / 0.62356 V = $826,282,831 Market Value via the Simultaneous Valuation Formula on or about January 1, 2000 (Say) = $826,300,000 Based on the previous analysis, we estimate the market value of the subject property, as of January 1, 2000, to be: $825,000,000. The estimated market value, as determined by the Simultaneous Valuation Formula, may be mathematically proven by discounting the net income to equity at the equity yield rate. Annual deductions for debt service are derived based on the mortgage terms. Mortgage Component (60%) $495,770,000 Equity Component (40%) 330,513,000 ------------ Total $826,283,000 Mortgage Component $495,770,000 Mortgage Constant 0.107967 ------------ Annual Debt Service $ 53,526,856 The 11-year forecast of net income and 10-year forecast of net income to equity are presented in the following table. HVS International, Mineola, New York Income Capitalization Approach 32 11-Year Forecast of Net Income and 10-Year Forecast of Net Income to Equity
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 ================================================================================================================================== Occupancy 93% 93% 93% 93% 93% 93% 93% 93% 93% 93% 93% Average Rate $137.00 $141.11 $145.34 $149.70 $154.19 $158.82 $163.59 $168.49 $173.55 $178.75 $184.12 Net Income Before Debt Service $139,338 $143,143 $146,185 $150,567 $155,087 $159,739 $164,534 $169,473 $174,554 $179,791 $185,186 Less: Debt Service 53,527 53,527 53,527 53,527 53,527 53,527 53,527 53,527 53,527 53,527 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income to Equity $85,811 $89,616 $92,658 $97,040 $101,560 $106,212 $111,007 $115,946 $121,027 $126,264 Debt Coverage Ratio 2.60 2.67 2.73 2.81 2.90 2.98 3.07 3.17 3.26 3.36 Cash-on-Cash Return 26.0% 27.1% 28.0% 29.4% 30.7% 32.1% 33.6% 35.1% 36.6% 38.2% - ----------------------------------------------------------------------------------------------------------------------------------
HVS International, Mineola, New York Income Capitalization Approach 33 As evidenced, the subject property's first year debt coverage ratio is projected at 2.60, increasing to 2.73 by the third projection year. Similarly, cash-on-cash returns are forecast to increase from 26.0% in the first year to 28.0% by the third projection year. Both the debt coverage ratio and cash-on-cash return in the third year are commensurate with comparable industry averages. The net proceeds to equity upon sale of the property are determined by deducting sales expenses (brokerage and legal fees) and the outstanding mortgage balance. The equity residual at the end of the 10th year is calculated by deducting brokerage and legal fees and the mortgage balance from the reversionary value. The reversionary value is calculated as the 11th year's net income capitalized by the terminal capitalization rate. The calculation is shown as follows. Reversionary Value ($185,186,000 /0.1800) $1,028,811,000 Less: Brokerage and Legal Fees 51,441,000 Mortgage Balance 352,125,000 -------------- Net Sale Proceeds to Equity $625,245,000 The overall property yield (before debt service), the yield to the lender, and the yield to the equity position have been calculated by computer with the following results. Overall Property Yields Projected Yield (Internal Rate of Return) Position Value Over 10-Year Holding Period ========================================================================= Total Property $826,283,000 19.1% Mortgage 495,770,000 8.9* Equity 330,513,000 31.0 * Whereas the mortgage constant and value are calculated on the basis of monthly mortgage payments, the yield in this proof assumes single annual payments. As a result, the proof's derived yeild is slightly less than that actually input. - ------------------------------------------------------------------------- We believe that these internal rates of return, while at the low end of acceptable ranges, reasonably reflect the level of risk inherent in attaining the projected cash flows over the 10-year holding period. The discounted cash flow procedure substantiating the yield to each position is presented as follows. Total Property Yield HVS International, Mineola, New York Income Capitalization Approach 34
Net Income before Present Worth of $1 Discounted Year Debt Service Factor @ 19.1% Cash Flow =================================================================================== 2000 $ 139,338,000 x 0.839329 = $116,950,000 2001 143,143,000 x 0.704473 = 100,840,000 2002 146,185,000 x 0.591284 = 86,437,000 2003 150,567,000 x 0.496282 = 74,724,000 2004 155,087,000 x 0.416544 = 64,600,000 2005 159,739,000 x 0.349617 = 55,847,000 2006 164,534,000 x 0.293444 = 48,281,000 2007 169,473,000 x 0.246296 = 41,740,000 2008 174,554,000 x 0.206723 = 36,084,000 2009 1,157,162,000* x 0.173509 = 200,777,000 ------------ Total Property Value $826,280,000 *10th year net income of $179,791,000 plus sales proceeds of $977,371,000 - -----------------------------------------------------------------------------------
Mortgage Component Yield
Total Annual Present Worth of $1 Discounted Year Debt Service Factor @ 8.9% Cash Flow =================================================================================== 2000 $ 53,527,000 x 0.918455 = $ 49,162,000 2001 53,527,000 x 0.843559 = 45,153,000 2002 53,527,000 x 0.774770 = 41,471,000 2003 53,527,000 x 0.711591 = 38,089,000 2004 53,527,000 x 0.653564 = 34,983,000 2005 53,527,000 x 0.600269 = 32,131,000 2006 53,527,000 x 0.551320 = 29,511,000 2007 53,527,000 x 0.506362 = 27,104,000 2008 53,527,000 x 0.465071 = 24,894,000 2009 53,527,000 x 0.427146 = 22,864,000 ------------ Value Of Mortgage Component $345,362,000 - -----------------------------------------------------------------------------------
HVS International, Mineola, New York Income Capitalization Approach 35 Equity Component Yield
Net Income Present Worth of $1 Discounted Year to Equity Factor @ 31.0% Cash Flow =================================================================================== 2000 $ 85,811,000 x 0.763359 = $65,505,000 2001 89,616,000 x 0.582717 = 52,221,000 2002 92,658,000 x 0.444822 = 41,216,000 2003 97,040,000 x 0.339559 = 32,951,000 2004 101,560,000 x 0.259205 = 26,325,000 2005 106,212,000 x 0.197866 = 21,016,000 2006 111,007,000 x 0.151043 = 16,767,000 2007 115,946,000 x 0.115300 = 13,369,000 2008 121,027,000 x 0.088015 = 10,652,000 2009 751,510,000* x 0.067187 = 50,492,000 ------------ Value of Equity Component $330,514,000 *10th year net income to equity of $126,264,000 plus sales proceeds of $625,246,000 - -----------------------------------------------------------------------------------
Discounted Cash Flow In addition to using the Simultaneous Valuation Formula, Analysis the appraisers have performed a discounted cash flow analysis based on the financing parameters discussed earlier in this section. We conclude that a 19.1% discount rate is appropriate to apply to the forecasted income stream and reversionary proceeds for the subject property. While the discount rate falls at the low end of the range determined by our survey, we believe that it is commensurate with the level of risk inherent in the subject property and the Las Vegas Strip ($72 million and over) gaming market; additionally, it reflects a 1.0% reserve for replacement which, when adjusted out of our forecast, increases the discount rate some 100 basis points. Further, a terminal capitalization rate of 18.0% has been applied to the 11th year's net income to arrive at the reversionary proceeds figure, reflecting the speculation inherent in forecasting additional competition and economic growth over the 10-year holding period. The following table presents our discounted cash flow analysis. HVS International, Mineola, New York Income Capitalization Approach 36 Discounted Cash Flow Analysis - Proposed Aladdin Hotel and Casino (000s) Discount Rate: 19.1% Holding Period: 10 years Terminal Capitalization Rate: 18.0% Broker and Legal Fees: 5.0%
Calendar Years Ending: 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Forecasted Net Income $139,338 $143,143 $146,185 $150,567 $155,087 $159,739 $164,534 $169,473 $174,554 $179,791 Net Revisionary Proceeds $977,371 -------- 10th Year Net Income plus Reversionary Proceeds $1,157,162 Discount Factor @ 19.1% 0.83933 0.70447 0.59128 0.49628 0.41654 0.34962 0.29344 0.24630 0.20672 0.17351 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Discounted Net Income $116,950 $100,840 $86,437 $74,724 $64,600 $55,847 $48,281 $41,740 $36,084 $200,777 Cummulative Total $116,950 $217,791 $304,228 $378,951 $443,552 $499,399 $547,681 $589,421 $625,505 $826,283 Reversion Analysis: Indicated Value via Discounted Cash Flow Analysis $826,283 - ---------------------------------------------------- (Say) $826,300 11th Year Net Income $185,186 ======== Terminal Capitalization Rate 18.0% ---- Total Sale Proceeds $1,028,811 Less: Broker and Legal Fees @ 5.0% $51,441 Net Reversionary Proceeds $977,371 - ---------------------------------------------------------------------------------------------------------------------------------
HVS International, Mineola, New York Income Capitalization Approach 37 Conclusion - Market We have valued the subject property via the income Value capitalization approach utilizing two different valuation methodologies with the following results. Estimated Value via Simultaneous Valuation Formula $826,300,000 Estimated Value via Discounted Cash Flow Analysis $826,300,000 We conclude that the market value of the Proposed Aladdin Hotel and Casino, as of January 1, 2000, will be: $825,000,000 Business Value The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) stipulates that ". . . any business interest or other intangible item should be valued separately within the appraisal."(10) As mentioned, casinos have both business and real estate components; without the business expertise necessary to operate the facility, a casino would have little real estate value. The business value component of a gaming property reflects a number of intangibles including competitive positioning, marketing strategy, management expertise, cost control, and ultimately profitability. In the case of a highly profitable gaming property, the value of the property via the income capitalization approach will generally exceed its development cost. The value attributable to the business component is quantified via a residual technique in which the appraiser first estimates the market value "as is" of the going concern, then deducts the allocations to the real estate and the furniture, fixtures, and equipment. The residual value represents the business value component of the subject property. For the purpose of estimating the business value component of the subject property, we have utilized the aforementioned residual technique. Based on our prospective market value estimate via the income capitalization approach of $825,000,000, and the prospective market value estimate via the cost approach of $760,000,000, we conclude the total business value component is equal to roundly $65,000,000. ---------- (10) Federal Register, Vol. 55, No. 143, July 25, 1990, p. 30205. HVS International, Mineola, New York Statement of Assumptions and Limiting Conditions 1 15. Statement of Assumptions and Limiting Conditions A. This self-contained appraisal report is to be used in whole and not in part. B. No responsibility is assumed for matters of a legal nature, nor do we render any opinion as to title, which is assumed to be marketable and free of any deed restrictions and easements. The property is valued as though free and clear unless otherwise stated. C. There are no hidden or unapparent conditions of the property, sub-soil or structures, such as underground storage tanks, that would render it more or less valuable. No responsibility is assumed for these conditions or any engineering that may be required to discover them. D. We have not considered the existence of potentially hazardous materials used in the construction or maintenance of the building, such as asbestos, urea formaldehyde foam insulation, or PCBs, nor have we considered the presence of any form of toxic waste. Furthermore, we have also not considered polychlorinated biphengyls, pesticides, and lead-based paints. The appraisers are not qualified to detect any hazardous substances and urge the client to retain an expert in this field if desired. E. We have made no survey of the property, and assume no responsibility in connection with such matters. Any sketches, photographs, maps, and other exhibits are included only to assist the reader in visualizing the property. It is assumed that the use of the land and improvements is within the boundaries of the property described, and that there is no encroachment or trespass unless noted. F. All information, financial operating statements, estimates, and opinions obtained from parties not employed by HVS International are assumed to be true and correct. We can assume no liability resulting from misinformation. G. Unless noted, we assume that there are no encroachments, zoning violations, or building violations encumbering the subject property. H. The property is assumed to be in full compliance with all applicable federal, state, local, and private codes, laws, consents, licenses, and regulations (including a liquor license where appropriate), and that all licenses, permits, certificates, franchises, and so forth can be freely renewed or transferred to a purchaser. HVS International, Mineola, New York Statement of Assumptions and Limiting Conditions 2 I. All mortgages, liens, encumbrances, leases, and servitude's have been disregarded unless specified otherwise. J. No portions of this appraisal report may be reproduced in any form without our permission, and the report cannot be disseminated to the public through advertising, public relations, news, sales, or other media. K. We are not required to give testimony or attendance in court by reason of this analysis without previous arrangements, and only when our standard per-diem fees and travel costs are paid prior to the appearance. L. If the reader is making a fiduciary or individual investment decision and has any questions concerning the material presented in this restricted appraisal report, it is recommended that the reader contact us. M. We take no responsibility for any events or circumstances that take place subsequent to either the date of value or the date of our field inspection, whichever occurs first. N. The quality of a casino hotel facility's on-site management has a direct effect on a property's economic viability and value. The financial forecasts presented in this analysis assume responsible ownership and competent management. Any variance from this assumption may have a significant impact on the projected operating results and value estimate. O. The value estimate developed for this appraisal report is based on an evaluation of the overall economy, and neither takes into account, nor makes provision for, the effect of any sharp rise or decline in local or national economic conditions. To the extent that wages and other operating expenses may advance during the economic life of the property, we expect that the prices of rooms, food, beverages, and services will be adjusted to at least offset these advances. We do not warrant that the estimates will be attained, but they have been prepared on the basis of information obtained during the course of this study and are intended to reflect the expectations of typical investors. P. This analysis assumes continuation of all Internal Revenue Service tax code provisions as stated or interpreted on either the date of value or the date of our field inspection, whichever occurs first. Q. Many of the figures developed for this restricted appraisal report were generated using sophisticated computer models that make calculations based on numbers carried out to three or more decimal places. In the HVS International, Mineola, New York Statement of Assumptions and Limiting Conditions 3 interest of simplicity, most numbers have been rounded to the nearest tenth of a percent. Thus, these figures may be subject to small rounding errors. R. Although this analysis employs various mathematical calculations to provide value indications, the final estimate is subjective and may be influenced by our experience and other factors not specifically set forth is this letter. S. Any distribution of the total value between the land and improvements or between partial ownership interests applies only under the stated use. Moreover, separate allocations between components are not valid if this restricted appraisal report is used in conjunction with any other analysis. T. The Americans with Disabilities Act (ADA) became effective on January 26, 1992. We have conducted no specific compliance survey to determine whether the subject property is in conformity with the various detailed requirements of the ADA. It is possible that the property does not comply with the requirements of the act, and this could have an unfavorable effect on the property value. Because we have no direct evidence regarding this issue, our estimate of value does not consider possible noncompliance with the ADA. U. This study was prepared by HVS International, a division of Hotel Consulting Services, Inc. All opinions, recommendations and conclusions expressed during this assignment have been rendered by the staff of Hotel Consulting Services, Inc. acting solely as employees and not as individuals. V. This appraisal assumes the existence of a reciprocal easement agreement allowing the free flow of pedestrian traffic between all portions of the Proposed Aladdin Hotel and Casino Mixed-Use Development. HVS International, Mineola, New York Addenda Addenda Engagement Letter Synopsis of LCI Agreement Photographs of the Subject Property Photographs of the Competitive Properties HVS International, Mineola, New York Qualifications Qualifications Mark D. Capasso Anne R. Lloyd-Jones, CRE Stephen Rushmore, CRE, MAI, CHA Sunrise Casino Hotel
Calendar Years Ending: 2000 2001 Number of Rooms: 2,600 2,600 Occupancy: 93.0% 93.0% Average Rate: $137.00 $141.11 Occupied Rooms: 882,570 882,570 $ (000s) %Gross PAR(1) POR(2) $ (000s) %Gross PAR(1) POR(2) - -------------------------------------------------------------------------------------------------------------------------------- REVENUE Gaming $282,030 50.1% $108,473 $ 320 $289,060 50.0% $111,177 $327.52 Rooms 120,912 21.5 46,505 137.00 124,539 21.5 47,900 141.11 Food 61,222 10.9 23,547 69.37 63,058 10.9 24,253 71.45 Beverage 25,777 4.6 9,914 29.21 26,551 4.6 10,212 30.08 Telephone 3,529 0.6 1,357 4.00 3,635 0.6 1,398 4.12 Entertainment 38,666 6.9 14,872 43.81 39,826 6.9 15,318 45.13 Spa 15,144 2.7 5,825 17.16 15,599 2.7 6,000 17.67 Miscellaneous 15,466 2.7 5,948 17.52 15,930 2.8 6,127 18.05 -------- ------- -------- ------- -------- ------- -------- ------- Total Revenues 562,746 100.0 216,441 637.62 578,198 100.0 222,384 655.13 -------- ------- -------- ------- -------- ------- -------- ------- DEPARTMENTAL EXPENSES * Casino 142,881 50.7 54,954 161.89 146,525 50.7 56,356 166.02 Rooms 39,923 33.0 15,355 45.23 41,121 33.0 15,816 46.59 Food 59,385 97.0 22,840 67.29 61,166 97.0 23,525 69.30 Beverage 16,497 64.0 6,345 18.69 16,993 64.0 6,536 19.25 Telephone 1,412 40.0 543 1.60 1,454 40.0 559 1.65 Entertainment 34,800 90.0 13,385 39.43 35,844 90.0 13,786 40.61 Spa 11,358 75.0 4,368 12.87 11,699 75.0 4,500 13.26 -------- ------- -------- ------- -------- ------- -------- ------- Total Dept. Expenses 317,856 56.5 122,252 360.15 326,750 56.5 125,673 370.23 -------- ------- -------- ------- -------- ------- -------- ------- DEPARTMENTAL INCOME 244,890 43.5 94,188 277.47 251,448 43.5 96,711 284.90 -------- ------- -------- ------- -------- ------- -------- ------- UNDISTRIBUTED EXPENSES Administrative and General 59,146 10.5 22,748 67.02 60,848 10.5 23,403 68.94 Marketing 9,380 1.7 3,608 10.63 8,764 1.5 3,371 9.93 Property Maintenance 10,055 1.8 3,867 11.39 10,953 1.9 4,213 12.41 Energy 8,441 1.5 3,247 9.56 8,673 1.5 3,336 9.83 Complimentary/Promo 3,618 0.6 1,392 4.10 3,724 0.6 1,432 4.22 LCI Fee 1,097 0.2 422 1.24 1,127 0.2 434 1.28 -------- ------- -------- ------- -------- ------- -------- ------- Total Operating Expenses 91,737 16.3 35,283 103.94 94,089 16.2 36,188 106.61 -------- ------- -------- ------- -------- ------- -------- ------- HOUSE PROFIT 153,153 27.2 58,905 173.53 157,359 27.3 60,523 178.30 -------- ------- -------- ------- -------- ------- -------- ------- FIXED EXPENSES Property Taxes 7,000 1.2 2,692 7.93 7,210 1.2 2,773 8.17 Insurance 1,188 0.2 457 1.3 1,224 0.2 471 1.4 -------- ------- -------- ------- -------- ------- -------- ------- Total 8,188 1.5 3,149 9.28 8,434 1.5 3,244 9.56 EBITDA $144,965 25.7 $ 55,756 $164.25 $148,925 25.8 $ 57,279 $168.74 Reserve for Replacement 5,627 1.0 2,164 6.38 5,782 1.0 2,224 6.55 Free Cash Flow $139,338 24.8% $ 53,591 $157.88 $143,143 24.8% $ 55,055 $162.19 ======== ======= ======== ======= ======== ======= ======== ======= Food as a % of Gaming Rev 21.7% 21.8% Beverage as a % of Gaming Rev 9.1 9.2 Beverage as a % of Food Rev 42.1 42.1 Telephone as a % of Gaming Rev 1.3 1.3 Telephone as a % of Rooms Rev 2.9 2.9 Entertainment as a % of Gaming Rev 13.7 13.8 Entertainment as a % of Rooms Rev 32.0 32.0 Calendar Years Ending: 2002 Number of Rooms: 2,600 Occupancy: 93.0% Average Rate: $145.34 Occupied Rooms: 882,570 $ (000s) %Gross PAR(1) POR(2) - ---------------------------------------------------------------------------------------------------- REVENUE Gaming $297,730 50.0% $114,512 $ 337.34 Rooms 128,276 21.5 49,337 145.34 Food 64,950 10.9 24,981 73.59 Beverage 27,347 4.6 10,518 30.99 Telephone 3,744 0.6 1,440 4.24 Entertainment 41,021 6.9 15,777 46.48 Spa 16,067 2.7 6,180 18.20 Miscellaneous 16,408 2.8 6,311 18.59 -------- ------- -------- ---------- Total Revenues 595,543 100.0 229,055 674.78 -------- ------- -------- ---------- DEPARTMENTAL EXPENSES * Casino 150,920 50.7 58,046 171.00 Rooms 42,354 33.0 16,290 47.99 Food 63,001 97.0 24,231 71.38 Beverage 17,502 64.0 6,732 19.83 Telephone 1,498 40.0 576 1.70 Entertainment 36,919 90.0 14,200 41.83 Spa 12,050 75.0 4,635 13.65 -------- ------- -------- ---------- Total Dept. Expenses 336,550 56.5 129,442 381.33 -------- ------- -------- ---------- DEPARTMENTAL INCOME 258,993 43.5 99,613 293.45 -------- ------- -------- ---------- UNDISTRIBUTED EXPENSES Administrative and General 62,674 10.5 24,105 71.01 Marketing 9,027 1.5 3,472 10.23 Property Maintenance 12,535 2.1 4,821 14.20 Energy 8,933 1.5 3,436 10.12 Complimentary/Promo 3,835 0.6 1,475 4.35 LCI Fee 1,161 0.2 447 1.32 -------- ------- -------- ---------- Total Operating Expenses 98,165 16.4 37,756 111.23 -------- ------- -------- ---------- HOUSE PROFIT 160,828 27.1 61,857 182.23 -------- ------- -------- ---------- FIXED EXPENSES Property Taxes 7,426 1.2 2,856 8.41 Insurance 1,261 0.2 485 1.43 -------- ------- -------- ---------- Total 8,687 1.5 3,341 9.84 EBITDA $152,140 25.6 $ 58,516 $ 172.38 Reserve for Replacement 5,955 1.0 2,291 6.75 Free Cash Flow $146,185 24.5% $ 56,225 $ 165.64 ======== ======= ======== ========== Food as a % of Gaming Rev 21.8% Beverage as a % of Gaming Rev 9.2 Beverage as a % of Food Rev 42.1 Telephone as a % of Gaming Rev 1.3 Telephone as a % of Rooms Rev 2.9 Entertainment as a % of Gaming Rev 13.8 Entertainment as a % of Rooms Rev 32.0 Calendar Years Ending: 2003 Number of Rooms: 2,600 Occupancy: 93.0% Average Rate: $149.70 Occupied Rooms: 882,570 $ (000s) %Gross PAR(1) POR(2) - ---------------------------------------------------------------------------------------------------- REVENUE Gaming $306,650 50.0 $117,942 $ 347.45 Rooms 132,124 21.5 50,817 149.70 Food 66,898 10.9 25,730 75.80 Beverage 28,168 4.6 10,834 31.92 Telephone 3,856 0.6 1,483 4.37 Entertainment 42,252 6.9 16,251 47.87 Spa 16,549 2.7 6,365 18.75 Miscellaneous 16,901 2.8 6,500 19.15 -------- ------- -------- ---------- Total Revenues 613,398 100.0 235,922 695.01 -------- ------- -------- ---------- DEPARTMENTAL EXPENSES * Casino 155,442 50.7 59,785 176.12 Rooms 43,625 33.0 16,779 49.43 Food 64,891 97.0 24,958 73.53 Beverage 18,027 64.0 6,933 20.43 Telephone 1,542 40.0 593 1.75 Entertainment 38,027 90.0 14,626 43.09 Spa 12,412 75.0 4,774 14.06 -------- ------- -------- ---------- Total Dept. Expenses 346,642 56.5 133,324 392.76 -------- ------- -------- ---------- DEPARTMENTAL INCOME 266,756 43.5 102,598 302.25 -------- ------- -------- ---------- UNDISTRIBUTED EXPENSES Administrative and General 64,553 10.5 24,828 73.14 Marketing 9,297 1.5 3,576 10.53 Property Maintenance 12,911 2.1 4,966 14.63 Energy 9,201 1.5 3,539 10.43 Complimentary/Promo 3,950 0.6 1,519 4.48 LCI Fee 1,196 0.2 460 1.36 -------- ------- -------- ---------- Total Operating Expenses 101,108 16.4 38,888 114.56 -------- ------- -------- ---------- HOUSE PROFIT 165,648 27.1 63,711 187.69 -------- ------- -------- ---------- FIXED EXPENSES Property Taxes 7,649 1.2 2,942 8.67 Insurance 1,298 0.2 499 1.47 -------- ------- -------- ---------- Total 8,947 1.5 3,441 10.14 EBITDA $156,701 25.6 $ 60,270 $ 177.55 Reserve for Replacement 6,134 1.0 2,359 6.95 Free Cash Flow $150,567 24.5% $ 57,910 $ 170.60 ======== ======= ======== ========== Food as a % of Gaming Rev 21.8% Beverage as a % of Gaming Rev 9.2 Beverage as a % of Food Rev 42.1 Telephone as a % of Gaming Rev 1.3 Telephone as a % of Rooms Rev 2.9 Entertainment as a % of Gaming Rev 13.8 Entertainment as a % of Rooms Rev 32.0
