Avenue CLO Fund, Ltd. et al v. Bank of America, N.A., et al

Filing 79

CERTIFIED REMAND ORDER. MDL No. 2106. Signed by MDL (FLSD) on 1/14/14. (Attachments: # 1 Transmittal from FLSD, # 2 1 09-md-02106 Designation of Record, # 3 1 09-md-02106 Dkt. Sheet - flsd, # 4 09-MD-2106 DE 1, 2, 4-30, # 5 0 9-MD-2106 DE 32-36, # 6 09-MD-2106 DE 37 part 1 of 3, # 7 09-MD-2106 DE 37 part 2 of 3, # 8 09-MD-2106 DE 37 part 3 of 3, # 9 09-MD-2106 DE 38, 39, 41-47, 49, 50, # 10 09-MD-2106 DE 51, # 11 09-MD-2106 DE 52-59, 61-65, 68, 70, 72-76, # (1 2) 09-MD-2106 DE 78-84, 86-91, # 13 09-MD-2106 DE 93, 95-103, 106-108, # 14 09-MD-2106 DE 110-115, # 15 09-MD-2106 DE 116-125, 127-129, 132-134, # 16 09-MD-2106 DE 136-140, 142-158, # 17 09-MD-2106 DE 160-162, 164-167, 170-175, 177-190, # ( 18) 09-MD-2106 DE 191-199, 201-215, # 19 09-MD-2106 DE 217-229, 232-247, # 20 09-MD-2106 DE 248, # 21 09-MD-2106 DE 249 part 1 of 2, # 22 09-MD-2106 DE 249 part 2 of 2, # 23 09-MD-2106 DE 251-253, 262-266, 284-287, 300, 301, 310, 319, 326-3 31, # 24 09-MD-2106 DE 335, 336, 338-344, 346-349, # 25 09-MD-2106 DE 350, # 26 09-MD-2106 DE 351-358, # 27 09-MD-2106 DE 360-366, 368-374, # 28 09-MD-2106 DE 375 part 1 of 3, # 29 09-MD-2106 DE 375 part 2 of 3, # 30 09-MD-2106 DE 375 p art 3 of 3, # 31 09-MD-2106 DE 376 part 1, # 32 09-MD-2106 DE 376 part 2, # 33 09-MD-2106 DE 376 part 3, # 34 09-MD-2106 DE 376 part 4, # 35 09-MD-2106 DE 376 part 5, # 36 09-MD-2106 DE 376 part 6, # 37 09-MD-2106 DE 376 part 7, # 38 09-MD-2106 DE 376 part 8, # 39 09-MD-2106 DE 376 part 9, # 40 09-MD-2106 DE 377 part 1, # 41 09-MD-2106 DE 377 part 2, # 42 09-MD-2106 DE 378, # 43 09-MD-2106 DE 379, # 44 09-MD-2106 DE 380, # 45 09-MD-2106 DE 381 part 1, # 46 09-MD-2 106 DE 381 part 2, # 47 09-MD-2106 DE 382 part 1, # 48 09-MD-2106 DE 382 part 2, # 49 09-MD-2106 DE 382 part 3, # 50 09-MD-2106 DE 382 part 4, # 51 09-MD-2106 DE 383 part 1, # 52 09-MD-2106 DE 383 part 2, # 53 09-MD-2106 DE 383 part 3, # 54 09-MD-2106 DE 383 part 4, # 55 09-MD-2106 DE 383 part 5, # 56 09-MD-2106 DE 383 part 6, # 57 09-MD-2106 DE 383 part 7, # 58 09-MD-2106 DE 383 part 8, # 59 09-MD-2106 DE 383 part 9, # 60 09-MD-2106 DE 383 part 10, # 61 09-MD-2106 DE 383 part 11, # 62 09-MD-2106 DE 384 part 1, # 63 09-MD-2106 DE 384 part 2, # 64 09-MD-2106 DE 384 part 3, # 65 09-MD-2106 DE 384 part 4, # 66 09-MD-2106 DE 384 part 5, # 67 09-MD-2106 DE 384 part 6, # 68 09-MD-2106 DE 384 part 7, # ( 69) 09-MD-2106 DE 384 part 8, # 70 09-MD-2106 DE 384 part 9, # 71 09-MD-2106 DE 384 part 10, # 72 09-MD-2106 DE 384 part 11, # 73 09-MD-2106 DE 385 part 1, # 74 09-MD-2106 DE 385 part 2, # 75 09-MD-2106 DE 386 part 1, # 76 09-MD-2106 DE 386 part 2, # 77 09-MD-2106 DE 386 part 3, # 78 09-MD-2106 DE 386 part 4, # 79 09-MD-2106 DE 386 part 5, # 80 09-MD-2106 DE 386 part 6, # 81 09-MD-2106 DE 386 part 7, # 82 09-MD-2106 DE 387 part 1, # 83 09-MD-2106 DE 387 part 2, # 84 09-MD-2106 DE 388, # 85 09-MD-2106 DE 389 part 1, # 86 09-MD-2106 DE 389 part 2, # 87 09-MD-2106 DE 389 part 3, # 88 09-MD-2106 DE 389 part 4, # 89 09-MD-2106 DE 390, 392-394, # 90 1 10-cv-20236 Dkt. Sheet - flsd, # 91 10cv20236 DE #1-27, 29-31, 45, 53, 60-65, 67-70, 73, # 92 1 09-cv-23835 Dkt. Sheet - flsd, # 93 09cv23835 DE 112, 115-126, # 94 09cv23835 DE 130, 134, 135 and 145)(Copies have been distributed pursuant to the NEF - MMM)

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Dep. Ex. 73

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Dep. Ex. 75

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Dep. Ex. 76

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Dep. Ex. 77

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Dep. Ex. 78

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Dep. Ex. 79

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Dep. Ex. 80

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Dep. Ex. 81

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Dep. Ex. 91

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From:
To:
Sent:
Subject:
Attachments:

Doug Pardon
Don Morgan
10/24/20084:31:S2PM
FW: Participation for Fontainebleau Resorts Conference Call
Fontainebleau Las Vegas Holdings Unaudited Financial Statements 6--30-08.pdf; Fontainebleau Las
Vegas Holdings, LLC MD&A Quarter Endir June 30, 2008.pdf; Fontainebleau Resorts Unaudited
Financial Statements 6-30-08.pdf

FBLEAU finally got fmancials out and is having a call next week. Below is the excerpt regarding the retail loan. Doesn't
mention shat we heard from dematteo but does say the co-lenders under the flìcility aie funding any LEH shortfitll on an interim
basis. "co-lenders" could mean anyone including Sofl'er. It doesn't specifi'.
In connection with the financingand development of the approximately 286,500 square-foot Fontainebleau retail
component which is integrated into Fontainebleau Las Vegas, Fontainebleau Las Vegas Retail, LLC QLas Vegas Retail"), a
subsidiary of Fontainebleau Resorts, obtained an $85.0 million mezzanine loan and a $315.0 million senior retail constmction
loan. The entire mezzanine facility was funded at close and approximately $125.4 million was fimded under the construction
facility. Both facilities were underwritten by Lehman Brothers Holdings, Inc. and the construction fhcility was partially
syndicated to third party lenders. Of the total $400.0 million retail credit facilities, approximately $83.0 million has been
dedicated towards shared construction costs in the Las Vegas podium. The Company began drawing for the shared costs in
August 2008. On September 16, 2008, Lehman Brothers filed for bankruptcy. At this time, it remains uncertain whether Lehman
Brothers will continue funding its remaining obligation under the retail construction facility. We have been working diligently
with Lehman Brothers and the co-lenders to the fhcility to ensure that there is no interruption in funding for the retail facility.
The Company has received indications from the co4enders to the &cility that they intend to fünd any potential Lehman Brothers
shortfizll on an interim basis. The Company will continue working oñ a permanent solution if one becomes necessary. There can
be no assumnces that Lehman Brothers will fluid all or any portion of its remaining obligation under the retail construction
facility, or that the co4enders will fund any Lehman Brothers shortfall in funding and â failure to fund the retail loan could
ultimately result in a dethult under our other financing arrangements, including the Las Vegas Credit Facility.

Doug Pardon
Brigade Capital Management
717
Avenue, Suite 1301
New York, NY 10(122

212-745-9754 (P)
212-745-9701 (F)

dpbriqadecapital.com
From: Vivian Smith [mailto:vsmith©fontäinebleau.com]
Sent: Friday, October 24, 2008 3:50 PM
To: Jim Freeman; Bill Bewley
Subject: Participation for Fontainebleau Resorts Conference Call
SENT ON BEHALF OF JIM FREEMAN, CHIEF FINANCIAL OFFICER:

To participate for Fontainebleau Resorts conference call:

Date of Call: Wednesday, October 29, 2008
rime of Call: 1:00 p.m. (P51)
Call Number: [phone]

Participant Code: 70951421
Attached are the second quarter 2008 financial statements for Fontainebleau Resorts, LLC and Fontainebleau Las Vegas
Hokjings, LLO. Also attached is the second quarter 2008 MD&A for Fontainebleau Las Vegas Holdings, LLC.
Vivian Smith / Human Resources Assistant
Fontainebleau Resorts LLC

CONFIDENTIAL

BGD 000502

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 3 of
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[e-mail] / foritainebleau.com
0 702 495 6304 I F 702 495 6303
2627 Paradise Road / Las Vegas NV 69109

THE STAGE IS YOURS. LIVE YOUR PART.
Please take note of my new email address

CONFIDENTIAL

BGD 000503

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tFontainebleau Las Vegas
Holdings, LLC and Subsidiaries
(Formerly Known as Tumben-y/Las Vegas Boulevard, LP.)

(tiolIy-Owned Subsidiaries of Fontainebleau Resorts, LLO)
(A DeeIopment Stage Enterprise)
Unaudited Condensed Consolidated Financial Stètements as of
June 30, 2008 and December31 2007 (Restated), for the Three and Six
Months ended June 30, 2008 and 2007 (Restated), and for the Period
from March 8, 2005 (Date of Contribution) through June 30, 2008

CONFIDENTIAL

BGD 000504

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 5 of
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e

FONTAINEBLEAU LAS VEGAS HOLDINGS, LLO AND SUBSIDIARIES
(Wholly-Owned Subsidiaries of Fontalnebleau Resorts, LLC)
(A development stage enterprise)
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2008 AND DECEMBER 31 2007 (RESTATED)

(Amounts ¡n thousands)
(Unaudited)
June 30; 2008

'e

December 31, 2007
(As Restated See Note 2)

ASSETS
CURRENT ASSETS:
Cash and cash eqjivalents
Insurance receivable
Receivable from affiliated entity
Receivable from related parties
Prepaid experses and other current assets

$

Total current assets

118,282
2.018
25,168
943
4,436

$

10,191

3275
12,476
678

150,847
147,925

OTHER ASSETS:
Restricted cash
Deferred financing fees - net
Recelvablè from related partIes
Deposita and other non-current assets

604,804

727,620
43,653
337

PROPERTY AND EQUIPMENT- NET

74,700

I 036,802

CONDOMINIUM UNITS IN DEVELOPMENT

26,620

1.107212
53,548
237

I 982

Total other assets

701

1.161,696

773,592

TOTALASSETS

$

2.109,166

$

1,867,820

$

1,684
105,141
20.170
6,779
2,464

$

322
29
55,715
1.309
6,966
6,534

LIABILITIES AND MEMBERS EQUITY
CURRENT UABILITIES:
Accounts payable
Accounts payable to related parties
Construction payables Lo related parties
Construction retentn payable to related parties
Accrued interest on long-terni debt
Accrued expenses and other current liabilities
Total current liabiilies

138,236

1,375,000
53,574
1,045
535
16,546

TOTAL UALIT1ES

1,426,612

1.582.938

Total long-term liabiles

1 375000
34,276
578
566

1,446,700

LONG-TERM LIABIIJTIES;
Long-terni debt
Conslruclion retention and contractorfees payable to related parties
Feas payable lo related parties
Oilier long-term liabilities
Fair value of derivative instrunenls

70,875

1,497.487

16,19:)

COMMITMENTS AND CONTINGENCIES (Note 8)
MEMBER'S EQUITY:
Coniribided capital
Accumulated deficit
Accumulated other comprehensive loss

699,558
(156,746)
(15,564)

528.228

Total members equity
TOTAL UABILI11ES AND MEMBER'S EQUITY

s

493.433
(107.435)
(15,665)
370.333

2,109,166

$

1,867,820

The accompanying notes are an integral part of these urtaudited condensed consolkiated financial staLements.

CONFIDENTIAL

BGD 000505

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FONTAINEBLEAU LAS VEGAS HOLDINGS, LLC AND SUBSIDIARIES
(Wholly-Owned Subsidiaries of Fontainebleau Resorts, LLC)

(A d.velopment stag. ent.rpris.)

-

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THR AND SIX MONTHS ENDED JUNE 30,2038 AND 2001, AND THE PERIOD FROM MARCHO, 2005 (DATE OF CONTRIBUTION) THROUGH JUNE34 2008

(Amounts in thousands)
(Unaudited)
Period From
IkrcIi 8, 2005
(Date of

Six Months Ended June 30,

Three Months Ended June 30,
2008

2007

2008

Through
June 30, 2008

2007

OPERATING EXPEN4SES:

Generalandadminist'atve

$

218

$

714

660.
-

$

$

849

$

3,951

-

-

4,646

2,164

7,655

2,843

18,146

predation and amorttaatlon

123

3

233

3

257

TothIoperang expense

4,987

2,881

8,748

3,495

28,354

(4,687)

(2,881)

(8,748)

(3,495)

128,354

Intemsl income

(5,074)

(4,822)

(13,893)

Interest expense - net of capitalized interest

26,852

9,483

55,439

Setttemont of Ilfigaffor,
Preopeni ng

LOSS FROM OPERATIONS

.

6,000

NON-OPERATING (INME) EXPENSES:

Interest expenso -affiliated en8ty

-

-

Unrealed gain on deSalivo instruments- nat

(4,383)

Deferrednancingfoes-writooff

-

Total non-operating expenses

17,205
$

(22192)N

(9,881)

5

.

(49.311)

(3,284)
2,494

2,494

(72)

121)

40,563

7.000
$

5,813

(122)

-

(9)

(49,382)
155,422

1,083

(963)

(146)
2,494

Otherinconie

NETLOSS

(4,915)
12,161

10.680

$

(1417g

110,991
$

(138.345)

The accompanying notes are an htegral od ofthese unaudited condensed consolidated financial statements.

