Report of Independent Public Accountants
To the Board of Directors and Members of
Aladdin Gaming Holdings, LLC:
We have audited the accompanying consolidated balance sheets of
Aladdin Gaming Holdings, LLC (a Nevada limited liability company in the
development stage) and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, members' equity and cash flows
for the year ended December 31, 1998 and for the period from inception
(December 1, 1997) to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Aladdin Gaming
Holdings, LLC and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the year ended December
31, 1998, and for the period from inception (December 1, 1997) to December
31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 30, 1999 (except with respect to
the matters dicsussed in Note 7, as to
which the date is April 27, 1999)
1
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(In Thousands)
December 31, December 31,
1998 1997
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 1,248 $7
Receivables, related parties.......................................................... 77 -
Other receivables..................................................................... 765 -
Inventory............................................................................. 60 -
Prepaid assets........................................................................ 119 -
Restricted land to be transferred..................................................... 6,842 -
-------- -----
Total current assets............................................................... 9,111 7
-------- -----
Property and equipment:
Land.................................................................................. 33,407 -
Furniture, fixtures and equipment..................................................... 272 -
Construction in progress.............................................................. 86,557 -
Capitalized interest.................................................................. 8,213 -
-------- -----
128,449 -
Less accumulated depreciation and amortization........................................... 17 -
-------- -----
Net property and equipment............................................................ 128,432 -
-------- -----
Other assets:
Restricted cash and cash equivalents.................................................. 227,983 -
Interest receivable--restricted cash.................................................. 859 -
Other assets.......................................................................... 2,061 -
Debt issuance costs, net of accumulated amortization of $2,831 and $0
as of December 31, 1998 and 1997, respectively..................................... 34,315 -
-------- -----
Total other assets............................................................... 265,218 -
-------- -----
$402,761 $7
-------- -----
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable...................................................................... $ 3,394 $-
Construction payable.................................................................. 12,063 -
Obligation to transfer land........................................................... 6,842 -
Accrued interest...................................................................... 1,734 -
Accrued expenses...................................................................... 113 -
-------- -----
Total current liabilities........................................................ 24,146 -
-------- -----
Long-term debt, net of discount.......................................................... 388,353 -
Related party payables................................................................... 4,119 1
Advances to purchase membership interests................................................ 3 3
Members' equity:
Common membership interest, 1,000,000 common shares issued and outstanding as of
December 31, 1998.................................................................. 28,608 3
Deficit accumulated during the development stage...................................... (42,468) -
-------- -----
Total members' equity............................................................ (13,860) 3
-------- -----
$402,761 $7
-------- -----
The accompanying notes are an integral part of these consolidated
financial statements.
2
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 1998 and the Period
from Inception (December 1, 1997) through December 31, 1998
(In Thousands)
For the period from inception
For the year ended (December 1, 1997)
December 31, 1998 through December 31, 1998
------------------ ------------------------------
Pre-opening costs...................................................... $24,737 $24,737
Other (income) expense:
Interest income.................................................. (12,472) (12,472)
Interest expense................................................. 38,416 38,416
Less: Interest capitalized....................................... (8,213) (8,213)
------- -------
Total other (income) expense............................... 17,731 17,731
------- -------
Net loss accumulated during the development stage...................... $42,468 $42,468
------- -------
The accompanying notes are an integral part of these consolidated
financial statements.
3
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
Years Ended December 31, 1998 and 1997
(In Thousands)
Sommer Aladdin Gaming London Clubs
Enterprises, LLC Enterprises, LLC Nevada, INC. GAI, LLC Total
---------------- ---------------- ------------- --------- --------
BALANCE, DECEMBER 1, 1997........................ $ -- $ -- $ -- $ -- $ --
Members' contributions........................... 1 -- -- 2 3
---------- -------- -------- -------- --------
BALANCE, DECEMBER 31, 1997....................... 1 -- -- 2 3
Net loss accumulated during the development stage (19,960) (10,617) (10,617) (1,274) (42,468)
Members' contributions........................... (47,317) 28,247 50,000 -- 30,930
Members' equity costs............................ (1,093) (581) (581) (70) (2,325)
---------- -------- -------- -------- --------
BALANCE, DECEMBER 31, 1998....................... $ (68,369) $17,049 $ 38,802 $(1,342) $(13,860)
---------- -------- -------- -------- --------
The accompanying notes are an integral part of these financial
statements.
4
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1998 and the Period
from Inception (December 1, 1997)
through December 31, 1998
(In Thousands)
For the period from inception
For the year ended (December 1, 1997)
December 31, 1998 through December 31, 1998
----------------- -----------------------------
Cash flows from operating activities:
Net loss............................................................ $(42,468) $(42,468)
Depreciation and amortization....................................... 17 17
Amortization of debt costs.......................................... 2,831 2,831
Amortization of original issue discount............................. 14,306 14,306
Increase in interest receivable..................................... (859) (859)
Increase in inventory............................................... (60) (60)
Increase in prepaid expense......................................... (118) (118)
Increase in accounts receivable..................................... (842) (842)
Increase in other assets............................................ (2,061) (2,061)
Increase in accounts payable........................................ 3,394 3,394
Increase in accrued expenses........................................ 113 113
Increase in accrued interest........................................ 1,734 1,734
Increase in related party payable................................... 3,354 3,354
--------- ---------
Net cash used in operating activities.................................. (20,659) (20,659)
--------- ---------
Cash flows from investing activities:
Payments for construction in progress............................... (66,184) (66,184)
Payments for furniture and equipment................................ (272) (272)
Payments for capitalized interest................................... (8,213) (8,213)
Increase in restricted cash......................................... (227,983) (227,983)
--------- ---------
Net cash used in investing activities.................................. (302,652) (302,652)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes..................................... 100,047 100,047
Proceeds from long-term debt........................................ 274,000 274,000
Repayment of long-term debt......................................... (547) (547)
Debt issuance costs................................................. (37,146) (37,146)
Members' contributions.............................................. 65,000 65,003
Members' equity costs............................................... (2,325) (2,325)
Payment of debt on contributed land................................. (74,477) (74,477)
Payable to related parties.......................................... - 1
Advances to purchase membership interests........................... - 3
--------- ---------
Net cash provided by financing activities.............................. 324,552 324,559
--------- ---------
Net increase in cash................................................... 1,241 1,248
Cash at beginning of period............................................ 7 -
--------- ---------
Cash at end of period.................................................. $ 1,248 $ 1,248
--------- ---------
Supplemental disclosures of cash flow information and non-cash
investing and financing activities:
Cash paid for interest, net of amount capitalized...................... $ 11,332 $ 11,332
Members' contributions book value
Land................................................................ 33,407 33,407
Construction in progress............................................ 7,000 7,000
Equipment acquired equal to assumption of debt......................... 547 547
Increase in construction payables...................................... 12,826 12,826
The accompanying notes are an integral part of these consolidated
financial statements.