* Departmental expenses expressed as a percentage of departmental revenues (1) Per Available Room (2) Per Occupied Room ========================================================== Gaming Devices - -------------- Weighted Average Wager $2.45 Weighted Average Decision per Minute 7.5 Weighted Average Hold 6.51% Hours Open 12.0 Subject: Weighted Average Wager ERR Weighted Average Decision per Minute ERR Weighted Average Hold ERR ==========================================================
============================================================================================================================== Calculation of Marketwide Gaming Revenue - Gaming Devices Year Units Absolute Change % change Utilization Factor WPU/day Total WIN Absolute Change - ------------------------------------------------------------------------------------------------------------------------------ Historical 1994 37,245 12.2% $105 $1,428,500,000 Historical 1995 36,191 (1,054) -2.8% 12.7% $104 $1,369,914,000 (58,586,000) Prior Year LTM 37,483 12.4% $107 $1,467,537,000 ----------------------------------------------------------------------------------------------- Historical 1996 37,197 1,006 2.8% 11.6% $106 $1,442,373,000 (25,164,000) ----------------------------------------------------------------------------------------------- LTM Adjustment: Year Month Day ------------------------------------- New Competition Enters Market 1997 1 1 01-Jan-97 ------------------------------------- Periods to Inflate Base 0.00 --------------- Growth Rate 5.0% - ------------------------------------------------------ ----------------------------------------------------------------------------------------------- BASE YEAR 37,197 0 0.0% 12.3% $106 $1,442,565,817 192,817 - ------------------------------------------------------------------------------------------------------------------------------ Projected growth rate 1997 40,598 3,401 9.14% -3.0% $103 $1,527,229,000 $84,663,183 1998 42,267 1,669 4.11% 1.0% $104 $1,605,914,000 $78,685,000 1999 48,758 6,491 15.36% -2.0% $102 $1,815,486,000 $209,572,000 2000 57,539 8,781 18.01% -2.0% $100 $2,099,594,000 $284,108,000 2001 57,539 0 0.00% 2.0% $102 $2,141,586,000 $41,992,000 2002 57,539 0 0.00% 3.0% $105 $2,205,833,000 $64,247,000 2003 57,539 0 0.00% 3.0% $108 $2,272,008,000 $66,175,000 2004 57,539 0 0.00% 3.0% $111 $2,340,169,000 $68,161,000 2005 57,539 0 0.00% 3.0% $115 $2,410,374,000 $70,205,000 2006 57,539 0 0.00% 3.0% $118 $2,482,685,000 $72,311,000 Avg Annual % Chg 3.95% 5.55% ==============================================================================================================================
Year % change - --------------------------------------- Historical 1994 Historical 1995 -4.1% Prior Year LTM ---------- Historical 1996 -1.7% ---------- LTM Adjustment: New Competition Enters Market Periods to Inflate Base Growth Rate - ----------------------------- ---------- BASE YEAR 5.0% - --------------------------------------- Projected 1997 5.87% 1998 5.15% 1999 13.05% 2000 15.65% 2001 2.00% 2002 3.00% 2003 3.00% 2004 3.00% 2005 3.00% 2006 3.00% Avg Annual % Chg ======================================= ================================================================================ Regression Analysis X Coefficient ERR Constant ERR ---------------- % of Demand Induced -8.50% ---------------- ---------------- Phase In - 1997 100.00% Phase In - 1998 -35.00% Phase In - 1999 -41.00% Phase In - 2000 -44.00% Phase In - 2001 -47.00% ---------------- ---------------- Annual Growth Rate 3.00% ---------------- ================================================================================ ========================================================== Gaming Devices - -------------- Weighted Average Wager $2.45 Weighted Average Decision per Minute 7.5 Weighted Average Hold 6.51% Hours Open 12.0 Subject: Weighted Average Wager ERR Weighted Average Decision per Minute ERR Weighted Average Hold ERR ==========================================================
============================================================================================================================== Calculation of Marketwide Gaming Revenue - Gaming Devices Year Units Absolute Change % change Utilization Factor WPU/day Total WIN Absolute Change - ------------------------------------------------------------------------------------------------------------------------------ Historical 1994 37,245 12.2% $105 $1,428,500,000 Historical 1995 36,191 (1,054) -2.8% 12.7% $104 $1,369,914,000 (58,586,000) Prior Year LTM 37,483 12.4% $107 $1,467,537,000 ----------------------------------------------------------------------------------------------- Historical 1996 37,197 1,006 2.8% 11.6% $106 $1,442,373,000 (25,164,000) ----------------------------------------------------------------------------------------------- LTM Adjustment: Year Month Day ------------------------------------- New Competition Enters Market 1997 1 1 01-Jan-97 ------------------------------------- Periods to Inflate Base 0.00 --------------- Growth Rate 5.0% - ------------------------------------------------------ ----------------------------------------------------------------------------------------------- BASE YEAR 37,197 0 0.0% 12.3% $106 $1,442,565,817 192,817 - ------------------------------------------------------------------------------------------------------------------------------ Projected growth rate 1997 40,598 3,401 9.14% -3.0% $103 $1,527,229,000 $84,663,183 1998 42,267 1,669 4.11% 1.0% $104 $1,605,914,000 $78,685,000 1999 48,758 6,491 15.36% -2.0% $102 $1,815,486,000 $209,572,000 2000 57,539 8,781 18.01% -2.0% $100 $2,099,594,000 $284,108,000 2001 57,539 0 0.00% 2.0% $102 $2,141,586,000 $41,992,000 2002 57,539 0 0.00% 3.0% $105 $2,205,833,000 $64,247,000 2003 57,539 0 0.00% 3.0% $108 $2,272,008,000 $66,175,000 2004 57,539 0 0.00% 3.0% $111 $2,340,169,000 $68,161,000 2005 57,539 0 0.00% 3.0% $115 $2,410,374,000 $70,205,000 2006 57,539 0 0.00% 3.0% $118 $2,482,685,000 $72,311,000 Avg Annual % Chg 3.95% 5.55% ==============================================================================================================================
Year % change - --------------------------------------- Historical 1994 Historical 1995 -4.1% Prior Year LTM ---------- Historical 1996 -1.7% ---------- LTM Adjustment: New Competition Enters Market Periods to Inflate Base Growth Rate - ----------------------------- ---------- BASE YEAR 5.0% - --------------------------------------- Projected 1997 5.87% 1998 5.15% 1999 13.05% 2000 15.65% 2001 2.00% 2002 3.00% 2003 3.00% 2004 3.00% 2005 3.00% 2006 3.00% Avg Annual % Chg ======================================= ================================================================================ Regression Analysis X Coefficient ERR Constant ERR ---------------- % of Demand Induced -8.50% ---------------- ---------------- Phase In - 1997 100.00% Phase In - 1998 -35.00% Phase In - 1999 -41.00% Phase In - 2000 -44.00% Phase In - 2001 -47.00% ---------------- ---------------- Annual Growth Rate 3.00% ---------------- ================================================================================ HVS International, Mineola, New York Nature of the Assignment 1 2. Nature of the Assignment Subject of the Appraisal The subject of the appraisal is the fee simple interest in a +/- 34.31-acre parcel of land currently improved with the Aladdin Hotel and Casino and Performing Arts Center. The subject's civic address is 3667 Las Vegas Boulevard, Las Vegas, Nevada. While the site is currently improved, this appraisal assumes the demolition of all of the current improvements, with the exception of the Performing Arts Center. A new mixed-use development is currently proposed for the subject site consisting of a 2,600-room hotel and a 110,000-square-foot casino (the Aladdin Hotel and Casino). The hotel and casino are also expected to include approximately 71,500 square feet of meeting space, a 1,400-seat show room, a 7,000-seat performing arts center, nine separate food and beverage outlets, and an expansive array of back-of-the-house facilities typical of a large hotel and casino. The remaining components of the mixed-use development will include a 450,000-square-foot shopping mall, a parking garage, a second hotel with 1,000 rooms, and a central utility plant. According to the developers, a reciprocal easement agreement will be signed between all parties involved with the mixed-use development. As such, a free flow of pedestrian traffic will be allowed between all components of the development. A draft copy of the reciprocal easement agreement, as provided by the developers of the project, is contained in the appraisers' workfile. Based on a site plan provided by the project's developers, the hotel and casino portion of the development will encompass +/- 18.16 acres of the +/- 34.31-acre site. For purposes of this appraisal, we have been asked to render an opinion as to the prospective market value of the land and improvements for the Aladdin Hotel and Casino portion of the development, the market value of the entire +/- 34.31 acres of land as if vacant and ready for development, and the market value of the +/- 18.16 acres of land allocated to the redeveloped Aladdin Hotel and Casino as if vacant and ready for development. As mentioned, the subject site is located on Las Vegas Boulevard (The Strip) in Las Vegas, Nevada. HVS International, Mineola, New York Nature of the Assignment 2 INSERT STATE MAP HVS International, Mineola, New York Nature of the Assignment 3 Objective of the The purpose of the assignment is to estimate the Appraisal prospective market value of the Aladdin Hotel and Casino when construction has been completed and the improvements are operational; the market value of the underlying +/- 34.31 acres of land of the entire site; and the market value of the +/- 18.16 acres of land allocated to the Aladdin Hotel and Casino portion of the development. Market value is defined by the Office of the Comptroller of the Currency (OCC), 12CFR, Part 34 as follows: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their own best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and 5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.(1) "Prospective" market value is the forecast of the value expected at a specified future date. Marketing and We estimate the marketing period for valuation purposes Exposure Periods of the subject property to be up to six months, assuming that it is ultimately transacted at or near the concluded market value. Historically, the market for gaming investments has comprised a limited number of licensed individuals, partnerships, and corporations with extensive gaming experience. In addition, the significant barriers to entry have substantially limited the pool of qualified buyers. However, of the limited pool of buyers, many would be eager to purchase a hotel and casino of the size, scope, and location of the proposed subject property. The exposure period, referring to the amount of time necessary for the real estate to have been exposed retrospectively, prior to our date of value, is also estimated to be less than or equal to six months. - ---------- (1) The Dictionary of Real Estate Appraisal - Third Edition, Appraisal Institute, Chicago, IL, 1993, pp. 222-223. HVS International, Mineola, New York Nature of the Assignment 4 Use of the Appraisal This appraisal is being prepared for use by The Bank of Nova Scotia, New York Agency, in connection with financing sought by Aladdin Gaming, LLC. Property Rights The property right appraised is the fee simple interest Appraised in the land and improvements, including furniture, fixtures, and equipment. Fee simple interest is defined as "absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat."(2) The subject property is being appraised as a going concern (i.e., an open and operating facility). Method of Study The methodology used to develop this appraisal is based on the market research and valuation techniques set forth in the textbooks we authored for the American Institute of Real Estate Appraisers and the Appraisal Institute, entitled The Valuation of Hotels and Motels,(3) Hotels, Motels and Restaurants: Valuations and Market Studies,(4) The Computerized Income Approach to Hotel/Motel Market Studies and Valuations,(5) and Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations.(6) In addition, forecasting models developed by HVS Gaming Services have been utilized in the analysis of the regional market and the subject property. The specific steps incorporated in our analysis are outlined as follows: 1. The subject site has been evaluated from the viewpoint of its physical utility for the operation of a casino hotel, as well as access, visibility, and other relevant locational factors. 2. The surrounding economic environment, on both an area and neighborhood level, have been reviewed to identify specific gaming- and lodging-related economic and demographic trends that may have an impact on the demand for gaming and lodging facilities. 3. An overview of the U.S. gaming industry has been presented to provide an expanded vision of the industry. - ---------- (2) The Dictionary of Real Estate Appraisal - Third Edition, Appraisal Institute, Chicago, IL, 1993, p. 140. (3) The Valuation of Hotels and Motels, Stephen Rushmore, American Institute of Real Estate Appraisers, Chicago, IL, 1978. (4) Hotels, Motels and Restaurants: Valuations and Market Studies, Stephen Rushmore, American Institute of Real Estate Appraisers, Chicago, IL, 1983. (5) The Computerized Income Approach to Hotel/Motel Market Studies and Valuations, Stephen Rushmore, American Institute of Real Estate Appraisers, Chicago, IL, 1990. (6) Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations, Stephen Rushmore, Appraisal Institute, Chicago, IL, 1992. HVS International, Mineola, New York Nature of the Assignment 5 4. An analysis of the market's and the subject property's table game and gaming device supply and demand was performed via a win per unit per day (WPUPD) model. The WPUPD model is based on the actual WPUPD attained by the market. The resultant statistic provides insight into demand at given supply levels. 5. The projected marketwide table game and gaming device WPUPD figures were then multiplied by the proposed gaming inventory levels to arrive at an estimate of total gaming win. 6. The subject property's gaming revenue, or win, was projected based on a market penetration model. Market penetration levels were based on the historical performance of the subject property and the quality and quantity of current and proposed competition. 7. Documentation for an occupancy and average rate projection was derived from an analysis based on marketwide lodging activity and trends. 8. A detailed projection of income and expense shows the anticipated economic benefits of the subject property and provides the basis for the income capitalization approach. 9. The appraisal considered the three approaches to value: cost, sales comparison, and income capitalization. Because casino hotel facilities are income-producing properties that are normally bought and sold on the basis of capitalization of their anticipated stabilized earning power, the greatest weight is given to the value indicated by the income capitalization approach. We find that most investors employ a similar procedure in formulating their purchase decisions, and thus the income capitalization approach most closely reflects the rationale of typical buyers. Scope of the All information was collected and analyzed by staff of Assignment HVS International. Descriptive data and site plans for the proposed subject property were supplied by the developers, Aladdin Holdings, LLC. The site has been inspected and the developers and future management have been interviewed. We have gathered economic data and information on improved sales, areawide and competitive casino revenues, occupancies and average rates, operating expenses, construction costs, and capitalization and equity yield rates. We have spoken with buyers, sellers, brokers, developers and public officials. We have analyzed this information and have considered the sales comparison, cost, and income approaches to value. Based on our findings, we have prepared a forecast of income and expense representing a HVS International, Mineola, New York Nature of the Assignment 6 stabilized year and capitalized the net income based on current required debt and equity returns. The value conclusion is based upon this investigation and analysis and is conveyed herein. Ownership and The subject property is being developed by Aladdin Gaming Management LLC and will be owned jointly by Aladdin Gaming, LLC, London Clubs International, and Preferred Shareholders. This appraisal is predicated upon professional management of the subject property by Aladdin Gaming, LLC, or an alternative professional gaming company with a proven, successful record of managing facilities of this nature. Pertinent Dates The subject site was inspected by Mark D. Capasso and Anne R. Lloyd-Jones, CRE, on August 7, 1997. Stephen Rushmore, CRE, MAI, CHA did not physically inspect the subject site but actively participated in the analysis. The effective date of the prospective market value for the Aladdin Hotel and Casino is January 1, 2000, the anticipated date of opening. The effective date of value for both the entire +/- 34.31-acre site and the +/- 18.16 acres of land allocated to the hotel and casino portion of the development is August 7, 1997. All projections are expressed in inflated dollars. The prospective market value estimate of the Aladdin Hotel and Casino represents 2000 dollars, while the value estimates for the entire subject site and the hotel and casino portion of the site represent 1997 dollars. ========================================================== Gaming Devices - -------------- Weighted Average Wager $2.45 Weighted Average Decision per Minute 7.5 Weighted Average Hold 6.51% Hours Open 12.0 Subject: Weighted Average Wager ERR Weighted Average Decision per Minute ERR Weighted Average Hold ERR ==========================================================
============================================================================================================================== Calculation of Marketwide Gaming Revenue - Gaming Devices Year Units Absolute Change % change Utilization Factor WPU/day Total WIN Absolute Change - ------------------------------------------------------------------------------------------------------------------------------ Historical 1994 37,245 12.2% $105 $1,428,500,000 Historical 1995 36,191 (1,054) -2.8% 12.7% $104 $1,369,914,000 (58,586,000) Prior Year LTM 37,483 12.4% $107 $1,467,537,000 ----------------------------------------------------------------------------------------------- Historical 1996 37,197 1,006 2.8% 11.6% $106 $1,442,373,000 (25,164,000) ----------------------------------------------------------------------------------------------- LTM Adjustment: Year Month Day ------------------------------------- New Competition Enters Market 1997 1 1 01-Jan-97 ------------------------------------- Periods to Inflate Base 0.00 --------------- Growth Rate 5.0% - ------------------------------------------------------ ----------------------------------------------------------------------------------------------- BASE YEAR 37,197 0 0.0% 12.3% $106 $1,442,565,817 192,817 - ------------------------------------------------------------------------------------------------------------------------------ Projected growth rate 1997 40,598 3,401 9.14% -3.0% $103 $1,527,229,000 $84,663,183 1998 42,267 1,669 4.11% 1.0% $104 $1,605,914,000 $78,685,000 1999 48,758 6,491 15.36% -2.0% $102 $1,815,486,000 $209,572,000 2000 57,539 8,781 18.01% -2.0% $100 $2,099,594,000 $284,108,000 2001 57,539 0 0.00% 2.0% $102 $2,141,586,000 $41,992,000 2002 57,539 0 0.00% 3.0% $105 $2,205,833,000 $64,247,000 2003 57,539 0 0.00% 3.0% $108 $2,272,008,000 $66,175,000 2004 57,539 0 0.00% 3.0% $111 $2,340,169,000 $68,161,000 2005 57,539 0 0.00% 3.0% $115 $2,410,374,000 $70,205,000 2006 57,539 0 0.00% 3.0% $118 $2,482,685,000 $72,311,000 Avg Annual % Chg 3.95% 5.55% ==============================================================================================================================