CONFIDENTIAL

BGD 000506

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4-

FONTAINEBLEAU LAS VEGAS HOLDINGS, LLC AND SUBSIDIARIES
(Wholly-Owned Subsidiaries of Fcnthineblesu Resorts. LLC)
(A developn,ent stage ontarpnse)
CONDENSED CONSOLIDATED STAItMENÌS OF CASH FLOWS
FORTHE SIX MONTHS ENDED JUNE30, 2O(OAND 2007 (RESTATED) ANDTHE PERIOD FROM MARCHO. 2005 (DATEOF CONTRIEUTION)
THROUGH JUNE 30, 2000

(Amounts in thousands)
(Unsudited)
Period from
March 0. 2005
(Date of

Contribution)
ib rough

SIx Months Ended June 30,
2008
2007
(AS Restated See Note 2)

CASH PLOWS FROM OPERAÌ1NG ACtYfflES:
$

Net lass

June 30.
2000

(40.311)

(14.175)

$

$

(139.345)

,44tistmenstorsconrilenettosstocssh uaeddnoparst*rgecf/viffesr
233
11.107

Deprecietion and amortization
Amortization of deferred finentino fee.

Deferedllrencing fees- write off
Equity- bssedcompensedon
Change in Mlrvaiue of derivative ineinirnens - retof teaieniente

875
(963)
407

Fees peysbie io related parties
Chengeete ope'e&rgeseels .ndhebdOO'es:

Attou,tr.tebabia

257
24,614
2.494
2.156
(3,284)

3

1,012
2.494
972

(122)
-

1,257

(500)

Prepeid em panees c'od afine, curent aseste
Receivable from related parties
Cond orninlus un it developniente,tpendiiuree

(4.244)
(1.043)
(73.225)

160

Deposite and other norr-cursr* essaie
Accounts pefebe
Actounts peyetee to related perdes
Accrued interest on ong-tern, debt
Accrued empenses crei otirercurrerrtib!iities
Other long-terra tebultiee
onerosi on nate payable to affiliated entity

(154E)

1,045

iirsurente receivable

(2,018)
(6,430)
(1.280)

-

(287)
(23,850)
410

(130,489)

(f06)

(42D)
7.568

1,362

(29)

1.684

192

144

-

6.777
2,405

037
1.897

(187)
(4,070)

5.814

144

(119.30))

(22.843)

(236,244)

(1,340)
(354,090)

Nelcash used in opersting activities

(63)
(138,072)
(1.412,554)
-

(762,906)
(727.020)
(46.639)

(1,550,719)

(1,529.184)

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments (or property end equipment
Payments (Sr tonomjcdon in prooress w related perdes
Redusfions (addtiions) to restricted cash, net
Payments for basino ecquired - Ktysde Towers. LLC

370.E02

-

2324e

Nalcas h provided by (used in) investing activities

-

(2,019)

CASH FLOWS PROM FINANCING ACTIVITIES:
.
2D5.450
(1,304)
-

Proceeds ('orn the Senior Credi Feciity

FroteedefromtheSenlor SeouredCradltFatiiity
Proceeds thon, tine Second hdcnigsge Noies
Proteede from fern.inei]ot of derivative ines-immette
Cepithi conbibulione
Capitel diotributione
Payments on Eeiri'Atienflc loans

Fayrtents on Fortress Credi Corp loan
Peyrnents on Se olor C red It Pet litt.

Payments for deterred hoerrcino tees

Payments an nota psychic io afflIcted stilt)

700,000
675.000

100,000
700mOOD

079,000
1,834
725.4tO
(29,086)

1,834

404.409

(8,420)
-

(25204)

.

(49,270)
(160.000)
(70.701)
(45,013)

(100,000)
(61,309)
(48,513)

205 146

1,882,706

1.833

110,208

10,101

CASH AND CASH EOUiVALENTS - Oeginnino of period

1,575,305

1D8.D91

74cc cash provided by tinencirro activities

NET INCREASE IN CASH AND CASH EOUrs'ALENTS

0,078

115252

SUFPLEMSN'rAL CASH FLOW DISCLOSURE;

iriereetpeid during the period, netofeniounte cepitaiized
SUPFLEMENTAL DISCLOSURE 0F NONCASH iNVESTING
AND F1NANC1NCACI1VO'iES:
Lend ecqui red through contribution ofen estty underoomnnon tons-01
Lend for rond ominiurne acquired through contribution cf en entity under common

Construction In pçogregsconthbuted t an entity underconirnon control

$

11.011

5

116.308

44.910

CASH AND CASH EQUiVALENTS - End 0f psniod

5

i3O61

5

113.800

-

5

42051

S

-

S

S

-

S

S

5,814

$

Eachange of e related party note payable for e note payable 19 Sn stfilisted entity

-

S

25,68

t

12592

-

3

49013

FAIR VALUE OFASSETS ACOUINEO AND L1AEIL1TIES ASSUMED:

Lend silocated to ccndorclnium unlis under development
Lend sioceted for une 001er then es condominium Units

.

Leas. Lisbiiitiee cesura ed
CASH PAID

Trie accompanylr

CONFIDENTIAL

11.042
04.207
(49 270)
40.030

nDtos aro an integrai part Dr iheso uroudited Condensed CDnsoidSled nnonCioi staternonis.

BGD 000507

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FONTAINEBLEAU LAS VEGAS HOLDINGS, LLC AND SUBSIDIARIES
(Wholly-Owned Subsidiaries of Fontainebleau Resorts, LLC)
(A development stage enterprise)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STAtEMENTS
FOR THE SIX MONTHSENDED JUNE 30, 2008 AND 2007 (RESTATED) AND PERIOD
FROM MARCH 8,2005 (DATE CF CONTRIBUTION) THROUGH JUNE 30, 2008

-F

-e

1. ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Organization - Fontainebleau Las Vegas Holdings, LLC ('PBLV Holdings" or the "Company"),
fornierly known as TurnbenylLas Vegas Boulevard, L.P., was formed May 10, 2000, as a Nevada
limited parthership for the purpose of purchasing and developing land. On March 8, 2005, the Company
became a wholly-owned subsidiary of Fontaineblean Resort Properties I, LLC ("FBRP I") when the
ownership interests in the Company were contributed to FBRP I by Jeffiey Soffer (its majority
shareholder) in exchange for his equity interest in Fontainebleau Resorts, LLC ("Fontainebleau
Resorts"), of which FBRP Jis a wholly-owned subsidiary. Fontainebleau Resorts acts largely as a
holding company that develops, owns and operates resorts and casinos.
In April 2007, Fontainebleau Resorts reorganized to facilitate raising common equity and its ultimate
licensing under Nevada gaming and gambling laws. See Note ito the Company's consolidated
financial statements as of and for the years ended December31, 2007 and 2006 for further details on the
reorganization of Fontainebleau Resorts and prior capital contiibutions/ distributions to/from the
Company. In the six months ended June 30, 2008, Fontainebleau Resorts contributed $6 million to the
Company for the Kuystle Towers litigation settlement (see Note 8) and contributed $200 million to the
Company to fund an increase in the budget for the Las Vegas Project.
The Company is developing two parcels
referred to as the "El Rancho property" and the "Algiers
property" - which collectively approximate 24.4 acres on the Las Vegas Strip into the Fontainebleau
Las Vegas, a signature casino hotel resort with gaining, lodging, convention and entertainment amenities
(collectively, the "Las Vegas Project"). The Las Vegas Project includes a 63-story tower with
approximately 3,800 guest rooms, suites and condominium-hotel units, a 100,000 square-foot casino, a
353,000 square-foot convention center and a 60,000 square-foot spa. In addition, the Las Vegas Project
will include a 286,500 square-foot retail component with restaurants, nightclub and related amenities.

Basis ofPresentation and Consolidation - The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America. Those principies require the Company' s management to make estimates
and assumptions that affect the reponed 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. The
accompanying unaudited condensed consolidated fmancial statements include all adjustments of a
normal, recurring nature that are necessary to fairly present our consolidated results of operations,
financial position and cash flows for each period presented.
The accompanying unaudited condensed consolidated financial statements include the accounts of the
Company and all majority-owned or controlled subsidiaries and variable interest entities of which the
Company or its sübsidiaries are the primary beneficiary. All appropriate intercompany accounts and
transactions with subsidiaries, including contributions and distributions, are eliminated. However, the
financial information included herein may not necessarily be indicative of the conditions that would
have existed or the results of operations had the Company been a sepamte, stand-alone entity during the
period presented. The results for the tinee and six months ended June 30,2008 are not necessarily

-4-

CONFIDENTIAL

BGD 000508

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indicative of results to be expected for the f1111 fiscal year.

Certain information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally aecepted in the United States of America have been
condensed or omitted, although the Company believes that the disclosures herein are adequate to make
the information presented not misleading. As such, these unaudited condensed consolidated financial
statements should be read in conjunction with the Company's consolidated financial statements as of
December31, 2007 and for the year then ended.

Condominium Units In Development - In accordance with Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SPAS") No. 67, Accounfingfor Costs and
Initiai Rental Opera lions ofReal Estate Projects, condominiums units in development represents the
capitalized costs of wholly-owned real estate projects to be sold, which, at December 31, 2007 and 2006,
represents solely condominium units in the Las Vegas Project. The capitalized cost includes acquisition,
development and construction costs and includes land, direct construction and development costs,
capitalized property taxes and capitalized interest. In addition to costs that were specifically identified
as being associated with condominium units, land and certain other common area costs and amenities
were allocated using a square footage area method, the method determined by management to be the
most practical and reliable:

Preopening Costs Preopening costs are expensed as incurred, consistent with Statement of Position
98-5, Reporting on the Costs ofStart-up Activities. Preopening costs consist primarily of salaries and
wages, legal and consulting fees, sales and marketing, and travel. For all periods presented in the
accompanying condensed consolidated financial statement of operations, preopening costs relate to the
Las Vegas Project.
Development Stage Risk Factors - As a development stage enterprise, the Company has spent
significant amounts in its development activities primarily in the acquisition of land and in designing,
planning, hiring personnel for and the construction of the Las Vegas Project. As is customaiy for a
development stage enterprise, the Company has not commenced principal operations, and therefore,
there are no revenues. Consequently, the Company has incurred losses from the date of contribution to
June 30, 2008. Management expects these losses to continue at least until planned principal operations
have commenced. However, as a development stage enterprise, the Company has risks that may impact
its ability to become an operating enterprise or to remain in existence. The Company is and will be
subject to many rules and regulations in both the construction and development phases and in operating
gaming facilities, including, but not limited to, receiving the appropriate permits for particular
construction activities, securing a Nevada state gaming license for the ownership and operation of the
Las Vegas Project and maintaining ongoing suitability requirements in Nevada. The completion of the
Las Vegas Project is dependent upon compliance with these nies and regulations.

Accounting Policies Adopted During 2008 In September 2006, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SPAS") No. 157, Fair Value
Measurements, which defines air value, establishes a framework for measuring fair value in accordance
with accounting principles generally accepted in the United States, and expands disclosures about thir
value measurements. SPAS 157 applies under other accounting pronouncements that require or permit
fair value measurement. SFAS 157 does not require any new fair value measurements. The provisions of
SPAS 157 are effective for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. In January 2008, the FASB deferred the effective
date for one year for certain non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).
The Company adopted the provisions of this standard, as amended, on January 1, 2008, and such
application did not have a material effect on its financial condition, results of operations or cash flows.

CONFIDENTIAL

BGD 000509

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See "Note 6 - Fair Value Measurements" for disclosures required by this standard.
In Februai'y 2007, the FASE issued SFAS No. 159, The Fair Value Option for FinancialAssets and
Liabilities Including an Amendment of FA SB Statement No. 115. Under SFAS 159, the Company may
elect to measure many financial instruments and certain other items at thur value, which are not
otherwise currently required to be measured at fair value The decision to measure items at thur value is
made at specific election dates on an irrevocable instrument-by-instrument basis and requires
recognition of the changes in fair value in earnings and expensing upfront costs and fees associated with
the item for which the fair value option is elected. Fair value instruments for which the fair value option
has been elected and similar instruments measured using another measurement attribute are to be
distinguished on the face of the statement of financial position. SFAS 159 is effective for financial
statements beginning after November 15, 2007. The Company has adopted the provisions of this
standard and had no iteths for which to make such an election at January 1, 2008.

Recently Issu edAccounting Pronouncements - In March 2008, the FASE issued FASE Statement
No. 161, Disclosures about Derivative Instruments and Hedging Activities - an amendment ofFA SB
Statement No. 133. This statement requires enhanced disclosures about an entity's derivative and
hedging activities and thereby improving the transparency of financial reporting. SFAS 161 is effective
for financial statements issued for fiscal years and interim periods beginning after November 13, 2008,
with early application encouraged. This statement encourages, but does not require, comparative
disclosures for earlier periods at initial adoption. The Company does not believe the adoption of SFAS
161 will have a material impact on its consolidated financial statements.

2. FINANCIAL STATEMENT RESTATEMENTS
Subsequent to the issuance of the financial statements as of and for the year ended December 31, 2007,,
management detennined that the reporting of condominium units in development in previously issued
consolidated financial statements, was incorrect. Accordingly, the Company is restating its previously
issued consolidated financial statements as of December31, 2007, and for the six months ended June
30, 2007, to present condominium units in development separately from property and equipment. The
previous reporting presentation also reu1ted in the overstatement of cash flows used in investing
activities and the understatement of cash flows used in operating activities, In addition, the Company
understated equity-based compensation for the years ended December 31, 2007 and 2006 and the period
from the Date of Contribution through December 31, 2005, resulting in an understatement of prcopening
and total operating expenses, loss from operations and net loss for those periods. The effect of these
restatements on the accompanying condensed consolidated financial statements is summarized below (in
thousands):
As

Previously
Reported

Mjustments

Restated

Condensed Consolidated Balance Sheet Data
As of December 31, 2007:

Condominium units ¡n development
Property and equipment - net
Contributed capital
Accumulated deficit

CONFIDENTIAL

$
$
$
$

-

679504
492,702
(106,704)

$
$
$
$

74,700
(74,700)

$
$

731

$

(731)

$

74,700
604,804
493,433
(107.435)

BGD 000510

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 11 of
112

As
Previously
Reported

Adjustments

Restated

Condensed Consolidated Statement of Operations Data
For the Three Months Ended June 30, 2007
Preopening expense
Total operating expenses
Loss froni operations
Net loss

2164

426
426
(426)
(426)

$
$
$
$

480
480
(480)
(480)

$
$
$
$

2,643
3,495
(3,495)
(14,175)

5

(480)
672
(23,350)
(23,350)

$
$
5
$

(14,175)
972
(23,350)
(22,843)

$
5

23,350
23,350

$
5

(138,072)
(1,550,719)

$

464,489
1,534
1,575,395

$

1,738

$

$

2455

$

$
$

(2,455)
(9,455)

$
$

$
$

2,163
3,015
(3,015)
(13,695)

$
$

(13,695)
300

$
$

-

s

1,848

2,881

(2881)
(9,881)

For the Six Months Ended June 30, 2007
Preopening expense
Total operating expenses
Loss from operations

$
$

Netloss

$
$

Condensed ConsolIdated Statement of Cash Flows Data
For the Six Months Ended June 30, 2007

