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Aladdin, Creditors Resolve Bankruptcy Case Dispute

23 September 2003

The Las Vegas Sun

by Richard N. Velotta

LAS VEGAS -- Lawyers for the Aladdin hotel-casino and its creditors say they have solved a dispute that threatened to derail the sale of the property to a group headed by Planet Hollywood International Chairman and Chief executive Robert Earl.

Gerald Gordon, an attorney for the Aladdin, and Frank Merola, who represents the creditors' committee and a recently formed creditors' trust, told U.S. Bankruptcy Court Judge Robert C. Jones on Monday that they settled a dispute fueled by a fast-approaching deadline in a bankruptcy code statute.

Earl's group, which does not include Planet Hollywood International, agreed to buy the Strip resort out of bankruptcy for $635 million in June. Through a spokeswoman, Earl said that he was unaware of any problems regarding the sale, particularly after Jones approved the Aladdin's reorganization plan setting parameters of the deal on Aug. 29.

"As far as we know, this is a done deal," the spokeswoman said of the Aladdin transaction.

Earl and his partners intend to turn the Aladdin into a motion picture-themed resort to be known as the Planet Hollywood hotel-casino. The transition to the new theme isn't expected to begin until the middle of next year because the principals would have to be licensed before the transaction can be completed.

But according to pleadings filed with the court last week, there were concerns that the deal was being undermined by the creditors' committee's decision to contact Aladdin vendors about alleged overpayments they had received during the course of the bankruptcy proceeding.

Under the bankruptcy code, unsecured creditors that have contracts with the debtor can continue to be paid for services while a reorganization plan is developed.

In the case of the Aladdin, the reorganization plan was approved Aug. 29, and many vendors were being paid since the property filed for Chapter 11 bankruptcy protection on Sept. 28, 2001. Under terms of the Aladdin's reorganization plan, unsecured creditors were to receive between $6.75 million and $7.5 million -- approximately 50 cents on the dollar. Since all creditors in each class are supposed to be treated equally, some companies were overpaid.

In order to recover overpayments, the creditor's trust, which was formed as part of the reorganization plan, can sue companies for that recovery. But according to the statute, all such actions must be entered with the court within two years of the original bankruptcy filing, which is next Sunday.

Because the attorneys didn't know the exact amount of the settlement until the plan was approved, they had only 19 business days to deal with overpayment issues.

The creditors' committee, which manages the creditors' trust, issued "demand letters" to vendors requesting payment.

The Aladdin responded Sept. 16 with a motion to prohibit the creditors' trust from filing "avoidance actions" in the case.

"There can be little doubt that the creditors' trust breached the duties owed to the debtor and its actions will significantly impair (the) debtor's business operations and the sale of the Aladdin Hotel and Casino contemplated by the plan," the Aladdin's filing said.

Gordon said the demand letters and avoidance actions could be detrimental to the continued operation of the property, especially if relationships with vendors were damaged prior to the takeover of Earl's group.

The committee and trust answered with a filing Friday, pointing out that no avoidance actions had even begun.

"It is ludicrous," the committee's response said, "to suggest that the creditors' trust committee would commence meritless litigation against its own members."

In the settlement explained in court Monday by Gordon and Merola, the Aladdin agreed to pay more to unsecured creditors, essentially removing all but 20 vendors -- most of them critical food suppliers -- from the potential dispute. The committee originally sent letters to 163 vendors.

The attorneys were able to eliminate several companies from consideration, some because their contracts eventually would be renegotiated and turned over to the new Planet Hollywood owners and others that had contracts that were small and not cost effective to litigate.

The estimated $4.2 million that would not be recovered from the critical vendors would be taken from the Aladdin estate and paid to bankers from the hotel's cash on hand. In the most recent financial report of the company, the Aladdin had about $75 million cash on hand available.

The "critical vendors" identified in Aladdin filings include: Anderson Dairy Inc., Bell Transportation, Comstock Wine & Spirits, Fish Warehouse Corp., Fresh Point of Las Vegas, Get Fresh Sales, Gourmand (California), Great Buns Bakery, J&J Seafood Co., Las Vegas Gourmet Imports, Lionel Sawyer & Collins, Nevada Beverage Co., Outwest Meat Co., Sara Lee Coffee & Tea, Southern Wine & Spirits, Sushi Trend Co. Inc., Swiss Chalet Fine Foods, Universal Bakery Wholesale, US Foodservice Co. and Van Rex Gourmet Foods.

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