5
ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
Aladdin Gaming Holdings, LLC, a Nevada limited liability company
("Gaming Holdings"), was established on December 1, 1997. Gaming Holdings was
initially owned by Aladdin Gaming Enterprises, Inc., a Nevada corporation
(25%), Sommer Enterprises, LLC, a Nevada limited liability company (72%)
("Sommer Enterprises"), and GAI, LLC, a Nevada limited liability company
(3%). On February 26, 1998, London Clubs International, plc ("London Clubs"),
through its subsidiary London Clubs Nevada, Inc. ("LCNI"), contributed $50
million for a 25% interest in Gaming Holdings common membership interests
("Holdings Common Membership Interests"). Sommer Enterprises contributed a
portion of land for Holdings Common Membership Interests. Aladdin Gaming
Enterprises, Inc. ("Gaming Enterprises"), which is owned 100% by Sommer
Enterprises, contributed a portion of land, $7 million of predevelopment
costs and $15 million in cash for Holdings Common Membership Interests. After
the additional contributions, Sommer Enterprises, LLC owns 47% of Gaming
Holdings, LCNI owns 25% of Gaming Holdings, Gaming Enterprises owns 25% of
Gaming Holdings and GAI, LLC owns 3% of Gaming Holdings. On November 30,
1998, the Sommer Trust and its affiliates agreed that they shall vote their
respective Holdings Common Membership Interests and cause Gaming Enterprises
to vote its Holding Common Membership Interests so that (taking into account
Holdings Common Membership Interests held by London Clubs or its affiliates)
London Clubs controls fifty percent of the voting power of Gaming Holdings.
See Note 4 for additional disclosures regarding voting power. Aladdin
Holdings, LLC, a Delaware limited liability company ("AHL"), indirectly holds
a majority interest in Gaming Holdings. The members of AHL are the Trust
Under Article Sixth u/w/o Sigmund Sommer ("Sommer Trust") which holds a 95%
interest in AHL and GW Vegas, LLC, a Nevada limited liability company ("GW"),
a wholly owned subsidiary of Trust Company of the West ("TCW") which holds a
5% interest in AHL.
Gaming Holdings is a holding company, the material assets of which
are 100% of the outstanding common membership interests and 100% of the
outstanding Series A preferred interests of Aladdin Gaming, LLC ("Gaming").
Aladdin Capital Corp. ("Capital") is a wholly owned subsidiary of Gaming
Holdings and was incorporated solely for the purpose of serving as a
co-issuer of the 13 1/2% Senior Discount Notes ("Notes"). Capital will not
have any material operations or assets and will not have any revenues. Gaming
Holdings, through its subsidiaries, also owns 100% of Aladdin Music, LLC
("Aladdin Music"). Gaming Holdings and its subsidiaries are collectively
referred to herein as "Company."
The operations of the Company have been primarily limited to the
design, development, financing and construction of a new Aladdin Hotel and
Casino ("Aladdin"). The Aladdin will be the centerpiece of an approximately
35-acre world-class resort, casino and entertainment complex ("Complex")
located on the site of the former Aladdin hotel and casino in Las Vegas,
Nevada, a premier location at the center of Las Vegas Boulevard. The Aladdin
has been designed to include a luxury themed hotel of approximately 2,600
rooms, an approximately 116,000 square foot casino, an approximately
1,400-seat production showroom and six restaurants.
The Complex will comprise: (i) the Aladdin; (ii) a themed
entertainment shopping mall with approximately 496,000 square feet of retail
space ("Desert Passage"); (iii) a second hotel and casino with a music and
entertainment theme ("Aladdin Music Project"); (iv) the newly renovated 7,000
seat Theater of the Performing Arts ("Theater"); and (v) an approximately
4,800 space car parking facility ("Carpark" and, together with the Desert
Passage, hereinafter, "Mall Project"). The Mall Project is separately
owned in part by an affiliate of the Company and Aladdin Music is currently
seeking a joint venture partner for the Aladdin Music Project.
6
The consolidated financial statements include the accounts of Gaming
Holdings and its wholly-owned subsidiaries. Significant inter-company
accounts are eliminated in consolidation.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents. As of
December 31, 1998, restricted cash consisted of cash and cash equivalents
held for construction and development of the Aladdin.
PROPERTY AND EQUIPMENT
Property and equipment consists primarily of expenditures incurred
for the design and construction of the Aladdin and have been capitalized as
construction in progress. These amounts are expected to be reclassified to
buildings and land improvements upon completion of the facility and will be
depreciated over the useful life of the assets. Furniture, fixtures and
equipment are stated at cost and depreciation is computed using the
straight-line method over the estimated useful life of between three and ten
years.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using first-in first-out method.
FAIR VALUE OF CERTAIN FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, receivables and all current
liabilities approximates fair value because of the short term maturity of
these instruments. The fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction between
willing parties. See Note 2 for additional fair value disclosures.
INTEREST COSTS
Interest costs associated with major construction projects are
capitalized. Interest is capitalized on amounts expended to construct the
Aladdin using the weighted-average cost of the Company's outstanding
borrowings. The capitalized interest will be recorded as part of the asset to
which it relates and will be amortized over the asset's useful life.