Netloss

$
$
$
$

Equity-based compensation
Condominium unit development expenditures
Net cash used in operating activities

Payments for construction in progress to related parties
Net cash used In Investing activities

$

Contributions
Proceeds from termination of derivative instruments
Net cash proided by investing activilies

$
$

(161,422)
$ (1,574,069)
464,681

$ 1,574,054

5
5
5

(192)
1,534
1,341

$
5

3. CONDOMINIUM UNITS IN DEVELOPMENT
Condominium units in development represents the capitalized costs of wholly-owned real estate projects
to be sold, which are classified as a long-teim asset until completed and ready for sale. These amounts
include land, direct constmction and development costs, and capitalized property taxes and interest.
The components at June 30, 2008 and December 31, 2007 were (in thousands)'
June 30, 2008
Land

$

17,456
118,045
12,424

$

17,456
50,853
6,391

$

147.925

$

74.700

Direct construction and development costs
Capitalized interest
Condominium units in development

CONFIDENTIAL

December 31, 2007

BGD Ò0051 1

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112

PROPERTY ANT) EQUIPMENT

NET

Property and equipment consisted of the following (in thousands)

June 30, 2008
Land
Leasehold improvements
Furniture, fixtures and equipment
Construction in progress (CIP)

S

December 31, 2007

131,583

$

155

155
519
472,571
604,828
(24)

1,864
903,440
1,037,042
(240)

Accumulated depreciation

131,583

Property and equipment - net

$

1,036,802

$

604,804

Capitalized interest included in OIP

$

33.865

$

12.573

The balances noted above as land and as construction in progress relate to the Las Vegas Project.
Fontainebleau J c Vegas Retail, LLC ( FR Retail") will be obligated for its portion of the cost to
construct the podium of the Las Vegas Project. At June 30, 2008 and Deòember 31, 2007, the Company
has allocated to Fontainebleau Las Vegas Retail, LLC ('PB Retail') construction in progress in
cumulative amounts of $25.2 million and $12.5 million, respectively, related to FB Retail's share of
còsts incurred for the podium of the Las Vegäs Project. The allocation is recorded as a reduction to
construction in progress and an increase to receivable from affiliated entity. The Company has classified
the receivable from FR Retail within current assets, as FR Retail will begin funding the costs in the
second half of 2008.

RELATED PARTY TRANSACTIONS AND AGREEMENTS
The Company is a wholly-owned indirect subsidiary of Fontainebleau Resorts. As of June 30, 2008,
approximately 74% of the outstanding voting interests and 59% of the outstanding economic interests in
Fontainebleau Resorts were owned or controlled, directly or indirectly by Jcfey SofTer, one of the
principals in Tumbeny, a multi-service real estate development and property, management business. The
Company and certain of its subsidiaries, as well as Fontainebleau Resorts and other subsidiaries of same,
have entered into a variety of agreements with subsidiaries and affiliates of Turnberry, certain of which
are highlighted below. See Note lito the Company's previously issued consolidated financial
statements as of and for the years ended December 31, 2007 and 2006 for further details of prior
transactions and relationships.
FBLV and its subsidiaries had $25.2 million and $12.5 million of receivables from affiliated parties at
June 30, 2008 and December 31, 2007, respectively. These totals represent a receivable from FR Retail
for FR Retail's share of the construction in progress balance related to construction of the podium in the
Las Vegas Project. The $12.7 million increase is due to progress of construction on the Las Vegas.
Project. Management believes these receivables are fully collectible.
Additionally, the Company had $1.3 million and $0.2 million of receivables from related parties at June
30, 2008 and December 31,2007, respectively. The June 30,2008 balance includes $0.9 million
representing construction-related amounts paid on behalf of Tumberry West Construction, Inc. ('TWC")
related to the Las Vegas Project. The remaining $0.4. million at June 30, 2008 and the entire balance at
December 3 1, 2007 represents construction-related payroll advanced to TWC that will not be received
until the completion of the Las Vegas Project.

CONFIDENTIAL

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Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 13 of
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Construction payables to related parties consist entirely of amounts payable to TWC for costs incurred
for the Las Vegas Project. Construction retention payable to related parties represents amounts withheld
from construction payment requests from TWC pending satisfactory completion of the work contracted.
The portion of such amounts payable within twelve months is recorded as a current liability, and the
amounts payable beyond twelve months are included in construction retention and contractor fees
payable to related parties in long term liabilities. The remainder of the long-term liability represents the
construction management fee due to TWC for the Las Vegas Project. The sum of these amounts
increased by approximately $87.6 million in the six months ended June 30, 2008, the result of increased
development and construction activities at the Las Vegas Project.
The fee payable to related parties represents a credit enhancement fee due to a Tumberiy entity for a 1%
annual credit enhancement fee that the Company will pay on the undrawn amount of the completion
guarantee.

6. FAIR VALUE MEASUREMENT
As discussed in Note ito the condensed consolidated financial statements, effective January 1, 2008, the
Company adopted the provisions of SFAS 157, which defines fhir value, establishes a framework for
measuring fair value in accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 also clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants.
Exchange traded derivatives valued using quoted prices are classified within Level 1 of the valuation
hierarchy. However, few classes of derivative contracts are listed on an exchange; thus, the majority of
our derivative positions are valued using internally developed models that use as their basis readily
observable market parameters and are classified within Level 2 of the valuation hierarchy. Such
derivatives include basic interest rate caps, interest rate swaps, and interest rate collars. In some cases
derivatives may be valued based upon models with significant unobservable market parameters. These
would be classified within Level 3 of the valuation hierarchy. As of June 30, 2008, we did not have any
Level 3 classifications. Sec Note 7 for fbrther details on the derivative instruments.
As of June 30, 2008 and December 31, 2007, all of our derivative instruments carried at fair value were
measured using Level 2 inputs. The June 30, 2008 fair values include non-current and total asset of $0.5
million, current accrued liabilities of $0.9 million and non-current liabilities of $16.5 million, equating to
total liabilities of $17.4 million. The fair value at December 31, 2007,of our derivative instruments
carried at fair value was current and total assets of $0.1 million and non-current and total liabilities of
$16.2 million.
The current carrying amounts reflected in the accompanying unaudited condensed consolidated balance
sheets for accounts receivable (including related parties), accounts payable, accounts payable to related
parties, construction payables and construction retention payable to related parties and accrued liabilities
approximate theirrespective fair values because of their short-term maturities. The Company has $675.0
million of fixed rate (10.25%) Second Mortgage Notes recorded at a book value of $675.0 million. The
fair value of this fixed-rate long-terni debt at June 30, 2008 and December31, 2007 was $445.5 million
and $587.3 million, respectively. These fäir values were measured using trading values in active markets
at the end of the reporting period based upon trading information from external sources. The carrying
amounts of variable rate long-term debt approximate their respective fair values based upon the regular
resetting of interest rates. Management's fair value estimates of the fixed rate debt also appmximatc the
canying values of such debt..

-9-

CONFIDENTIAL

BGD 000513

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112

DERIVATIVE INSTRUMENTS
The Company utilizes derivative financial instruments to manage its interest rate risk on variable interest
borrowings. Although the Company's derivative instruments are highly effective in fixing the interest
rate exposure, not all of the Company's derivative financial instruments qualify for hedge accounting
under SFAS 133, Accounting for Derivative Financial Inst nun ents and Hedging Ach vities, as amended.
For the derivative instruments that qualify, adjustments to record the fair market value of the agreements
are reflected in other comprehensive income in members' equity. For the derivative instruments that do
not qualify or axe not designated as eligible, adjustments to record the fair market value of the
agreements are reflected in unrealized loss on derivative instruments in the unaudited condensed
consolidated statement of operations. The net settlements on hedging instruments are recorded as a
receivable or a payable. At June 30, 2008 and December 31, 2007, there was a payable of $0.9 million
and a receivable of $0.09 million, respectively. The Company records settlements on derivative
instruments as an adjustment to interest expense in the unaudited condensed consolidated statement of
operations if the instrument qualifies for hedge accounting under SFAS 133. Net settlements on
derivative instruments that do not qualify under SFAS 133 are recorded as an adjustment to unrealized
loss on derivative instruments in the unaudited condensed consolidated statement of operations.
The Company's Las Vegas Credit Facility required that subsidiaries of the Company enter into hedging
transactions to limit the exposure to interest rate fluctuations. At June 30, 2008 and December 31, 2007,
the Company's subsidiaries were party to one interest rate swap with a tota! notional value of $466
million, and two interest rate collars with a total notional value accreting fmm $334 million to $884
million.

COMMITMENTS AND CONTINGENCIES

Legal Matters
Krystle Towers - FBLV II and the Company were defendants, among others, in litigation filed
March 28, 2005, in District Court, Clark County, Nevada, comprised of 35 consolidated eases in which
the plaintiffs alleged that the Company parties and certain other defendants wrongfully terminated the
plaintiffs' purchase agreements for condominium units in a condominium develoômeñt to be located on
the Algiers property. On October 30, 2007, all parties executed a settlement agreement that obligates the
parties to filly release each other and dismiss all cases with prejudice upon the payment of $6 million by
tho Company and additional consideration by non-Company defendants. The Company recorded the
expense and related liability for this settlement as of September 30, 2007 and made the payment in
January 2008. On January 30, 2008,all eases were dismissed with prejudice in accordance with the
settlement agreement.
On July 17, 2007, a separate action that was initially filed in 2005 and later dismissed, was rcfilcd
against the Company parties by another potential purchaser of a condominium unit in the defunct
condominium development. The plaintiff in this action, which was not consolidated with the other cases,
made the same claims of an equitable interest in the property and monetary damages: On February 13,
2008, the case was dismissed with prejudice upon the payment of$18,000 by the Company and
additional consideration by non.Company defendants, and the execution of MI releases by the parties.
The Company is also a party to other claims and litigation related to its business. While it is not possible
to predict with certainty the outcome of these cases, management believes that the ultimate disposition of
these matters will not have a material adverse effect on the Company's consolidated financial condition,
results of operations, or cash flows.

- 10 -

CONFIDENTIAL

BGD 000514

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 15 of
112

Turn berry Place - On July 27, 2007, some residents (the "Petitioners") of Turnbeny Place
condominium complex filed suit in Clark County District Court against the Clark County Board of
Commissioners (the "County Board") petitioning the court to set aside a special use permit granted by
the County Board allowing Fontainebleau Las Vegas to increase the height of the parking
garage/convention center complex (the "Garage Complex") at Fontainebleau Las Vegas on the basis that
the Garage Complex violated residential zoning standards. On August 9, 2007, FBLV II intervened in
the action to oppose the residents' petition. The residents have requested that the court order
construction to be halted on the Garage Complex, the special use permit be set aside, and the County
Board to set the matter for rehearing so that the residents can have adequate time to present their case to
the County Board. On October 19, 2007, the court affirmed the decision of the County Board and denied
the petition in its entirety. On or about November S, 2007, the Petitioners filed a Notice of Appeal with
the Supreme Court of Nevada. The Petitioners and the Fontainebleau Las Vegas attended a court
mandated settlement conference on February 7, 2008, but did not reach a settlement. The parties are in
the process of filing briefs with the Supreme Court of Nevada.

9. SUBSEQUENT EVENT
On July 28, 2008, FBLV entered into a lease agreement for approximately 10,500 square feet of office
space and 59,000 square feet of warehouse space as well as related parking lot space at a location near
the Las Vegas project. The lease commences August 1,2008 and runs through July 31,2013, and calls
for monthly rent of approximately $43,000 for the first year, increasing to approximately $47,000 in the
final year of the lease. The total rental commitment (exclusive of any common area or similar clwges)
is approximately $2.4 million over the life of the lease.

tt***t

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Fontainebleau Las Vegas Holdings, LLC

Management's Discussion and Analysis of Financial Condition and Results of Operations for the
Quarter Ended June 30, 2008 and June 30, 2007
The following discussion should be read in conjunction with our unaudited consolidated financial
statements and related noies for the quarter ended June 30, 2008 provided separately. This discussion
contains forward-looking statements. Forward-looking statements include, among other things,
discussions of our business strategy and expectations concerning investments, construction plans and
future operations. In some eases, you can identi' forward-looking statements by terminology such as
'may," "will,' "should," "would," "could," "believe" "expect" "anticipate" "estimate," "intend," "plan,"
"continue" or the negative of these terms or other comparable terminology. Forward-looking statements
involve risks and uncertainties including, but not limited to, our ability to complete our construction
projects on budget and on schedule, our access to capital including under our debt instruments,
competition in the resorts and casino/hotel industries, dependence on our existing management, levels of
travel, leisure and casino spending in the markets in which we will operate, our ability to add resources
and processes to improve our internal controls, general domestic or international economie conditions,
and our ability to comply with gaming regulations.
If one or more of the assumptions underlying our forward-looking statements proves incorrect,
then actual results could difihr significantly from those expressed in, or implied by, the forward-looking
statements.
Fontainebleau Las Vegas Holdings, LLC ('The Company" or "Fontainebleau Las Vegas
Holdings") owns 100% of the outstanding equity interests in Fontainebleau Las Vegas, LLC ("FBLV ),
and Fontainebleau Las Vegas II, LLC, (FBLV Il") its Operating subsidiaries, and Fontainebleau Las
Vegas Capital Corp. ("Capital Corp."). Capital Corp. was formed solely to serve as a corporate co-issuer
of the Company's Second Mortgage Notes ("notes") and will not have any operations, revenues or
material assets. FBLV Holdings is a direct wholly-owned subsidiary of Fontainebleau Resort Properties
J, LLC which in turn is an indirect wholly-owned subsidiary of Fontainebleau Resorts, LLC
("Fontainebleau Resorts").

Overview
We are a development stage enterprise whose principal asset is a 24.4-acre parcel of land located
on the Las Vegas Strip, the former site of the El Rancho Hotel and Algiers Hotel. We are developing the
property into a casino resort, consisting of hotel rooms and suites, condominium/hotel units, and meeting
and convention facilities, complemented by a spa, restaurants and entertainment offerings, referred to as
Fontainebleau Las Vegas.
We are in the process of constructing Fontainebleau Las Vegas and therefore have no revenues.
Consequently, as is typical for a development stage enterprise, we have incurred losses to date and expect
these losses to continue to increase until after we commence operations with the planned opening of
Fontainebleau Las Vegas in the fourth quarter of 2009. As Fontainebleau Las Vegas nears completion,
our losses will continue to increase as a Tesult of additional interest, legal fees and pre-opening expenses
incurred.
In April 2007, in conjunction with the offering of the notes and related financing transactions,
Fontainebleau Las Vegas Holdings was reorganized from a Nevada limited partnership (formerly known
as Tumberry/Las Vegas Boulevard, L.P.) into a Nevada limited liability company. At the same time,
FBLV changed its name (formerly known as Tumberry/Las Vegas Boulevard, LLC) and FBLV II
changed its name (formerly known as Krystle Towers, LLC).