Year % change - --------------------------------------- Historical 1994 Historical 1995 -4.1% Prior Year LTM ---------- Historical 1996 -1.7% ---------- LTM Adjustment: New Competition Enters Market Periods to Inflate Base Growth Rate - ----------------------------- ---------- BASE YEAR 5.0% - --------------------------------------- Projected 1997 5.87% 1998 5.15% 1999 13.05% 2000 15.65% 2001 2.00% 2002 3.00% 2003 3.00% 2004 3.00% 2005 3.00% 2006 3.00% Avg Annual % Chg ======================================= ================================================================================ Regression Analysis X Coefficient ERR Constant ERR ---------------- % of Demand Induced -8.50% ---------------- ---------------- Phase In - 1997 100.00% Phase In - 1998 -35.00% Phase In - 1999 -41.00% Phase In - 2000 -44.00% Phase In - 2001 -47.00% ---------------- ---------------- Annual Growth Rate 3.00% ---------------- ================================================================================ HVS International, Mineola, New York Highest and Best Use 1 9. Highest and Best Use The Appraisal Institute recognizes the concept of highest and best use as a fundamental element in the determination of value of real property, either as if vacant or as improved. Highest and best use is defined as follows: The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability.(7) As if Vacant An analysis as to the highest and best use of the land should be made first and may be influenced by many factors. In estimating highest and best use, there are four stages of analysis: 1. Physically possible use. What uses of the site are physically possible? Despite the site's slightly irregular layout, the size of the subject site (+/- 34.31 acres) and its location and frontage along the Las Vegas Strip, are considered to be highly conducive to a large-scale mixed-use development with a hotel and casino and various other developments. All utilities are available to the site. In general, the site is appropriate for a mixed-use development including a hotel and casino. 2. Legally permissible use. What uses are permitted by zoning and deed restrictions? As detailed in the "Property Description" section of this report, the site is zoned H1 - Limited Resort and Apartment District. This ordinance allows for a variety of uses, including lodging and casino gaming. 3. Financially feasible use. Which possible and permissible uses will produce a net return to the owner of the site? Despite several new hotel and casino developments currently proposed for the Las Vegas Strip, the market continues to support an efficiently operated and marketed hotel and casino. In addition, other forms of commercial development, such as retail, appear to be in demand. As such, some form of HVS International, Mineola, New York Highest and Best Use 2 mixed-use development consisting of a hotel and casino and retail represents the highest possible return to the owner of the site. 4. Maximally productive use. Among the feasible uses, which use will produce the highest net return or the highest present worth? In consideration of the foregoing factors influencing development in the subject's immediate area, it is the appraisers' opinion that the highest and best use of the subject site as if vacant is as a mixed-use development consisting of a hotel and casino, retail component, and various other facilities. - -------- (7) The Dictionary of Real Estate Appraisal - Third Edition, Appraisal Institute, Chicago, IL., 1992, p. 149 HVS International, Mineola, New York Cost Approach 1 12. Cost Approach Market value is determined via the cost approach by first estimating the market value of the subject land as if vacant and available for its highest and best use, and then adding the cost to construct the proposed subject improvements. We have found that knowledgeable buyers of gaming facilities generally base their purchase decisions on economic factors such as forecasted net income and return on investment. In addition, gaming facilities are a hybrid real estate and business investment. The gaming portion of the investment, which generates the majority of the income (and value) of a casino or a casino hotel, is a management-intensive business which requires special licensing and intangible expertise to operate profitably. As gaming revenue and profit bear no relationship to the rental of space, as is normally the case in real estate investments, the net income and value of a casino also bear no relationship to the replacement cost new of such a facility. Successful casinos often generate income to support values well in excess of the replacement cost new of the physical plant which houses the business. In such cases, the amount by which the value of the casino exceeds the replacement cost new of the physical land and improvements is considered to be the value attributable to the business, not the real and personal property components of the investment. In the valuation of successful casinos, the cost approach is relevant to distinguish the value of the real and personal property components from that of the business component. However, not all casinos are highly successful and, in fact, many generate levels of net income which are insufficient to cover the cost of capital for new development. Such properties generally suffer from a combination of depreciation due to physical deterioration and incurable functional obsolescence. The reliability of the cost approach in estimating market value is further diminished by the quantification of incurable functional obsolescence, which is based on numerous subjective adjustments. In the case of a proposed hotel and casino, the comparison of the development cost budget with the market value estimate based on the project's economic return forms the basis for the feasibility conclusion. Land Value The sales comparison approach is typically the most appropriate technique for valuing land. This technique compares the sales data to the subject site and adjusts for discrepancies in the real property rights conveyed, financing terms, conditions of sale, date of sale, and physical attributes such as size, topography, configuration, location, existing entitlement, accessibility, availability of off-site improvements, and removal of non-contributory existing improvements. HVS International, Mineola, New York Cost Approach 2 In an attempt to locate comparable land sales for the subject property, we have used several sources, including real estate brokers, local appraisers, and county officials. The following data pertain to the most comparable vacant land sales that have occurred in the subject's area in recent years. Based on discussions with local real estate brokers and appraisers, the following land sales offer the most current indication of land value. Note that the entire subject site consists of approximately 34.31 acres of land or +/- 1,494,544 square feet. In addition, the portion of the subject site to contain the hotel and casino equates to +/- 18.16 acres, or +/- 791,050 square feet. HVS International, Mineola, New York Cost Approach 3 The six comparable land transactions are described as follows: Land Sale #1: - ------------- Location: 3782 Las Vegas Boulevard, North of Tropicana Avenue Las Vegas, Nevada Grantor: New York-New York (MGM Grand) Grantee: La Quinta Inns Size: +/- 2.06 acres, or +/- 89,734 square feet Zoning: H1, Clark County Date of Sale: March 1, 1997 Consideration: $13,500,000 Terms: All cash Price per Acre: $6,553,998 Price per Square Foot: $150.45 Frontage on Las Vegas Blvd. 200 feet Proposed Use: Currently improved with a La Quinta motel and Carrows Restaurant. Purchased for future expansion of the New York-New York Hotel and Casino. HVS International, Mineola, New York Cost Approach 4 Land Sale #2: - ------------- Location: 4375 Las Vegas Boulevard, South of Diablo Street Las Vegas, Nevada Grantor: Starfield Golf Grantee: Cheung S. Kheng Size: +/- 4.32 acres, or +/- 188,179 square feet Zoning: H1, Clark County Date of Sale: January 16, 1996 Consideration: $4,750,000 Terms: All cash Price per Acre: $1,099,537 Price per Square Foot: $25.24 Frontage on Las Vegas Blvd. 324 feet Proposed Use: Currently improved with a 144-unit motel in poor condition. Future uses are unknown. HVS International, Mineola, New York Cost Approach 5 Land Sale #3: - ------------- Location: 2616 E. Russel Road, SEC of Russel Road and Las Vegas Boulevard Las Vegas, Nevada Grantor: Russell/I-15 Ltd. Grantee: Circus Circus Enterprises Size: +/- 73.74 acres, or +/- 3,212,114 square feet Zoning: H1, Clark County Date of Sale: March 3, 1995 Consideration: $73,000,000 Terms: All cash Price per Acre: $989,965 Price per Square Foot: $22.73 Frontage on Las Vegas Blvd.: 1,600 feet Proposed Use: Currently vacant land, it will be the future site of Project Paradise. HVS International, Mineola, New York Cost Approach 6 Land Sale #4: - ------------- Location: 3786 Las Vegas Boulevard, North of Tropicana Las Vegas, Nevada Grantor: Patricia L. Goldman Grantee: New York-New York (MGM Grand) Size: +/- 2.07 acres, or +/- 90,169 square feet Zoning: H1, Clark County Date of Sale: February 17, 1995 Consideration: $8,000,000 Terms: All cash Price per Acre: $3,864,734 Price per Square Foot: $88.72 Frontage on Las Vegas Blvd.: 152 feet Proposed Use: Improved with a 72-unit motel at the time of sale. The site was purchased in order to construct the New York-New York Hotel and Casino. HVS International, Mineola, New York Cost Approach 7 Land Sale #5: - ------------- Location: Las Vegas Boulevard, NEC of Las Vegas Boulevard and Diablo Street Las Vegas, Nevada Grantor: Benjamin Schlomi Grantee: Chetak Development Size: +/- 2.51 acres, or +/- 109,336 square feet Zoning: H1, Clark County Date of Sale: March 7, 1994 Consideration: $3,700,000 Terms: All cash Price per Acre: $1,474,104 Price per Square Foot: $33.84 Frontage on Las Vegas Blvd.: 260 feet Proposed Use: Currently vacant land. The site is being held for future development. HVS International, Mineola, New York Cost Approach 8 Land Sale #6: ------------- Location: Las Vegas Boulevard, NWC of Las Vegas Boulevard and Tropicana Avenue Las Vegas, Nevada Grantor: Universal Resorts Grantee: Tracinda Corporation (New York-New York, MGM Grand) Size: +/- 17.619 acres, or +/- 767,482 square feet Zoning: H1, Clark County Date of Sale: December 15, 1992 Consideration: $31,500,000 Terms: All cash Price per Acre: $1,787,843 Price per Square Foot: $41.04 Frontage on Las Vegas Blvd.: 692 feet Proposed Use: The site was the main parcel of the New York-New York Hotel and Casino. In addition to the previous land sales, we have investigated one listing for an +/- 11-acre site located across Las Vegas Boulevard from the subject property. This site is currently vacant with the exception of a heliport and tour company which conducts Grand Canyon sightseeing tours. According to the site's broker, the owner of the property turned down an offer of $72,000,000, or roundly $6,500,000 per acre for the site. This offer was made roughly one and a half years ago by Steve Wynn, the owner of Mirage Resorts. In addition, the owner of the vacant site turned down an offer by Harvey's Casino Corporation roughly two months ago for $90,000,000, or roundly $8,200,000 per acre. The owner's asking price is reportedly $10,000,000 per acre. While this information does not constitute specific evidence of market values, it does reflect the value perceptions of two professional casino developers for land within the immediate vicinity of the subject property. Land Valuation - Hotel and Casino Site As mentioned in the "Nature of the Assignment" section of this report, we have been instructed by our client to value the entire +/- 34.31-acre subject site and the +/- 18.16 acres of land dedicated to the construction of the Proposed Aladdin Hotel and Casino. In order to derive an estimate of value for the portion of the site dedicated to the Proposed Aladdin Hotel and Casino from the preceding sales data, we have created the following land sales adjustment grid. The six sales range from December 1992 to March 1997. We have made linear adjustments at 30% per year to account HVS International, Mineola, New York Cost Approach 9 for the passage of time for these sales. While this adjustment for time appears high, the current development environment has created a significant upward pressure on land values. This is evidenced by the difference in sales prices for sale four and sale one. Sale four represents the transaction of a roughly two-acre parcel used for the New York-New York hotel and casino. Sale one was also a roughly two-acre parcel used for the New York-New York Hotel and Casino. These two sales took place approximately two years apart and the difference in price equated to $5,500,000. This equates to roughly a 30% per-year increase, or 2.5% per month. We have also interviewed various real estate brokers in the Las Vegas area who indicated land values, especially on the Strip, have averaged increases of between 25% and 50% per year since 1995. The tremendous increases in land values on the Strip are attributable to the success of the new, large, mega-resorts that have been developed over the past few years. As investors realized the strength and depth of the Las Vegas Strip gaming market, it became clear that higher and higher land costs were justified. As the major Strip mega-resort development took place between 1994 and 1995, we have added an additional upward adjustment to sale six for time. Sale six transacted in December 1992 before the first mega-resorts opened and investors realized the value of a Strip location. Cumulative adjustments necessary to account for differences in location and size have also been applied. The following grid details the various adjustments made to the aforementioned land sales. HVS International, Mineola, New York Cost Approach 10 Land Sales Adjustment Grid
- -------------------------------------------------------------------------------------------------------------------- Subject Land Sale #1 Land Sale #2 Land Sale #3 Land Sale #4 Land Sale #5 Land Sale #6 - -------------------------------------------------------------------------------------------------------------------- Sale Price N/A $13,500,000 $4,750,000 $73,000,000 $8,000,000 $3,700,000 $31,500,000 Size (Sq. Ft.) 791,050 89,734 188,719 3,212,114 90,169 109,366 767,482 Price per Sq. Ft. N/A $150.45 $25.17 $22.73 $88.72 $33.83 $41.04 Date of Sale 08/07/97 03/01/97 01/16/96 03/03/95 02/17/95 03/07/94 12/15/92 - --------------------------------------------------------------------------------------- --------------------------- - --------------------------------------------------------------------------------------- ------------- ------------ Market Conditions (Sale 6) Adjustment 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% Adjusted Price $150.45 $25.17 $22.73 $88.72 $33.83 $82.09 - -------------------------------------------------------------------------------------------------------------------- Market Conditions Months 5 19 30 30 42 57 Adjustment* 12.5% 47.5% 75.0% 75.0% 105.0% 142.5% Adjusted Price $169.25 $37.13 $39.77 $155.26 $69.35 $199.06 Cumulative Adjustment for Site Characteristics - -------------------------------------------------------------------------------------------------------------------- Location similar inferior inferior similar inferior similar Adjustment 0.0% 100.0% 70.0% 0.0% 100.0% 0.0% Functional Utility inferior inferior similar inferior inferior superior Adjustment 30.0% 100.0% 0.0% 30.0% 90.0% -10.0% Size smaller smaller larger smaller smaller similar Adjustment -30.0% -30.0% 85.0% -30.0% -30.0% 0.0% ------ ------ ------ ------ ------ ------ Total Cumulative Adjustment 0.0% 170.0% 155.0% 0.0% 160.0% -10.0% Net Adjusted Price $169.25 $100.24 $101.42 $155.26 $180.32 $179.15 ========= ========= ========= ========= ========= =========
* Monthly adjustment 2.50% - -------------------------------------------------------------------------------- HVS International, Mineola, New York Cost Approach 11 INSERT LAND SALE MAP HVS International, Mineola, New York Cost Approach 12 Location Sales one, four, and six were deemed to have locations similar to the subject property, as these transactions represent land used for the development of the New York-New York Hotel and Casino, located at the corner of Tropicana Avenue and Las Vegas Boulevard approximately one block south of the subject site. Sales two and five were adjusted upward by 100% for their inferior location compared to that of the subject. These sites are located at the intersection of Las Vegas Boulevard and Diablo street approximately one mile south of the subject site. This area is beyond the primary development of Las Vegas Boulevard and does not benefit from pedestrian traffic as the subject site does. Sale three was adjusted upward by 70% for its inferior location as compared to the subject site. Like sales two and five, sale three is located south of the primary development of Las Vegas Boulevard. However, it is located on the western side of Las Vegas Boulevard and represents the future site of Project Paradise. This project will be linked to the Luxor and Excalibur Hotel Casinos located north of the Project Paradise site, enhancing its location. Functional Utility The functional utility of land encompasses several factors including offsite availability, topography, configuration, and capacity. Sales one, two, four, and five were adjusted upward by 30%, 100%, 30%, and 90%, respectively, for their inferior functional utility as compared to the subject property. As mentioned, sales one and four were assemblage parcel used to construct the New York-New York Hotel and Casino. These parcels were very irregular in shape and lack the density needed to construct sufficiently sized hotel casinos. Similarly, sites two and five are irregular parcels that, while they have frontage along Las Vegas Boulevard, do not contain the depth needed to construct a large-scale hotel and casino. In addition, these sites abut the McCarran International Airport. Due to zoning restrictions, the height of any development on these parcels is limited. Sale three, the Project Paradise site, is considered to have similar functional utility to the subject site and was not adjusted. Sale six, the primary parcel used for the construction of the New York-New York Hotel and Casino occupies a corner parcel. As such, it was adjusted downward by 10% for its superior functional utility as compared to the subject site. HVS International, Mineola, New York Cost Approach 13 Size Sales one, two, four, and five were significantly smaller than the subject site, necessitating a 30% downward adjustment. Sale three was roughly four times as large as the subject site, necessitating an upward adjustment of 85%. Sale six represents the transaction of a site similar in size to the subject. As such, sale six was not adjusted for size. After adjustment, the sales prices ranged from roundly $100 to $180 per square foot, or roundly $4,400,000 to $7,900,000 per acre. The sales that are most similar to the subject site in terms of location establish a narrower range of roundly $155 to $179 per square foot, or $6,750,000 to $7,800,000 per acre. The most recent sale reflects an adjusted price of $169.25 per square foot, or $7,375,000 per acre. Based on this analysis, we conclude a land value for the hotel and casino portion of the subject site at $170 per square foot, or $7,400,000 per acre. Multiplying our per-square-foot value conclusion by the 791,050 square feet of the subject site results in an estimate of land value for the hotel and casino portion of the subject site of roundly $135,000,000. Land Valuation - Entire Site In order to value the entire +/- 34.31-acre subject site, we have valued the +/- 16.15 acres of the site not being used for the hotel and casino portion of the development and added this value to our estimate of land value for the hotel and casino portion of the site. The same sales data used for our previous valuation of the hotel and casino portion of the site was used for the non-hotel and casino land. As with our previous land valuation, each of the sales was adjusted upward by 30% per year in order to account for the passage of time. In addition, sale six received an additional upward adjustment as it was transacted in December 1992, before the surge in mega-resort development. The following grid details the various adjustments made to the comparable land sales. HVS International, Mineola, New York Cost Approach 14 Land Sales Adjustment Grid - Non-Hotel and Casino Land
- ------------------------------------------------------------------------------------------------------------------ Subject Land Sale #1 Land Sale #2 Land Sale #3 Land Sale #4 Land Sale #5 Land Sale #6 - ------------------------------------------------------------------------------------------------------------------ Sale Price N/A $13,500,000 $4,750,000 $73,000,000 $8,000,000 $3,700,000 $31,500,000 Size (Sq. Ft.) 703,494 89,734 188,719 3,212,114 90,169 109,366 767,482 Price per Sq. Ft. N/A $150.45 $25.17 $22.73 $88.72 $33.83 $41.04 Date of Sale 08/07/97 03/01/97 01/16/96 03/03/95 02/17/95 03/07/94 12/15/92 - -------------------------------------------------------------------------------------- -------------------------- Market Conditions (Sale 6) Adjustment 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% Adjusted Price $150.45 $25.17 $22.73 $88.72 $33.83 $82.09 - ------------------------------------------------------------------------------------------------------------------ Market Conditions Months 5 19 30 30 42 57 Adjustment* 12.5% 47.5% 75.0% 75.0% 105.0% 142.5% Adjusted Price $169.25 $37.13 $39.77 $155.26 $69.35 $199.06 Cumulative Adjustment for Site Characteristics - ------------------------------------------------------------------------------------------------------------------ Location superior inferior inferior superior inferior superior Adjustment -60.0% 20.0% 10.0% -60.0% 20.0% -60.0% Functional Utility inferior inferior similar inferior inferior superior Adjustment 30.0% 50.0% 0.0% 30.0% 20.0% -10.0% Size smaller smaller larger smaller smaller similar Adjustment -30.0% -30.0% 85.0% -30.0% -30.0% 0.0% ----------- ---------- ----------- ---------- ---------- ----------- Total Cumulative Adjustment -60.0% 40.0% 95.0% -60.0% 10.0% -70.0% Net Adjusted Price $67.70 $51.98 $77.55 $62.11 $76.29 $59.72 =========== ========== =========== ========== ========== ===========
* Monthly adjustment 2.50% - -------------------------------------------------------------------------------- HVS International, Mineola, New York Cost Approach 15 Location The portion of the subject site not used for the development of the Proposed Aladdin Hotel and Casino will not have any frontage along Las Vegas Boulevard. As such, sales one, four, and six are considered superior to this portion of the subject site and were adjusted downward by 60%. Note that sales one, four, and six represent the three parcels used to develop the New York-New York Hotel and Casino. Sales two, three, and five were deemed inferior to the subject site and adjusted upward by 20%, 10%, and 20%, respectively. While these sites offer frontage along Las Vegas Boulevard it is at its extreme southern end. As mentioned, pedestrian traffic is limited along this area of the Strip. Functional Utility Sales one, two, four, and five were considered to be inferior to the non-hotel casino portion of the subject site. Specifically, sales one and four were adjusted upward by 30% as these parcels are irregular in shape and do not contain the density of the subject site. Sale two was adjusted upward by 50% as it is also irregular in shape and is extremely limited in its development potential by its location adjacent to McCarran International Airport. Similarly, sale five is irregular in shape and abuts McCarran International Airport; however, the density of the site is superior to that of sale two. As such, this sale was adjusted upward by 20%. Sale six's corner location necessitates a 10% downward adjustment for superior functional utility. Sale three's functional utility was deemed similar to that of the subject and was not adjusted. Size Sales one, two, four, and five were adjusted downward 30% for their smaller size as compared to the non-hotel and casino portion of the subject site. Sale three was adjusted upward by 85% as it is significantly larger than the subject. Sale six is similar in size to the subject site and was not adjusted. After adjustment, the sales prices ranged from roundly $52 to $78 per square foot or roundly $2,300,000 to $6,900,000 per acre. Based on this analysis, we conclude a land value for the non-hotel and casino portion of the subject site at $65 per square foot, or $2,800,000 per acre. Multiplying our per-square-foot value conclusion by the 703,494 square feet of the subject site results in an estimate of land value for the hotel and casino portion of the subject site of roundly $45,730,000. Adding the estimated market value of the casino portion of the site to the estimated market value of the non-hotel casino portion of the site equates to roundly HVS International, Mineola, New York Cost Approach 16 $180,000,000 or $5,250,000 per acre for the +/- 34.31-acre site, or $121 per square foot for the 1,494,544-square-foot site. Development Budget The following chart details the construction cost budget for the proposed subject property, as prepared by the hotel's developers. HVS International, Mineola, New York Cost Approach 17 Development Budget Use of Funds Cost (000,000) - ------------------------------------------------------------------------------ Project Development Costs Direct Construction Costs $250.0 Contractor Fees and Expenses 12.3 Direct Soft Costs/Professional Fees 4.2 FF&E Soft Costs/Professional Fees 4.2 Permits and Offsite Improvements 8 Insurance Wrap Around 9.2 Model Rooms 0.4 General FF&E 58.5 Gaming Equipment 26.5 Other Owner Furnished FF&E 28.9 Theming 35 Project Contingency - Direct 12.5 Project Contingency - FF&E 12.5 ----------- Subtotal $462.2 Financial and Other Costs Construction Interest Expense $40.8 Fees and Other Expenses 30.92 Retire Existing Debt 68.5 Repay Existing Partner Debt 5 Credit for Expenses Prepaid by Holdings -5 Credit for Sitework Contribution from Bazaar -1.4 Pre-opening Expenses 15 Working Capital 15 ----------- Subtotal $168.8 Land $135.0 ----------- Total $766.0 =========== Source: Aladdin Gaming, LLC - -------------------------------------------------------------------------------- As shown, the total development cost estimate, excluding land, totals roughly $631,000,000. When the appraisers' estimate of land value is added, the total development cost estimate for the subject property equates to roundly $766,000,000. As a check on the reasonableness of the development budget by the property's developers, we have calculated the development cost of the proposed subject property utilizing the Marshall & Swift Cost Estimator Program. HVS International, Mineola, New York Cost Approach 18 Development Cost One of the nationally recognized authorities on replacement cost information is Marshall & Swift. HVS International uses the Commercial Estimator computer program produced by Marshall & Swift. The computer cost program employs the square-foot method in cost estimating, which approximates the replacement cost of the building's major components in terms of dollars per unit of area or volume, based on known costs of similar structures adjusted for time and physical differences. The estimate of replacement cost by this method includes all direct costs plus a portion of indirect costs, such as construction financing, temporary utilities, and general