Capitalization of interest ceases when the project is substantially complete.
INTEREST RATE SWAPS
The Company uses interest rate swaps and similar financial
instruments to assist in managing interest incurred on its long-term debt.
The difference between amounts received and amounts paid under such
agreements, as well as any costs or fees, is recorded as a reduction of, or
addition to, interest expense as incurred over the life of the swap or
similar financial instruments.
PRE-OPENING COSTS
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position No. 98-5 REPORTING ON THE COSTS OF START-UP ACTIVITIES ("SOP 98-5").
The provisions of SOP 98-5 are effective for fiscal years beginning after
December 15, 1998 and require that the costs associated with start-up
activities (including pre-opening costs of casinos) be expensed as incurred.
SOP 98-5 permits early adoption in fiscal years for which annual financial
statements have not yet been issued.
7
Effective January 1, 1998, the Company adopted the provisions of SOP
98-5. Pre-opening costs include, but are not limited to, salary related
expenses for new employees and management opening team, travel and lodging
expenses, training costs, advertising and marketing, organizational costs and
all temporary facility costs (i.e. rent, insurance, utilities, etc.).
DEBT DISCOUNT AND ISSUANCE COSTS
Debt discount and issuance costs are capitalized and amortized to
expense based on the terms of the related debt agreements using the effective
interest method or a method which approximates the effective interest method.
INCOME TAXES
The Company is a limited liability company and will be taxed as a
partnership for federal income tax purposes. Accordingly, no provision for
federal income taxes was recorded because the taxable income or loss is
included in the income tax returns of the members.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity sections of a statement
of financial position, and is effective for financial statements issued for
fiscal years beginning after December 15, 1997. The Company has determined
that comprehensive income and net income as reported in the accompanying
financial statements are the same.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
additional standards for segment reporting in financial statements and is
effective for fiscal years beginning after December 15, 1997. The Company
currently operates as one segment.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. LONG-TERM DEBT
Long-term debt is comprised of the following:
December 31, 1998
(In Thousands)
-----------------
Long-term debt:
Senior Discount Notes (Net of unamortized discount of $107,147)............... $114,353
Term B Loan................................................................... 114,000
Term C Loan................................................................... 160,000
--------
Total long-term debt....................................................... $388,353
--------
8
SENIOR DISCOUNT NOTES
On February 26, 1998, Gaming Holdings, Capital and Gaming
Enterprises consummated a private offering ("Offering") under Rule 144A of
the Securities Act of 1933. The Offering consisted of 221,500 units
("Units"), each Unit consisting of: (i) $1,000 principal amount of maturity
of 13 1/2% Senior Discount Notes due 2010 ("Notes") of Gaming Holdings and
Capital; and (ii) 10 warrants ("Warrants") to purchase 10 shares of Class B
non-voting common stock, no par value, of Gaming Enterprises. The Notes and
the Warrants became separately transferable on July 23, 1998. The Warrants
became exercisable on July 23, 1998, and will expire on March 1, 2010.
On August 26, 1998, Gaming Holdings and Capital completed an
exchange offer for 100% of the aggregate principal amount of the Notes
pursuant to a registration statement dated July 23, 1998. The Notes were
exchanged for notes with substantially the same terms issued in the private
placement on February 26, 1998.
The initial accreted value of the Notes was $519.40 per $1,000
principal amount at maturity of the Notes. The Notes will mature on March 1,
2010. The Notes will accrete at 13 1/2% (computed on a semi-annual bond
equivalent basis) based on the initial accreted value, calculated from
February 26, 1998. Cash interest on the Notes will not accrue prior to March
1, 2003. Thereafter, cash interest on the Notes will accrue at the rate of
13 1/2% per annum based on the accreted value at maturity of the Notes and will
be payable semi-annually in arrears on March 1 and September 1 of each year,
commencing on September 1, 2003. The Notes are secured by a first priority
pledge of all the issued and outstanding Series A Preferred Interests of
Gaming held by Gaming Holdings. The Indenture to the Notes contains certain
covenants that (subject to certain exceptions) restrict the ability of Gaming
Holdings, Capital and certain of their subsidiaries to, among other things:
(i) make restricted payments; (ii) incur additional indebtedness and issue
preferred stock; (iii) incur liens; (iv) pay dividends or make other
distributions; (v) enter into mergers or consolidations; (vi) enter into
certain transactions with affiliates; or (vii) enter into new lines of
business.
Gaming Holdings' future interest and principal payments required
under the Note will be funded from distributions by Gaming to the extent
available. Gaming has certain restrictions which limit its ability to
distribute cash to Gaming Holdings (see the following discussion under "Term
Loans"). There can be no assurance that Gaming's distributions will be
sufficient to meet the required principal and interest payments of the Notes.
TERM LOANS
On February 26, 1998, Gaming entered into a $410.0 million Credit
Agreement ("Bank Credit Facility" or "Credit Agreement") with various
financial institutions and the Bank of Nova Scotia as the administrative
agent for the lenders (collectively, "Lenders"). The Credit Agreement
consists of three separate term loans. Term A Loan comprises a term loan of
$136.0 million and matures seven years after the initial borrowing date. Term
B Loan comprises a term loan of $114.0 million and matures eight and one-half
years after the initial borrowing date. Term C Loan comprises a term loan of
$160.0 million and matures ten years after the initial borrowing date. The
Term B Loan and the Term C Loan were funded by the Lenders on February 26,
1998 and the funds are held by Gaming in the cash collateral account for the
future development of the Aladdin. The Term B Loan and the Term C Loan
proceeds could not be utilized until the proceeds from the Notes were
completely exhausted. As of December 31, 1998, 100% of the Notes proceeds,
approximately $23.6 million of the Term B Loan Proceeds, net of interest
earned and approximately $21.5 million of the Term C Loan proceeds, net of
interest earned had been utilized to develop and construct the Aladdin. The
Term A Loan has not been funded. The Company pays interest on the term loans
as follows: Term A Loan, at the London Interbank Offered Rate ("LIBOR") plus
300 basis points until the Aladdin commences operations, then LIBOR plus an
amount between 150 basis points and 275 basis points depending upon Gaming's
earnings before interest, taxes, depreciation and amortization ("EBITDA");
Term B Loan, LIBOR plus 200 basis points while the funds are held in the cash
collateral account and LIBOR plus 350 basis points once the funds are
utilized for the construction of the Aladdin; and Term C Loan, LIBOR plus 200
9
basis points while the funds are held in the cash collateral account and
LIBOR plus 400 basis points once the funds are utilized for the construction
of the Aladdin. Interest on the term loans is due quarterly.