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On June 6, 2007, Fontainebleau Resorts and its subsidiaries, including Fontainebleau Las Vegas
Holdings, completed a series of financing transactions for Fontainebleau Las Vegas and a construction
project in Miami Beach, Florida, referred to in this section as the Miami Project, as well as funding for
Fontainebleau Resorts' overhead. The financing had several components as various Fontainebleau
Resorts' affiliates borrowed funds and raised equity contributions through private placements.

Fontainebleau Resorts and its affiliate ("Fontainebleau Equity") together raised $565.0 million in
gross proceeds from the issuance of common and pay-in-kind preferred equity in private placement
transactious. Fontainebleau Equity holds all of the economic interest in Fontaineblean Resorts.
Subsidiaries of Fontainebleau Resorts obtained commitments for $3.6 billion in bank, mezzanine and
bond debt, of which $1.9 billion was drawn at closing, including with respect to the Miami Project. At the
same time, Fontainebleau Resorts and its subsidiaries paid transaction fees and retired substantially all
debt in place prior to such finaneings. From the $565.0 million in gross proceeds from the equity
issuances, Fontainebleau Resorts contributed $370.0 million to Fontainebleau Las Vegas Holdings.
At the close of the financing transactions, Fontainebleau Las Vegas Holdings utilized the $370.0
million in equity received from Fontainebleau Resorts to repay $150.7 million of the prior senior credit
fucility, repay a $45.8 note payable to an affiliated entity, fund a $50.0 million liquidity reserve, fund
$43.7 million of construction payables and fund $42.7 million in financing fees. At the clos;
Fontainebleau Las Vegas Holdings received proceeds from the offering of the notes of $658.1 million,
net of fees, and $700.0 million from the senior credit facility described below.

In-process Restatement of Previously Issued Financial Statements
Subsequent to the issuance of our audited consolidated financial statements as of and for the year
ended December 31, 2007, management determined that the reporting of condominium units was
incorrect. The error resulted from inclusion of the cost of condominium units developed for resale within
property and equipment. Upon review, management determined that accounting principles generally
accepted in the United States (GAAP) require us to disclose the costs related to developing condominium
units separately from property and equipment on the balance sheet and that expenditures for
condominium development be classified under cash flows used in operations rather than cash flows used
in investing activities on the statement of cash flows.
As more fully discussed in footnote 2 of the accompanying financial statements, these errors are
primarily classification in nature and have nQ effect on total assets, total liabilities, total members equity
and change in cash and cash equivalents on the statement of cash flows. However, in performing
restatement procedures, management identified additional errors.
The Fontainebleau Las Vegas resort is mixed-use in nature, incorporating condominium-hotel
units, hotel guest rooms, casino and retail. Proper allocation of development costs among these
components is complex and requires significant judgment and expertise. The accompanying firiancial
statements incorporate management's initial estimates of the condominium unit reclassifications.
Management is working diligently with externalS auditors and experts to finalize the allocation and other
items.

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Results of Operations
Quarter Ended June 30, 2008 compared to the quarter ended June30, 2007
For the quarter ended June 30, 2008, we had a net loss of $22.2 million, an increase of$ 12.3
million from a net loss of $9.9 million in the 4uarter ended June 30, 2007. Pre-opening costs for the threemonths ended June 30, 2008 were $4.7 million, an increase of $2.5 million from the $2.2 million incurred
in the three-months ended June 30, 2007. Pre-opening expense is primarily composed of salaries and
wages, professional fees, sales and marketing expenses and travel costs. The largest increase in pre
opening expense was in professional services comprising legal, accounting, marketing, recruitment and
consulting, which increased by $1.7 million, from $0.lmillion in 2007.
General and administrative expenses consisting entirely of legal fees were $0.2 million for the
three-months ended June 30, 2008, representing a decrease of $0.5 million from the $0.7 million incurred
in the three-months ended June 30, 2007.
Interest expense for the three-months ended June 30, 2008 was $26.7 million, an increase of
$17.2 million from the $9.5 million incurred for the three-months ended June 30, 2007. The increase in
interest expense was caused primarily by an increase in debt. Long-term debt during the second quarter of
2007 was $150.0 million until the June 6,2007 refmancing when it increased to $1.4 billion. Long-term
debt at the end of the second quarter of 2008 was $1.4 billion. Interest expense was reduced by capitalized
interest on construction in progress. Capitalized interest was $15.0 million and $3.5 million for the
quarters ended June 30, 2008 and 2007, respectively. The increase in capitalized interest for the threemonths ended June 30, 2008 was caused by the incitase in construction activity in the first quarter of
2008 compared to the same period in 2007. As of June 30, 2008, the combined construction in progress
and condominium units in development balance was $1.1 billion compared to $234.0 million as of June
30, 2007.
Interest income for the three-months ended June 30, 2008 was $5.1 million, an increase of $0.3
million from the $4.8 million earned for the three-months ended June 30, 2007. Interest is earned
primarily on the restricted cash balances established at the closing of the fmancing transactions in June
2007. Restricted cash totaled $727.6 million as of June 30, 2008. The restricted cash balance was
established at $1.4 billion upon completion of the June 6, 2007 financing transactions.
We utilize derivative financial instruments to manage interest rate risk on variable interest
borrowings Although the derivative instruments are highly effective in fixing the interest rate exposure,
not all of the derivative financial instruments qua1iï for hedge accounting under the Financial
Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Financial Instruments and Hedging Activities" ("SFAS 133"), or have
been designated as effective hedging instruments under SFAS 133. For the derivative instruments that
qua1i, adjustments to record the fair market value of the agreements are refleáted in other
comprehensive income in members' equity. For the derivative instruments that do not quali' or are not
designated as eligible, adjustments to record the fair market value of the agreements are reflected in
unrealized gain or loss on derivative instruments in the consolidated statement of operations. At June 30,
2008, the fair value of the derivative financial instruments was a long-term liability of $16.5 million. The
net settlements on hedging instruments are recorded as a receivable or a payable. At June 30, 2008, there
was a payable of $0.9 million and at June 30, 2007 a receivable of $0.0 million. Settlements on derivative
instruments are recorded as an adjustment to interest expense if the hedge instrument qualifies under
SFAS 133. Net settlements on derivative instruments that do not qualify under SFAS 133 are recorded as
an adjustment to unrealized gain or loss on derivative instruments.

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Unrealized gain or loss on derivative instruments net of settlements was a loss of $4.4 million and
$0.1 million, respectively, for the quarters ending June 30, 2008 and 2007.
Loan fee amortization expense, which is included in interest expense for the three-months ended
June 30,2008, was $6.0 million, an increase of $5.0 million from the $1.0 million incurred in the threemonths ended June 30,2007. The higher loan amortization fees in the current period were primarily
because of the financing transactions entered into in June 2007, During 2007, we incurred $61.4 million
in financing fees primarily related to the financing transactions entered into in June 2007 and wrote off
$2.5 million of unamortized financing fees on previously existing debt that was retired.

Six Months ended June30, 2008 compared to the six months ended June30, 2007.
For the six months ended June 30, 2008, we had a net loss of $49.3 million, an increase of
$35.1 million from the net loss of $14.2 million in the six months ended June 30, 2007.
Pre-opening costs in 2008 were $7.9 million, an increase of $5.3 million from the $2.6 million
incurred in 2007. Pre-opening expense is primarily composed of salaries and wages, legal and consulting
fèes, sales and marketing and tmveFcosts. Salaries and wages were $4.1 million, an incitase of $2.1
million from $2.0 million in 2007. Professional fees comprising legal, accounting, marketing,
recruitment and consulting were $2.6 million an increase of $2.5 million from $0.1 million in 2007.
Salary and wages increased because of additional hiring of employees.
General and administrative expenses for the six months ended June 30, 2008 were $0.7 million, a
decrease from the $0.9 million incurred in the prior six month period. The decrease in general and
administrative expenses was from lower legal fees.
Interest expense for the six months ended June 30, 2008 was $55.4 million, an increase of $43 .2
million from the $12.2 million incurred for the six months ended June 30, 2007. The increase in interest
expense was primarily from an increase in debt. Long-terni debt during the six months ended June 30,
2007 was $150.0 million until the June 6 2007 refinancing when it increased to $1.4 billion. Interest
expense was reduced by capitalized interest on construction in progress. Capitalized interest was $26.7
million and $4.5 million for the six months ended June 30, 2008 and 2007, respectively. The increase in
capitalized interest for the six months ended June 30, 2008 was caused by the increase in construction
expenditures during the six months. During 2008, the combined construction in progress and
condominium units in development balance increased from $547.3 million to $1.1 billion. During the six
months ended June 30, 2007, the combined construction in progress balance increased from $42.8 million
to $234.0 million.

Interest income forthe six months ended June 30, 2008 was $13.9 million, an increase of $9.0
million from the $4.9 million earned in 2007. The increase is primarily from earnings on the restricted
cash balances established at the closing of the financing transactions in June 2007. Restricted cash totaled
$727.6 million as of June 30, 2008. The restricted cash balance was established at $1.4 billion upon
completion of the June 6 2007 financing transactions.
We utilize derivative financial instruments to manage our interest rate risk on variable interest
borrowings. Although the derivative instruments are highly effective in fixing the interest rate exposure,
not all of the derivative financial instruments quali for hedge accounting under SFAS 133 or have been
designated as effective hedging instruments under SFAS 133. For the derivative instruments that quali',
adjustments to record the thir market value of the agreements are reflected in other comprehensive
income in members' equity. For the derivative instruments that do not qua1i' or are not designated as
eligible, adjustments to record the für market value of the agreements are reflected in unrealized gain or

CONFIDENTIAL

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loss on derivative instruments in the consolidated tatement of operations. At June 30, 2008, the fair value
of the derivative financial instruments was a long-term liability of $16.5 million. At June 30, 2007, there
were no derivative instruments. The net settlements on hedging instruments are recorded as a receivable
or a payable. At June 30, 2008 there was a payable of $0.8 million. Settlements on derivative instruments
are recorded as an adjustment to interest expense if the hedge instrument qualifies under SPAS 133. Net
settlements on derivative instruments that do not qualify under SFAS 133 are recorded as an adjustment
to unrealized gain or loss on derivative instruments.
For the six months ended June 30, 2008 and 2007, unrealized gain or loss on derivative
instruments net of settlements was a loss of $1.0 million and $0.1 million, respectively.
Loan fee amortization expense, which is included in interest expense, for the six months ended
June 30, 2008 was $11.2 million, an increase of $9.6 million from the $1.6 million incurred in the prior
six months. The higher loan antortization fees were primarily because of the financing transactions
entered into in June 2007. During 2007, we incurred $61.4 million in financing fees primarily related to
the financing transactions entered into in June 2007 and wrote off $2.5 million of unamortized financing
tèes on previously existing debt that was retired.

Liquidity and Capital Resources

Cash Flows Operating Activities
Cash used in operating activities was $119.3 million for the six-months ended June 30, 2Q08,
compared to $22 8 million provided by operating activities for the comparable prior-six month period.
The increase in cash used primarily relates to a $49.3 million net loss and $73.2 million in condominium
development expenditures offset by a source of cash increases of $11.6 million in reconciling adjustments
and $8.4 million of changes in operating assets and liabilities. The increased losses in the 2008 period
relate to $55.4 million of interest expense as a result of new and additional debt issuances, and $7.9
million in pre-opening expenses offset by a $1 3.9 million in interest income (earned on invested cash
from the new debt). The reconciling adjustments increase was driven by the June 2007 financing as
amortization of deferred financing costs of$ll.0 million. The most substantial change in operating assets
and liabilities pertained to higher levels of accrued interest, driven by the new financing.

As of June 30,2008 and 2007, we had balances of cash and cash equivalents of$ll8.3 million
and $11.5 million, respectively. Working capital was $14.6 million at June 30, 2008 and $0.6 million at
June 30, 2007.. The June 30, 2008 cash and equivalents includes $109.5 million in funds to be used in
construction. As a development stage enterprise relying on financing to support operations, the working
capital balance may be negative from time to time as our source of funds will be from long-tent debt.
Current construction payables and construction retention payables totaled $125.3 million and
$33.1 million at June 30, 2008 and 2007, respectively.

Cash Flows Investing Activities
Cash used in investing activities was $23.2 million for the six months ended June 30, 2008,
comparedto $1.6 billion in the prior six month periód. For the six months ended June 30, 2008, cash used
in investing activities was net of $355.0 million used in payments for construction in progress and $379.6
million provided from restricted cash. For the six months ended June 30, 2007, cash used in investing
activities was $138.1 million of payments forconstruction in progress and $1.4 billion of restricted cash.

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Cash FlowsFinancing Activities
For the six months ended June 30, 2008 and 2007, cash provided by financing activities was
$204.1 million and $1.6 billion, respectively. For the six months ended June 30, 2008, cash for fmancing
activities was provided predominately from affiliated entities. For the six months ended June 30, 2007,
Fontainebleau Las Vegas Holdings, Fontainebleau Resorts and their respective subsidiaries completed a
series of financing transactions for the projects in Las Vegas and Miami, as well as for funding for
Fontainebleau Resorts' operations.
We are in the process of constructing Fontainebleau Las Vegas and do not generate sufficient
cash flow to fund our activities. We have been dependent on Fontainebleau Resorts and affiliated entities
and financing activities to hind our operations.
As a development stage enterprise, our capital requirements have increased each six months to
hind pre-opening expenses and support development activities. Since March 8, 2005, the date of
contribution, through June 30, 2008, we had received net contributions of $699.6 million from
Fontainebleau Resorts and affiliates. We recorded these funds as contributed capital.