conditions. For the purpose of developing a cost estimate using the Marshall & Swift Commercial Estimator program, the subject property has been classified as a hotel under Section 41 of the Marshall Valuation Service cost guide, with an average cost range rating for a Class A building. According to the developers, the proposed building area is approximately +/- 2,000,000 square feet. Based on these considerations, as well as locational and time adjustment factors and other criteria related to building systems, the replacement cost of the building as if new has been estimated through the Commercial Estimator program. The replacement cost of the subject hotel is estimated to be $251,360,000, or say, $251,000,000. Besides approximating the replacement cost of the buildings, we have estimated the cost of the additional site improvements. The estimated cost of the outdoor swimming pools needs to be added to the replacement cost of the building. The following table summarizes the cost estimates of the site improvements. Also, indirect costs have been derived based upon the appraisers' estimate of financing fees, real estate taxes, and brokerage fees associated with the subject's development. Indirect costs have been calculated for this analysis as being equal to 5.0% of the replacement cost of the total improvements. HVS International, Mineola, New York Cost Approach 19 Development Cost Item Total - ----------------------------------------------------------------------------- Replacement Cost New from M&S $251,360,000 Surface Parking 568,000 Swimming Pool 243,000 ------------ Subtotal 252,171,000 Indirect Costs @ 5.0% (Real Estate Taxes and Loan Fees) 12,609,000 ------------ Total Improvement Replacement Cost $264,780,000 - -------------------------------------------------------------------------------- Opening Costs In addition to the replacement cost of the improvements, opening costs must be considered. Opening costs include the preopening marketing and administrative expenditures of the casino, hotel, and a working capital reserve to maintain adequate cash flow until the operation achieves a break-even point. The following table presents the estimated opening costs for the subject property. Estimate of Opening Costs Cost Per No. of Expenses Room Rooms Total Cost - ------------------------------------------------------------------------------- Preopening Expenses $10,000 2,600 $26,000,000 Working Capital 5,000 2,600 13,000,000 ----------- Total Opening Costs $39,000,000 - -------------------------------------------------------------------------------- Adding this component to the replacement cost of the improvements, the total replacement cost of the property is estimated to be roundly $304,000,000. Personal Property Our estimate of the cost of furniture, fixtures, and equipment is based on our knowledge and expertise in the hotel and gaming industries, as well as on the developers estimates of FF&E costs. As such, we have estimated the cost of the proposed subject property's furniture, fixtures, and equipment to be equal to roughly $65,000 per room, or a total of roundly $169,000,000 Allocation of The appraisers have considered a 25% entrepreneurial Developer's Profit profit to be necessary and appropriate to reflect the financial incentive required for new hotel casino development. Developer's profit is applied to the buildings; the furniture, fixtures, and equipment; and the land as follows. Allocation of Developer's Profit HVS International, Mineola, New York Cost Approach 20 Profit Component Cost Ratio Profit - -------------------------------------------------------------------------------- Building Improvements $303,780,000 25.0% $75,945,000 Furniture, Fixtures, and Equipment 169,000,000 25.0 42,250,000 Land 135,000,000 25.0 33,750,000 ------------ Total Developer's Profit $151,945,000 - -------------------------------------------------------------------------------- Conclusion In the estimation of value according to the cost approach, the values of several components of the total property were quantified. The market value of the land was determined via the sales comparison approach. The estimated construction cost of the building improvements was calculated according to the square-foot cost method using a computer program developed by Marshall & Swift. Incurable physical deterioration and external and incurable functional obsolescence deductions were deemed inapplicable considering the subject property's new construction. The following table presents the various components used to arrive at the prospective market value via the cost approach Summary of Value via the Cost Approach Replacement Cost of Improvements $303,780,000 Replacement Cost of Furniture, Fixtures, and Equipment 169,000,000 Land Value 135,000,000 Developer's Profit 151,945,000 ------------ Total Replacement Cost New $759,725,000 Estimated Value via the Cost Approach (Say) (Say) $760,000,000 - -------------------------------------------------------------------------------- HVS International, Mineola, New York Reconciliation of Value Indications 1 - -------------------------------------------------------------------------------- ================================================================================ 14. Reconciliation of Value Indications The reconciliation, which is the last step in the appraisal process, involves summarizing and correlating the data and procedures employed throughout the analysis. The final conclusion of value is arrived at after reviewing the estimates indicated by the cost, sales comparison, and income capitalization approaches. The relative significance, applicability, and defensibility of each indicated value are considered, and the greatest weight is given to that approach deemed most appropriate for the property being appraised. The purpose of this report is to estimate the market value of the fee simple interest in the subject property. Our appraisal involves a careful analysis of the property itself and the economic, demographic, political, physical, and environmental factors that influence real estate values. Based on the data set forth in this report, the following value indications were developed for theproposed hotel and casino. Prospective Market Value: Approach Valuation Indication Cost $760,000,000 Sales Comparison Not applicable Income Capitalization $826,300,000 We generally give the cost approach limited weight in arriving at a final value estimate because knowledgeable buyers of gaming facilities generally base their purchase decisions on economic factors such as forecasted net income and return on investment rather than a property's replacement cost. As discussed in the "Cost Approach" section of the narrative, the principle of substitution, upon which the cost approach is based, is highly constrained given the circumstances of gaming in the greater Las Vegas area. However, the appraisers have arrived at a value estimate utilizing the cost approach. Sales Comparison The sales comparison approach uses actual sales of Approach similar properties to provide an indication of the subject property's value. The strength of this approach is that it measures value based on the investment decisions made by actual buyers and sellers. Although we have investigated a number of sales in an attempt to develop a range of value indications, the lack of comparable sales transactions and the nature of the HVS International, Mineola, New York Reconciliation of Value Indications 2 - -------------------------------------------------------------------------------- subject property's operation preclude the use of the sales comparison approach to arrive at an estimate of value. Income Capitalization To estimate the subject property's value via the income Approach capitalization approach, we analyzed the local and regional gaming and lodging markets, examined the competitive environment, projected penetration and WPUPD levels, and developed a forecast of income and expense that reflects anticipated income trends and cost components through a stabilized year of operation. The subject property's forecasted net income before debt service was allocated to the mortgage and equity components based on market rates of return and loan-to-value ratios. Through a discounted cash flow and income capitalization procedure, the value of each component was calculated; the total of the mortgage and equity components equates to the value of the property. Our nationwide experience indicates that the procedures used in estimating market value by the income capitalization approach are comparable to those employed by the investors who constitute the marketplace. For this reason, we believe that the income capitalization approach produces the most supportable value estimate, and it is given the greatest weight in our final estimate of the subject property's market value. Value Conclusion Careful consideration has been given to the strengths and weaknesses of the three approaches to value discussed above. In recognition of the purpose of this appraisal, we have given primary weight to the value indicated by the income capitalization approach. Based on our analysis, it is our opinion that the prospective market value of the fee simple interest in the Proposed Aladdin Hotel and Casino, as of January 1, 2000, is: $825,000,000 EIGHT HUNDRED TWENTY-FIVE MILLION DOLLARS In addition, it is our opinion that the market value of the total +/- 34.31-acre subject site, as vacant and including the development rights and entitlements, as of August 7, 1997, is: $180,000,000 ONE HUNDRED EIGHTY MILLION DOLLARS In addition, it is our opinion that the market value of the +/- 18.16 acres of land allocated to the Aladdin Hotel and Casino portion of the development, as vacant and including the development rights and entitlements, as of August 7, 1997, is: HVS International, Mineola, New York Reconciliation of Value Indications 3 - -------------------------------------------------------------------------------- $135,000,000 ONE HUNDRED THIRTY-FIVE MILLION DOLLARS GLOBAL REFERENCES CLIENT Client: Mr. Jim Riley Title: Department: Firm: The Bank of Nova Scotia, New York Agency Address1: Address2: One Liberty Plaza City: New York, New York 10005 Phone: (212) 225-5098 Salut: Mr. Riley Office Firm: HVS International Office: Mineola, New York Header Middle Job Number: 9710413 Property Description The proposed mixed-use development for the subject site is expected to consist of a 2,600-room hotel and a 110,000-square-foot casino (the Aladdin Hotel and Casino). The hotel and casino are also expected to include approximately 71,500 square feet of meeting space, a 1,400-seat show room, a 7,000-seat performing arts center, nine separate food and beverage outlets, and an expansive array of back-of-the-house facilities typical of a large hotel and casino. The remaining components of the mixed-use development will include a 450,000-square-foot shopping bazaar, a parking garage, and a central utility plant. GLOBAL VARIABLES Property Name Proposed Aladdin Hotel and Casino Prop Address 3667 Las Vegas Boulevard Prop City Las Vegas Prop Gov Other Prop State Nevada Prop County Clark Prop Zip 89109 Owner Aladdin Holdings LLC MSA Las Vegas Strip ($72 million and over) Date Of Value January 1, 2000 Fiscal/Calendar Calendar Date of Inspection August 7, 1997 Report Type Appraisal Value Type prospective market value Interest Appraised fee simple Site Area (Acres) +/- 34.31 Site Area (SF) +/- 1,494,544 Hotel Units 2,600 Date Built Building Stories Block and Lot Zoning H1 - Limited Resort and Apartment District Historical (Base) Year Stabilized Year 2002 Years to Stabilize: three Value Text EIGHT HUNDRED TWENTY-FIVE MILLION DOLLARS Value Number $825,000,000 Value per Room Income Value $824,100,000 Sales Value Not applicable Cost Value $760,000,000 INCOME VARIABLES Inflation Rate 3% Loan To Value 60% Interest Rate 9.0% Amortization 20 Mortgage Constant 0.107967 Equity Yield 31.0% Terminal Cap Rate 18.0% Broker & Legal Commission: 2.0% SECTION NUMBERS SECTION NAME SExec 1 Summary of Salient Data and Conclusions SNat 2 Nature of the Assignment SLand 3 Property Description SArea 4 Market Area Analysis SOver 5 U.S. Gaming Overview SLouis Nevada Gaming Overview SComp 6 Gaming Supply and Demand Analysis SGame 7 Forecast of Gaming Revenue SLodg 8 Lodging Supply and Demand Analysis SHBU 9 Highest and Best Use SApps 10 Approaches to Value SInc 11 Income Capitalization Approach SCost 12 Cost Approach SSales 13 Sales Comparison Approach SRec 14 Reconciliation of Value Indications SAssu 15 Statement of Assumptions and Limiting Conditions SCert 16 Certification 1. Summary of Salient Data and Conclusions ............................... 1 2. Nature of the Assignment .............................................. 3 3. Property Description .................................................. 9 4. Market Area Analysis .................................................. 28 5. U.S. Gaming Overview .................................................. 46 6. Gaming Supply and Demand Analysis ..................................... 58 7. Forecast of Gaming Revenue ............................................ 74 8. Lodging Supply and Demand Analysis .................................... 87 9. Highest and Best Use .................................................. 105 10. Approaches to Value .................................................. 107 11. Income Capitalization Approach ....................................... 110 12. Cost Approach ........................................................ 147 13. Sales Comparison Approach ............................................ 167 14. Reconciliation of Value Indications .................................. 173 15. Statement of Assumptions and Limiting Conditions ..................... 176 16. Certification ........................................................ 180
Base Year Segmented Rate Assumptions ------------------------------------ Demand Period FIT Casino Wholesale Group Annual Average Deflated ADR(1996) - --------------------------------------------------------------------------------------------- Peak Weekend $175.00 $150.00 $125.00 $140.00 $150.50 $133.72 Peak Mid-week 140.00 125.00 100.00 110.00 121.50 107.95 Non-Peak Weekend 110.00 100.00 85.00 90.00 98.00 87.07 Non-Peak Mid-week 95.00 85.00 80.00 85.00 87.00 77.30 Convention 200.00 150.00 120.00 160.00 161.00 143.05 Special Event 250.00 200.00 180.00 185.00 208.00 184.81 ------- ------- ------- ------- Annual Average $160.63 $134.90 $114.30 $127.41 Deflated ADR (1996) $142.72 $119.86 $101.56 $113.20
HVS International, San Francisco, California Qualifications of Mark D. Capasso ================================================================================ Mark D. Capasso Employment 1994 to present HVS GAMING SERVICES San Francisco, California (Casino Valuations, Market Studies, Feasibility Reports, and Gaming Analysis) 1994 to present HOSPITALITY VALUATION SERVICES San Francisco, California (Hotel/Motel Valuations, Market Studies, Feasibility Reports, and Investment Counseling) 1993 to 1994 LAS VEGAS HILTON Las Vegas, Nevada 1992 1993 to 1994 CALIFORNIA CASINO HOTEL Las Vegas, Nevada 1990 to 1993 QUALITY INN SUNRISE SUITES HOTEL Las Vegas, Nevada 1988 to 1990 BRISTOL SUITES HOTEL Dallas, Texas Education BS - School of Hotel Administration, University of Nevada, Las Vegas Scuola Administratione di Aziendale; Turin, Italy, European Economic Community Studies Courses: 310 Income Capitalization; SPPA; SPPB - Appraisal Institute Teaching and Lecture Assignments University of Nevada, Las Vegas: Hotel Feasibility Analysis - Guest Lecturer Published Articles and HVS Gaming Services Industry Profile. "The Chapters Metamorphosis of Glitter Gulch," July, 1996 HVS International, San Francisco, California Qualifications of Mark D. Capasso Casino Executive Magazine. "Managing the Casino/Hotel," Bi-Monthly Column Corporate and Bank of San Francisco Institutional Clients Bank of the West Served Banker's Trust Boyd Gaming Corporation CIBC Wood Gundy CS First Boston Caesar's World Gaming Canadian Imperial Bank of Commerce Citicorp Real Estate, Inc. Colorado Casino Resorts, Inc. Coopers & Lybrand Credit Lyonnais Cupertino National Bank & Trust Dai-Ichi Kangyo Bank, Ltd. Evergreen Associates First Security Commercial Mortgage Glendale Redevelopment Agency Hospitality Franchise System (Ramada) Host Marriott IMPAC Hotels International Bank of California K & S Enterprises (USA) Corporation Legacy Hospitality Lehman Brothers M & M Development Manor Care Marriott International N & S Development Nations Credit Commercial Corporation Nomura Asset Capital Corporation Northwest Lodging, Inc. Park Lane Hotels Patriot American Hospitality Piccadilly Inn Hotels The Prudential Real Estate Group Red Lion Hotels and Inns Redwood Bank San Jose National Bank The Shaner Hotel Group Starwood Lodging Summerfield Suites Hotel Corporation Teacher's Insurance & Annuity Association U.S. Bancorp Union Bank of California Wells Fargo Bank West L.B. Windsor Capital Yasuda Trust October 7, 1997 Mr. Jim Riley The Bank of Nova Scotia, New York Agency One Liberty Plaza New York, New York 10005 (212) 225-5098 Re: Proposed Aladdin Hotel and Casino Las Vegas, Nevada HVS Ref.: #9710413 Dear Mr. Riley: Enclosed please find one draft copy of the self-contained appraisal report pertaining to the above-captioned property. We will proceed with the production of the final reports upon your authorization. Please do not hesitate to call with your questions or comments. Very truly yours, HVS International Mark D. Capasso Senior Associate MDC/nkw ============================ Land Sale Map ------------- * SUBJECT 1 La Mansion del Rio 2 Havana River Walk Inn ============================ ================================================================================ Variables =============================================================== Room Count 2,600 Building SF: 2,000,000 Overall Cost Rank (low=1; high=4) 4 Construction Class (A=1, B=2, C=3, D=4) 1 ================================================================================ ================================================================================ Marshall Valuation Data =============================================================== Replacement Cost $251,360,000 ================================================================================ ================================================================================ Multipliers =============================================================== Current Cost Multiplier 1.00 Local Multiplier 1.00 ================================================================================ ================================================================================ Property Improvements =============================================================== Signs $0 Parking Spaces (0 if included in M&S) 500 Landscaped Area 0 Swimming Pool (small=1, big=4) 4 ================================================================================ ================================================================================ Capital Expenditure =============================================================== Curable Building Items $0 Curable FF&E Items 0 Total Capital Expenditures $0 ================================================================================ ================================================================================ Age of Improvements =============================================================== Chronological Age 0 average Effective Age 0 ================================================================================ ================================================================================ FF&E =============================================================== Per Room $ -------- ----------------- FF&E Replacement Cost 65,000 $169,000,000 Effective Age of FF&E 0 FF&E Depreciation ERR ================================================================================ ================================================================================ Improvement Replacement Cost =============================================================== Item Total Cost -------------------------------------------------------- Building $251,360,000 Signs 0 Surface Parking 568,000 Landscaping 0 Swimming Pool 243,000 ---------------- Subtotal 252,171,000 Indirect Costs @ 5.0% (Real Estate Taxes and Loan Fees) 12,609,000 ---------------- $264,780,000 Total Improvement Replacement Cost ================================================================================
================================================================================ Land Value - Ground Lease Method =============================================================== ------------------------------------ Stabilized Total Revenue (current $) $0 xxxxx -----> Stabilized Total Revenue $0 Ground Lease % 0.0% Projection Year 0 ------------- Economic Ground Rent 0 Inflation Rate 4.0% ------------- Deflated Rooms Revenue $0 Land Capitalization Rate 0.000 ==================================== Land Value ERR Say ERR ================================================================================
================================================================================ Land Value - Sales Comparison Method =============================================================== Land Value per Sq. Ft. $170 Site Size 791,051 ------------- Land Value $134,478,670 Say $135,000,000 ================================================================================ ================================================================================ Opening Costs =============================================================== No. of Cost Rooms $ ---- ----- - Pre-opening Expenses $10,000 2,600 $26,000,000 Working Capital $5,000 2,600 13,000,000 Total Opening Costs $39,000,000 Total Replacement Cost New $303,780,000 ================================================================================ ================================================================================ Developer's Profit =============================================================== Profit Cost Ratio $ ---- ----- - Building Improvements $303,780,000 25% $75,945,000 Furniture, Fixtures, and Equipment 169,000,000 25% 42,250,000 Land 135,000,000 25% 33,750,000 ------------ Total Developer's Profit $151,945,000 ================================================================================ ================================================================================ Total Replacement Cost =============================================================== Hotel Cost Total Cost Per Room -------------------------------------------------------- Building Improvements $303,780,000 $116,838 Furniture, Fixtures and Equipment 169,000,000 65,000 Land Value 135,000,000 51,923 Developer's Profit 151,945,000 58,440 ----------- ------ Total $759,725,000 $292,202 ================================================================================ ================================================================================ Physical Deterioration - Improvements =============================================================== Physical Curable - Improvements Replacement Cost of Improvements $379,725,000 Curable Physical Deterioration 0 --------- Depreciated Replacement Cost of Improvements $379,725,000 Physical Incurable - Improvements Chronological Age 0 Effective age 0 Typical Economic Life 60 Remaining Economic Life 60 -------------- Percent Depreciated 0.0% Depreciated Replacement Cost of Improvements $379,725,000 Percent Depreciated 0.0% -------------- Incurable Physical Deterioration $0 ================================================================================ ================================================================================ Personal Property Deterioration and Values =============================================================== Physical Incurable - FF&E Replacement Cost of FF&E $211,250,000 Less: Curable FF&E Deterioration 0 -------------- Depreciated Replacement Cost of FF&E $211,250,000 Percent Depreciated ERR Incurable Physical Deterioration ERR Market Value of FF&E ERR Value in Use - FF&E Market Value of Subject via Income Approach $0 Personal Property Ratio 0.0% -------------- Value in Use of Personal Property $0 ================================================================================ ================================================================================ Economic Obsolescence =============================================================== Subject Comparable ------- ---------- Value Stabilized (Deflated) ADR $0.00 $0.00 $760,000,000 Number of days Open 365 365 Number of Rooms 2,600 2600 Stabilized Occupancy 0.0% 0.0% ------- ----------- Rooms Revenue $0 $0 Loss in Revenue Due to External Factors $0 Incremental Net Operating Ratio 60.0% ------------ Incremental Net Income $0 Capitalization Rate 10.0% ------------ Gross Economic Obsolescence $0 Adjust for Land Component Land Value $135,000,000 Income Approach Value 0 ------------ Land to Value Ratio ERR Percentage Attributable to Incurable Obsolescence ERR Net Economic Obsolescence ERR ================================================================================ ================================================================================ Conclusion =============================================================== Replacement Cost of Improvements $303,780,000 Replacement Cost of Furniture, Fixtures, and Equipment $169,000,000 Land Value $135,000,000 Developer's Profit $151,945,000 -------------- Total Replacement Cost New $759,725,000 Less: Curable Physical Deterioration-Building 0 Less: Incurable Physical Deterioriation-Building 0 Less: Curable Physical Deterioration-FF&E 0 Less: Incurable Physical Deterioriation-FF&E 0 Less: Economic Obsolecence 0 --------- Total Depreciation 0 Estimated Value by Cost Approach $759,725,000 (Say) $760,000,000 ================================================================================
