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EQUITY PARTICIPATION AGREEMENT
among
SOMMER ENTERPRISES, LLC,
ALADDIN GAMING ENTERPRISES, INC.,
LONDON CLUBS NEVADA INC.
and
STATE STREET BANK AND TRUST COMPANY.
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EQUITY PARTICIPATION AGREEMENT
This Equity Participation Agreement (this "Agreement"), dated as of
February 26, 1998 is made by Sommer Enterprises, LLC, a Nevada limited liability
company ("Sommer Enterprises"), Aladdin Gaming Enterprises, Inc., a Nevada
corporation ("Aladdin Enterprises"), London Clubs Nevada Inc., a Nevada
corporation ("LCNI"), and State Street Bank and Trust Company, as warrant agent
(the "Warrant Agent"), pursuant to the Warrant Agreement (as defined herein).
WITNESSETH:
WHEREAS, Sommer Enterprises, Aladdin Enterprises and LCNI are members
of Aladdin Gaming Holdings, LLC, a Nevada limited liability company ("Gaming
Holdings"), owning an aggregate of 97 percent of the issued and outstanding
common membership interests of Gaming Holdings ("Holdings Common Shares") as of
the date hereof;
WHEREAS, on the date hereof Sommer Enterprises owns all of the issued
and outstanding class A voting common stock of Aladdin Enterprises (the "Class A
Common Stock"), and Aladdin Enterprises owns 25 percent of the issued and
outstanding Holdings Common Shares;
WHEREAS, on the date hereof (a) Aladdin Enterprises entered into a
warrant agreement (the "Warrant
Agreement") with the Warrant Agent and pursuant thereto issued to various
persons (the "Warrantholders") warrants (the "Warrants") to purchase class B
non-voting common stock of Aladdin Enterprises (the "Class B Common Stock" and,
together with the Class A Common Stock, the "Common Stock") representing 40
percent of the Common Stock and (b) Aladdin Enterprises entered into a
registration rights agreement in favour of the Warrantholders (the "Warrant
Registration Rights Agreement");
WHEREAS, upon exercise of all of the Warrants, the Warrantholders will
indirectly own, through their ownership of Class B Common Stock, an aggregate of
10 percent of the membership interests of Gaming Holdings;
WHEREAS, the parties desire by this Agreement to set forth their
agreement as to certain arrangements in respect of (a) an initial underwritten
offering pursuant to which common shares of Aladdin Enterprises, Gaming
Holdings, Aladdin Gaming, LLC, a Nevada limited liability company and a wholly
owned subsidiary of Gaming Holdings, or a newly formed successor entity to any
of them (as the case may be, the "IPO Entity") are sold to the public pursuant
to a registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), and become registered under Section 12(g) of the Securities
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Exchange Act of 1934, as amended (an "IPO"), (b) the rights and obligations of
the Warrantholders to participate in tag along arrangements among the members of
Gaming Holdings, and (c) providing that Aladdin Enterprises does not become an
Investment Company (as herein defined) prior to the IPO.
THEREFORE, in consideration of the mutual covenants, agreements and
promises made herein, the parties agree as follows:
1. (a) The parties shall not effect an IPO unless, prior to such
IPO, Sommer Enterprises, LCNI and the Warrantholders each are given the right to
hold an equity interest in the IPO Entity immediately prior to the IPO equal to
their respective equity interests at such time in Gaming Holdings (whether such
equity interests are held at such time directly or indirectly through Aladdin
Enterprises), subject to any appropriate adjustments in respect of any built-in
tax or other liabilities. The parties agree to use their reasonable best
efforts when forming the IPO Entity (if applicable) and effecting the IPO such
that the Warrantholders shall not recognize income or gain for federal tax
purposes (other than as a result of any sale of shares held by them in such
IPO).
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(b) The parties agree that immediately prior to the IPO, they shall
cause the IPO Entity (if not Aladdin Enterprises) to enter into a supplement to
the Warrant Registration Rights Agreement and to assume all of the rights and
obligations of Aladdin Enterprises thereunder with respect to the shares of
stock of the IPO Entity to be owned by the Warrantholders to the same extent as
Aladdin Enterprises obligations under the Warrant Registration Rights Agreement
with respect to the Common Stock (defined thereunder as "Transfer Restricted
Securities") in accordance with Section 6 of the Warrant Registration Rights
Agreement.
2. Prior to any IPO, Sommer Enterprises, LCNI and Aladdin
Enterprises agree that they shall not take or permit any action that would
result in Aladdin Enterprises becoming an "investment company" (as that term is
defined in the Investment Company Act of 1940, as amended) (the "1940 Act")
required to register under the 1940 Act ("Investment Company") and shall use
commercially reasonable efforts to ensure that Aladdin Enterprises does not
become an Investment Company.
3. (a) Aladdin Enterprises shall provide written notice to the
Warrant Agent (a "Warrantholder Notice") within three days after receipt of any
written
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notice (a "Tag Along Notice") by Aladdin Enterprises pursuant to Section 8.4 of
the Operating Agreement of Gaming Holdings (the "Holdings Operating Agreement"),
and shall include a copy of the Tag Along Notice in the Warrantholder Notice.