Overview of Expected Capital Resources and Capital Contributions
We believe that the hinds available to us from the Las Vegas Credit Facility (as defined below),
together with the proceeds front the issuance of the notes, which we have expended, and capital
contributions made to us to date from our affiliates, will be sufficient to design, develop, construct, equip,
finance and open Fontainebleau Las Vegas and to pay interest on borrowings under the Las Vegas Credit
Facility and the notes until the scheduled opening of Fontainebleau Las Vegas in the fourth quarter of
2009, assuming no significant delay costs, construction cost overruns or budget increases and the
continued availability of fUnds under credit facilities, as described below. Based on fUedback from our
general contractor, we increased the construction budget for Fontainebleau Las Vegas by approximately
$200.0 million due to change orders, scope modifications, completion of design documents and other
prospective capital expenditures On June 24, 2008, Fontainebleau Resorts and its subsidiaries contributed
$200.0 million of cash to us as a capital contribution. The capital contribution permitted the Company to
remain in compliance with its financing agreements.
In connection with the financing and development of the approximately 286,500 square-foot
Fontaineblean retail component which is integrated into Fontainebleau Las Vegas, Fontainebleau Las
Vegas Retail, LLC (:Las Vegas Retail"), a subsidiary of Fontainebleau Resorts, obtained an $85.0
million mezzanine loan and a $315.0 million senior retail construction loan. The entire mezzanine facility
was funded at close and approximately $125.4 million was funded under the construction facility. Both
facilities were underwritten by Lehman Brothers Holdings, Inc. and the construction facility was partially
syndicated to third party lenders. Of the total $400.0 million retail credit facilities, approximately $83.0
million has been dedicated towards shared construction costs in the Las Vegas podium. The Company
began drawing for the shared costs in August 2008. On September 16, 2008, Lehman Brothers filed for
bankruptcy. At this time, it remains uncertain whether Lehman Brothers will continue funding its
remaining obligation under the retail construction facility. We have been working diligently with
Lehman Brothers and the co-lenders to the facility to ensure that there is no interruption in funding for the
retail facility. The Company has received indications from the co-lenders to the facility that they intend
to fund any potential Lehman Brothers shortfall on an interim basis. The Compthy will continue
working on a permanent solution if one becomes necessary. There can be no assurances that Lehman
Brothers will fund all or any portion of its remaining obligation under the retail construction facility, or
that the co-lenders will fund any Lehman Brothers shortfall in funding and a failure to fund the retail loan
could ultimately result in a default under our other financing arrangements, including the Las Vegas
Credit Facility.

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Following completion of Fontainebleau Las Vegas, we expect to fund our operations, capital
requirements and interest on outstanding borrowings from operating cash flow and borrowings under the
revolving portion of the Las Vegas Credit Facility. If completion of the project is delayed, then our debt
service obligations accming prior to the actual opening of Fontainebleau Las Vegas will increase
correspondingly. We cannot assure you that our business will generate sufficient cash flow from
operations or that future borrowings available to us under the Las Vegas Credit Facility will be sufficient
to enable us to service and repay our indebtedness and to fund our other liquidity needs. We may need to
refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be
able to refinance any of our indebtedness, including the Las Vegas Credit Facility or the notes on
acceptable terms or at all. We are highly leveraged and any future cash flow may not be sufficient to meet
our obligations, including our obligations under the notes.
The current general economic conditions have adversely affected Nevada and the Las Vegas
casino industry in particular and may continue through the planned opening of Fontainebleau Las Vegas
in the fourth quarter of 2009, which could adversely affect our ability to generate sufficient cash flow to
sustain our operations and service our indebtedness.
A description of each of the Las Vegas Credit Facility, notes and disbursement agreement
is summarized below.

Las Vegas Credit Facility
On June 6, 2007, Fontaineblcau Las Vegas, LLC and Fontainebleau Las Vegas H, LLC, which
are collectively referred to below as the Borrowers, entered into a $1.85 billion senior secured credit
facility, comprised of an $800.0 million revolving credit fucility, a $700.0 million senior secured term
loan facility funded at the closing and a $350.0 million senior secured delay draw tent loan facility
(collectively, the "Las Vegas Credit Facility"). The Las Vegas Credit Facility provides for interest on
each component of the facility to be at LIBOR plus a margin of 3.25%. This margin will remain in effect
until after the second full quarter after the opening date of Fontainebleau Las Vegas, subject to adjustment
for the pace of condominium sales. Commencing with the three-month period beginning May 1, 2009, the
interest rate described above may be increased by up to 0.75% if the Borrowers axe unable to meet certain
performance targets related to the sales of condominium-hotel units. Based on current condominium sales
projections, we expect the Las Vegas Credit Facility to bear interest at LIBOR plus a margin of 4.00%
beginning May 1, 2009. The $800.0 million revolving credit facility will mature in June 2012.

Borrowings under the delay draw term loan facility will be available for twenty-four months after
the closing of the Las Vegas Credit Facility. The funded senior secured term loan and the senior secured
delay draw term loan facilities will require quarterly principal repayments commencing on the last day of
the fiscal quarter in which the one-year anniversary of the opening of Fontainebleau Las Vegas occurs,
until the seventh anniversary of the closing of the Las Vegas Credit Facility when the balance of each
loan will be due
The Las Vegas Credit Facility requires mandatory repayments under certain conditions, including
from the net proceeds of asset sales, loss proceeds, subordinated debt issuances, the proceeds from the
sale of condominium units and excess cash flow after the opening of Fontainebleau Las Vegas, as
determined by the total leverage ratio.
The Las Vegas Credit Facility required the Borrowers to enter into hedge agreements to be at
least three years in tenure and equal to 75% (or, on and after December31, 2009, 50%) of the anticipated
maximum amount borrowed as reasonably determined as of the date of initial effectiveness of the
required hedge agreement. As of December 31, 2007, the Borrowers had entered into hedging

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transactions in accordance with the Las Vegas Credit Facility.
Loans under the Las Vegas Credit Facility are secured by, subject to specified permitted liens,
first priority liens on substantially all our, the Borrowers and the other restricted entities' existing and
future assets, except for the remaining net proceeds of the old notes offering, the Fontainebleau retail
component (other than the air rights comprising our leasehold interest in the retail and restaurant space
that we will lease in the Fontainebleau retail component of the Las Vegas Pròject, as defined below, and
gaming licenses and other assets in which the grant of a security interest is prohibited by law.
Fontainebleau Resorts and Fontaincbleau Resorts Properties I have guaranteed the obligations under the
Las Vegas Credit Facility. The guarantees of Fontainebleau Resorts and Fontaineblean Resort Properties I
are unsecured.

The Las Vegas Credit Facility contains certain financial ratios and other financial covenants with
which we will have to comply, including, among other things, a maximum first lien leverage ratio, a
maximum total leverage ratio and a minimum fixed charge coverage ratio. The first time that a ratio is
required to be measured is as of the second quarter of 2010. After the opening of Fontainebleau Las
Vegas, we are required to make mandatory prepayments equal to a certain percentage of our excess cash
flow, as determined by the total leverage ratio, and payable semi-annually. We and the Borrowers are also
subject to covenants, including delivery of financial statements and limitations on use of proceeds and
condominium proceeds. We and the Borrowers were in compliance with these covenants as of June 30,
2008 and December31, 2007.
Subject to specified exceptions, the Borrowers have the option to prepay all or any portion of the
indebtedness under the Las Vegas Credit Facility at any time without premium or penalty.

At June 30, 2008, the fiñl amount of the $800.0 million revolving credit facility and the $350.0
million senior secured delay draw term loan were available to borrow, subject to compliance with
applicable terms and conditions. Interest and bank fees related to the Las Vegas Credit Facility are paid
from the $700.0 million senior secured term loan. At June 30, 2008, the remaining proceeds of the senior
secured temi loan were $657.4 million. At June 30, 2008, the interest rate on the term loan was 5.9%.
Our ability to borrow under the Las Vegas Credit Facility is subject to various conditions
precedent. In addition to other customary conditions to finding for these types of facilities, our ability to
obtain disbursements of proceeds of the credit facilities for payment of construction costs will be subject
to the following conditions. We, along with Turnberry West, our general contractor, the lenders'
independent construction consultant and certain other third parties, must certi':
as to various matters regarding the progress of construction;
as to the conformity of the portions of the project then completed with the plans and
specifications;
that Fontainebleau Las Vegas will be opened by the scheduled opening dite, which may
be extended in accordance with the disbursement agreement, but not beyond March 31,
2010, except for certain limited permitted extensions due to force majeure events;
the construction of Fontaincbleau Las Vegas must be "in balance," meaning that the
undísburscd portions of the equity funding account, note proceeds account, and the Las
Vegas Credit Facility and Fontainebleau Retail's retail financing transaction (to the
extent allocated to the podium), together with the balances in various construction
accounts, letters of credit and cash amounts supporting the obligations of the completion
guarantor, and certain other funds available to us, must equal or exceed the remaining
costs to complete the construction of Fontainebleau Las Vegas, including the hard costs

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associated with the podium, plus a required minimum unallocated contingency, required
minimum cash liquidity reserve and required minimum excess revolver availability; and
our general contractor must have entered into subcontracts by certain dates in respect of
specified percentages of the total hard costs of Fontainebleau Las Vegas.
We cannot assure you that we will be able to satisfy the conditions to funding at the time
disbursements or drawdowns are required to make payments of our construction costs. Satisfaction of
various conditions is subject to the discretion of our lenders under the Las Vegas Credit Facility and their
consultants and therefore may be beyond our control.
The Las Vegas Credit Facility contains customary events of default, subject in some cases to
applicable notice provisions, grace periods and certain exceptions, including the fuilure to make payments
when due, defaults of certain instruments of' indebtedness, loss of, or defäults under, other material
agreements, loss of material licenses or permits (including gaming licenses), failure to open
Fontainebleau Las Vegas by March 31, 2010 (subject to extension as a result of events of loss or force
majeure), failure to complete Fontainebleau Las Vegas within a specified time following the opening of
Fontainebleau Las Vegas (subject to available extensions), noncompliance with covenants, material
inaccuracies of representations and warranties, bankruptcy, judgments in excess of specified amounts,
ERISA matters impairment of security interests in collateral and change of control. Events of dethult will
apply to the Las Vegas Restricted Group and, in some cases, to Fontainebleau Resorts, Fontainebleau
Resort Properties I and TRLP.

Second Mortgage Notes
Fontainebleau Las Vegas Holdings and Fontainebleau Capital Corp. issued $675.0 million
aggregate principal amount of 10.25% Second Mortgage Notes due June 15, 2015 pursuant to a private
placement transaction consummated in June 2007. The net proceeds of $658.1 million from the issuance
of the old notes were deposited into a note proceeds account for the construction of Fontainebleau Las
Vegas. Interest is payable semi-annually in arrears on June 15 and December 15, commencing on
December 15, 2007.
At any time before June 15, 2010, Fontainebleau Las Vegas Holdings and Fontainebleau Capital
Corp. may redeem up to 35% of the outstanding notes at a price of 110.25% plus accrued interest from
the net proceeds of one or more qualified equity offerings. Subsequent to June 15, 2011, Fontainebleau
Las Vegas Holdings and Fontáinebleau Capital Corp. may redeem all or some of the outstanding notes at
apremium of 5.125%on or after June 15, 2011,2.563% on or after June 15, 2012 and zero on or after
June 15, 2013, plus accrued interest.
The notes are secured by a first priority lien on the remaining net proceeds of the old notes
offering until the remaining net proceeds are released from the note proceeds account in accordance with
the disbursement agreement. The notes are also secured by a second priority lien on substantially all the
other existing and Mure assets of Fontainebleau Las Vegas Holdings and its subsidiaries, excluding the
equity interests in such subsidiaries and subject to certain other exceptions. The notes are effectively
subordinated to Fontaineblean Las Vegas Holdings' and Fontainebleau Capital Corp.'s obligations under
the Las Vegas Credit Facility.
The notes are guaranteed by Fontainebleau Las Vegas, LLC and Fontainebleau Las Vegas II,
LLC, and these guarantees are secured by a second priority lien on the assets of these subsidiaries.
Fontainebleau Resorts and Fontainebleau Resort Properties I guarantee the notes on an unsecured basis.
At June 30, 2008, $20.2 million was remaining to be disbursed from the note proceeds account,

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representing the remaining proceeds from the issuance of the notes. Subsequent to June 30, 2008, the
remainder of the flinds in the note proceeds account has been disbursed from the note proceeds account as
part of the normal monthly fünding process.

Disbursement Agreement
Fontainebleau Las Vegas Holdings and its subsidiaries, along with Fontainebleau Las Vegas
Retail, LLC entered into a disbursement agreement with Bank of America, as the bank agent, Wells Fargo
Bank, National Association, as the notes trustee, Lehman Brothers Holdings, Inc., as the retail agent, and
Bank of America, N.A. as the disbursement agent. The disbursement agreement sets forth the material
obligations to develop, construct and complete Fontainebleau Las Vegas, and Fontainebleau Las Vegas
Retail, LLC's obligation to develop, construct and complete the Fontainebleau retail component of
Fontainebleau Las Vegas. The disbursement agreement establishes the conditions to, and the relative
sequencing of, the making of disbursements from the proceeds of the equity contributions, the Las Vegas
Credit Facility, loans obtained by Fontainebleau Las Vegas Retail, LLC, referred to throughout this
section as the retail loans, and the notes. It also establishes the obligations of the bank agent, the retail
agent and the disbursement agent to make disbursements of loan proceeds from the bank proceeds
account arid the retail flinding account and the obligation of the notes trustee to release fluids from the
note proceeds account upon satisfhction of such conditions. The disbursement agreement also sets forth
the mechanics for approving change orders and amendments to the project budget and the schedule for the
construction period. Finally, the disbursement agreement includes certain construction-related
representations, warranties, covenants and events of dthult common to the Las Vegas Credit Facility, the
retail loans and the notes indenture. Under the disbursement agreement, the proceeds of the Las Vegas
Credit Facility, the retail loans and the old notes offering will only be permitted to be used to pay or
reimburse prior payments for project costs related to Fontainebleau Las Vegas and the Fontainebleau
retail component and, to the extent contained in the budget and subject to certain limitations, corporate
overhead and related costs.
The disbursement agreement contains various affinnative covenants with which Fontainebleau
Las Vegas Holdings and its subsidiaries are obligated to comply, such as: use of the proceeds, delivery of
certain financial statements and reports, and maintenance and compliance with required insurance
policies. The disbursement agreement also requires compliance with negative covenants. These covenants
limit Fontainebleau Las Vegas Holdings' ability to: enter into new material project documents that
increase the construction budget without complying with the procedures for amending the project budget,
provided that increase is flmded by savings in other line items of the budget or by additional equity
contributions; require that the Fontaineblean Las Vegas budget remains "in balance," which means that
Fontainebleau Las Vegas Holdings may not permit on two consecutive scheduled advance dates all
amounts available pursuant to our funding sources that are permitted under the disbursement agreement to
be in an amount that is less than the amount sufficient to pay all remaining costs to complete
Fontainebleau Las Vegas. Fontainebleau Las Vegas Holdings was in compliance with these covenants as
of June 30, 2008.

Restrictions on Activities of Fontainebleau Las Vegas Capital Corp.
Fontainebleau Capital Corp. will not hold any material assets, hold any equity securities, incur
any material indebtedness, become liable for any material obligations, engage in any material business
activities or have any subsidiaries. However, Fontainebleau Capital Coq,. may be a co-obligor with
respect to indebtedness if Fontainebleau Las Vegas Holdings is a primary obligor of such indebtedness
and the net proceeds of such indebtedness are received by Fontainebleau Las Vegas Holdings or one or
more of its wholly owned restricted subsidiaries other than Fontainebleau Capital Corp.