Lookup Tables 1 2 3 4 Pre-opening Expense 1,200 2,700 4,200 5,700 Working Capital 1,200 2,000 2,800 3,500 Landscaping $2.20 $2.90 $3.85 $4.00 Swimming Pool $58,875 $111,000 $178,150 $243,250 Surface Parking $620 $760 $925 $1,135 Economic Life 1 2 3 4 Good to Exlt. 60 60 55 50 Economic Life 1 2 3 4 Low to Average 55 55 50 45 Multipliers 1.00 1.00 1.00 1.00 FF&E Depreciation: 1 40.0% 2 60.0% 3 70.0% 4 75.0% 5 80.0% 6 85.0% 7 89.0% 8 92.0% 9 95.0% 0 98.0% Parking Cost Per Space $1,135 Landscaping Cost Per Sq. Ft. $4.00
======================================================== COST ANALYSIS MODEL VERSION: WIN 1.0 Developed for: April 14, 1994 HOSPITALITY VALUATION SERVICES Developed by: Modified by: Dexter Wood and Frank Dougherty Jin Y. Lee ======================================================== 05/27/1998 Market Analysis
Table Games Gaming Devices ------------------------------------------------------- -------------------------------------------------------- Year Win % Change Units % Change WPUPD % Change Win % Change Units % Change WPUPD % Change - -------------------------------------------------------------------------- -------------------------------------------------------- 1992 $974,174 -- 1,101 -- $2,424 -- $1,021,805 -- 26,525 -- $106 -- 1993 1,085,276 11.4% 1,116 1.4% 2,664 9.9% 1,078,632 5.6% 26,997 1.8% 109 3.7% 1994 1,441,155 32.8 1,476 32.3 2,675 0.4 1,428,500 32.4 37,245 38.0 105 (4.0) 1995 1,591,184 10.4 1,451 (1.7) 3,004 12.3 1,369,914 (4.1) 36,191 (2.8) 104 (1.3) 1996 1,515,105 (4.8) 1,495 3.0 2,777 (7.6) 1,442,373 5.3 37,197 2.8 106 2.4 Annual% Chg 11.7% 7.9% 3.5% 9.0% 8.8% 0.2% YTD 6/96 $755,625 -- 1,468 -- 1,410 -- $729,654 -- 36,896 -- 54 -- YTD 6/97 827,644 9.5% 1,672 13.9% 1,356 (3.8)% 746,015 2.2% 40,598 10.0% 50 (7.1)% LTM through 7/96 $1,727,721 -- 1,560 -- $3,034 -- $1,467,537 -- 37,483 -- $107 LTM through 7/97 1,724,658 (0.2)% 1,779 14.0% 2,656 (12.5)% 1,535,213 4.6% 42,104 12.3% 100 (6.9)%
Sunrise Casino Hotel Interactive Value Calculation and Proof - Market Value Value $824,143,111 Loan-to-value 60.00% Debt Service Constant 0.158581 Term 10 Amortization 10 Interest Rate 10.00% Terminal Cap 18.00% Equity Yield: 30.00% Period Total Value Debt Equity - ------ ------------ ------------ ------------ ($824,143,111) ($494,485,866) ($329,657,244) Year1 136,148,000 78,416,006 59,729,994 Year2 142,522,000 78,416,006 64,105,994 Year3 145,559,000 78,416,006 67,142,994 Year4 149,925,000 78,416,006 71,508,994 Year5 154,424,000 78,416,006 76,007,994 Year6 159,057,000 78,416,006 80,640,994 Year7 163,827,000 78,416,006 85,410,994 Year8 168,745,000 78,416,006 90,328,994 Year9 173,806,000 78,416,006 95,389,994 Year10 1,182,921,111 78,416,006 1,104,505,105 Total Property IRR Debt IRR Equity IRR 19.2% 9.4% 27.1% Available Percent Occupied Percent Vacancy Year Space Change Space Change Rate - ----------------------------------------------------------------------- 1991 2,149,403 -- 1,794,752 -- 16.5% 1992 2,266,181 5.4% 1,919,455 6.9% 15.3 1993 2,441,514 7.7 2,150,974 12.1 11.9 1994 2,630,558 7.7 2,446,419 13.7 7.0 1995 2,681,046 1.9 2,581,847 5.5 3.7 Avg. Annual Comp. Change,1991-95 Available Space 5.7% Occupied Space 9.5% Source: Metropolitan Las Vegas Office Market Conditions
Fiscal Year 1996 Location Las Vegas Strip Number of Locations 19 Number of Rooms 45,291 Occupancy 94.8% Average Rate $79.19 Occupied Rooms 15,666,731 (000s) % Gross PAR(1) POR(2) - ------------------------------------------------------------------------------------------------------------- Revenues Gaming $3,194,527 52.6 % $70,533 $203.91 Rooms 1,240,619 20.4 27,392 79.19 Food 656,570 10.8 14,497 41.91 Beverage 277,885 4.6 6,136 17.74 Other Income 700,428 11.5 15,465 44.71 ------- ---- ------ ----- Total Revenues 6,070,029 100.0 134,022 387.45 Departmental Expense * Casino 1,826,188 57.2 40,321 116.56 Rooms 451,921 36.4 9,978 28.85 Food 678,850 103.4 14,989 43.33 Beverage 183,764 66.1 4,057 11.73 Other Income 427,180 61.0 9,432 27.27 ------- ---- ----- ----- Total Departmental Exp 3,567,904 58.8 78,777 227.74 Departmental Income 2,502,125 41.2 55,245 159.71 Undistributed Operating Expenses Administrative and General 663,174 10.9 14,642 42.33 Marketing 90,967 1.5 2,008 5.81 Energy 88,971 1.5 1,964 5.68 Complimentary/Promotions 40,152 0.7 887 2.56 Entertainment 63,314 1.0 1,398 4.04 ------ --- ----- ---- Total 946,577 15.6 20,900 60.42 House Profit 1,555,549 25.6 34,345 99.29 Fixed Charges Property Tax 46,350 0.8 1,023 2.96 Rent of Premises 18,157 0.3 401 1.16 Equipment Lease 3,162 0.1 70 0.20 ----- --- -- ---- Total 67,670 1.1 1,494 4.32 Net Income $1,487,879 24.5 % $32,851 $94.97 ========== ==== ======= ====== Food as a % of Gaming Revenue 20.6 % Beverage as a % of Gaming Revenue 8.7 Other Income as a % of Gaming Revenue 21.9 Fiscal Year 1995 Location Las Vegas Strip Number of Locations 19 Number of Rooms 44,490 Occupancy 94.1% Average Rate $74.61 Occupied Rooms 15,272,638 (000s) % Gross PAR(1) POR(2) - ------------------------------------------------------------------------------------------------------------- Revenues Gaming $3,086,131 53.6 % $69,367 $202.07 Rooms 1,139,558 19.8 25,614 74.61 Food 632,475 11.0 14,216 41.41 Beverage 273,743 4.8 6,153 17.92 Other Income 621,797 10.8 13,976 40.71 ------- ---- ------ ----- Total Revenues 5,753,705 100.0 129,326 376.73 Departmental Expense * Casino 1,768,141 57.3 39,742 115.77 Rooms 430,029 37.7 9,666 28.16 Food 669,096 105.8 15,039 43.81 Beverage 182,125 66.5 4,094 11.92 Other Income 422,055 67.9 9,487 27.63 ------- ---- ----- ----- Total Departmental Exp 3,471,445 60.3 78,028 227.30 Departmental Income 2,282,260 39.7 51,298 149.43 Undistributed Operating Expenses Administrative and General 640,544 11.1 14,397 41.94 Marketing 89,770 1.6 2,018 5.88 Energy 89,844 1.6 2,019 5.88 Complimentary/Promotions 35,979 0.6 809 2.36 Entertainment 55,473 1.0 1,247 3.63 ------ --- ----- ---- Total 911,611 15.8 20,490 59.69 House Profit 1,370,649 23.8 30,808 89.75 Fixed Charges Property Tax 45,238 0.8 1,017 2.96 Rent of Premises 17,638 0.3 396 1.15 Equipment Lease 7,811 0.1 176 0.51 ----- --- --- ---- Total 70,687 1.2 1,589 4.63 Net Income $1,299,962 22.6 % $29,219 $85.12 ========== ==== ======= ====== Food as a % of Gaming Revenue 20.5 % Beverage as a % of Gaming Revenue 8.9 Other Income as a % of Gaming Revenue 20.1 Fiscal Year 1994 Location Las Vegas Strip Number of Locations 19 Number of Rooms 39,880 Occupancy 95.5% Average Rate $66.20 Occupied Rooms 13,906,906 (000s) % Gross PAR POR - ----------------------------------------------------------------------------------------------------------- Revenues Gaming $2,761,356 54.9 % $69,242 $198.56 Rooms 920,694 18.3 23,087 66.20 Food 566,971 11.3 14,217 40.77 Beverage 249,803 5.0 6,264 17.96 Other Income 528,005 10.5 13,240 37.97 ------- ---- ------ ----- Total Revenues 5,026,830 100.0 126,050 361.46 Departmental Expense * Casino 1,500,719 54.3 37,631 107.91 Rooms 382,610 41.6 9,594 27.51 Food 608,813 107.4 15,266 43.78 Beverage 170,017 68.1 4,263 12.23 Other Income 326,165 61.8 8,179 23.45 ------- ---- ----- ----- Total Departmental Exp 2,988,324 59.4 74,933 214.88 Departmental Income 2,038,505 40.6 51,116 146.58 Undistributed Operating Expenses Administrative and General 635,787 12.6 15,943 45.72 Marketing 85,595 1.7 2,146 6.15 Energy 76,265 1.5 1,912 5.48 Complimentary/Promotions 37,542 0.7 941 2.70 Entertainment 59,114 1.2 1,482 4.25 ------ --- ----- ---- Total 894,302 17.8 22,425 64.31 House Profit 1,144,203 22.8 28,691 82.28 Fixed Charges Property Tax 33,152 0.7 831 2.38 Rent of Premises 14,538 0.3 365 1.05 Equipment Lease 4,246 0.1 106 0.31 ----- --- --- ---- Total 51,936 1.0 1,302 3.73 Net Income $1,092,267 21.7 % $27,389 $78.54 ========== ==== ======= ====== Food as a % of Gaming Revenue 20.5 % Beverage as a % of Gaming Revenue 9.0 Other Income as a % of Gaming Revenue 19.1
* Departmental expenses expressed as a percentage of departmental revenues (1) Per Available Room (2) Per Occupied Room Sources: Nevada Gaming Abstract, State Gaming Control Board HVS Gaming Services September 12, 1997 Mr. Jim Riley Bank of Nova Scotia, New York Agency One Liberty Plaza New York, New York 10005 (212) 225-5098 Phone (212) 225-5172 Fax Re: Proposed Aladdin Hotel and Casino Las Vegas, Nevada HVS Ref.: #9710413 Dear Mr. Riley: Pursuant to your request, we submit this restricted appraisal report pertaining to the above-captioned property. We have inspected the site and facilities and analyzed the casino hotel market conditions in the Las Vegas market area. This letter, which complies with the requirements set forth in the Uniform Standards of Professional Appraisal Practice for a restricted appraisal report, is a brief recapitulation of the appraisers' data, analyses, and conclusions. It does not include full discussion of the data, reasoning, and analyses that were utilized in the appraisal process to develop the appraisers' opinion of value. Supporting documentation is retained in the appraisers' file and will be presented in the self-contained appraisal we are in the process of preparing, and which should be delivered to you in approximately three weeks. The valuation is expressly made subject to all normal assumptions and limiting conditions, a copy of which is provided along with the certification. Subject of the Appraisal The subject of the appraisal is the fee simple interest in a +/- 34.31-acre parcel of land currently improved with the Aladdin Hotel and Casino and Performing Arts Center. The subject's civic address is 3667 Las Vegas Boulevard, Las Vegas, Nevada. While the site is currently improved, this appraisal assumes the demolition of all of the current improvements, with the exception of the Performing Arts Center. A new mixed-use development is currently proposed for the subject site consisting of a 2,600-room hotel and a 100,000 square foot casino (the Aladdin Hotel and Casino), a 450,000-square-foot shopping mall, a parking garage, and a co-generation plant. Based on a site plan provided by the project's developers, the hotel and casino portion of the development will encompass +/- 18.16 acres of the +/- 34.31-acre site. For purposes of this appraisal, we have been asked to render an opinion as to the prospective market value of the land and improvements for the Aladdin Hotel and Casino portion of the development, the market value of the entire +/- 34.31 acres of land as if vacant and ready for development, and the market value of the +/- 18.16 acres of land allocated to the redeveloped Aladdin Hotel and Casino as if vacant and ready for development. As mentioned, the subject site is located on Las Vegas Boulevard (The Strip) in Las Vegas, Nevada. Purpose of the Assignment The purpose of the assignment is to estimate the prospective market value of the Aladdin Hotel and Casino when construction has been completed and the improvements are operational; the market value of the underlying +/- 34.31 of land of the entire site; and the market value of the +/- 18.16 acres of land allocated to the Aladdin Hotel and Casino portion of the development. Market value is defined by the Office of the Comptroller of the Currency (OCC), 12 CFR, Part 34 as follows: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their own best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and 5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. "Prospective" market value is the forecast of the value expected at a specified future date. 2 Intended Use The valuation is being prepared for Bank of Nova Scotia, New of the Report York Agency for financing purposes. None of the information presented should be disseminated to the public or third parties without the express consent of HVS International. Date of The subject property was inspected on August 7, 1997 by Mark Inspection D. Capasso and Anne R. Lloyd Jones, CRE. Interest Valued The property rights appraised are the fee simple ownership of the land and improvements including furniture, fixtures, and equipment. Effective Dates The effective date of the prospective market value for the of Value Aladdin Hotel and Casino is January 1, 2000, the anticipated date of opening. The effective date of value for both the entire +/- 34.31-acre site and the +/- 18.16 acres of land allocated to the hotel and casino portion of the development is August 7, 1997. Scope of the Appraisal All information was collected and analyzed by staff of HVS International. Descriptive data and site plans for the proposed subject property were supplied by the developers, Aladdin Holdings, LLC. The site has been inspected and the developers and future management have been interviewed. We have gathered economic data and information on improved sales, areawide and competitive casino revenues, occupancies and average rates, operating expenses, construction costs, and capitalization and equity yield rates. We have spoken with buyers, sellers, brokers, developers and public officials. We have analyzed this information and have considered the sales comparison, cost, and income approaches to value. Based on our findings, we have prepared a forecast of income and expense representing a stabilized year and capitalized the net income based on current required debt and equity returns. The value conclusion is based upon this investigation and analysis and is conveyed herein. In the development of the opinion of value, the appraisers performed a complete appraisal process as defined by the Uniform Standards of Professional Practice. This means that no departures from Standard 1 were invoked. This restricted appraisal report presents only the appraisers' conclusions. Supporting documentation is retained in the appraisers' file and will be presented in our narrative self-contained report, which we are in the process of preparing. 3 Highest Highest and best use is defined as "the reasonably probable and Best Use and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability." (1) Using these criteria, it is our opinion that the highest and best use of the subject land is to be improved with a mixed use development consisting of a hotel and casino, shopping mall, and various other facilities. Summary of Analysis and The final conclusion of value is arrived at after reviewing Valuation the estimates indicated by the income capitalization, sales comparison, and cost approaches. The relative significance, applicability, and defensibility of each value is considered, and the greatest weight is given to that approach deemed most appropriate for the property being appraised. In recognition of the purpose of this appraisal, we have given primary weight to the value indicated by the income capitalization approach and made some subjective adjustments based on the sales comparison and cost approaches, in developing an estimate of the prospective value of the proposed property. In developing an estimate of value of the subject sites, as vacant, we have relied primarily on the sales comparison approach. Based on the available data, our analysis and experience in the hotel industry, it is our opinion that the "prospective" market value of the fee simple interest in the proposed Aladdin Hotel and Casino (as previously described), as of the date the project is complete and operational, assumed to be on or about January 1, 2000, will be: $825,000,000 EIGHT HUNDRED TWENTY FIVE MILLION DOLLARS In addition, it is our opinion that the market value of the total, +/- 34.31-acre subject site, as vacant and including the development rights and entitlements, as of August 7, 1997, is: $180,000,000 ONE HUNDRED EIGHTY MILLION DOLLARS -------- (1) Appraisal Institute. The Dictionary of Real Estate Appraisal. 3rd ed. Chicago: Author, 1993, p. 171. 4 In addition, it is our opinion that the market value of the +/- 18.16 acres of land allocated to the Aladdin Hotel and Casino portion of the development, as vacant and including the development rights and entitlements, as of August 7, 1997, is: $135,000,000 ONE HUNDRED THIRTY FIVE MILLION DOLLARS Exposure and Marketing Periods Based upon current market conditions, we believe the property could transact at this price with exposure and marketing periods of up to six months. We hereby certify that we have no undisclosed interest in the property, and our employment and compensation are not contingent upon our valuation. This restricted appraisal report is for internal use only and, as previously noted, does not include full discussion of the data, reasoning, and analyses that were utilized in the appraisal process. The valuation is expressly made subject to all normal and specific assumptions and limiting conditions, a copy of which is included in this restricted appraisal report. Very truly yours, HVS International A Division of Hotel Consulting Services, Inc. Mark D. Capasso Senior Associate Anne R. Lloyd-Jones, CRE Senior Vice President Stephen Rushmore, CRE, MAI, CHA President 5 Statement of Assumptions and Limiting Conditions This restricted appraisal report complies with the requirements set forth under Standards Rule 2-2(c) of the Uniform Standards of Professional Appraisal Practice for a restricted appraisal report. As such, it does not include discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraisers' opinion of value. Supporting documentation concerning the data, reasoning, and analyses is retained in the appraisers' file. The information contained in this letter is specific to the need of the client and for the intended use stated in this letter. The appraisers are not responsible for unauthorized use of this report. This restricted appraisal report is to be used in whole and not in part. No responsibility is assumed for matters of a legal nature, nor do we render any opinion as to title, which is assumed to be marketable and free of any deed restrictions and easements. The property is valued as though free and clear unless otherwise stated. There are no hidden or unapparent conditions of the property, sub-soil or structures, such as underground storage tanks, that would render it more or less valuable. No responsibility is assumed for these conditions or any engineering that may be required to discover them. We have not considered the existence of potentially hazardous materials used in the construction or maintenance of the building, such as asbestos, urea formaldehyde foam insulation, or PCBs, nor have we considered the presence of any form of toxic waste. Furthermore, we have also not considered polychlorinated biphengyls, pesticides, and lead-based paints. The appraisers are not qualified to detect any hazardous substances and urge the client to retain an expert in this field if desired. We have made no survey of the property, and assume no responsibility in connection with such matters. Any sketches, photographs, maps, and other exhibits are included only to assist the reader in visualizing the property. It is assumed that the use of the land and improvements is within the boundaries of the property described, and that there is no encroachment or trespass unless noted. All information, financial operating statements, estimates, and opinions obtained from parties not employed by HVS International are assumed to be true and correct. We can assume no liability resulting from misinformation. Unless noted, we assume that there are no encroachments, zoning violations, or building violations encumbering the subject property. The property is assumed to be in full compliance with all applicable federal, state, local, and private codes, laws, consents, licenses, and regulations (including a liquor license where appropriate), and that all licenses, permits, certificates, franchises, and so forth can be freely renewed or transferred to a purchaser. All mortgages, liens, encumbrances, leases, and servitude's have been disregarded unless specified otherwise. No portions of this restricted appraisal report may be reproduced in any form without our permission, and the report cannot be disseminated to the public through advertising, public relations, news, sales, or other media. We are not required to give testimony or attendance in court by reason of this analysis without previous arrangements, and only when our standard per-diem fees and travel costs are paid prior to the appearance. 