Aladdin Enterprises shall take no action under Section 8.4 of the Holdings
Operating Agreement in respect of the Tag Along Notice until the expiration of
ten days from the giving of the Warrantholder Notice (the "Warrantholder Tag
Period").
(b) The Warrantholders who hold Common Stock at any time prior
to the expiration of the Warrantholder Tag Period, or who give Aladdin
Enterprises valid, irrevocable notice of exercise of Warrants together with
payment of the exercise price prior to the expiration of the Warrantholder Tag
Period (the Common Stock and Common Stock issued or to be issued following such
Warrant exercise, collectively, "Tag Eligible Shares") may during the
Warrantholder Tag Period by written notice from such Warrantholders to the
Warrant Agent and from the Warrant Agent to Aladdin Enterprises (a "Tag
Acceptance Notice") request that Aladdin Enterprises accept the offer contained
in the Tag Along Notice in respect of all or part of the Holdings Common Shares
held by Aladdin Enterprises which represent the indirect interest in
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Gaming Holdings which correspond to the Tag Eligible Shares held by such
Warrantholder. Any Tag Acceptance Notice shall be irrevocable and any notice
received outside the Warrantholder Exercise Period shall be of no effect
whatsoever. Sommer Enterprises shall not be required to give a Tag Acceptance
Notice to Aladdin Enterprises in order to cause Aladdin Enterprises to accept
the offer contained in the Tag Along Notice in respect of all or part of the
Holdings Common Shares which correspond to the Common Stock held by Sommer
Enterprises.
(c) Aladdin Enterprises shall accept the offer in the Tag Along
Notice for all of (but no more than) the Holdings Common Shares in respect of
which Warrantholders ("Accepting Warrantholders") have caused the Warrant Agent
to deliver a valid Tag Acceptance Notice within the Warrantholder Tag Period as
well as any Holdings Common Shares which correspond to Common Stock held by
Sommer Enterprises which Sommer Enterprises desires to be sold. If a Tag
Acceptance Notice is not given in respect of any Tag Eligible Shares (other than
Tag Eligible Shares held by Sommer Enterprises) within the Warrantholder Tag
Period, Aladdin Enterprises shall be deemed to have been instructed not to
accept the offer
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in the Tag Along Notice in respect of the Holdings Common Shares corresponding
to such Tag Eligible Shares.
(d) If pursuant to Section 8.4 of the Holdings Operating
Agreement Aladdin Enterprises sells all of the Holdings Common Shares which it
was requested to sell pursuant to this Section 3, or which it attempted to sell
for the benefit of Sommer Enterprises, (collectively, the "Participating
Holdings Common Shares") the Accepting Warrantholders and Sommer Enterprises
shall be allocated the full number of Holdings Common Shares that they requested
be sold. If Aladdin Enterprises sells less than all Participating Holdings
Common Shares, the Holdings Common Shares actually sold shall be allocated
between each Accepting Warrantholder and Sommer Enterprises pro rata in
proportion to the number of Participating Holdings Common Shares that Aladdin
Enterprises was requested to sell for the benefit of each Accepting
Warrantholder or attempted to sell for the benefit of Sommer Enterprises.
(e) Upon receipt by Aladdin Enterprises of the purchase price in
respect of a sale pursuant to Section 8.4 of the Holdings Operating Agreement,
the parties agree that Aladdin Enterprises shall redeem Common Stock (in the
case of Sommer Enterprises, first
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redeeming Class B Common Stock) held by the Accepting Warrantholders and Sommer
Enterprises which correspond to the Holdings Common Shares allocated to them
pursuant to Section 3(d) in consideration for the payment by Aladdin Enterprises
to the Warrant Agent (as agent for such Accepting Warrantholders) and Sommer
Enterprises of their share of such purchase price (determined in proportion to
the number of Holdings Common Shares allocated to them pursuant to Section
3(d)).