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Retail Development
The Fontainebleau retail component is a separate air rights parcel with respect to approximately
286.500 square feet of rentable area in Fontainebleau Las Vegas and will be initially leased and
eventually owned by Fontainebleau Las Vegas Retail, LLC, a subsidiary of Fontainebleau Resorts. We
will sublease approximately one-third of the Fontainebleau retail component from Fontainebleau Las
Vegas Retail, LLC for the operation of restaurants, a marquee nightclub and related amenities.
Fontainebleau Las Vegas Holdings and its subsidiaries and Fontainebleau Las Vegas Retail, LLC have
entered into a master lease agreement along with mutually acceptable reciprocal easement agreements
governing the use of the Fontainebleau retail component and the other portions of Fontainebleau Las
Vegas. Fontainebleau Las Vegas Retail, LLC will finance certain costs of the podium of Fontainebleau
Las Vegas and the Fontainebleau retail component from $400.0 million of proceeds from a combination
of debt offerings. Up to $195.0 million of the proceeds is to be used for costs of construction of the
podium, tenant allowances, tenant improvements and lease commissions and interest expenses, fees and
other expenses related to the Fontainebleau retail component, and the remaining $205.0 million was
upstreanwd to Fontainebleau Holdings, a wholly-owned subsidiary of Fontainebleau Resorts. See
"Overview of Expected Capital Resources and Capital Contributions" above.

Condominium-Hotel Unit Deposits
Initially we projected aggregate net sales proceeds of approximately $700.0 million from the sale
of our approximately 1,000 condominium-hotel units, of which we expected $75.0 million would be
available to be bonded and used towards budgeted costs during the construction period prior to the
opening of Fontainebleau Las Vegas. Since that time, the market for condominium-hotel units in Las
Vegas has weakened generally and this has had an adverse effect on the timing and pricing of sales in this
market. We cannot predict the extent or duration of the weakening of the Las Vegas market for sales of
condominium-hotel units or the severity of the effect of this weakening on our future sales. However, the
degree of weakening of demand and the period of time that such conditions exist could have a material
adverse effect upon the amounts or timing of aggregate net sales proceeds we receive from the sale of our
units, as well as the amounts of deposits that we are able to bond and use for budgeted costs prior to the
opening of Fontainebleau Las Vegas. Our current estimates with respect to the expected deposits from the
sale of these units may ultimately be incorrect, and the actual deposits could differ materially from such
estimates. In addition, we may be unable to bond any deposits received from the sale of our
condominium-hotel units in accordance with local law, which may result in our not being able to use any
deposits from such sales towards the construction costs for Fontainebleau Las Vegas.

Off-Balance Sheet Arrangements
We have not entered into any derivatives except for interest rate swaps and collars. For a
description of our derivatives see footnotes to the consolidated financial statements of Las Vegas
Holdings for the six months and the quarter ended June 30, 2008, respectively. We do not have any
retained or contingent interest in assets transferred to an unconsolidated entity.

Related Parties
The consolidated financial statements of Fontainebleau Las Vegas Holdings reflect various
transactions with related parties. Transactions with related parties, by their nature, may involve terms or
aspects that differ from those that would have reulted from negotiations with independent third parties.
For a description of related parties see the footnotes to the consolidated financial statements of Las Vegas
Holdings for the six months and the quarter ended June 30, 2008.

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Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as
interest rates, foreign currency exchange rates and commodity prices, Our primary exposure to market
risk is interest rate risk associated with the Las Vegas Credit Facility, which will bear interest based at
floating rates. We will attempt to manage our interest rate risk by managing the mix of our long-term
fixed rate borrowings and variable borrowings. We obtained interest rate protection through interest rate
swaps and collars with respect to 75% of anticipated borrowings under the Las Vegas Credit Facility
through June 30, 2009, to be reduced to 50% of such borrowings thereafter. The hedging agreements
entered into during 2007 have reduced our exposure to interest rate increases. However, we cannot assure
you that these risk management strategies will have the desired effect, and interest rate fluctuations could
have a negative impact on our results of operations. Based on June 30, 2008 debt levels and the risk
management strategies in place, an assumed 100 basis point change in LIBOR would not significantly
impact our annual interest cost.
We do not use derivative financial instrwnents, other financial instruments or derivative
commodity instruments for trading or speculative purposes.

Inflation
We believe that our results of operations do not depend upon moderate changes in the
inflation rate.

Critical Accounting Policies and Estimates for Fontainebleau Las Vegas Holdings, LLC
The consolidated financial statements of Fontainebleau Las Vegas Holdings and its subsidiaries
were prepared in conformity with accounting principles generally accepted in the United States. Those
principles require our management to make estimates and assumptions that affect reported amounts and
related disclosures. Management identifies critical accounting estimates as:
those that require the use of assumptions about matters that are inherently and highly uncertain at
the time the estimates are made;
those estimates where, had we chosen different estimates or assumptions, the resulting
differences would have had a material impact on our financial condition, changes in financial
condition or results of operations; and
those estimates that, if they were to change from period to period, likely would result in a
material impact on our financial condition, changes in financial condition or results of operations.
These estimates require that management apply significant judgment in defining the appropriate
assumptions based upon historical experience, terms of existing contracts, industry trends and information
available from outside sources. Management evaluates those estimates on an ongoing basis by reviewing
expected trends and from industry experience and adjusts the assumptions utilized as necessary.
Based upon management's discussion of the development and selection of these critical accounting
estimates, we believe the following accounting estimates involve a higher degree ofjudgment and
complexity.

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Development, Construction and Property and Equipment Estimates
As of June 30, 2008, the Company had property and equipment, net of accumulated depreciation
of $1.0 billion and $147.9 millionth condominium units in development, thé combined total represents
56.2% of total assets. Of the total, $903.4 million represents construction in progress on the Las Vegas
Project.
The Company and its subsidiaries are capitalizing interest costs associated with the
construction of Fontainebleau Las Vegas as part of the cost of the constructed assets. Capitalization
of interest will cease when each project is substantially complete or construction activities are no
longer underway. Capitalized interest is amortized over the estimated useful life of the related
assets.
Dining the period of the construction of Fontainebleau Las Vegas direct costs such as those
expected to be incurred for the design and construction of the hotel and casino will be capitalized.
Accordingly, we expect the recorded amounts of property and equipment to increase significantly.
Depreciation expense related to the capitalized construction costs will not be recognized until the
related assets are put in service. Accordingly, upon completion of construction and commencement
of operation of Fontainebleau Las Vegas, with respect to Fontainebleau Las Vegas Holdings and its
subsidiaries, depreciation expense recognized based on the estimated useful lifè of the
corresponding asset will have a significant effect on the results of our operations. The remaining
estimated useful lives of assets are periodically reviewed.
Management evaluates property and equipment and other long-lived assets for impairment
in accordance with SFAS 144, Accounting for the Impairment or Disposal ofLong-Lived Assets.
For assets to be disposed of the Company recognize the asset at the lower of canying value or fair
value less costs of disposal, as estimated based upon comparable asset sales, solicited offers or a
discounted cash flow model. For assets to be held and used, management reviews for impairment
whenever indicators of impairment exist. Then the estimated future cash flows of the asset, on an
undiscounted basis, is compared to the carrying value of the asset. If the undiscounted cash flows
exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not
exceed the carrying value, then an impairment is recorded based on the fuir value of the asset,
typically measured using a discounted cash flow model. If an asset is still under development,
future cash flows include remaining eonstmction costs. All recognized impairment losses, whether
for assets to be disposed of or assets to be held and used are reconled as operating expenses.

Pre-Opening Costs
During the construction and development of a resort, pit-opening or start-up costs are
expensed when incurred: Pre-opening expense is primarily composed of salaries and wages, legal
and consulting fees, sales and marketing and travel costs. With respect to the Las Vegas Project
and Fontaineblean Las Vegas, it is expected that the Company will incur significant pre-opening
expenses until opened.

Insurance Accounting
The Company has insurance coverage related to damage from the collapse of a portion of the
Fontainebleau Las Vegas garage in the third quarter of 2007. Estimated losses were recognized as a
receivable from the insurance carrier. Losses are expected to be recovered as part of the insurance
coverage during the time of the garage collapse.

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Derivative Instruments

The Company is party to derivative instrumentsinterest rate swaps, collars, and caps related
to its long-term debt, through subsidiaries and accounts for derivative instruments in accordance with
FASB Statement No. 133. The estimated Thir values of derivative instruments represent the estimated
amounts that the party would receive or pay to terminate the contracts. The fair value of these derivative
instruments is estimated using "Level 2" inputs under SFAS No. 157, Fair Value Measurements.
Fair Value HierarchySPAS No. 157 requires disclosure about how ir value is determined for assets
and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on
significant levels of observable or unobservable inputs. Observable inputs reflect market data obtained
from independent sources, while unobservable inputs reflect the Company's market assumptions. This
hierarchy requires the use of observable market data when available.
These two types of inputs have created the following fair-value hierarchy:

Level 1Quoted prices for identical instruments in active markets.
Level 2Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and modelderived valuations in which all significant inputs and significant value drivers are
observable in active markets.
Level 3Valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are unobservable
Determination of Fuir Value - The Company generally uses quoted market prices (unadjusted) in
active markets foridentical assets or liabilities that the Company has the ability to access to determine fbir
value, and classifies such items in Level 1. Fair values determined by Level 2 inputs utilize inputs other
than quoted market prices included in Level i that are observable for the asset or liability, either directly
or indirectly. Level 2 inputs include quoted market prices in active markets for similar assets or liabilities,
and inputs other than quoted market prices that are observable for the asset or liability. Level 3 inputs are
unobservable inputs for the asset or liability, and include situations where there is little, if any, market
activity for the asset or liability.
If quoted market prices are not available, thir value is based upon internally developed valuation
techniques that use, where possible, current market-based or independently sourced market parameters,
such as interest rates, currency rates, etc. Assets or liabilities valued using such internally generated
valuation techniques are classified according to the lowest level input or value driver that is significant to
the valuation. Thus, an item may be classified in Level 3 even though there may be some significant
inputs that are readily observable.
Exchange traded derivatives valued using quoted prices are classified within level I of the
valuation hierarchy. However, frw classes of derivative contracts are listed on an exchange; thus, the
majority of our derivative positions are valued using internally developed models that use as their basis
readily observable market parameters and are classified within level 2 of the valuation hierarchy. Such
derivatives include basic interest rate caps, interest rate swaps, and interest rate collars. In some eases
derivatives may be valued based upon models with significant unobservable market parameters. These
would be classified within level 3 of the valuation hierarchy. As of June 30, 2008, we did not have any
level 3 classifications.

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Derivative instruments are recognized as assets or liabilities, with changes in fair value affecting
net income (loss) or comprehensive income (loss) as applicable.
Equity-Based Compensation
SFAS 123R, Share-Based Payment, establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods and services or incurs a liability in exchange
for goods and services that are based on the thir value of the entity's equity instruments or that may be
settled by the issuance of those equity instruments. Jt requires an entity to measure the costs of employee
services received in exchange for an award of equity instruments based on the grant-date Thir value of the
award and recognize that cost over the service period. Fontainebleau Resorts adopted this statement under
the modified prospective method and uses the Black-Scholes valuation model to value the equity
instruments issued. Management uses assumptions of expected volatility, risk-free interest rates, the
expected term of options gmñted, and expected rates of dividends and determines these assumptions by
reviewing current market rates, making industry comparisons and reviewing conditions relevant to us.
Fontainebleau Resorts accounted for the portion of equity grants awarded and vested prior to the adoption
of SFAS 123R according to Accounting Principies Boaixl Opinion No. 25, Accounllngfor Stock Issued to
Employees.

Internal Controls and Procedures for Fontainebleau Resorts, LLC and Fontainebleau Las Vegas
Holdings, LLC
In preparing the financial statements ft)r the three-months ended March 31, 2008, Fontainebleau Resorts
inconeetly recorded the cost of sales related to condominium sales at the Fontainebleau Miami Beach,
resulting in an overstatement of the gross profit recognized upon the sale of condominiums and an
understatement of real estate under development. In preparing intemal financial statements for the six
months ending June 30, 2008, we and Fontainebleau Resorts determined that the reporting of
condominium units in development in previously issued financial statements was incorrect in the balance
sheet and statement of cash flows. Condominium units in development were reclassified from property
and equipment to condominium units in development and certain cash flows used in investing were
reclassified to cash flows used in operating activities, In preparing internal financial statements for the
year ending December 31, 2007, we and Fontainebleau Resorts noted an overstatement of capitalized
interest and the failure to accrue credit enhancement fees for the period from June 6, 2007 to September
30, 2007.

In conjunction with the preparation of financial statements forte three month period ended June
30, 2008, and with the audits of our and Fontainebleau Resorts' consolidated financial statements for the
year ended December 31, 2007, we, Fontainebleau Resorts and our independent registered publie
accounting firm identified deficiencies in our and Fontainebleau Resorts' internal controls, which were
deemed to be material weaknesses. A material weakness, as defined under standards established by the
Public Company Accounting Oversight Board, is a significant deficiency, or combination of significant
deficiencies, that results in more than a remote likelihood that a material misstatement of the financial
statements will not be prevented or detected by an entity's internal control over financial reporting.
As of December 31, 2007, we and Fontainebleau Resorts did not have sufficient accounting and
financial reporting personnel to mitigate the risk of reporting and accounting for inaccurate fmancial and
non-financial data. As a result, entries for construction in progress, capitalized financing fees and the
related amortization, capitalized interest, and deferred rent were adjusted during the audit process. We
and Fontainebleau Resorts also did not have sufficient general computer controls over the process of
installing and testing computer systems, and the security controls concerning system access and

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appropriateness of access was not adequate.

We are in the process of remedying the deficiencies noted. This process of adopting and
implementing procedures to improve our and Fontainebleau Resorts' internal controls is continuing.
Additional accounting and financial personnel have been hired through June 30, 2008, with additional
personnel hired in the third quarter of 2008. If the remedial procedures we and Fontainebleau Resorts
expect to adopt and implement prove to be insufficient to address our significant deficiencies and material
weaknesses, we and Fontainebleau Resorts may ful to meet our future reporting obligations, our financial
statements may contain material misstatements and our operating results may be impacted. A failure to
meet our future reporting obligations could result in an event of dethult under the credit fucilities and the
indenture governing the notes.
We cannot assure you that significant deficiencies or material weaknesses in our or Fontainebleau
Resorts' internal controls over financial reporting will not be identified in the future. Any failure to
maintain or implement required new or improved controls, or difficulties we encounter in their
implementation, could result in additional significant deficiencies or material weaknesses, cause us to fail
to meet our future reporting obligations or cause our financial statements to contain material
misstatements. A failure to meet our future reporting obligations could result in an event of defhult under
the credit facilities and the indenture governing the notes.