6 If the reader is making a fiduciary or individual investment decision and has any questions concerning the material presented in this restricted appraisal report, it is recommended that the reader contact us. We take no responsibility for any events or circumstances that take place subsequent to either the date of value or the date of our field inspection, whichever occurs first. The quality of a casino hotel facility's on-site management has a direct effect on a property's economic viability and value. The financial forecasts presented in this analysis assume responsible ownership and competent management. Any variance from this assumption may have a significant impact on the projected operating results and value estimate. The value estimate developed for this restricted appraisal report is based on an evaluation of the overall economy, and neither takes into account, nor makes provision for, the effect of any sharp rise or decline in local or national economic conditions. To the extent that wages and other operating expenses may advance during the economic life of the property, we expect that the prices of rooms, food, beverages, and services will be adjusted to at least offset these advances. We do not warrant that the estimates will be attained, but they have been prepared on the basis of information obtained during the course of this study and are intended to reflect the expectations of typical investors. This analysis assumes continuation of all Internal Revenue Service tax code provisions as stated or interpreted on either the date of value or the date of our field inspection, whichever occurs first. Many of the figures developed for this restricted appraisal report were generated using sophisticated computer models that make calculations based on numbers carried out to three or more decimal places. In the interest of simplicity, most numbers have been rounded to the nearest tenth of a percent. Thus, these figures may be subject to small rounding errors. It is agreed that our liability to the client is limited to the amount of the fee paid as liquidated damages. Our responsibility is limited to the client, and use of this restricted appraisal report by third parties shall be solely at the risk of the client and/or third parties. Although this analysis employs various mathematical calculations to provide value indications, the final estimate is subjective and may be influenced by our experience and other factors not specifically set forth is this letter. Any distribution of the total value between the land and improvements or between partial ownership interests applies only under the stated use. Moreover, separate allocations between components are not valid if this restricted appraisal report is used in conjunction with any other analysis. The Americans with Disabilities Act (ADA) became effective on January 26, 1992. We have conducted no specific compliance survey to determine whether the subject property is in conformity with the various detailed requirements of the ADA. It is possible that the property does not comply with the requirements of the act, and this could have an unfavorable effect on the property value. Because we have no direct evidence regarding this issue, our estimate of value does not consider possible noncompliance with the ADA. 7 This study was prepared by HVS International, a division of Hotel Consulting Services, Inc. All opinions, recommendations and conclusions expressed during this assignment have been rendered by the staff of Hotel Consulting Services, Inc. acting solely as employees and not as individuals. CERTIFICATION We the undersigned appraisers, hereby certify: that the statements and opinions presented in this restricted appraisal report subject to the limiting conditions set forth, are correct to the best of our knowledge and belief; that Mark D. Capasso and Anne R. Lloyd-Jones CRE, personally inspected the property described in this report and actively participated in the analysis; that the appraisers have extensive experience in the valuation of casino hotels and believe that they are competent to undertake this appraisal; that we have no current or contemplated interests in the real estate that is the subject of this restricted appraisal report; that we have no personal interest or bias with respect to the subject matter of this letter or the parties involved; that this restricted appraisal report sets forth all of the limiting conditions (imposed by the terms of this assignment) affecting the analyses, opinions, and conclusions presented herein; that the fee paid for the preparation of this study is not contingent upon the amount of the value estimate; that this restricted appraisal report has been prepared in accordance with and is subject to the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute; that the use of this letter is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives; that this letter has been prepared in accordance with the Uniform Standards of Professional Appraisal Practice (as adopted by the Appraisal Foundation); that no one other than the undersigned prepared the analyses, conclusions, and opinions concerning real estate that are set forth in this appraisal report; that as of the date of this restricted appraisal report, Stephen Rushmore, CRE, MAI, CHA has completed the requirements of the continuing education program of the Appraisal Institute; that this appraisal is not based on a requested minimum value, a specific value, or the approval of a loan. /s/ Mark D. Capasso ----------------------------------------- Mark D. Capasso, as an employee of Hotel Consulting Services, Inc. 8 /s/ Anne R. Lloyd ----------------------------------------- Anne R. Lloyd Jones, CRE, as an employee of Hotel Consulting Services, Inc. /s/ Stephen Rushmore ----------------------------------------- Stephen Rushmore, CRE, MAI, CHA, as an employee of Hotel Consulting Services, Inc. 9 Passenger Percent Percent Total Percent Percent Year Enplanements Change(1) Change(2) Passengers Change(1) Change(2) - -------------------------------------------------------------------------------- 1985 123,064 -- -- 246,098 -- -- 1986 164,072 33.3% 33.3% 326,946 32.9% 32.9% 1987 176,503 7.6 19.8 354,028 8.3 19.9 1988 145,541 (17.5) 5.8 294,783 (16.7) 6.2 1989 144,094 (1.0) 4.0 288,665 (2.1) 4.1 1990 140,814 (2.3) 2.7 283,550 (1.8) 2.9 1991 139,357 (1.0) 2.1 279,495 (1.4) 2.1 1992 156,529 12.3 3.5 314,312 12.5 3.6 1993 153,344 (2.0) 2.8 307,621 (2.1) 2.8 1994 168,000 -- -- 1995 183,000 8.9% 8.9% 1996 198,000 8.2 8.6 (1) Annual average compounded percentage change from the previous year (2) Annual average compounded percentage change from 1985 for historicals; from 1994 for forecasts Source: Medford-Jackson County Airport; FAA Terminal Forecasts Hospitality Valuation Services, Mineola, New York Qualifications of Anne R. Lloyd-Jones, CRE - -------------------------------------------------------------------------------- ================================================================================ Anne R. Lloyd-Jones, CRE Employment 1982 to present HOSPITALITY VALUATION SERVICES (Division of Hotel Appraisals, Inc.) Mineola, New York (Hotel/Motel Valuations, Market Studies, Feasibility Reports and Investment Counseling) 1981 FAIRMONT HOTEL Dallas, Texas 1979 - 1980 SAGA FOOD SERVICE SWARTHMORE COLLEGE Swarthmore, Pennsylvania 1977 - 1980 DARANNE CATERERS Swarthmore, Pennsylvania Professional Affiliations American Society of Real Estate Counselors - Member (CRE) Appraisal Institute - Candidate for Membership Cornell Society of Hotelmen Education MPS - School of Hotel Administration, Cornell University BA - Swarthmore College Appraisal Institute Course 1A1 - Real Estate Appraisal Principles Course 1A2 - Basic Valuation Procedures Course 1BA - Capitalization Theory and Techniques, Part A Course 1BB - Capitalization Theory and Techniques, Part B Course 2-1 - Case Studies in Real Estate Valuation Hospitality Valuation Services, Mineola, New York Qualifications of Anne R. Lloyd-Jones, CRE - -------------------------------------------------------------------------------- Course 2-3 - Standards of Professional Practice Course 3-1 - Report Writing Hospitality Valuation Services, Mineola, New York Qualifications of Anne R. Lloyd-Jones, CRE - -------------------------------------------------------------------------------- Examples of Corporate and Institutional Clients Chase Manhattan Bank, N. A. Served Chemical Citibank Doubletree Hotels Federal Home Loan Bank Board Great Western Bank Holiday Inns, Inc. Interstate Hotels Metropolitan Life MassMutual Marriott Corporation Morgan Guaranty Trust North Carolina National Bank Paine Inc. Salomon Inc Sheraton Hotels Union Bank U. S. Economic Development Authority Winegardner & Hammons Wyndham Hotel Company Hotel Chains and Management Doubletree Hotels Companies Appraised or Compri Hotels Evaluated Interstate Hotels Fairmont Hotels Guest Quarters Hilton Hotels Corporation Omni International Hotels Ramada Hotel Corp. Servico Hotel Corp. Winegardner & Hammons Appearance as an Expert Witness Federal Bankruptcy Court, San Diego, California Federal Bankruptcy Court, Jefferson City, Missouri Federal Bankruptcy Court, Columbia, South Carolina Federal Bankruptcy Court, Houston, Texas Federal Bankruptcy Court, New York, New York Federal Bankruptcy Court, San Bernardino, California Federal Bankruptcy Court, Los Angeles, California Federal Bankruptcy Court, Charlotte, North Carolina Federal Bankruptcy Court, Miami, Florida Federal District Court, Central Division, Salt Lake City, Utah Iowa District Court, Story County, Iowa Texas District Court, Harris County, Texas Federal Bankruptcy Court, Tampa, Florida Utah District Court, Salt Lake County, Utah Hospitality Valuation Services, Mineola, New York Qualifications of Anne R. Lloyd-Jones, CRE - -------------------------------------------------------------------------------- Examples of Hotels Appraised or Evaluated Arizona - Wyndham Garden Hotel, Chandler - Wyndham Garden Hotel - Airport, Phoenix - Wyndham Garden Hotel - Union Hills, Phoenix - Canyon Ranch Spa & Fitness Resort, Tucson Alabama - Holiday Inn, Birmingham - Proposed Sheraton, Gulf Shores - Proposed Inn, Mobile - Holiday Inn, Sheffield California - Industry Hills Sheraton Hotel, City of Industry - Piccadilly Inn, Fresno - Proposed Inn at Foss Creek, Healdsburg - Sunset Towers Hotel, Hollywood - Proposed La Quinta, Irvine - Wyndham Garden Hotel, La Jolla - Days Inn, La Palma - Proposed Marriott Courtyard, Palm Springs - Proposed Club Hilton Hotel, Pleasanton - Center Pointe Development, San Diego - Holiday Inn-Embarcadero, San Diego - Holiday Inn-Harbor View, San Diego - Seven Seas Lodge, San Diego - Proposed Fountaingrove Inn, Santa Rosa - Sheraton Round Barn Inn, Santa Rosa - Wyndham Garden Hotel, Sunnyvale - Westlake Plaza Hotel, Thousand Oaks - Proposed Marriott Courtyard, Torrance Colorado - Proposed Hotel, Keystone Connecticut - Holiday Inn, Milford - Holiday Inn, New Britain District of Columbia - Grand Hotel, Washington - Wyndham Bristol Hotel, Washington Florida - Kon Tiki Village, Kissimmee - Sheraton Lakeside, Kissimmee - Holiday Inn, 22nd Street, Miami Beach - Holiday Inn, 87th Street, Miami Beach - Holiday Inn, 180th Street, Miami Beach - Sheraton Resort & Marina, St. Petersburg - Hilton Hotel, Singer Island - Royce Hotel, West Palm Beach Georgia - Marriott Hotel, Atlanta - Wyndham Garden Hotel, Atlanta - Holiday Inn, Brunswick - Holiday Inn, Jekyll Island - Mullberry Inn, Savannah - Royal Savannah Inn, Savannah Hawaii - Hobron in Waikiki, Honolulu Idaho - Holiday Inn, Boise - Red Lion Inn, Boise - Super 8, Boise Illinois - Ramada Inn, Bloomington - Proposed Marriott Courtyard, Glenview - Wyndham Garden Hotel, Naperville Indiana - Holiday Inn, Bloomington - Inn at the Four Winds, Bloomington - Ramada Inn, Bloomington - Hilton Hotel, Fort Wayne - Airport Hilton Inn, Indianapolis - Hilton at the Circle, Indianapolis Iowa - Holiday Inn, Ames - Proposed Fairfield Inn, Des Moines Hospitality Valuation Services, Mineola, New York Qualifications of Anne R. Lloyd-Jones, CRE - -------------------------------------------------------------------------------- Examples of Hotels Appraised or Evaluated Kentucky (cont'd) - Proposed Super 8, London - Proposed Super 8, Radcliff Louisiana - Sheraton Inn, Kenner - Hotel Meridien, New Orleans Maine - Proposed Hotel, Old Orchard Beach Maryland - Brookshire Hotel, Baltimore - Lord Baltimore Hotel, Baltimore - Hyatt Regency, Bethesda Massachusetts - Proposed Marriott Courtyard, Andover - Hyatt Regency, Cambridge - Proposed Hotel, Franklin - Sheraton Inn, Hyannis - Marriott Hotel, Worcester Michigan - Bay Valley Inn, Bay City - Hilton Airport, Detroit - Westin Renaissance Center, Detroit - Hotel Pontchartrain, Detroit - Proposed Embassy Suites, Lansing - Hilton Inn, Northfield - Holiday Inn, Saginaw Minnesota - Wyndham Garden Hotel, Bloomington - Marriott Hotel, Minnetonka Missouri - Inn at Grand Glaize, Osage Beach - Bel Air Hilton, St. Louis - Holiday Inn Riverfront, St. Louis Nebraska - Holiday Inn - Airport, Lincoln - Holiday Inn - Northeast, Lincoln - Marriott Hotel, Omaha Nebraska(cont'd) - Ramada Inn, Omaha - Red Lion Inn, Omaha Nevada - Proposed Super 8, Las Vegas New Jersey - Ramada Inn, Edison - Marriott Hotel, Hanover - Headquarters Plaza, Morristown - Hyatt Regency, New Brunswick - Holiday Inn, North Brunswick New York - Hilton Hotel, Albany - Proposed Embassy Suites, Amherst - Holiday Inn - Arena, Binghamton - Holiday Inn - SUNY, Binghamton - Proposed Hotel, Binghamton - Proposed Hilton, Brooklyn - Marriott Hotel, Dewitt - Metropole Hotel, Flushing - Midway Hotel, Flushing - Ramada Inn, Kingston - Royce Hotel, La Guardia - Holiday Inn, Latham - Proposed Crowne Plaza, Manhattan - Proposed Prince Street Hotel, Manhattan - Proposed Roslyn Inn, Roslyn - Proposed Le Richmonde, Rye Brook - Hilton Hotel, Syracuse - Hotel Syracuse, Syracuse - Proposed Hotel, Watertown North Carolina - Proposed Inn, Chapel Hill - Proposed Indep. Center Marriott Hotel,Charlotte - Royce Hotel, Charlotte - Howard Johnson's - North, Charlotte - Holiday Inn - West, Durham - Sheraton University Inn, Durham - Holiday Inn, Fayetteville - Holiday Inn - Downtown, Raleigh Hospitality Valuation Services, Mineola, New York Qualifications of Anne R. Lloyd-Jones, CRE - -------------------------------------------------------------------------------- Examples of Hotels Appraised or Evaluated Ohio (cont'd) - Proposed Hyatt Hotel, Cleveland - Proposed Marriott Hotel, Cleveland Oregon - Holiday Inn - Airport, Portland - Holiday Inn - South, Portland Pennsylvania - Quality Inn, Allentown - Holiday Inn, Bensalem - Proposed Marriott Courtyard, Devon - Proposed Lafayette Inn, Easton - Ramada Inn, Erie - Holiday Inn, Harrisburg - Marriott Hotel, Harrisburg - Proposed Super 8, Harrisburg - Proposed Super 8, Lancaster - Holiday Inn - West, Monroeville - Days Inn Philadelphia - Franklin Plaza Hotel, Philadelphia - Franklin Towne EconoLodge, Philadelphia - Guest Quarters Hotel, Philadelphia - Hilton Inn, Northeast, Philadelphia - Marriott Airport Hotel, Philadelphia - Holiday Inn - Greentree, Pittsburgh - Holiday Inn - Parkway East, Pittsburgh - Holiday Inn - North, Pittsburgh - Holiday Inn - Parkway West, Pittsburgh - Proposed Hotel, Pittsburgh - Royce Hotel, Pittsburgh - Westin William Penn Hotel, Pittsburgh - Hilton Hotel, Scranton - Proposed Marriott Courtyard, Valley Forge - Holiday Inn - Meadowlands, Washington - Ramada Inn, York - Proposed Super 8, York Rhode Island - Proposed Hotel, Providence - Omni Biltmore Hotel, Providence South Carolina - Proposed Charleston Center Hotel, Charleston - Proposed Cooper River Inn, Charleston South Carolina (cont'd) - Howard Johnson's, Spartanburg - Proposed Middleton Inn and Conference Center, Charleston - Best Western, North Charleston - Proposed Marriott Courtyard, Columbia - Fairfield Inn, Florence - Holiday Inn, Florence - Fairfield Inn, Greenville - Proposed Marriott Courtyard, Greenville - Fairfield Inn, Hilton Head - Holiday Inn, Hilton Head Tennessee - Hampton Inn, Brentwood - Proposed Marriott Courtyard, Brentwood - Howard Johnson's, Chattanooga - Sheraton Hotel, Chattanooga - Howard Johnson's, Knoxville - Proposed Capital Mall Convention Center Hotel, Nashville - Clarion Maxwell House, Nashville - Holiday Inn - Briley Parkway, Nashville - Proposed Marriott Courtyard, Nashville - Sheraton Music City, Nashville - Stouffer's Nashville Hotel, Nashville - Proposed Super 8, Nashville - Union Station Hotel, Nashville - Wyndham Garden Hotel, Nashville - Proposed Super 8, Union City Texas - Proposed Marriott Courtyard, Addison - Proposed Marriott Courtyard, Arlington - La Mansion, Austin - Proposed Marriott Courtyard, Bedford - Airport Hilton, El Paso - Hotel Meridien, Houston - Sheraton Hotel, Houston - Proposed Marriott Courtyard, Las Colinas - Proposed Marriott Courtyard, North Dallas - La Mansion Del Norte, San Antonio - La Mansion Del Rio, San Antonio Hospitality Valuation Services, Mineola, New York Qualifications of Anne R. Lloyd-Jones, CRE - -------------------------------------------------------------------------------- Examples of Hotels Appraised or Evaluated Texas (cont'd) (cont'd) - Proposed Marriott Courtyard, San Antonio - Proposed Marriott Courtyard - Medical Center, San Antonio Utah - Deer Valley Resort, Park City - Hilton Inn, Salt Lake City - Holiday Inn, Salt Lake City - Sheraton Hotel, Salt Lake City Virginia - Mountain Lake Hotel, Blacksburg - Howard Johnson's, Bristol - Boars Head Inn, Charlottesville - Proposed Fairfield Inn, Hampton - Proposed Embassy Suites, Herndon - Ramada Renaissance, Herndon - Proposed Marriott Courtyard, Manassas - Omni Hotel, Norfolk - Proposed Marriott, Norfolk - Howard Johnson's, Richmond - Howard Johnson's, Roanoke - Howard Johnson's, Roanoke Rapids - Wyndham Hotel, Williamsburg Washington - Wyndham Garden Hotel, Bothell - Redmond Hotel, Redmond - Wyndham Garden Hotel, SeaTac West Virginia Proposed Budget Motel, Princeton Wisconsin - Proposed Granada Royale, Green Bay - Holiday Inn-Downtown, Green Bay Canada - Inn on the Park, Toronto Puerto Rico - Carib Inn, San Juan Virgin Islands - Virgin Grand Beach Hotel, St. Thomas Jamaica - Holiday Inn, Montego Bay Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Stephen Rushmore, CRE, MAI, CHA Employment 1980 to present HOSPITALITY VALUATION SERVICES (Division of Hotel Appraisals, Inc.) Mineola, New York (Hotel/Motel Valuations, Market Studies, Feasibility Reports, and Investment Counseling) 1977 - 1980 1971 - 1974 HELMSLEY-SPEAR HOSPITALITY SERVICES, INC. New York, New York (Real Estate) 1974 - 1977 JAMES E. GIBBONS ASSOCIATES Garden City, New York (Mortgage Banking, Appraisals, Hotel Operations) Affiliated Ownership Interests HOSPITALITY VALUATION SERVICES (SAN FRANCISCO, CALIFORNIA) West coast office for hotel/motel appraisals and counseling HOSPITALITY VALUATION SERVICES (MIAMI, FLORIDA) Southeast office for hotel/motel appraisals and counseling HOSPITALITY VALUATION SERVICES (BOULDER, COLORADO) Midwest office for hotel/motel appraisals and counseling HOSPITALITY VALUATION SERVICES - CANADA (VANCOUVER, CANADA) Canadian office for hotel/motel appraisals and counseling HOSPITALITY VALUATION SERVICES INTERNATIONAL (LONDON, ENGLAND) European office for hotel/motel appraisals and counseling HVS - FINANCIAL SERVICES Investment banking for the hotel industry Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- HVS - EXECUTIVE SEARCH Hotel/motel executive search and human resource consulting Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Affiliated Ownership Interests HVS - ECO SERVICES (continued) Environmental consulting for hotels and motels; administrator of the ECOTEL designation HOSPITALITY EQUITY INVESTORS, INC. Hotel and motel investment and management company TRUMBULL MARRIOTT HOTEL General partner of a 324-room hotel and conference center PRINCETON HOTEL ASSOCIATES General partner of a 128-unit Residence Inn in Princeton, New Jersey SEAVIEW GOLF RESORT ASSOCIATES General partner of a 298-unit, 424-acre Marriott resort in Absecon, New Jersey SHELTON HOTEL ASSOCIATES General partner of a 96-unit Residence Inn in Shelton, Connecticut DANBURY HOTEL ASSOCIATES General partner of a 243-unit Hilton Hotel in Danbury, Connecticut PRUDENTIAL - HEI JOINT VENTURE Joint venture partner with Prudential Insurance Company of America on a 234-unit Embassy Suites in Atlanta, Georgia WESTPORT NORFOLK ASSOCIATES General partner of a 425-unit Omni Hotel in Norfolk, Virginia WESTPORT BWI, LLC General partner of a 310-unit Marriott Hotel in Baltimore, Maryland WESTPORT RARITAN, LLC General partner of a 274-unit Crowne Plaza Hotel in Raritan, New Jersey Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Affiliated Ownership Interests WESTPORT NOVI BWI, LLC (continued) General partner of a 193-unit Hilton Hotel in Novi, Michigan HOSPITALITY VALUATION SOFTWARE, INC. Founder of software company that develops and distributes hotel financial analysis software Hotels Managed Sheraton Hotel, Smithtown, New York Marriott Hotel, Baltimore Airport, Maryland Hilton Hotel, Danbury, Connecticut Residence Inn, Princeton, New Jersey Embassy Suites, Atlanta Airport, Georgia Omni Hotel, Norfolk, Virginia Crowne Plaza, Raritan, New Jersey Hilton Hotel, Novi, Michigan Hilton Hotel, Wilmington, Delaware Professional Affiliations American Society of Real Estate Counselors - Member (CRE) - Board of Governors Appraisal Institute - Member (MAI) (SREA) - Developer and Instructor, Hotel Investment and Valuation Seminar - Developer and Instructor, Hotel Computer Valuation Seminar American Hotel and Motel Association - Certified Hotel Administrator (CHA) - Industry Real Estate Financing Advisory Council (IREFAC) International Society of Hospitality Consultants - Member (ISHC) Foodservice Consultants Society International - Professional Member (FCSI) New York University - Adjunct Assistant Professor Michigan State University - Honorary Faculty, Honorary Alumnus Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Professional Affiliations (continued) Certified General Appraiser - Arizona, Colorado, Connecticut, Delaware, District of Columbia, Georgia, Illinois, Iowa, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Virginia, West Virginia, Wyoming Licensed Real Estate Broker - New York, Pennsylvania Board of Advisers - Real Estate Finance Journal - Real Estate Workouts & Asset Management American Arbitration Association - National Real Estate Valuation Council Cornell Society of Hotelmen NY University Masters in Hospitality Management - Advisory Board Hospitality Investment Conference - Board of Advisors Beta Gamma Sigma - National Honor Society in Business and Management Endowment Hospitality Valuation Services Professor of Hotel Finance and Real Estate - School of Hotel Administration, Cornell University (currently held by Professor James J. Eyster) BS - School of Hotel Administration, Cornell University Education MBA - Graduate School of Business Administration (Finance), University of Buffalo Candidate for PhD - School of Education, Department of Food Service Management, New York University List of Teaching and Lecture Assignments Cornell University - Computer Valuation Techniques Michigan State University - Hotel Management Contracts University of North Carolina - Hotel Market Studies University of Virginia - Assessing Hotels American Arbitration Association - Real Estate Arbitration Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ List of Teaching and Lecture Assignments (continued) American Hotel and Motel Association - Hotel Obsolescence Appraisal Institute - Hotel Valuation International Association of Assessing Officers - Hotel Valuation Montreal Appraisal Society - Total Project Analysis Society of Real Estate Appraisers - Lease Seminar Published Books and Seminars Textbooks The Valuation of Hotels and Motels, Appraisal Institute, Chicago, Illinois, 1978 Hotels, Motels and Restaurants: Valuations and Market Studies, Appraisal Institute, Chicago, Illinois, 1983 How to Perform an Economic Feasibility Study of a Proposed Hotel/Motel, American Society of Real Estate Counselors, Chicago, Illinois, 1986 Hotel Investments: A Guide for Owners and Lenders, Warren, Gorham and Lamont, Inc., New York, New York, 1990 The Computerized Income Approach to Hotel Market Studies and Valuations, Appraisal Institute, Chicago, Illinois, 1990 Hotel Investments: A Guide for Owners and Lenders, 1992 Supplement, Warren, Gorham and Lamont, Inc., New York, New York, 1992 Hotel Investments: A Guide for Owners and Lenders, 1993 Supplement, Warren, Gorham and Lamont, Inc., New York, New York, 1992 Hotels and Motels: A Guide to Market Analysis, Investment Analysis, and Valuations, Appraisal Institute, Chicago, Illinois, 1992 Student Manuals The Valuation of Lease Interests, Society of Real Estate Appraisers, Chicago, Illinois, 1976 Hotel-Motel Valuation Seminar, Appraisal Institute, Chicago, Illinois, 1981, 1988, 1990 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- The Computerized Approach to Hotel Market Studies and Valuations Seminar, Appraisal Institute, Chicago, Illinois, 1991 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Published Books and Seminars (continued) Demonstration Appraisal Demonstration Appraisal of a Proposed Hotel, Spring Valley, New York, Hospitality Valuation Services, Mineola, New York, 1983, 1990 Chapters The Real Estate Handbook-Second Edition, Dow Jones-Irwin, 1989, "Hotels and Motels" Arbitration of Real Estate Valuation Principles, American Arbitration Association, 1987, "Arbitration in the Hospitality Industry" Ethics in Hospitality Management: A Book of Readings, Educational Institute of the American Hotel and Motel Association, 1992, "Ethics in Hotel Appraising" The Lodging and Food Service Industry, Educational Institute of the American Hotel and Motel Association, 1993, "Insider's Insights" Published Articles The Appraisal Journal "Using Total Project Analysis to Compete for Investment Capital," October, 1975 "The Appraisal of Food Service Facilities," July, 1980 "Publish and Prosper," October, 1980 "Valuation of Hotels and Motels for Assessment Purposes," April, 1984 "Adjusting Comparable Sales for Hotel Assessment Appeals," July, 1986 "Hotel Business Value and Working Capital: A Clarification," January, 1987 "Ethics in Hotel Appraising," July, 1993 The Appraiser "Hotel-Motel Appraisal Misconceptions Set Straight," January, 1979 "No Conventional Financing Available for Hotels: Rushmore," December, 1979 "Estimating Hotel Land Values Using Comparable Ground Leases," April, 1980 Bulletin of the Cornell Society of Hotelmen "Employment Philosophy for a Consulting Practice," July, 1984 The Canadian Appraiser "Hotel/Motel Market Sales Update," Summer, 1987 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Published Articles (continued) Capital Sources for Real Estate "Stephen Rushmore Discusses the Future of the Lodging Industry," December, 1994 Cayuga Advisor "Secrets to Success in Consulting," October, 1992 Chapter News and Notes "Quantifying a Hotel's Business Value," November, 1979 Cornell Hotel & Restaurant Administration Quarterly "A Preliminary Market Study," November, 1974 "How Much is Your Place Worth Today? A Case Study in Hotel Motel Valuation," May, 1975 "What Can Be Done About Your Hotel's Real Estate Taxes?" May, 1977 "The Appraisal of Lodging Facilities," August, 1978 "The Appraisal