During 1998, the Company's indirect subsidiary, Aladdin Music,
incurred indebtedness of approximately $2.8 million in connection with the
pre-development costs and expenses of the Aladdin Music Project while
pursuing prospective joint-venture partners ("Music Indebtedness"). The
incurrence of the Music Indebtedness was not pre-approved by the Lenders as
required under the Credit Agreement and thus the incurrence of the Music
Indebtedness constituted an event of default under the Credit Agreement. See
Note 7 regarding the subsequent cure or waiver of the Music Indebtedness
default.
On January 29, 1999, the Credit Agreement was amended for the
following: (i) a reduction in the net worth requirement; (ii) a waiver of the
event of default due to the Music Indebtedness, assuming satisfaction of
certain conditions; (iii) changes to certain definitions in the Credit
Agreement, including the definition of "Available Funds," "Realized Savings"
and "Indebtedness;" (iv) permit the utilization of letters of credit to fund
the November, 1998 Out-of-Balance (see Note 4 regarding additional disclosure
related to the November, 1998 Out-of-Balance); (v) require the Company to
fund costs for the Carpark which are in excess of $36 million; (vi) permit
Aladdin Music to incur an additional aggregate indebtedness of $3.5 million
for reasonable and necessary predevelopment costs and expenses for the
Aladdin Music Project and to enter into agreements for the payment of certain
commissions; (vii) permit certain indebtedness in connection with a
1,400-seat production theater; and (viii) other technical amendments
(collectively, "First Amendment to the Credit Agreement"). Further, the First
Amendment to the Credit Agreement provided that if the FF&E Financing
documents (see the following discussion under "Furniture, Fixtures and
Equipment Financing" ("FF&E Financing")) were not correspondingly amended by
March 10, 1999, an event of default would exist under the Credit Agreement.
After various discussions with the lenders under the FF&E Financing,
the Company determined that it would not be in its best interest to effect
corresponding amendments to the FF&E Financing documents consistent with the
First Amendment to the Credit Agreement. The Company, London Clubs and the
Sommer Trust have submitted a proposed second amendment to the Credit
Agreement ("Second Amendment to the Credit Agreement"), to cure the events of
default. The Second Amendment to the Credit Agreement provides: (i) the Music
Indebtedness has been paid by or on behalf of Aladdin Music and this event of
default is waived by the Lenders; (ii) a capital contribution in the amount
of approximately $18.5 million (see Note 7 regarding additional disclosures)
has been made to bring the Main Project Budget "In Balance," as defined in
the Credit Agreement; (iii) the letters of credit which were posted in
connection with the November 1998 Out-of-Balance will be drawn and the
proceeds deposited in Gaming's account; (iv) amending certain definitions of
the Credit Agreement, including, "Available Funds," "Indebtedness," and
"Realized Savings"; (v) requiring any costs in excess of $36 million for
completing the Carpark will be funded by the Sommer Trust and London Clubs;
(vi) requiring that Gaming maintain a minimum "Net Worth" at the close of
each calendar month of not less than $100.0 million plus 85% of positive Net
Income (as defined); and (vii) other technical amendments to the Credit
Agreement. The Company has been advised by its counsel, that the Second
Amendment to the Credit Agreement will not require the approval or consent of
either the FF&E Financing lenders or the Noteholders. See Note 7 regarding
the subsequent cure or waiver of the requirement to amend the FF&E Financing
documents.
The Second Amendment to the Credit Agreement would require
additional contributions to the Company on a monthly basis if the Company's
net worth falls below $100 million. The Company estimates that additional
contributions of approximately $33 million will be required to maintain a net
worth of $100 million prior to the opening of the Aladdin. The Company has
informed both London Clubs and the Sommer Trust of the estimated future
equity contributions required under the net worth limit.
Principal payments for the Term Loans do not commence until the end
of the first quarter following the commencement of operations of the Aladdin.
The following table details the required yearly principal amortization during
operations.
10
Principal Amortization (after Term A Loan Term B Loan Term C Loan
commencement of operations)
----------------------------- ------------- ------------- -------------
(In Thousands)
Year 1 $ 16,000 $ 1,200 $ 1,600
Year 2 20,000 1,200 1,600
Year 3 28,000 1,200 1,600
Year 4 32,000 1,200 1,600
Year 5 40,000 1,200 1,600
Year 6 68,000 1,600
Year 7 40,000 48,400
Year 8 102,000
-------- -------- --------
TOTALS $136,000 $114,000 $160,000
-------- -------- --------
In addition to the principal amortization schedules, the Company is
required to make mandatory prepayments beginning the first quarter following
the commencement of operations of the Aladdin. The mandatory prepayments are
based on a percentage of Gaming's excess cash flow as defined in the Credit
Agreement. The mandatory prepayments are due quarterly and the percentages of
excess cash flow are detailed below:
Percentage of
Excess Cash Flow
----------------
Year 1 65%
Year 2 60%
Year 3 and thereafter 55%
As security for the Bank Credit Facility, the Company has entered
into a deed of trust in favor of the Lenders securing the Notes and all
obligations of the Company under the Bank Credit Facility, encumbering the
Aladdin (including any and all leasehold interests) as a first priority lien.