CONFIDENTIAL

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a

Fontainebleau Resorts, LLC
and Subsidiaries
Unaudited Condensed Consolida ted Financial Statements as of
June 30, 2008 and December 31, 2007 (Restated), and for the
Three and Six Months Ended June 30, 2008 end 2007 (Restated)

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FONTAINEBLEAU RESORTS, LLO AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE30, 2008 AND DECEMBER 31,2007 (RESTATED)
(In thousands except unit date)
(Unaudltad)

June90 200e

December 31, 2007

ASSETS

As Restaled -

OJRRENT ASSETS:
Cash and cash equivalents
St4ler depaslts In escrow
Restricted cash
Accounts receivable, net
Insurance receivabte
Receivables from related partIes
InventorIes
Propeld expenses and otherculTerlt essaIs
CondominIum unils held for suie
lota' current eeaete

See Note 2
$

$

1,561

34,898
23,336

6004

1,810
3,276
1,448
104
1,510

48,248
243,898

66,381

2,017
3.377
137

CONDOMINIUM UNITS IN DEVELOPMENT

147,925

Total oilier non-current assets

1026,966

788,507
62,317
337
46,629
13,672
62,020
973,592

OTHER NON-CURRENT ASSETS
RestrIcted cash, non-current
Deferred finenclng rees
Recelvab!es from related parttee
Other Intangible easels, net
Deposite and other non-current assets
Goodwill

220,089

1,647,107

PROPERTYAND EQUIPMENT - NET

TOTALASSETS

172.710
9.088
756

1139,519
75,287
237
46,807
5,012

62020
1,328,882

S

3012592

$

Z642,318

$

13,097
525

S

5,068
-

9,767
1,507
80.082
15,838
9,241
15,024
60,704
3,314
2,548
71,779

239,762

269,804

2,141,340
64,497
4,999
266,308

2,049,739
39,033
2,687

1,981

291ES

1,853
29,597

2,508,206

2,122,909

2,748048

2,392,713

LIABILIIIES AND M6MBERS' EQUITY
CURRENT LIABILITIES:
Accoults payable
AccoLaits payable to related peales
Construction payables to releled parties
Construction retanton payable to related parties
Accrued Interest
Accrued expenses
Ewer deposit IlsbBty
Condominium Unit guarantee payable
Other curent liabilitIes
Current portion of long-term debt

141,401

38,984
8,956
12,970
16,172

2568

Total current liatahitles

LCNG-TERM LIABILITIES:
Long-lerm debt, net or current porticn
Construction retenton and contractor fees payable to related parties
Fees payable to related partIes
Deferred gain (Note 2)
Other long-term lIabilities
Fair value of derwative Instruments
Total long-term lIabilities

TOTALLIABILITIES

-

COMMITMENTS AND CONTINGENCIES (Note 9)
MINORITY INTEREST

52,401

MEMBERS' EQUITY
Members' equity (75,000,000 Senes A non votng units auThorized, issued and otaslanding as of June
30,2008 and December 31,2007)
Members' equity (68,394,500 SerIes S vofing unts authorized, Issued and outslatdlng as or June 30,
2008 end December31, 2007)
Preferred units (190,
units authoçized and redemptIon value of $211,822 as of June 30, 200E and
5205,760 as or December 31, 2007)
ConE'ibuled capital
Accumulaled danois
Accumulated other comprehensIve loss

-

210,171
503,273
(475,977)
(25,394)

212,073

Total members' equity
TOTAL UAE1L1T1ES AND MEMBERS EQUITY

$

197,129
443,731
(366,274)

249,605

3,012522

124.961)

S

264231E

The accompanying notes ere an Integral part of these taisudited condensed consolidated financIal statements

CONFIDENTIAL

BGD 000533

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FONTAINEBLEAU RESORTS, LLC AND SUBSIDIARIES
CONDENSED CONSOUDATED STATEMENTS OF OPERATIONS
FOR 'THE THREE AND SIX MONTHS ENDED JUNE 30,2008
(In thousands)
(Unaudited)

Three Months Ended June 30,
2008

Six Months Ended June 30,
2008

2001

2007

REVENUES:

Saie ofoendominlum units

$

16370

$

-

$

123,148

$

5,400

4,605

12,589

12,714

663

680

1,490

1,675

Retail

27

31

53

84

Other

2,456

605

3,224

1,346

24,916

5,921

140,504

15,819

Hote'

Food and beverage

Total revenues

OPERATING EXPENSES:

Costofsalesof condominium units

14,565

-

109,563

Hotel

4,994

4,718

10,839

11,5)

Food and beverage

1,526

1,123

2,786

2,402

Retail

52

26

199

64

Other

698

359

1,249

736

8,232

5,505

15,354

10,159

11,584

20,805

19,348

26,459

Ganera!endadminiutravo
Corporate

Gain on sale of operating assets
Preopening

(112)

(200)

Depreolalion and annrtation

(200)

554

744

(112)

8,477

2,139

5,139

2,643
1,057

35,127

168,966

54,909

(22,418)

LOSS FROM OPERATIONS

1,381

47,334

Total operating expense

(29,206)

(28,492)

(39,090)

NON-OPERATING (INCOruE) EXPENSES:
Interest income

(6,494)

(5,563)

40,127

24,075

85,543

(281)

(5,811)

(16,348)

Interest expense - net of capilalized interest

(1,025)

37,612

Unrealized gah on derivative instrunients - net of
settiemenls

(11,738)

Detened financing fees - nite off

TotaLnon-operaùngoeqenses
NET LOSS BEFORE MINORITY INTEREST

NEI LOSS

(223)

3,643

(I)

Other

MINORITY INTEREST

-

(20)

(I)

(45)

21,894

21,654

66,169

35,176

(44,312)

(51,060)

(96,661)

(74,268)

45

(44,267)

45

$

(51,060)

$

(96,616)

$

(74266)

The accompanying notes are an integral pari ofthese unaudted condensed consolithted financial statements

CONFIDENTIAL

6GO 000534

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112
FONTAINEBLEAU RESORTS. LLC ANO SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR 'THE THREE AND SIX MONTHS ENDED JUNE 30,2008 AND 2007 (RESTATED)
(in thousands)
(Unaudited)
Six Months Ended June 30,
2003

2007

As Restated See Note 2

CASH FLOWS FROM OPERATING ACTIVITIES:
Nat loss
Adjustments to ,sconcíle net loss to net cas/, used in cpeisting actMties:
Depreciation and amortizslion
Amortization of detened financing fees
Amortizatton of condominium unit guarantees
Deterred financing fees - write cfi
Equity-based compensalion
Change in market velue or derivative instnjntenta - nei of settiaments
Change in derivative instrument liability
Cosi or salesa! condominIum units
Rasetve for doubtful accounts
Appiication of buyerdeposits
Gain on saies of assets
Deferred gain on saie of interests in Fiortda 1-toidings
interest paid Ei kind
Fees paysbie to related parties
Ch anges in operating assets and liabilities:
Accounts receit able. net
Insurance recaivabie
ReceIvables from relatad parties
Inventories
Prepeid expenses and othercunent assets
Condominium unit deveiopment expenditures
Deposits and other non-cun'ent assets
Accounts payabie
Accounts payabie to related parties
Accrued interest
Accrued expenses
Buyer deposits sabirity
Other current Debilites
Accrued bonuses
Condominium unit guarantee payable
Other long-term lIabilities
Deferred Income

$

(96.616)

S

(14,266)

I 050
5092

1,382
16,474
282

960
3.643

-

II 354

3,248
(1,025)
(837)
109,563

(223)

(7)
(112)
-

-

14,248
(200)
282,500
11,201
2,312

1897
-

249
1,257
(2,028)
(33)
(4.g80)
(85,647)
(8.853)
3,320
(982)
(265)
(2,054)
(44,532)
2,541

(458)
(37)
15

(197)
(58,834)
572
4,634
827

8850

(2.227)
235
(1.130)

(0894)

-

-

(746)

sos

627

-

180272

(104.410)

(2.777)
(508.420)
970
350.156
(160.077)

Nat cash usad in operating activities

(434)
(187,146)

CASH flOWS rROM INVESTING ACTIVITiES:
Payments for properly and equipment
Payments (arconstruclion in progress to related parties
Proceeds from aaie of property
Reductions (actdiliona) to restricted cash
Net ossh used in investing activities

-

112

(1.436.570>
(1.624,038)

CASH floWs FROM FINANCING ACTIVITI5S:
Proceeds tram the Miami Senior Credit Factties
Proceeds from the Scotis loan
Proceede from the Pnidentlai loan
Proceeds from the Miami Mezzanine loan
Proceeds from the Las Venas Senior Credit Fscltty
Proceeds from the Second Mortgage Notes
Proceeds from the Retal Senior loan
Proceeds from the Mezzanine Retail loan
Proceeds from the PIK preferred private placement
Proceeds from the senlorcredit facility
Proceedt from buyer deposits avaiiabie for construction
Proceeds from termination or derivative instruments
Proceeds from related party
Contributiona
Payments to raiatea party
Payments of the soffer preferred unit
Payments on Prudenlial loan
Payments on Scotia loan
Payments on Senior Credit Faclities
Payments on Senior Credit Facltties
Payments for detened financing fees
Nat cash provided by financing activities

40090

700 000
675,000
125,400
85.000
t 82 .965

80,400

85 360
2,051
3 500
43,072
361,287
(43,872)
(45,813)
(199.099)
(150.000)
(339.039)
(85,657)

112,500

-

(78,784)
-

(3,504)
117,817

NET INCREASE IN CASH AND CASH EQUIVALENTS

1773891

137,812

CASH ANO CASH EQUiVALENTS - BegInnIng of period

CASH AND CASH EQUiVALSNTS - End of ported

280.629
19,525
32.500

7,005

45.443

34,598

749

S

172.710

S

46,192

interest paid during the perIod, neto! amounts captalized

$

54429

5

40050

Amount of preferred unit dividend

S

'3.042

$

I 64g

SUPPLEMENTAL DISCLOSURES OF NONCASH iNVESTING AND FINANCING AC'flVITIES:

The accompanying notas ere an integral part or these unaudited condensed consolidated financial stataments

CONFIDENTIAL

BGD 000535

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FONTAINEBLEAU RESORTS, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2007

1.

ORGANIZATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Organization - Fontainebleau Resorts, LLC ("Fontainebleau Resorts" or the "Company"), a Delaware
limited liability company, was formed February 16, 2005. As of June 30, 2008, approximately 74% of the
outstanding voting interests in the Company and 59% of the outstanding economic interests were owned or
controlled directly or indirectly by Jeffrey Soffer, one of the principals in Tunibeny, a multi-service real estate
development and property management business. In April 2007, Fontainebleau Resorts reorganized to
facilitate raising common equity and its ultimate licensing under Nevada gaming and gambling laws. See Note
ito the Company's previously issued and restated consolidated financial statements as of and for the years
ended December31, 2007 and 2006 for further details on the reorganization of Fontainebleau Resorts.
Business - Fontainebleau Resorts acts largely as a holding company and, through wholly-owned
subsidiaries, develops, owns and operates resorts and casinos. The Company, in conjunction with a U.S.
affiliate of Nakheel PJSC (see Note 3), owns and operates the Fontainebleau Miami Beach in Miami
Beach, Florida and independently is developing the Fontainebleau Las Vegas in Las Vegas, Nevada.
The Fontainebleau Miami Beach (the "Miami Property") consists of two hotel towers and two
condominium-hotel towers located on an approximately 18.8 acre site on Miami Beach. The two hotel
towers - the 539-room Chateau (referred to as FR I), and the 307-room Versailles tower (referred to as
FR IV) - comprise the original Fontainebleau Hotel (collectively, the 'PB I Towers"). The Trésor
(completed in 2005 and referred to as FE II) is a 37-story condominium-hotel tower with 462 junior, onebedroom, two-bedroom and penthouse suites. The Sorrento (completed in January 2008 and referred to as
FE III) is an 18-story condominium-hotel tower with 286 junior and one-bedroom suites. Each
condominium owner at FB II and FB ifi has the option to enter his or her unit into a rental program that
provides the owner with the opportunity to share in the rental revenue from that unit.
In March 2006, the Company suspended operations of the Chateau and Versailles towers to renovate
substantially all of the property (the "Florida Project"). The Florida Project consists of refurbishing the
Miami Property that will include a larger spa, additional restaurants, and entertainment offerings. The
florida Project and the FB III construction are referred to as the "Resort Projects."

The Company is also developing two parcels - referred to as the "El Rancho property" and the "Algiers
property" - which collectively approximate 24.4 acres on the Las Vegas Strip into the Fontainebleau Las
Vegas (the "Las Vegas Property) , a signature casino hotel resort with gaming, lodging, convention and
entertainment amenities (collectively, the "Las Vegas Project"). The Las Vegas Project includes a 63-story
tower with approximately 3,800 guest rooms, suites and condominium-hotel units, a 100,000 square-foot
casino, a 353,000 square-foot convention center and a 60,000 square-foot spa. In addition, the Las Vegas
Project will include a 286,500 square-foot retail component with restaurants, nightclub and related
amenities.
The Company is subject to many risks, mies, and regulations during the construction and development
phases and will be subject to additional regulatory oversight when it operates gaming facilities. This
includes, but is not limited to, obtaining and maintaining the various constmction permits in both Miami
and Las Vegas and securing a Nevada gaming license required to own and operate the planned casino in
Las Vegas. The completion of these projects is dependent upon compliance with these rules and
regulations.

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Basis of Presentation and Consolidation - The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America. Those principles require the Company's 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates. The
accompanying unaudited condensed consolidated fmancial statements include all adjustments of a normal,
reriing nature that axe necessary to fhirly present our consolidated results of operations, financial
position and cash flows for each period presented.
The accompanying unaudited condensed consolidated financial statements include the accounts of the
Company and all majority-owned or controlled subsidiaries and variable interest entities of which the
Company or its subsidiaries are the primary beneficiary. All appropriate intercompany accounts and
transactions with subsidiaries, including contributions and distributions, have been eliminated in
consolidation. However, the financial information included herein may not necessarily be indicative of the
conditions that would have existed or the results of operations had the Company been a separate, standalone entity during the periods presented. The results for the three and six months ended June 30, 2008 are
not necessarily indicative of results to be expected for the full fiscal year.
Certain information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America have been
condensed or omitted, although the Company believes that the disclosures herein are adequate to make the
information presented not misleading. As such, these unaudited condensed consolidated financial
statements should be read in conjunction with the Company's consolidated financial statements as of
December31, 2007 and 2006 and for the years then ended.