of Food Service Facilities," February, 1979 "The Appraisal of Lodging Facilities - Update," November, 1984 "Hotel Sales Prices Down More Than 12%," May, 1991 "Seven Current Hotel Valuation Techniques," August, 1992 "The Valuation of Distressed Hotels," October, 1992 FCI Spec Sheet "Employment Philosophy for a Consulting Practice," September, 1984 Hotel and Motel Management "Average Rate vs. Project Cost," May 1, 1974 "How to Increase the Marketability of Your Motel," April, 1981 "Tougher Lending, Lower Room Rate Hikes On Way?" June, 1981 "What is That Mortgage Loan Going to Cost You?" August, 1981 "How to Perform a Study of Your Property's Market," October, 1981 "How do High Interest Rates Affect Your Motel's Value?" December, 1981 "How to Buy a Feasibility Study That Works for You," February, 1982 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- "Settling Lease Conflicts Quickly Through Arbitration," April, 1982 "Are Casino Hotels Really Worth $500,000 Per Room?" June, 1982 "Discount Rates and Internal Rate of Return," August, 1982 "Determining a Property's Extended Life Cycle," November, 1982 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Published Articles (continued) "Using Microcomputers for Forecasting," December, 1982 "Update on Hotel Development Costs," January, 1983 Hotel and Motel "Estimating a Site's Worth by Finding Its Profit Value," Management June, 1983 (continued) "Hotel Construction May Be Slowing Down a Little Bit," April, 1983 "The Investor's Risk Sways to Prevailing Economic Winds," August, 1983 "Is Your Property Tax at as Low a Level as it Should Be?" October, 1983 "The Ultimate Guest Room: Could it Ever Exist Anywhere?" December, 1983 Hotel-Motor Inn Journal A Preventive Maintenance System for Motels," March, 1975 Hotel Valuation Journal "Hotel Valuation Index Peaks During 1989," Fall, 1990 "Hotel Development Costs," Winter, 1991 "Hotel Valuation Index for 1990," Spring, 1991 "Bad Year for Hotel Sales Prices Confirmed," Spring, 1992 "Hotel Sales Prices on the Rise," Fall, 1994 Institutions/ Volume Feeding "Greater Risk/Greater Profit Potential: Hotel Management Contract," May, 1973 Lodging Hospitality "How to Finance Renovation Projects," January, 1974 "Controlling Your Real Estate Taxes," July, 1978 "Putting Together a Sound Financial Package," December, 1978 "Favorable Outlook for Lodging Values," December, 1983 "Are Your Property Taxes Too High? (Part I and II)," May and June, 1984 "Hotel Development Costs," July, 1984 "The Right Management Contract for You," September, 1984 "Selecting the Firm to Prepare Your Feasibility Study," October, 1984 "A Quick How-To In Hotel Valuation," November, 1984 "Updating Lodging Interest Rates," December, 1984 "Is Your Guest Experience Up to Par?" January, 1985 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Published Articles (continued) Lodging Hospitality (continued) "How to Perform a Breakeven Analysis," May, 1985 "Evaluating Operating Performance," June, 1985 "Hotel Lenders Toughen Underwriting Requirements," July, 1985 "Don't Forget the Pre-Opening Agreement," August, 1985 "Management Companies Should Participate in Financing," October, 1985 "Current Techniques for Valuing Hotel Land," November, 1985 "Hotel Development Costs," December, 1985 "Sourcing Debt Into the 1990's," January, 1986 "Hotel Valuation Thumb Rule," February, 1986 "Value in Use Versus Value in Exchange," March, 1986 "Stretching Feasibility," April, 1986 "The Management Question," May, 1986 "How to Commission a Feasibility Study," June, 1986 "Macro Trends Affecting Property Values," July, 1986 "Hotel-Motel Market Sales Update," August, 1986 "Financing Alternatives: Zero Coupon Mortgages," September, 1986 "Forecasting Lodging Energy Costs," October, 1986 "Portfolio Financing a Better Way," November, 1986 "Profit by Looking at History," December, 1986 "Why New York Isn't Overbuilt," February, 1987 "How to Discourage Hotel Overbuilding: A Case Study," April, 1987 "Structuring an Incentive Management Fee," June, 1987 "Franchising Questions and Answers," July, 1987 "Comparing Hotel Development Costs," August, 1987 "Understanding Economic Life," September, 1987 "Prices Rise for Lodging Properties," October, 1987 "Management Companies Are Key to Success," November, 1987 "Evaluating a Management Contract Fee Structure," December, 1987 "Check Profits Before Selecting Hotel Operator," January, 1988 "It's a Good Time to Review Your Taxes," February, 1988 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Published Articles "How to Use a Management Company Rating System," March, (continued) 1988 "Make Sure Management Contracts Contain These Terms," Lodging Hospitality April, 1988 (continued) "Hotel Access and Visibility," May, 1988 "Chain Sale Strategies," July, 1988 "Evaluating a Hotel Franchise," August, 1988 "Evaluating Franchise Fees," September, 1988 "Opportunities in Economy Lodging," October, 1988 "How to Obtain a Hotel Mortgage," November, 1988 "Arbitration in the Hospitality Industry," December, 1988 "Lodging Development Cost Update," January, 1989 "Amenities as Profit Builders," February, 1989 "Hotel Values Mirror the Times," March, 1989 "Forecasting Revenue and Expenses," April, 1989 "Real Estate Jargon Made Simple," May, 1989 "Pricing a Management Contract," June, 1989 "Trends in Valuation," July, 1989 "Rescuing the Distressed Hotel," August, 1989 "Shielding Against Incompetence," September, 1989 "Hotel Valuation Revisited," October, 1989 "New Breed of Hard Budgets," November, 1989 "Figuring Cap Rates," December, 1989 "A Glance Backward," January, 1990 "Costs Creeping Up," February, 1990 "Valuing Distressed Properties," March, 1990 "Cap and Discount Rates," April, 1990 "An Open Letter," May, 1990 "Misconceptions About Appraisals," June, 1990 "Hotel Values Still Growing," July, 1990 "Hotel Renovation is Key to `90s," August, 1990 "Time Right for Hotel Leases," September, 1990 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Published Articles "Getting a Fix on Rates," October, 1990 (continued) "The Wrinkles of Class," November, 1990 "A Glance Backward," December, 1990 Lodging Hospitality "The Price Dropoff," January, 1991 (continued) "The Cost Washout," February, 1991 "Survival of the Fittest," March, 1991 "Looking Out and Up," April, 1991 "The Bottom is in Sight," May, 1991 "The Pitfalls of Liquidation," June, 1991 "Extra! Extra! Hospitality News," July, 1991 "The Art of Hotel Renovation," August, 1991 "No Better Time for a Tax Review," September, 1991 "No Time for Passivity," October, 1991 "What a Franchise Really Costs," November, 1991 "In Case You Hadn't Heard," January, 1992 "Negotiation - The Name of the Game," February, 1992 "Now Could be the Time to Build," March, 1992 "The Well May Stay Dry," April, 1992 "Hotel Life Expectancy," May, 1992 "Hotel Values - What a Downer," June, 1992 "How to Make Money Now," July, 1992 "Hotel Chain Class Survey," August, 1992 "Budget Dining with Rushmore," September, 1992 "Bookings Up, Rates Will Follow," October, 1992 "Hospitality Master's Good Preparation," November, 1992 "What's New on the Job Front?" January, 1993 "Where Have All the Hotels Gone?" February, 1993 "Hotel Building Costs Continue to Fall," March, 1993 "Hotel Values Head Upward," April, 1993 "The Rise and Fall of Trophy Hotels," May, 1993 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Published Articles "Hotel Sales and Prices Rebound," June, 1993 (continued) "Third Parties Loosening Purse Strings," July, 1993 "Beyond Recycling: The Ecotel," August, 1993 Lodging Hospitality "Time to Reduce Property Taxes," September, 1993 (continued) "Lodging: The Way I See It," October, 1993 "Choosing an Appraiser," November, 1993 "Who Needs an Asset Manager?" January, 1994 "Investing by the Numbers," February, 1994 "Fire Your Staff and Lease Them Back," March, 1994 "Published Rates Hint at Recovery," April, 1994 "Now is the Time to Start Building," May, 1994 "Hotel Values Heading Up," June, 1994 "Farewell, Friend," July, 1994 "Sales Prices Creeping Up," August, 1994 "Selecting Green Hotel Supplies," September, 1994 "Don't Write Off Full-Service Hotels," October, 1994 "Lodging REITS Are on the Rise," November, 1994 Michigan Lodging "Hotel Development Costs," January, 1988 The Mortgage and Real Estate Executives Report "Atlantic City Building Game Involves High Stakes," August, 1979 "How Interest Rates Affect Real Estate Values," June, 1982 "Update on Hotel Development Costs," May 1, 1983 Motel-Hotel Insider "The $100,000 Plus Hotel Room Has Become a Reality," November 19, 1979 "Update on Hotel Development Costs," April 4, 1983 NAIFA - The Appraisal Review "Hotel Valuation Techniques," Vol. 44, 1991 Real Estate Digest "Why Should the Management Team be Important to Hotel Lenders," Fall, 1988 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Published Articles (continued) Real Estate Finance Journal "What is a Typical Fee for a Hotel Management Contract?" Fall, 1988 "Hotel Franchise Fees," Winter 1989 "Why the Management Team Should be Important to Hotel Lenders," Spring, 1989 "Hotel Values and Costs," Summer, 1989 "Structuring a Hotel Investment," Fall, 1989 "A Guide for Lenders Holding Distressed Hotel Loans," Winter, 1990 "Estimating Current Interest Rates for Hotel Financing," Spring, 1990 "Hotel Valuation Techniques," Summer, 1990 "Now is the Time to Review Your Hotel's Property Taxes," Fall, 1990 "Property Tax Assessments for Hotels and Motels," Winter, 1991 "Putting Together Hotel Management Agreements - Part I," Spring 1991 "Putting Together Hotel Management Agreements - Part II," Summer, 1991 "The 1980s - The Decade of Change," Fall, 1991 "An Overview of the Hotel Industry: Past, Present, and Future," Spring, 1994 Real Estate Forum "Casino Hotels Raise Valuation Questions," November, 1981 Real Estate Investment Ideas "How Fuel and Energy Shortages Should Affect Investment Decisions in the Hospitality Industry," March, 1974 "Upward Trend Continues for Sales Price of Hotel-Motel Properties," May, 1988 "High Prices Paid for Hotel-Motel Properties," February, 1990 Real Estate Issues "Employee Compensation for a Consulting Practice," Fall/Winter, 1985 "Hotel/Motel Market Sales Update," Spring/Summer, 1987 Real Estate Newsletter "Computers in Hotel Appraising," May 15, 1989 Real Estate Investment Ideas Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- "Hotel-Sales Update," Winter 1986 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Published Articles (continued) Real Estate Review "Valuing Motels and Hotel in the Current Market," Fall, 1972 "Dealing With Distressed Hostelry Loans," Fall, 1975 "The Mortgage Underwriting Consultant Comes of Age," Fall, 1977 "Real Estate Compensation," Winter 1977 Real Estate Workouts and Asset Management "Stephen Rushmore on Directions in the Hospitality Industry," September, 1992 Real Values "Hotel Construction Cost Update," April, 1986 Restaurant and "How Much Should the Renovation Be?" March, 1986 Hotel Design "14 Notable Hotel Development Firms," December, 1987 Rushmore on Hotel Valuation "Mortgage - Equity," Winter, 1979 "Atlantic City - From Bust to Boom," Winter, 1979 "Mortgage - Equity," Spring, 1979 "Developing Mortgage Data," Spring 1979 "Gasoline and Market Values, " Spring, 1979 "Mortgage - Equity," Fall, 1979 "Quantifying a Hotel's Business Value," Fall, 1979 "What Has Happened to Typical Hotel-Motel Development Costs?," Fall, 1979 "Mortgage-Equity," Winter, 1980 "Extending Hotel Economic Life Through Renovation," Winter, 1980 "Estimating Hotel Land Values Using Comparable Ground Leases," Winter, 1980 "Quantifying the Value of Personal Property to a Going Hotel," Spring, 1980 "Recent Changes in New York City's Hotel Market," Spring, 1980 "Hotel-Motel Economic Lives," Fall, 1980 "Mortgage - Equity," Fall, 1980 "Mortgage - Equity," Winter, 1981 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- "Developing Mortgage Data," Winter, 1981 "Statistical Support for Food and Beverage Projections," Winter, 1981 "Mortgage - Equity," Spring/Summer, 1981 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Published Articles (continued) "Quantifying a Hotel's Demand," Spring/Summer, 1981 "A Five-Year Overview of Typical Hotel-Motel Development Rushmore on Hotel Costs," Spring/Summer, 1981 Valuation (continued) "Mortgage - Equity," Winter/Spring, 1982 "Update on Hotel Capitalization Rates," Winter/Spring, 1982 "Mortgage - Equity," Summer/Fall, 1982 "Are Casino Hotels Really Worth $500,000 Per Room?" Summer/Fall, 1982 "The Hotel-Motel Life Cycle, Summer/Fall, 1982 "Mortgage - Equity," Winter/Spring, 1983 "Update on Hotel Development Costs," Winter/Spring, 1983 "The Valuation of Hotels and Motels for Assessment Purposes," Winter, 1984 "Hotel Capitalization Rates," Summer, 1984 "Hotel Development Cost Survey," Summer, 1984 "Selecting a Hotel Management Company," Fall, 1984 "Hotel Capitalization Rates," Spring, 1985 "How to Perform a Breakeven Analysis," Spring, 1985 "Hotel Capitalization Rates," Winter, 1986 "Hotel Development Costs," Winter, 1986 "Hotel Valuation Survey," Winter, 1987 "Impact of New Tax Laws on Hotel Values," Winter, 1987 "Hotel-Motel Market Sales Update," Winter, 1987 "Structuring an Incentive Management Fee," Fall, 1987 "Understanding Your Hotel's Economic Life," Fall, 1987 "Hotel Development Costs," Fall, 1987 "Hotel, Motel Market Sales Update," Winter, 1988 "Amenity Creep," Winter, 1989 "Hotel Franchise Fees," Winter, 1989 "Hotel Valuation Index," Fall, 1989 "Latest Trends in Hotel Values," Fall, 1989 Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Published Articles (continued) U.S. Real Estate Week "All-Suites Market Entering Second Phase," May 4, 1987 Valuation "Hotel-Motel Market Sales Update," February, 1987 Quarterly Newsletter Hotel Valuation Journal Professional newsletter with a circulation of 10,000 Real Estate Column Lodging Hospitality Real estate editor for a major monthly hospitality periodical Hospitality Column Real Estate Finance Journal Contributing hospitality editor Computer Software Hospitality Valuation Software Hotel financial software for room night analyses, income and expense forecasts, and valuation calculations - developed and distributed for the Appraisal Institute Hotel-Motel Market Data Hospitality Market Data Exchange Software National clearinghouse for information pertaining to hotel and motel transactions Hotel Valuation Index National index of hotel value trends for 24 individual market areas Hospitality Seminar Series Intensive short courses for hotel and restaurant professionals Hospitality Bibliography Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- Comprehensive literature index of hotel and restaurant books and articles Awards Robert H. Armstrong Award For the most significant contribution to The Appraisal Journal in 1975 Activities Commercial pilot, instrument, multi-engine; sailing; skiing Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Corporate and Aetna Life Insurance Institutional Clients AIG Real Estate Investment Served Aldrich Eastman and Waltch Allstate American Airlines America's Best Inns Arthur Anderson & Company Bankers Trust Company Bank of America Bank of Boston Bank of Montreal Bank of New York Bank of Nova Scotia Bank of Tokyo Bank One-Columbus Banque Indosuez Barclay's Bank Baybank Boston The Beacon Companies Bear, Stearns & Company, Inc. Best Inns Best Western International Boykin Management Co. Bradbury Suites C. Itoh Caesar's World California Dept. of Transportation Chase Lincoln First Bank, N.A. Chase Manhattan Bank Chemical Bank Chrysler Capital Corporation CIGNA Citibank Citicorp Real Estate City of Boston City of Detroit City of Grand Rapids City of Kalamazoo City of Orlando City of Philadelphia City of Santa Monica City of Toronto Columbia Sussex Corporation Continental Illinois National Bank Copley Real Estate Advisors Corporex Development CRI, Inc. Cushman and Wakefield Days Inns Edward J. DeBartolo Corp. Deer Valley Ski Corporation Doubletree Hotels Drury Inns Econo Lodge Economic Development Admin. EIE Regent International Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Corporate and Institutional Clients Embassy Suites Served (continued) Equitable Life Assurance Equitable Real Estate Investment European American Bank Fairmont Hotels Federal Deposit Insurance Corp. First Boston First California Savings First Interstate Bank First National Bank of Chicago Four Seasons Hotels Goldman, Sachs Greater Orlando Aviation Authority Great Western Bank Great Western Savings Guest Quarters Hampton Inns Hilton Hotels, Corp. Hilton International Holiday Corporation Holiday Inns Home Savings of America Howard Johnson's Hudson Hotels Corporation Hyatt Hotels Industrial Bank of Japan Interstate Hotels The Irvine Company ITT Commercial Finance Corp. Japan Airlines JDC (America) Corporation John Q. Hammons John Hancock Life Insurance Johnson & Wales College Kenneth Leventhal & Assoc. Kidder Peabody & Company, Inc. La Quinta Larken, Inc. Lexington Companies Loews Hotels Harry Macklowe Real Estate Marine Midland Bank, N.A. Marriott Corporation MA Bay Transit Authority Massachusetts Mutual Life Mellon Bank Meridien Hotels Merrill Lynch Merrill Lynch Capital Markets Metropolitan Life Insurance Microtel Midlantic Bank Mitsubishi Morgan Guaranty Bank & Trust Co. J.P. Morgan Investment Management Morgan Stanley Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Corporate and Institutional Clients Motel 6, Inc. Served (continued) Mutual Benefit Co. National Westminster Bank New York Life Insurance Nippon Credit Bank Nomura Securities Int'l North American Taisei Corporation Northwestern Mutual Life Omni Hotels Parabas Bank Prime Motor Inns Property Capital Trust Prudential Life Insurance Radisson Hotels Ramada Inns Red Lion Inns Regent International Registry Hotels Residence Inns Resolution Trust Corporation Rhode Island Hospital Trust Ritz-Carlton Hotels Rodeway Inns Rose Associates Salomon Brothers San Antonio Hotel/Motel Assoc. Sanwa Bank Security Pacific Bank Servico Management Corp. Sheraton Hotels Sonesta Hotels Sonnenblick-Goldman Steamboat Ski Corporation Stouffer Hotels Stratton Corporation Sumitomo Bank Summerfield Hotel Corporation Super 8 Hotels Swiss Bank Corporation Taisei Texas Commerce Bancshares, Inc. Tishman Realty Corporation Trans World Airlines Travelers Insurance TraveLodge Trusthouse Forte UBS Securities Union Labor Life United Bank of Switzerland United Inns, Inc. United States Steel Universal Hotels U.S. Air Force U.S. Department of Justice U.S. Department of the Army U.S. Department of the Interior Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Corporate and Institutional Clients U.S. Economic Development Authority Served (continued) U.S. Trust Company Walt Disney Productions Westin Hotels Williams Hospitality Corporation Winegardner & Hammons Winthrop Financial Associates Wyndham Hotels Zeckendorf Company Appearance as an Expert Witness Administrative Law Court - SEC, Washington, DC Appellate Tax Board, Boston, Massachusetts Assessment Appeals Board, Los Angeles County, Los Angeles, California Board of Equalization and Review, Washington, District of Columbia (2) Board of Taxation, Atlantic City, New Jersey Bureau de Revision Evaluation Fonciere du Quebec, Montreal, Canada Circuit Court, Orange County, Orlando, Florida Condemnation Review Board, Minneapolis, Minnesota Corporation Committee, Rhode Island State Senate Court of Common Pleas, Allegheny County, Pennsylvania Court of Common Pleas, Franklin County, Ohio Court of Common Pleas, Montgomery, Pennsylvania Court of Common Pleas, Pittsburgh, Pennsylvania Court of Common Pleas, Philadelphia, Pennsylvania Court of Queen's Bench of Alberta, Canada District Court, Arapahoe County, Colorado District Court, Dallas County, Texas District Court, Harris County, Texas District Court, Hennepin County, Minneapolis, Minnesota District Court, Knoxville, Tennessee Federal Bankruptcy Court, Oakland, California Federal Bankruptcy Court, Los Angeles, California Federal Bankruptcy Court, San Diego, California Federal Bankruptcy Court, Denver, Colorado Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Appearance as an Expert Witness Federal Bankruptcy Court, District of Columbia (continued) Federal Bankruptcy Court, Miami, Florida (2) Federal Bankruptcy Court, Chicago, Illinois Federal Bankruptcy Court, New Orleans, Louisiana Federal Bankruptcy Court, Greenbelt, Maryland Federal Bankruptcy Court, Baltimore, Maryland Federal Bankruptcy Court, Rockville, Maryland Federal Bankruptcy Court, Boston, Massachusetts Federal Bankruptcy Court, Grand Rapids, Michigan Federal Bankruptcy Court, Las Vegas, Nevada Federal Bankruptcy Court, Newark, New Jersey (2) Federal Bankruptcy Court, Manhattan, New York (2) Federal Bankruptcy Court, Westbury, New York Federal Bankruptcy Court, Philadelphia, Pennsylvania Federal Bankruptcy Court, Reading, Pennsylvania Federal Bankruptcy Court, Salt Lake City, Utah Federal Bankruptcy Court, Madison, Wisconsin (2) Federal District Court, Rochester, New York Federal District Court, Philadelphia, Pennsylvania Judicial Arbitration and Mediation Services, Dallas, Texas Michigan Tax Tribunal, Detroit, Michigan New Jersey Tax Court, Newark, New Jersey Superior Court, District of Columbia Superior Court, Clayton County, Georgia (2) Superior Court of North Carolina Supreme Court, New York State, Buffalo, New York Supreme Court, New York State, Manhattan, New York Supreme Court, New York State, Riverhead, New York Tax Review Board, San Joaquin County, Stockton, California Hospitality Valuation Services, Mineola, New York Qualifications of Stephen Rushmore, CRE, MAI, CHA - -------------------------------------------------------------------------------- ================================================================================ Appearance as Tax Review Board, Bangor, Maine an Expert Witness Tax Review Board, Schenectady, New York (continued) Tax Review Board, Yorktown, New York Tax Review Board, North Carolina Tax Review Board, Philadelphia, Pennsylvania (2) U.S. District Court, Wilmington, Delaware U.S. District Court, Madison, Wisconsin EX-10.50 31 SECOND AGMT: LIMITED LIABILITY COMPANY SECOND AMENDMENT TO THE LIMITED LIABILITY COMPANY AGREEMENT OF ALADDIN BAZAAR, LLC THIS SECOND AMENDMENT TO THE LIMITED LIABILITY COMPANY AGREEMENT OF ALADDIN BAZAAR, LLC (the "Amendment") is entered into effective as of May __ 1998, by and between THE BAZAAR CENTERS INC., a Delaware corporation ("TrizecHahn"), and ALADDIN BAZAAR HOLDINGS, LLC, a Nevada limited-liability company ("Holdings II"). Capitalized terms not otherwise defined herein shall have the respective meanings assigned to such terms in the Limited Liability Company Agreement (the "Agreement") of ALADDIN BAZAAR, LLC (the "Company"), dated as of September 3, 1997, between TrizecHahn and Holdings II, as amended by that certain First Amendment to the Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated October 16, 1997. R E C I T A L S : A. Pursuant to that certain Satisfaction Notice dated January 23, 1998, delivered by TrizecHahn and TrizecHahn Centers under the Agreement, TrizecHahn and TrizecHahn Centers required that Holdings II and the Sommer Trust deliver a letter of credit, guaranty or other form of credit enhancement with respect to certain guaranteed obligations of the Sommer Trust and Aladdin Holdings in the amount of Thirty Million Dollars ($30,000,000) satisfactory to TrizecHahn in its sole and absolute discretion. B. The Members now desire to amend the Agreement to reflect the implementation of the terms of the above recitals, and to provide for such other changes to the Agreement as the Members deem appropriate. NOW, THEREFORE, in consideration of the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereby covenant and agree as follows: 1. Exhibits. At the time of execution of the Agreement, certain Exhibits and Schedules to the Agreement were not fully completed. Set forth below is a list of the Exhibits and Schedules to the Agreement. These Exhibits and Schedules, as completed (or omitted) pursuant to the terms of this Amendment, are attached hereto, are hereby approved by the Members (other than as specifically noted thereon, as to which items the Members will approve as promptly as practicable), and are described below: EXHIBIT "A" MASTER DEVELOPMENT SITE PLANS AND RENDERINGS. Exhibit "A" attached hereto. EXHIBIT "B" DEVELOPMENT PLAN. The Final Development Plan is attached hereto as Exhibit "B". EXHIBIT "C" DEVELOPMENT AGREEMENT. Agreement executed concurrently herewith. EXHIBIT "D" MANAGEMENT AGREEMENT. Agreement executed concurrently herewith. EXHIBIT "E" PRELIMINARY CONSTRUCTION PROFORMA AND PLANS AND DRAWINGS FOR THE REDEVELOPED ALADDIN. Exhibit "E" attached hereto. EXHIBIT "F" PRE-DEVELOPMENT BUDGET. Omitted. EXHIBIT "G" GUARANTY OF TRIZECHAHN CENTERS INC. Executed effective February 26, 1998. EXHIBIT "H" GUARANTY OF TRUST UNDER ARTICLE SIXTH U/W/O SIGMUND SOMMER. Executed effective February 26, 1998. EXHIBIT "I" GUARANTY OF ALADDIN HOLDINGS, LLC. Executed effective February 26, 1998. SCHEDULE 2.14(C) EXISTING ENTITLEMENTS. Schedule 2.14(c) attached hereto. SCHEDULE 2.14(E) REMAINING ENTITLEMENTS. Schedule 2.14(e) attached hereto. SCHEDULE 2.14(F) HAZARDOUS MATERIALS. Schedule 2.14(f) attached hereto. SCHEDULE 2.14(G) ENVIRONMENTAL AND SOILS REPORT. Schedule 2.14(g) attached hereto. SCHEDULE 2.14(H) LITIGATION. Schedule 2.14(h) attached hereto. 