In addition, the Company has either assigned or entered into security
agreements in favor of the Lenders for all present and future leases,
accounts, accounts receivable, licenses and any other tangible or intangible
assets owned or leased by the Company, subject to the rights of the FF&E
Lenders under the FF&E Financing (see the following discussion under
"Furniture, Fixtures and Equipment Financing ("FF&E Financing")).
As further security for the Bank Credit Facility and to the extent
permissible, the owners of the Company have pledged their interests in the
Company to the Lenders and Gaming Holdings has pledged its interest in Gaming
to the Lenders other than the Series A Preferred Interests.
The Bank Credit Facility contains covenants that (subject to certain
exceptions) restrict the ability of Gaming and its subsidiaries to, among
other things: (i) incur additional indebtedness, liens or other encumbrances;
(ii) pay dividends or make similar distributions; (iii) sell assets or make
investments; (iv) enter into mergers, consolidations, or acquisition
transactions; or (v) enter into certain transactions with affiliates.
FURNITURE, FIXTURES AND EQUIPMENT FINANCING ("FF&E FINANCING")
On June 30, 1998, the Company entered into FF&E Financing which
provides for operating lease financing of up to $60.0 million and a term loan
facility of $20.0 million to obtain gaming equipment and other specified
equipment. Funding under the FF&E Financing is available beginning six months
prior to the construction
11
completion date of the Aladdin. Repayment of principal and interest is due in
quarterly installments upon the construction completion date of the Aladdin.
The term of the operating lease financing is 36 months (with the Company
having two, one year options to renew) and the term of the loan facility is
five years. The interest rate from the funding date until the construction of
the Aladdin is complete is either the 30-day LIBOR plus 478 basis points or
the Prime Rate plus 275 basis points. After the construction completion date,
the interest rate shall be the 90-day LIBOR plus 478 basis points. As of
December 31, 1998, the FF&E financing had not been funded.
On February 17, 1999, GMAC Commercial Mortgage ("GMAC"), one of the
participants in the FF&E Financing, issued a "Notice of Default" to the
primary lender under the FF&E Financing based on the Company's proposal to
amend the minimum net worth amount under the FF&E Financing documents and
further provided that GMAC was terminating its obligations to fund under the
FF&E Financing. On February 26, 1999, the Company responded that, pursuant to
the Intercreditor Agreement, dated June 30, 1998, no participant in the FF&E
Financing, including GMAC, could declare a Default or Event of Default (other
than a payment default) prior to the initial funding under the FF&E Financing
and that in fact no default or event of default existed.
INTEREST RATE SWAPS
The Company has entered into various interest rate swaps to manage
interest expense, which is subject to fluctuations due to the variable nature
of LIBOR. The Company has interest rate swap agreements under which it pays a
fixed interest rate and receives a variable interest rate.
At December 31, 1998, the Company had interest rate swaps with a
notional amount of approximately $787.3 million that consist of the
following: (i) a cap and floor notional amount of $250 million; (ii) a swap
with an original notional amount of $114 million increasing to a maximum of
$222.5 million; (iii) a swap with a notional amount of $160 million; and (iv)
a swap option with a notional amount of $154.8 million. As of December 31,
1998, the Company had a portfolio of variable rate debt outstanding in the
amount of $274 million.
Under these agreements, the Company will receive interest from the
counterparty at a variable rate equal to LIBOR and the Company will pay the
counterparty fixed rates of interest as follows: (a) until the Aladdin
commences operations, for the Term A Loan and the Term B Loan interest is
fixed at 5.883% and for the Term C Loan interest is fixed at 6.485%; and (b)
once the Aladdin has commenced operations, for the Term A Loan and the Term B
Loan, the maximum interest is 7.00% and the minimum is 5.65%, and for the
Term C Loan, the interest has been fixed at 6.485%. The LIBOR applicable to
these agreements was 5.3125% at December 31, 1998. The notional amounts do
not represent amounts exchanged by the parties, and thus are not a measure of
exposure of the Company. The amounts exchanged are normally based on the
notional amounts and other terms of the swaps. The variable rates are subject
to change over time as LIBOR fluctuates.
Neither the Company nor the counterparty, which is a prominent
financial institution, is required to collateralize their respective
obligations under these swaps. The Company is exposed to loss if the
counterparty defaults. The Company does not hold or issue rate swap
agreements for trading purposes.
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FAIR VALUE OF LONG-TERM DEBT AND INTEREST RATE SWAPS
The estimated fair value of the Company's long-term debt and
interest rate swaps have been determined using appropriate market information
and valuation methodologies. Considerable judgment is required to determine
the estimates of fair value; thus, the estimates provided herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
Carrying Amount Fair Value
--------------- ----------
December 31, 1998
----------------------------------
(In Thousands)
Senior Discount Notes................................... $114,353 $50,945
Term B Loan............................................. 114,000 114,000
Term C Loan............................................. 160,000 160,000
Interest Rate Swaps Loss................................ 13,895
The fair value for the Company's Senior Discount Notes is based on
dealer quotes for those instruments. The fair values for the Company's Term B
Loan and Term C Loan are assumed to approximate carrying values as the
interest rate on the loans fluctuate with changes in LIBOR (i.e., a variable
rate loan). The fair market value of the Company's interest rate swaps is
based on the estimated termination values at December 31, 1998 as provided by
the counterparty to the swaps.
3. LEASES
The Company leases certain real property, furniture and equipment.
At December 31, 1998 aggregate minimum rental commitments under noncancelable
operating leases with initial or remaining terms of one year or more
consisted of the following:
Operating Leases
Year Ending December 31, (In Thousands)
------------------------ -------------------
1999 $646
2000 200
2001 15
----
Total Minimum Lease Payments $861
----
Rental expense amounted to approximately $0.5 million for the year
ended December 31, 1998.
4. INCREASE IN THE COMPANY'S BOARD OF MANAGERS
Under the Credit Agreement, $25 million of the total project costs
were designated as contingency funds. Contingency funds are made available to
the Company as a function of the project's percentage of construction
complete. However, the Company committed to changes in the plans and
specifications early in the project while the percentage of completion was
low. In addition, the Company revised certain items of the project budget and
adjusted the budget accordingly, including an increase to pre-opening costs.