4. WARRANTHOLDER CONVERSION RIGHTS. Subject to compliance with the
provisions of the Nevada Gaming Control Act (or any successor statute) and the
rules and regulations promulgated thereunder, each Warrantholder shall have the
right, exercisable upon written notice to Aladdin Enterprises accompanied by
payment of any exercise price in respect of any Warrants held by such
Warrantholder, to exchange its Warrants or Class B Common Stock for Holdings
Common Shares in such number as shall result in such Warrantholder having a
Percentage Interest (as defined in the Holdings Operating Agreement) equal to
the percentage of the total Securities (defined as issued and outstanding Common
Stock and all Common Stock issuable on the exercise of all Warrants) held by
such Warrantholder applied to Aladdin Enterprises'
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Percentage Interest, such right to be exercisable within twenty days after (and
shall be deemed exercised immediately prior to) Aladdin Enterprises taking any
of the following actions:
(i) Any merger or consolidation involving Aladdin Enterprises,
as a result of which the holders of Class B Common Stock will receive
any consideration other than common equity securities of the IPO
Entity or any holder of Class B Common Stock will receive, as a result
of such transaction, any consideration different than that received by
any other holder of the Common Stock;
(ii) Any sale, lease, exchange, transfer or other disposition,
directly or indirectly, in a single transaction or series of related
transactions, of all or a substantial part of Aladdin Enterprises'
assets, to or with any Person;
(iii) Any transfer by Aladdin Enterprises of any of the Holdings
Common Shares held by it as of the date hereof other than pursuant to
Section 3;
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(iv) Any recapitalization of Aladdin Enterprises by means of a
redemption of shares or a distribution to stockholders, other than as
permitted by the Warrant Agreement or in connection with the IPO;
(v) Any voluntary dissolution or liquidation of Aladdin
Enterprises;
(vi) A repurchase or redemption of Common Stock from a
stockholder of Aladdin Enterprises that is not pro rata among all
stockholders of Aladdin Enterprises (except repurchases of the Common
Stock held by an Accepting Warrantholder or Sommer Enterprises
following the consummation of a "Tag-Along" sale in accordance with
Section 3, or repurchases required as the result of a holder of Common
Stock being found unsuitable by the Nevada gaming authorities); and
(vii) Any issuance of Common Stock (including securities
convertible into Common Stock) by Aladdin Enterprises to any Person
other than (A) the Warrantholders upon exercise of the Warrants or (B)
in connection with an issuance in which the proceeds thereof are
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contributed to Gaming Holdings in exchange for a number of Holdings
Common Shares, the fair market value of which is equal to such
contribution.
5. AMENDMENT AND WAIVER. Any provision of this Agreement may be
amended or waived only by an amendment or waiver in writing signed by the
parties.
6. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties and their respective
successors and assigns.
7. NO THIRD-PARTY BENEFICIARIES. This Agreement is for the sole
benefit of the parties and their permitted assigns and nothing herein express or
implied shall give or be construed to give to any person, other than the parties
and such assigns, any legal or equitable rights hereunder.
8. NOTICES. All notices provided for in this Agreement shall be
deemed to have been given when received and shall be in writing, duly signed by
the party giving such notice, and shall be hand delivered, faxed or mailed by
registered or certified mail or overnight courier service, as follows:
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(a) if to Aladdin Enterprises or Sommer Enterprises:
Aladdin Enterprises, LLC
c/o Aladdin Holdings, LLC
2810 West Charleston Boulevard
Suite 58
Las Vegas, Nevada 89102-1934
Telephone: 702-870-1234
Telecopier: 702-870-8733
Attention of Jack Sommer
with a copy to:
Sigmund Sommer Properties
280 Park Avenue
New York, New York 10017
Telephone: 212-661-0700
Telecopier: 212-661-0844
Attention of Ronald Dictrow
and
Schreck Morris
300 South Fourth Street
Suite 1200
Las Vegas, Nevada 89101
Telephone: 702-474-9400
Telecopier: 702-474-9422
Attention of Frank A. Schreck, Esq.
and
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telephone: 212-735-3000
Telecopier: 212-735-2000
Attention of Wallace L. Schwartz, Esq.
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(b) if to LCNI:
London Clubs Nevada, Inc.
c/o London Clubs International, plc
10 Brick Street
London W1Y 8HQ, England
Telephone: 011-44-171-518-0000
Telecopier: 011-44-171-493-6981
Attention of Linda M. Lillis
with a copy to:
Ohrenstein & Brown, LLP
230 Park Avenue
New York, New York 10169
Telephone: 212-682-4500
Telecopier: 212-557-0910
Attention of Peter J. Kiernan, Esq.
and
Lionel, Sawyer & Collins
300 South 4th Street
Suite 1700
Las Vegas, Nevada 89101
Telephone: 702-383-8888
Telecopier: 702-383-8845
Attention of P. Gregory Giordano, Esq.
(c) if to the Warrant Agent:
State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Telephone:
Telecopier:
Attention of Corporate Trust
Administration
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Telephone: 213-485-1234
Telecopier: 213-891-8763
Attention of Pamela B. Kelly, Esq.
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9. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall constitute an original and all of which together shall
constitute one and the same instrument.
10. APPLICABLE LAW AND JURISDICTION. This Agreement and the rights
and obligations of the parties under this Agreement 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.
11. COMPLIANCE WITH GAMING LAWS. Notwithstanding any other provision
of this Agreement, no shares or other equity securities or interest in any
entity shall be issued, transferred or otherwise disposed of in any manner
pursuant to this Agreement except in compliance with the provisions of the
Nevada Gaming Control Act (or any successor statute) and the rules and
regulations promulgated thereunder.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective duly authorized officers as of the
date first above written.
SOMMER ENTERPRISES, LLC
By: /s/ Jack Sommer
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Name: Jack Sommer
Title: Manager
LONDON CLUBS NEVADA INC.
By: /s/ Linda Lillis
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Name: Linda Lillis
Title: Assistant Secretary
ALADDIN GAMING ENTERPRISES, INC.
By: /s/ Jack Sommer
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Name: Jack Sommer
Title: President
STATE STREET BANK AND TRUST
COMPANY, as warrant agent.
By: /s/ Ruth A. Smith
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Name: Ruth A. Smith
Title: Vice President
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