2 2. Additional Member Capital Contribution Obligation Guaranty. Pursuant to the terms of the Fleet Construction Loan (defined below) TrizecHahn Office Properties Inc., a Delaware corporation ("THOPI"), has agreed to guaranty the Company's construction loan. Attached hereto as Exhibit "J" is a Member Capital Contribution Obligation Guaranty, whereby THOPI agrees to guaranty the obligations of TrizecHahn to contribute capital to the Company under the terms described in Section 3.03 of the Agreement and in the Member Capital Contribution Obligation Guaranty attached hereto as Exhibit "J". 3. Loan Facility. In accordance with the terms and provisions of this Agreement, TrizecHahn Centers hereby provides a Facility (as defined below) to Holdings II for the purpose of funding certain Designated Obligations (as defined below) in the event that Holdings II fails to contribute such funds to the capital of the Company. The terms of the Facility are described in Paragraph 4 below. 4. Terms of Facility and Certain Definitions. The terms of the Facility, and certain additional definitions to be added to Article XII of the Agreement are described below: 4.1. Borrower: Holdings II. The organizational documents of Holdings II shall be in the form attached hereto as Exhibit "K." 4.2. Lender: TrizecHahn Centers Inc. 4.3. Purpose: Back-up facility (the "Facility") to provide credit enhancement for the payment of the Designated Obligations 9defined below). 4.4. Type of Facility: Multiple draw facility 4.5. Amount of Facility: Up to $30,000,000 of principal indebtedness (the "Maximum Amount") 4.6. Term of Facility/Final The Facility shall expire upon the Draw Date: earliest of (a) the 7th anniversary of the Facility, (b) the date on which the amounts drawn under the Facility reach the Maximum Amount, (c) the date on which the Bazaar Improvements achieves a DSCR (defined in the Fleet Building Loan Agree- 3 ment (defined below) of 1.40, (d) the date on which the Fleet Guaranties (defined below) are irrevocably terminated and satisfied, (e) the day after the last date on which a Trigger Event (defined below) could occur (each, a "Termination Event"). A Termination Event shall be effective only with respect to Designated Obligations that arise after the Termination Event. 4.7. Maturity of Facility: The earlier of (i) six months from the first draw under the Facility and (ii) a Termination Event. 4.8. Annual Interest Rate: The lesser of (i) 24.90% or (ii) the maximum rate permitted under applicable New York law (the "Interest Rate"), payable monthly in arrears and upon the Maturity (and/or the earlier acceleration) of the Facility. Interest on any amount not paid when due will accrue at an annual rate equal to the lesser of (x) 4% in excess of the Interest Rate and (y) the maximum rate permitted under applicable New York law, and will be payable on demand. 4.9. Percentage Interest: Concurrently with the date of this Agreement, Holdings II's interest in the Company, including, but not limited to, its Percentage Interest, Preferred Return and Unrecovered Contribution Account, shall be reduced by twenty-five percent 25% of such current amount and TrizecHahn's Percentage Interest, Preferred Return and Unrecovered Contribution Account shall be increased in a like amount. Therefore, on and after the date of this Agreement, the term "Percentage Interest" shall mean in respect to TrizecHahn sixty-two and one-half percent (62.5%); and in respect to Holdings II, thirty-seven and one-half percent (37.5%); subject to adjustment as provided in the Agreement. Holdings II's Capital Account and Unrecovered Contribution Account shall be reduced by twenty-five percent (25%) of the credit attributable to the Lease as set forth in 4 Section 3.02 of the Agreement, or by Two Million five Hundred Thousand Dollars ($2,500,000.00), and TrizecHahn's Capital account and Unrecovered Contribution Account shall be increased by such amount. Notwithstanding the foregoing, for purposes only of computing TrizecHahn's Priority Unrecovered Contribution Account, as set forth in Paragraph 1 of the First Amendment of the Limited Liability company Agreement of Aladdin Bazaar, LLC, dated October 16, 1997, (i) Holdings II's Unrecovered Contribution Account shall be deemed to have not been reduced by the two Million five Hundred dollars ($2,500,000) adjustment described above, and (ii) TrizecHahn's Unrecovered Contribution Account shall bot be deemed to have been increased by the two Million Five Hundred thousand dollars ($2,500,000) adjustment described above, with the result that TrizecHahn shall earn only the 12% Preferred Return on the $2,500,000 amount by which TrizecHahn's Capital Account and Unrecovered Contribution Account is increased hereby, and TrizecHahn shall not earn the 20% Priority Preferred Return on such increased amount. The amount by which Holdings II's Unrecovered Contribution Account is increased for purposes of computing the dilution formula set forth in Section 3.05(b) of the Agreement shall also be reduced by twenty-five percent (25%) (i.e., rather than increasing Holdings II's Unrecovered Contribution Account by Twenty Million Dollars ($20,000,000.00) for purposes of Section 3.05(b), Holding II's Unrecovered Contribution Account shall be increased by Fifteen Million ($15,000,000.00) for purposes of Section 3.05(b) only). Notwithstanding the foregoing, until the date an advance is made pursuant to the Facility or Holdings II's Percentage Interest is otherwise adjusted as permitted pursuant to the Agreement, Holdings II shall continue to have the right to appoint two representatives of the Board, 5 notwithstanding the provisions of Section 2.03(o) or any other similar provisions of the Agreement to the contrary. On or after the date that any advance is made pursuant to the Facility, Holdings II shall lose its rights to appoint any representatives to the Board unless and until the Facility is repaid in full prior to Maturity 4.10. Right of First If TrizecHahn is a Transferring Offer/right of first Member the meaning of Section 6.03 Refusal With Respect of the Agreement, then, to Transferred notwithstanding the terms of Section Interests: 6.03(a) of the Agreement, Holdings II, as a Non-Transferring Member shall for a period of thirty (30) days following the effective date of the First Offering Notice, have the right, but not the obligation to elect to purchase a twelve and one-half percent (12.5%) Percentage Interest in the Company from TrizecHahn for the allocable purchase price (and on the other terms) specified in the First Offering Notice by delivering written notice of such election to TrizecHahn. This option to purchase the 12.5% Percentage Interest shall be in addition to, and not in lieu of, the option to purchase all of the Offered Interest pursuant to the terms of Section 6.03(a). Notwithstanding the foregoing, Holdings II shall not have the right to purchase the 12.5% Percentage Interest if Holdings II is in default of any of its material obligations under this Amendment beyond applicable grace periods (including any of the obligations arising under the exhibits attached hereto), the Agreement, or if the Sommer Trust is in default any of its material obligations arising under the Sommer Trust Agreement, dated February 26, 1988, beyond applicable grace periods. 4.11. Payments/ Mandatory Payments: Without Prepayments: affecting any of TrizecHahn Center's rights or remedies, all distributions made by the Company to Holding II 6 shall be delivered immediately to TrizecHahn Centers to repay any amounts (principal, interest and other) outstanding from time to time under the Facility. Permissive Prepayment: Prepayment shall be permitted in whole or in part with prior notice. Amounts repaid/prepaid (mandatory or permissive) may not be reborrowed. 4.12. Designated The Company and Fleet National Bank Obligations ("Fleet") have entered into a Building Loan Agreement pursuant to which Fleet agrees to lend up to $194,000,000 (the "Construction Loan") to Bazaar Company to finance the construction of the Bazaar Improvements. In connection with the Construction Loan, TrizecHahn Centers, THOPI, Holdings II, Aladdin Holdings and the Sommer Trust (collectively, the "Fleet Guarantors") have entered into a joint and several (i) completion guaranty (the "Completion Guaranty") and (ii) payment guaranty (the "Payment Guaranty" and, together with the Completion Guaranty, the "Fleet Guaranties"), each in favor of Fleet. Pursuant to a contribution agreement among the Fleet Guarantors (the "Fleet Contribution Agreement"), Holdings II, Aladdin Holdings and the Sommer Trust agree to reimburse TrizecHahn, TrizecHahn Centers and THOPI for all payments required to be and actually made by TrizecHahn, TrizecHahn Centers and/or TrizecHahn Office Properties under the Fleet Guaranties in excess of TrizecHahn, TrizecHahn Centers and/or THOPI collective (i) fifty percent (50%) share of such payments with respect to any Fleet Guaranty Event, and (ii) sixty-two and one-half percent (62.5%) share of such payments with respect to all other obligations. Conversely, under the Fleet Contribution Agreement, TrizecHahn, TrizecHahn Centers and/or 7 THOPI agree to reimburse Holdings II, Aladdin Holdings and the Sommer Trust for all payments required to be, and actually made by, such Fleet Guarantors under the Fleet Guaranties in excess of such Fleet Guarantors' collective (i) fifty percent (50%) of such payments with respect to any Fleet Guaranty Event, and (ii) thirty-seven and one-half percent (37.5%) share of such payments with respect to all other obligations. The Sommer Trust and Aladdin Holdings have delivered the Member Capital Contribution Guaranty pursuant to the Agreement. "Obligation" shall mean any of the following: (a) an interest payment due and owing to Fleet under the Construction Loan (an "Interest Obligation"); (b) as substantiated by a request for balancing payment under the Construction Loan, or by backup reasonably acceptable to the Company, that portion of any construction on cost that exceeds the itemized amount for such cost as set forth in a construction budget previously approved by the Company, after application of reserves or contingency amounts set forth in and to the extent permitted by, such budget and the Construction Loan (a "Construction Obligation"); and (c) a principal payment due and owing to Fleet under the Construction Loan upon acceleration thereof (prior to scheduled maturity) (a "Principal Obligation"). "Designated Obligation" means the aggregate, up to the Maximum Amount, of: (a) (i) the amount owed by Holdings II, from time to time, under the Agreement and (ii) the amount owed by the Sommer Trust and/or Aladdin Holdings, from time to time, under the Member Capital Obligation Guarantee, in 8 each case, in the event of a Partner Contribution Event (defined below); and (b) the amount owed by the Sommer Trust, Aladdin Holdings and Holdings II (without duplication), from time to time, in the event of a Fleet Guaranty Event (defined below). "Partner Contribution Event" means that all of the following events exist: (a) amounts are required by the Company in order to satisfy an Obligation due and owing, and, subject to the retention of reserves acceptable to the Company, the company has insufficient cash or other sources available to make such payment; (b) a Trigger Event has occurred and is continuing and is the Cause (defined below) of the insufficiency described in paragraph (a) above; (c) Holdings II, Aladdin Holdings and the Sommer Trust have failed to deliver funds to cover such insufficiency, to the extent required under the terms of the Agreement and/or the Member Capital Obligation Guarantee, as applicable, within fifteen (15) business days following original written demand therefor; and (d) as certified to Holdings II in a writing by a financial officer of TrizecHahn in the form attached hereto as Exhibit "L," without the requirement of proof as to the accuracy of any of the following: (i) TrizecHahn, TrizecHahn Centers and/or TrizecHahn Office Properties Inc. have paid all of their respective share of funding obligations under the Agreement and 9 capital contribution guaranty to the Company, as applicable and (ii) neither TrizecHahn nor TrizecHahn Centers has breached or is in default (beyond any applicable notice and cure periods) under the Agreement or under its respective obligations under TrizecHahn Centers' capital contribution guaranty to Bazaar Company or TrizecHahn's and TrizecHahn Centers' respective obligations under the Fleet Guaranties and the Fleet Contribution Agreement and neither TrizecHahn nor TrizecHahn Centers has caused Bazaar Company to breach or default (beyond any applicable notice and cure periods) in Bazaar Company's obligations under the Construction Loan, which breach or default is the cause of the Partner Contribution Event (in each case, a "Trizec Default") and no other Termination Event exists; "Fleet Guaranty Event" means all of the following events exist: (a) the Trust, Aladdin Holdings and Holdings II have failed to deliver (pursuant to the Fleet Contribution Agreement), within ten (10) days following written demand therefor, funds in an amount equal to fifty percent (50%) of any demand made by Fleet under the Fleet guaranties for an Obligation due and owing; (b) a Trigger Event has occurred and is continuing and is the Cause of Fleet's demand described in paragraph (a)above; and (c) as certified to Holdings II in a writing by a financial officer of TrizecHahn Centers, in the form attached hereto as Exhibit "L," (i) TrizecHahn Centers has delivered to Fleet its respective 50% of such demand under the 10 Fleet Guaranties (pursuant to the Fleet Contribution Agreement) and (ii) no Trizec Default or other Termination Event exists. "Cause" means (a) with respect to an Interest Obligation or a Principal Obligation, a proximate causal relationship with the occurrence of a specified Trigger Event as certified in a writing by an officer of TrizecHahn Centers and/or TrizecHahn, as applicable, and (b) with respect to a Construction Obligation, a proximate causal relationship with the occurrence of a specified Trigger Event as certified in a writing by an officer of TrizecHahn Centers and/or TrizecHahn, as applicable. Notwithstanding any provision hereof to the contrary, "Cause" need not exist or be certified by an officer of TrizecHahn Centers and/or TrizecHahn, as applicable, with respect to any "operating cash flow shortfall (which shall include costs of tenant improvements)." "Trigger Event" shall mean any one of the following: (a) a Construction Cessation (as defined below) has occurred and is continuing for 90 consecutive days (subject to extension for the number of days during which such Construction Cessation shall be the result of Force Majeure, as such term is defined in that certain Site Work Development and Construction Agreement entered into among Aladdin Holdings, Aladdin Gaming, LLC and the Company (the "Site Work Agreement"), subject to a maximum aggregate number of days of extension for Force Majeure of one year. A "Construction Cessation" shall occur at any time that funds are unavailable to Aladdin Gaming, LLC (from any source whatsoever) to fund draws, under the construction financing (the "Scotia 11 Loan") for the Aladdin Hotel and Casino provided by Scotia Bank, in an amount equal to 75% of the draw request in question or Rider Hunt fails to deliver the On Schedule Certificate as contemplated by that certain Engagement Letter among Rider Hunt, Scotia Bank, and the Administrative Agent, the Disbursement Agent and the Trustee under the Scotia Loan; or (b) construction of the Aladdin Hotel and Casino is not completed within 60 days after the First Scheduled (as such term is defined in the Site Work Agreement, subject to a maximum aggregate number of days of extension for Force Majeure of one year, or (c) if the Aladdin Hotel and Casino ceases to be open to the general public, for reasons other than damage or destruction, for a period of more than 30 consecutive days prior to the date which is 24 months after the First Scheduled Opening Date of the Aladdin Hotel and Casino. 4.13. Security: The Facility will be secured by, among other things (collectively, the "Security"), a perfected first priority pledge of (i) the entire (Holdings II) interest in Bazaar Company, pursuant to the Security Agreement in the form of Exhibit "L" attached hereto, and (ii) all direct and indirect equity and other interests of the Sommer Trust or Aladdin Holdings in Holdings II owned or held in the future owned or held by Aladdin Holdings or the Sommer Trust or Aladdin Holdings in Holdings II owned or held in the future owned or held by Aladdin Holdings or the Sommer Trust in the form attached hereto as Exhibit "M." Subject to the terms of the Trust Agreement, to the extent the Sommer Trust pledges, or 12 grants a security interest in or otherwise assigns all or a portion of its assets to any person or entity, TrizecHahn Centers shall receive an identical pledge, security interest of assignment in such assets to secure the Facility. The Trust delivered to TrizecHahn Centers an agreement, dated February 26, 1998, whereby the Sommer Trust certifies as to its assets/liabilities and agrees to certain restrictions on Trust distributions and the transfer or encumbrance of the Trust's assets (the "Trust Agreement"). Additional security arrangements, acceptable to TrizecHahn Centers, shall be provided to TrizecHahn Centers in order for TrizecHahn Centers to enforce covenant breaches or defaults made by Holdings II under the Facility prior to any draw. 4.14. Guarantees: The Facility will be guaranteed, on a joint and several basis, by the Sommer Trust and Aladdin Holdings (collectively, the "Facility Guaranties"), in the form attached hereto as Exhibit "N." 4.15. Priority: Except for the Security hereunder, and the proceeds thereof, each of which TrizecHahn Centers shall have a first priority payment claim against, all obligations owing to TrizecHahn Centers by Holdings II, Aladdin Holdings or the Sommer Trust under or in connection with this Facility and the Facility Guaranties shall be pari-passu in payment, priority, enforcement or otherwise with all obligations of such entities to TrizecHahn Centers or TrizecHahn. 4.16. Promissory Note: Holdings II shall execute and deliver the 4.17. Applicable Law: the Facility shall be governed by New York law. 5. Agreement to Make Loan for Certain Additional Capital Contributions. The Members acknowledge that the final Development Plan attached as Exhibit "B" includes a 13 Development Budget which requires capital contributions from the Members in excess of the TrizecHahn Investment. Notwithstanding the terms of Sections 3.04 and 3.05 of the Agreement, TrizecHahn agrees to loan to Holdings II its thirty-seven and one-half percent (37.5%) of such additional capital contributions, up to a maximum amount of One Million Eight Hundred Seventy-Five Thousand dollars ($1,875,000.00) (the "TrizecHahn Loan"), which amount, when added to TrizecHahn's share of such additional contribution, equals a cumulative additional capital contribution to the Company in the amount of Five Million Dollars ($5,000,000.00). TrizecHahn's agreement to make the TrizecHahn Loan shall terminate as of the opening of the Center. Notwithstanding the terms of Sections 3.05 and 3.06 of the Agreement, the TrizecHahn Loan to Holdings II shall bear interest at a rate equal to the lesser of (i) twenty percent (20%) per annum, compounded monthly or (ii) the maximum, non-usurious rate then permitted by law for such loans. Notwithstanding the provisions of any other term of the Agreement, including, but not limited to, Articles II, V, and IX, until such TrizecHahn loan is repaid in full, Holdings II shall draw no further distributions from the Company, and all cash or other property otherwise distributable with respect to Holdings II shall be distributed to TrizecHahn loan is repaid in full, Holdings II shall draw no further distributions from the Company, and all cash or other property otherwise distributable with respect to Holdings II shall be distributed to TrizecHahn in repayment of the outstanding balance of the TrizecHahn Loan, with such funds being applied first to reduce any and all accrued interest on such loan, and then to reduce the principal amount thereof. Except as expressly modified hereby, all of the terms and provisions of the Agreement shall remain in full force and effect, are incorporated herein by this reference (including, but not limited to, Article XI of the Agreement), and shall govern the conduct of the parties hereto; provided, however, to the extent of any inconsistency between the provisions of the Agreement and the provisions of this Amendment, the provisions of this Amendment shall control. 6. Subordinated Debt. Attached hereto as Exhibit "P" is the form of the Subordinated Debt to be issued in accordance with the terms of the First Amendment to the Limited Liability company Agreement of Aladdin Bazaar, LLC, dated October 16, 1997. 7. Garbage Budget. Notwithstanding anything to the contrary contained in the Agreement, the approval of the design/build construction contract and the final budget related to the Common Parking area (as such term is defined in the Site Work Agreement) shall be deemed to be a major development decision to be approved by the Board in accordance with the provisions of Section 2.04 of the Agreement. The scope of the Common Parking Area shall be substantially consistent with the scope parameters set forth on Exhibit "Q" attached hereto. 14 8. Title Indemnity. The Company hereby indemnifies the Sommer Trust from and against any and all claims, losses, damages, liabilities and expenses (collectively, "Losses") arising out of that certain Indemnity Agreement, dated the date hereof, from the Sommer Trust to Lawyers Title Insurance Company and the Commonwealth Land Title Insurance Company, to the extent such Losses relate to matters arising under the contract between Aladdin Gaming and Fluor Daniel, Inc., dated as of December 4, 1997, specifically relating to the Reimbursement Obligation (as defined in the Site Work Agreement), except Losses arising from the Sommer Trust's or its affiliates' own gross negligence or willful misconduct. 15 IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first above written. "TrizecHahn" THE BAZAAR CENTERS INC., A Delaware corporation By: /s/ Wendy Godoy ---------------- Wendy M. Godoy, Senior Vice President By: /s/ Wayne Finley ----------------- Wayne J. Finley, Senior Vice President "Holdings II" ALADDIN BAZAAR HOLDINGS, LLC, a Nevada limited-liability company By: ALADDIN MANAGEMENT CORPORATION, its Manager By: /s/ Ronald Dictrow ------------------- Ronald B. Dictrow, Treasurer By: ------------------------------- Jack Sommer, Vice President 16 EX-23.1 32 CONSENT OF ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the reference of our firm under the caption "Experts" in this Amendment No. 1 to the Registration Statement (Form S-1) and related Prospectus of Aladdin Gaming Enterprises, Inc. for the registration of 2,215,000 warrants to purchase 2,215,000 of Class B non-voting Common Stock of Aladdin Gaming Enterprises, Inc. and to the incorporation by reference therein of our reports dated January 15, 1998, with respect to the consolidated financial statements of Aladdin Gaming Holdings, LLC and subsidiaries and the financial statements of Aladdin Gaming, LLC, Aladdin Gaming Enterprises, Inc. and Aladdin Capital Corp. /s/ ARTHUR ANDERSEN LLP Las Vegas, Nevada June 5, 1998 -----END PRIVACY-ENHANCED MESSAGE-----