Thus, because financial commitments were made when the contingency funds were
not yet available to pay for such changes, an out-of-balance of approximately
$6.5 million was created in November, 1998 ("November 1998 Out-of-Balance").
The Sommer Trust and London Clubs posted letters of credit in the amounts of
$1,030,500 and $5,543,500, respectively, to fund the November 1998
Out-of-Balance (see Note 7 regarding the subsequent draw on the letters of
credit). The Sommer Trust and London Clubs are parties to the Bank Completion
Guaranty whereby, among other things, the parties agreed to fund certain
project costs increases and to a
contribution agreement ("Contribution Agreement"), dated as of February 26,
1998, whereby, among other things, the parties agreed to share all the
obligations under the Bank Completion Guaranty, 75% to the Sommer Trust and
25% to London Clubs. On November 30, 1998, the Sommer Trust and London Clubs
agreed that because the Sommer Trust did not fund its proportionate share of
the November 1998 Out-of-Balance, (a) the Sommer Trust and its affiliates
shall vote their respective Holdings Common Membership Interests and cause
Gaming Enterprises to vote its Holdings Common Membership Interests so that
(taking into account Holdings Common Membership Interests held by London
Clubs or its affiliates) London Clubs controls fifty percent of the voting
power of Gaming Holdings, and (b) the Board of Managers for Gaming Holdings
and Gaming was expanded from the then-current five Board members to six and
the number of Board Members London Clubs designated was increased from two to
three. Notwithstanding the change to increase London Clubs' voting power and
the increase in the number of board members, the supermajority provisions
contained in the Gaming Holdings' Operating Agreement which require the
approval of the holders of at least 80% of the Gaming Holdings Common
Membership Interests remain unaffected by this agreement.
5. RELATED PARTY TRANSACTIONS AND GUARANTEES
LAND CONTRIBUTION AND RESTRICTED LAND
As discussed in Note 1, both Sommer Enterprises and Gaming
Enterprises contributed land to the Company. The land was originally owned by
AHL, a related party under common control, and therefore the land has been
recorded at its carryover basis. In addition, the land was subject to certain
indebtedness which was paid by the Company on the date of the contribution.
The indebtedness exceeded the carryover basis of the land and therefore
resulted in a negative contribution by Sommer Enterprises.
The carryover basis of the land was approximately $40.25 million,
but a portion of the land has been classified as restricted land due to a
requirement to transfer the land to Aladdin Bazaar, LLC. Aladdin Bazaar, LLC
is owned effectively 37.5% by the Sommer Trust. Aladdin Bazaar, LLC is
currently constructing and will operate the Mall Project. The Mall Project is
expected to be an integral part of the Aladdin entertainment complex. The
carryover basis of the land was allocated to the Mall Project based on an
appraisal of the entire land parcel. The Company expects to transfer the land
before the end of 1999.
PURCHASE OF RESTRICTED MEMBERSHIP INTERESTS
Certain members of the Company's executive management have purchased
unvested restricted membership interests, in the aggregate, of 4.75% of the
Company. Except for Mr. Goeglein, these membership interests will vest 25% on
the opening of the Aladdin and 25% upon the expiration of the term of the
executive's employment agreement. If Gaming continues to employ the executive
after the expiration of the employment agreement, 25% of the interest will
continue to vest on each anniversary of the Aladdin opening date until such
interests are fully vested. After the term of the employment agreement, if
Gaming does not continue to employ the executive, other than for Cause (as
defined), or if the officer no longer continues his employment for Good Reason
(as defined), only an additional 25% of the interest vests. Mr. Goeglein's
membership interests become fully vested at the earlier of July 1, 2002 or the
date on which such interests become publicly traded, conditioned upon Mr.
Goeglein's continued relationship with Gaming. As of December 31, 1998, none of
these membership interests had vested.
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EMPLOYMENT AGREEMENTS
The Company has entered into employment contracts with five members
of its senior management. The terms of these agreements provide for an
aggregate annual amount of approximately $1.5 million, plus any bonuses
granted by the Board of Directors and based on relevant criteria and
performance standards. The agreements have an initial duration of between
four years and five years and six months. All agreements were entered into
during 1997. One agreement additionally provides for the individual to be
retained as a consultant for $100,000 per year for 5 years after the initial
term.
GAI, LLC CONSULTING AGREEMENT
Gaming has entered into a consulting agreement with GAI, LLC, a
Nevada limited liability company, 100 percent beneficially owned by Gaming's
Chief Executive Officer. This agreement requires Gaming to pay to GAI, LLC a
retainer of $12,500 per month until June 30, 2002 for remaining on call to
provide services and expertise.
THE LONDON CLUB MANAGEMENT AGREEMENT
Gaming, London Clubs and LCNI are parties to a management agreement
which relates to the operations to be managed by London Clubs ("The London
Club"). Under this agreement, London Clubs has agreed to guaranty the
obligations of LCNI. In consideration for the services to be furnished by
LCNI under the management agreement, Gaming will pay to LCNI a
performance-based incentive fee. This fee will be calculated based on a range
of percentages applied to certain thresholds of The London Club EBITDA
(defined as gross revenue attributable to The London Club, less all costs and
expenses directly attributable to The London Club).
COMPLETION GUARANTY AND KEEP-WELL AGREEMENT
London Clubs, the Sommer Trust and Aladdin Bazaar Holdings, LLC
("Bazaar Holdings"), which is owned 99% by the Sommer Trust, have entered
into a completion guaranty for the benefit of the Lenders under the Bank
Credit Facility, under which they have agreed to guarantee, among other
things, the completion of the Aladdin. The guaranty is not subject to any
maximum dollar limitations. In addition, AHL, London Clubs and Bazaar
Holdings (collectively, "Sponsors") have entered into an agreement
("Keep-Well Agreement") in favor of the Lenders under the Bank Credit
Facility. The Keep-Well Agreement requires the Sponsors to make certain
quarterly cash equity contributions to Gaming beginning with the commencement
of operations if Gaming fails to comply with the minimum fixed charge
coverage ratio set forth in the Bank Credit Facility. Under the Keep-Well
Agreement, the Sponsors are not required to contribute an aggregate of more
than $150.0 million to Gaming ($30.0 million in any one fiscal year), and are
not required to contribute any amounts to Gaming on or after the earlier of
the date on which Gaming complies with all of the financial covenants set
forth in the Credit Agreement for six consecutive quarterly periods or the
date on which the aggregate outstanding principal amounts of the Credit
Agreement are reduced below certain amounts.
The Sommer Trust, London Clubs, Bazaar Holdings and the Bank of Nova
Scotia, as administrative agent for the Lenders, have entered into the First
Amendment to the Guaranty of Performance and Completion, dated as of April 5,
1999 and effective March 10, 1999 ("First Amendment to the Bank Completion
Guaranty"). The First Amendment to the Bank Completion Guaranty requires that
the Sommer Trust, London Clubs and Bazaar Holdings jointly and severally
guarantee that Gaming maintains the minimum Net Worth required by the Second
Amendment to the Credit Agreement. On March 30, 1999, the Sommer Trust and
London Clubs agreed that if either party is required to contribute more than
its proportionate share of any amounts necessary for Gaming to maintain the
revised Net Worth as required in the Second Amendment to the Credit
Agreement, then the party who contributes more than its proportionate share
will be deemed to have made a recourse loan to the party who contributes less
than its proportionate share in the amount not funded by such party. The
recourse loan will bear
14
interest at 20% per annum and will be payable by a transfer at par value of
the corresponding amount of the Holdings Common Membership Interests held
directly by the party who did not contribute its proportionate share. Until
the recourse loan is paid, the party who contributed more than its
proportionate share will have a security interest and continuing lien in said
Holdings Common Membership Interests.
During 1998, London Clubs received a fee of $2.65 million for its
obligations under the Keep-Well Agreement and in addition is entitled to an
annual fee of 1.5%, payable in arrears, of the Company's annual average
indebtedness with respect to a $265.0 million portion of the Bank Credit
Facility, which is supported by the Keep-Well Agreement. Such fees accrue
from the closing date of the Bank Credit Facility and are payable from
available cash flow after the opening of the Aladdin. As of December 31,
1998, the Company had accrued approximately $3.4 million in Keep-Well fees to
London Clubs, which is reported in the Balance Sheet as Related Party
Payables. Additionally, the Company agreed to reimburse approximately $2.8
million to London Clubs for certain expenses incurred relating to the
Aladdin; however, in November 1998, London Clubs agreed to defer the payment
of approximately $189,000 of this reimbursement until the Main Project Budget
under the Credit Agreement is In Balance (as defined in the Credit
Agreement). As of December 31, 1998, London Clubs received approximately $2.4
million of this $2.8 million reimbursement obligation.
In consideration for certain expenses incurred by the Sommer Trust
prior to February 26, 1998, relating to the management and coordination of
the development of the Aladdin, the Company reimbursed $3.0 million to the
Sommer Trust on February 26, 1998. In addition, Gaming will reimburse certain
ongoing out-of-pocket expenses of the Sommer Trust relating to the
development of the Aladdin, not to exceed $0.9 million. In November 1998, the
Sommer Trust agreed to defer such reimbursement until the Main Project Budget
under the Credit Agreement is In Balance (as defined in the Credit
Agreement). As of December 31, 1998, the Sommer Trust had received
approximately $3.3 million of the total $3.9 million reimbursement.
PAYMENT OF MUSIC INDEBTEDNESS
During 1998, the Sommer Trust, the approximately 72% beneficial
owner of the Company, paid approximately $260,000 to certain trade creditors
on behalf of Aladdin Music and Mr. Sommer, the Company's Chairman of the
Board, individually paid $500,000 to a trade creditor on behalf of Aladdin
Music. Further, during the first quarter of 1999, the Sommer Trust paid
approximately $747,000 to a trade creditor on behalf of Aladdin Music. On or
about April 9, 1999, the Sommer Trust and London Clubs contributed an
additional $766,000 and $504,000, respectively, to the Company, which amounts
were utilized to extinguish the remaining Music Indebtedness. All of the
amounts contributed to the Company or paid on behalf of Aladdin Music will be
accounted for as member equity contributions to the Company.
6. COMMITMENTS AND CONTINGENCIES
ENERGY SERVICES AGREEMENT
The Company entered into an energy services agreement for hot and
cold water and electricity that will be purchased by the Company and the Mall
Project (which would include the tenants of the mall) over initial terms of
20 years.
The central utility plant is being constructed by Northwind Aladdin,
LLC ("Northwind") on land owned by the Company and leased to Northwind. The
central utility plant and equipment (collectively, "Costs") will be owned by
Northwind, which will pay all costs in connection with the construction,
purchase and installation. The current budget for the Costs is $40.0 million.
The charges payable under the energy services agreement will include
a fixed component applied to the
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Costs paid by Northwind and reimbursement of operational related costs.
The Company's share of Costs under its energy services agreement is
based on the total Costs (currently budgeted at $40 million) less the amounts
payable by the Mall Project and Aladdin Music, if and when, Aladdin Music
enters into an energy services agreement with Northwind. The Mall Project's
share of Costs is approximately $2.9 million.
If Aladdin Music: (i) does not enter into an energy services
agreement with Northwind prior to the Company incurring Costs under its
energy services agreement; and (ii) the share of Costs assumed by Aladdin
Music are not significant, then the Company intends to account for the total
Costs incurred by Northwind as a capital lease. If however, items (i) and
(ii) above are accomplished prior to the Company incurring any Costs under
its energy services agreement, the Company will account for the energy
services agreement as an executory contract and expense the Costs as incurred.
MALL PROJECT COSTS
In connection with the development of the Mall Project, Aladdin
Bazaar, LLC will reimburse the Company approximately, $14.2 million for the
construction of certain areas shared by the Aladdin and the Mall Project and
the facade to the Aladdin. Additionally, Aladdin Bazaar, LLC is obligated to
spend no more than $36.0 million for the parking garage. Therefore, any cost
overruns associated with these items will be borne by the Company. In
addition, the Company is obligated to pay Aladdin Bazaar, LLC: (i) a $3.2
million fee per year for a term of 99 years, which is adjusted annually
pursuant to a consumer price index-based formula, for usage of the parking
garage; and (ii) the Company's proportionate share of the operating costs
associated therewith.
CONSTRUCTION COSTS
Fluor Daniel, Inc. is the design/builder ("Design/Builder") of the
Aladdin. The Design/Builder has entered into a guaranteed maximum price
design/build contract ("Design/Build Contract") (subject to scope changes)
with the Company to design and construct the Aladdin. During the course of
construction, a number of issues and items have arisen in connection with
various change orders and delay claims submitted with the project and the
scope of the Design/Build Contract. The Company has submitted three disputed
Design/Builder equitable scope change requests ("Claims") to arbitration
("Arbitration") pursuant to the provisions of the Design/Build Contract. The
Company believes that the Claims relate to design and work which is base work
contemplated in the Design/Build Contract and therefore should be included in
the guaranteed maximum price of the Design/Builder. The Design/Builder has
responded to the Company's argument in Arbitration, alleging, among other
things, that the Claims relate to unforeseen conditions, and/or are due to
the actions of the Company, and therefore, the Company is responsible for all
costs and delays associated with the Claims. While the Company intends to
aggressively and vigorously pursue the Claims, and believes that it will
ultimately prevail in arbitration, the Claims are only in the preliminary
stages of the Arbitration process, and therefore, no assurances can be given
with respect to the ultimate outcome. The Design/Builder has presented Claims
in the amount of approximately $4.7 million.
DEVELOPMENT AND CONSTRUCTION OF ALADDIN
The development of the Aladdin commenced during the first quarter of
1998. In March 1999, the Company completed a review of the project budget and
determined that it was appropriate to increase the project budget by
approximately $18.5 million, which amount reflected an increase in
construction costs of approximately $9.5 million and an increase in
pre-opening costs of approximately $9.0 million (collectively, "March 1999
Out-of-Balance").
16
The Company informed the Sommer Trust and London Clubs of the March
1999 Out-of-Balance and requested that, pursuant to the Bank Completion
Guaranty, the Sommer Trust and London Clubs fund the March 1999
Out-of-Balance. As of March 30, 1999, neither party had funded the March 1999
Out-of-Balance; however, London Clubs advised the Company that it would fund
the full March 1999 Out-of-Balance amount. See Note 7 regarding the
subsequent funding of the March 1999 Out-of-Balance.
The March 1999 funding under the Credit Agreement was to be made,
assuming payment of the March 1999 Out-of-Balance, on or about March 18,
1999. As of March 30, 1999, such funding had not occurred, and the Company
believed the funding would not occur without the payment by London Clubs of
the March 1999 Out-of-Balance. Even if the March 1999 Out-of-Balance was
paid, due to the existing events of default under the Credit Agreement, there
would be no assurances that any funding would be made under the Credit
Agreement or that the Credit Agreement would not be terminated. See Note 7
regarding the subsequent March 1999 funding under the Credit Agreement.
The monthly payment to the Design/Builder of the Aladdin was due
from the Company on or about March 18, 1999. As the Company did not receive
its March 1999 funding under the Credit Agreement, as of March 30, 1999, the
Company had not paid the Design/Builder. Under the Design/Build Contract, ten
days after payment is due, the Design/Builder can issue a written notice of
non-payment and if payment is not made within ten days after such notice,
Design/Builder can stop work on the Project. If the Design/Builder stops work
on the Project, it would cause delays and expenses to the Project which would
have a material and adverse effect on the Company. After expiration of the
applicable time periods, a default under the Design/Build Contract is an
event of default under the Credit Agreement. See Note 7 regarding the
subsequent payment to the Design/Builder.
7. SUBSEQUENT EVENTS
SECOND AMENDMENT TO THE CREDIT AGREEMENT
On April 2, 1999, pursuant to the Bank Completion Guaranty, London
Clubs funded approximately $18.5 million in order to bring the Main Project
Budget "In Balance" (as defined in the Credit Agreement) and the Lenders
funded Gaming's March 1999 funding draw ("March Draw") under the Credit
Agreement. Upon receipt of the March Draw on April 2, 1999, Gaming
immediately paid the outstanding March 1999 payment to the Design/Builder.
The delay in payment to Design/Builder did not effect or delay the project's
construction.
On April 16, 1999, the Lenders approved, effective as of March 10,
1999, the Second Amendment to the Credit Agreement, which cured or waived the
events of default arising form the Music Indebtedness and the requirement to
amend the FF&E Financing documents. Specifically, the Second Amendment to the
Credit Agreement provides: (i) the Music Indebtedness has been paid by or on
behalf of Aladdin Music and this event of default has now been waived by the
Lenders; (ii) a capital contribution in the amount of approximately $18.5
million has been made to bring the Main Project Budget "In Balance;" (iii)
the approximately $6.5 million of letters of credit, which have been
previously posted by the Sommer Trust and London Clubs to fund a prior
increase in the Main Project Budget, have been drawn and the proceeds
deposited in Gaming's account; (iv) amending certain definitions of the
Credit Agreement, including, "Available Funds," "Indebtedness," and "Realized
Savings;" (v) requiring any costs in excess of $36 million for completing the
carpark associated with the project be funded by the Sommer Trust and London
Clubs; (vi) requiring that Gaming maintain a minimum "Net Worth" at the close
of each calendar month, until the end of the fiscal quarter during which the
project opens (and then reverting to the Credit Agreement's requirement to
maintain the minimum Net Worth on a fiscal quarterly basis thereafter), of
not less than $100 million plus 85% of positive Net Income (as defined in the
Credit Agreement); and (vii) other technical amendments to the Credit
Agreement.
17