Sign jflcant Accounting Policies

Buyer Deposits in Escrow and Buyer Deposit Liability - As customers execute a condominium unit
purchase agreement, a deposit of at least 10% is tendered. The Company records the deposit as buyer
deposits in escrow, with a corresponding buyer deposit liability. The interest earned on these 10% deposits
is recognized as earned, but recorded as buyer deposits in escrow until available to be withdrawn. In
certain instances, interest rate riders were offered to condominium buyers as an incentive to encourage
accelerated deposits on FB III. The incentive consisted of an offer to accrue interest at rates between 5%
and 6% on the balance of the deposits through the date of closing. The interest accrued pursuant to the
interest rate riders is available to the buyer and will reduce the amount due from the buyers at closing. The
accrued interest is recognized as part of interest expense in the accompanying condensed consolidated
statements of operations. The Company recorded the aggregate amount of buyer deposits and interest rate
riders accrued as a current liability as of June 30, 2008 and December 31, 2007 based on the January 2008
completion date of FB ifi.
Under the terms of the condominium unit purchase agreements, buyer deposit amounts that exceed 10% of
the purchase price of each condominium may be used towards the construction costs (and are classified
within cash flows from financing activities, whereas the initial deposits of 10% or less axe classified within
cash flows from operating activities on the accompanying condensed consolidated statements of cash
flows).
The following table outlines the buyer deposit liability (which includes interest earned under the interest
rate rider), the amounts used for construction costs, and the remaining amount held in escrow (in
thousands):

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December31, 2007

June 30, 2008

Buyer deposit liability
Amount used for construction

$

16,172
(7,084)

$

60,704
(37,368)

Buyer deposits in escrow

$

9,086

$

23,336

Restricted Cash - Restricted cash consists primarily of certain proceeds of the Company's financing
activities restricted by agreements governing the payment of certain construction and development costs
relating to the Resort Projects and the Las Vegas Project The table below outlines the components of
restricted cash at June 30, 2008 and December 31, 2007 (in thousands)

Docombor3l, 2007

Juno 30 2008

Senior Secured Term Loan proceeds
Second Mortgage Notes proceeds
Las Vegas Project liquidity reserve

$

$

681548

20,239
50,000
30,000
756

Total restricted cash related to the Las Vegas Project
FB Ill profit reserve
Miami Mezzanine lender reserve
FB Ill condominium sales proceeds
Letterof credit
Florida equity proceeds

1,107,213

18638

Construction draw

375,667
50,000

758376

Letter of credit

25,000
7,306

5,161
5,973
1,203
15

30,987

Total restricted cash
Restricted cash - current

$

32,306

789,363
756

Total restricted cash related to the Miami Project

Restricted cash - non current

657,381

1,139,519

788,607

1,139,519

-

$

Condominium Sales - Construction of FB ifi was completed in January 2008, at which time the allocated
and direct costs of constructing the units was transferred front condominium units in development to
condominium units held for sale. Closings of the W HI condominium units commenced in Febmaiy 2008.
As closings occur, buyer deposits in escrow are applied, the Company recognizes revenue and profit in
accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 66, Accounting for Sales ofReal Estate, and condominium units held for sale is
relieved by and cost of sales is recognized in accordance with SFAS No. 67, Accounting for Costs and
Initial Rental Operations ofReal Estate Projects. The principal due on the loan from the Bank of Nova
Scotia (the "Scotia Loan") was $71.8 million as of December 31, 2007, which was repaid, in addition to
$7.0 million of additional borrowings, in its entirety in April 2008 using proceeds from the closing of
condominium unit sales.

Preopening - Preopening costs are expensed as incurred, consistent with Statement of Position 98-5,
Reporting on the Costs ofStart-up Activities. Preopening costs consist primarily of salaries and wages
(including equity-based compensation), legal and consulting fees, sales and mariceting, and travel. For the
periods presented in the accompanying condensed consolidated financial statement of operations, all
preopening costs related to the Las Vegas Project.

Accounting Policies Adopted During 2008 In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements, which defines fair value, establishes a framework for measuring fair value in

CONFIDENTIAL

BGD 000538

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accordance with, accounting principles generally accepted in the United States, and expands disclosures
about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or
permit fair value measurement. SPAS 157 does not requite any new fair value measurements. The
provisions of SFAS 157 are effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. In January 2008, the FASS deferred the
effective date for one year for certain non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The
Company adopted the provisions of this standard, as amended, on January 1, 2008, and the adoption of
SFAS 157 did not have a material effect on its financial condition, results of operations or cash flows. See
"Note 7 - Fair Value Measurements" for disclosures required by this standard.

In February 2007, the FASB issued SPAS No. 159, The Fair Value Option for FinancialAssets and
Liabilities Including an Amendment of FA SB Statement No. 115. Under SPAS 159, the Company may elect
to measure many financial instruments and certain other items at fair value, which are not otherwise
currently required to be measured at fair value. The decision to measure items at fair value is made at
specific election dates on an irrevocable instrument-by-instrument basis and requires recognition of the
changes in fair value in earnings and expensing upftont costs and fees associated with the item for which
the fair value option is elected. Fair value instruments for which the fair value option has been elected and
similar instruments measured using another measurement attribute are to be distinguished on the face of
the statement of fmancíal position. SPAS 159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. The Company adopted
the provisions of this standard on January 1, 2008, and the adoption did not have a material eact on its
financial condition, results of operations or cash flows.

Recently IssuedAccounting Pronouncements - In December 2007, the FASB issued SFAS No.160,
"Noncontrolling Interest in Consolidated Financial Statements, an amendment ofARB No. Si." This
statement establishes accounting and reporting standards for ownership interest in subsidiaries held by
parties other than the parent and for the deconsolidation of a subsidiary. It also clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. SPAS 160 changes the way the consolidated
statement of operations is presented by requiring consolidated net income to be reported at amounts that include the amount attributable to both the parent and the noncontrolling interests. The statement also
establishes reporting requirements that provide sufficient disclosure that clearly identi' and distinguish
between the interest of the parent and those of the noncontrolling owners. This statement is effective for
fiscal years beginning on or after December15, 2008. The adoption of SPAS No.160 is not expected to
have a material impact on the Company's financial position, results of operations or cash flows.
In March 2008, the FASB issued SFASNo.161, "DisciosuresAbout Der! vasi ve instruments and Hedging
Activities, an amendment ofSFAS No.133". SFAS 161 is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to
better understand their effects on an entity's financial position, financial performance, and cash flows. This
statement is effective for fiscal years beginning after November 15, 2008. SPAS 161 is not expected to
have a material impact on the Company's financial position, results of operations or cash flows.
2.

FINANCIAL STATEMENT RESTATEMENTS
In the second quarter of 2008, management determined that the reporting of condominium units in
development and condominium units held for sale, in previously issued consolidated financial statements,
was incorrect. Also, management determined that the reporting of allocated and direct costs of certain
common area amenities was incorrect. Accordingly, the Company is restating its previously issued
consolidated financial statements as of December 31, 2007 and for the six months ended June 30 2007 to
present condominium units in development separately from property and equipment and to correct the

CONFIDENTIAL

SGD 000539

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allocation of common area amenities. The previous reporting presentation resulted in an understatement of
condominiums in development and a corresponding overstatement of property and equipment in the
December 31, 2007 condensed consolidated balance sheet. The previous reporting presentation also
resulted in the overstatement of cash flows used in investing activities and the understatement of cash
flows used in operating activities. In addition, cash flows provided by financing activities were overstated
for proceeds from buyer deposits that were not part of the financing ffinds available for use in development
of the aforementioned condominium units. The change in the balances of buyer deposits in escrow was
also misclassified as cash flows from investing activities instead of as cash flows from operating activities.
These corrections had no effect on total assets, total liabilities, and members' equity (deficit) in the
accompanying condensed consolidated balance sheets nor any portion of the accompanying condensed
consolidated statements of operations, and had no efièct on the amount of cash and cash equivalents in the
accompanying condensed consolidated fmancial statements.
Additionally, management initially recorded a purchase price adjustment to the Company's purchase of the
Miami Property as an increase to goodwill in the consolidated balance sheets as of June 30 and September
30. 2007, instead of recording the amount as an increase to construction-in-progress. Management also
recorded the termination of a derivative instrument as a source of cash within the deposits and other longterm assets in cash flows fiom operating activities instead of presenting the proceeds within cash flows
from financing activities. Accordingly, the Company is restating its previously issued condensed
consolidated financial statements as of and for the six months ended June 30 2007 to properly present the
Miami purchase price adjustment and termination of the derivative contract. Both of these items were
properly presented in the Company's financial statements as of and for the year ended December 31, 2007.
The effect of these restatements on the accompanying condensed consolidated financial statements is
summarized below:
As Previously
Reported

Adjustments

As Restated

Condensed Consolidated Balance Sheet Data
As of December31, 2007:
Condominium units in development

Property and equipment-net

$
$

-

1247055

$
$

220089
(220,089)

$
$

220,089
1,026,966

Condensed Consolidated Statement of Operations Data
For the Three Months Ended June 30, 2007

1738
35236

Preopening
Total operating expense
Loss from operations

$
$
$

Netloss

$

(29315)
(51066)

$
$
$

54,997
(39178)

$

(74,251)

$
$
$
$

401
(109)
109

$
$

2139
35127
(29206)

6

$

(51,060)

$
$

455

$

(86)
86
(15)

$

2,643
54,909
(39,090)
(74,266)

$

For the Six Months Ended June 30, 2007
Preopening
Total operating expense
Loss from operations
Net loss

CONFIDENTIAL

2188

$
$

$
$

BGD 000540

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 41 of
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As Previously
Reported

Adjustments

As Restated

Condensed Consolidated Statement of Cash Flows Data
For the Six Months Ended June 30, 2007

Netloss

$

Equity-based oempensation
Condominium unit development expenditures

$

Buyer deposit liability

$

Net cash used in operating activities

$
$
$
$

$

(74,251)
11,301
(41,831)

Payments for oenstniclion in progress to related parties
Net cash used in investing activities

$
$

(243,550)
(1,680,546)

$

Contilbutions
Proceeds from buyer deposits available for censtrucfion
Net cash provided by financing activities

$

361,325
2,286
1,767,820

$

$

$
$

$

$

$
$

(15)

$

53
(58,634)
235
(62,579)

$

$

(74,266)
11,354
(58,634)
235
(104,410)

56,404
56,508

$
$

(187,145)
(1,624,038)

(38)
(235)
6,071

$

361,287

$
$

2,051
1,773,891

$
$

3. FONTAINEBLEAU FLORIDA HOLDINGS, LLC TRANSACTION
On April 9, 2008, a wholly-owned indirect subsidiary of the Company and Nakheel Hotels FB US Miami
LLC, ("Nakheel") entered into a limited liability company agreement for Fontainebleau Nakheel Miami
SV, LLC (the "Miami Joint Venture"), a 50/50 joint venture for the Miami Property. On April 9, 2008, the
Company contributed 100% of its interests in Fontainebleau Florida Holdings, LLC ("Florida Holdings"),
the owner of the Miami Property, to the Miami Joint Venture and Nakheel contributed $375.0 million in
cash. Of the cash contributed by Nakheel, $112.5 million remained at the Miami Joint Venture and $262.5
million was distributed to the Company and, combined with the Company's $3.8 million of negative basis
in Florida Holdings, was recorded as a deferred gain.
In acconlance with the provisions of Financial Interpretations No. 46R, Variable Interest Entities, the
Company determined that the Miami Joint Venture is a variable interest entity and that Fontainebleau
Resorts, through certain subsidiaries, is the primary beneflciaiy of the operating results of the Miami Joint
Venture. Under the transaction agreements, from April 9, 2008 through the substantial completion date of
the Florida Project, gains and losses of the Miami Joint Venture are allocated 98% to the Company and 2%
to Nakheel. After the substantial completion date, gains and losses are allocated pro rata among the
Company and Nakheel in accordance with their percentage ownership interests. In addition to the
Company having substantial continuing involvement in the construction and operations of the Miami
Property, the Company has made construction completion and debt guarantees to Nakheel. The results of
operations, financial position and cash flows of the Miami Joint Venture are included within the unaudited
condensed consolidated financial statements of Fontainebleau Resorts. The Company will reassess the
requirements to consolidate the Miami Joint Venture upon completion of the Florida Project and upon
changes in the terms of the management agreement discussed below.
Fontainebleau Resort Manager, LLC ("FB Resort Manager"), a wholly-owned and indirect subsidiaiy of
the Company entered into a management agreement with the Miami Joint Venture for the Miami Property
with a temi of 30 years. The compensation for FB Resort Manager's management services is a
management fee equal to 3% of gross revenues and 1.5% of third party revenue of the Miami Property's
operations and an incentive fee of approximately 10% of operating income. There are no amounts accrued
or payable under the management Agreement through December 31, 2014. The deferred management fees
are considered to be included as a component of the deferred gain. Because of the uncertainty in

-9-

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calculating the net present value of estimated fees to be earned by FB Resort Manager, no separate
recognition of the deferred management fee has been made. Management fees wilt be recognized as
income when earned by reducing the deferred gain described above.
Other contingent adjustments to capital contributions include, but are not limited to, the following:

If legislation permitting gaining at the Miami Property is passed by December31, 2012, subject to
certain conditions, the Company will receive additional contingent consideration of $75.0 million or
$90.0 million depending whether slot gaming or slot and table gaming is permitted, respectively.
The Company will receive additional capital contributions of $20.0 million from Nakhcel if the net
income of the Miami Joint Venture is at least $93.2 million for the year ending December 31, 2012.
The Company will make a repayment to Nakheel of $50.0 million if legislation permitting gaming
is not passed by December31, 2012, subject to certain conditions.
The Company will pay Nakheel up to $10 million as part of a rental participation guarantee that the
condominiumihotel rental participation will notbe less than 88% as of January 1,2013.
The Company will pay liquidated damages to Nakheel if the Miami Property is not completed by
February 28, 2009.
The Company has not recorded the two contingencies requiring Nakheel to make additional payments as
the likelihood of their occurrence is not readily detenninable. The effects of the repayments to Nakheel of
a portion of its capital contribution have been deferred as they are either not readily determinable or are
remote.
The transaction did not affect existing mortgages, pledges, and other collateral securing the existing debt
related to the Miami Property and Nakheel IV Member took its interest in the Miami Joint Venture subject
to the conditions of existing debt, as amended.

4. CONDOMINIUM UNITS IN DEVELOPMENT AND CONDOMINIUMS HELD FOR SALE
Condominium units in development represents the capitalized costs of wholly-owned real estate projects
to be sold, which consisted entirely of condominium-hotel units in the Las Vegas Project at June 30,
2008, and condominium-hotel units in both the Miami Project and the Las Vegas Project at December
31, 2007. The balance includes land, direct construction and development costs, deferred sales
commissions, property taxes and capitalized interest. Upon completion of the unit, the related cost is
transferred to condominium units held for sale, which occurred in January 2008 for most of the Miami
Project. The components at June 30, 2008 and December 31, 2007 were (in thousands):

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June 30, 2008
Land

December 31, 2007

17456

$

Direct construction and developrnentcosts
Deferred selling costs
Capitalized interest

$

51,814
154,620
5,022
8.633

$

220,089

126,535
-

3,934

Condominium units in development

$

$

Land

147,925

34,358
106,983
9,050
7,420

Direct contniclion and development costs
Deferred selling costs
Capitalized interest
Total cost of condominum units developed
Cuniulafive cost of sales of condominium units

157,811

(109,563)

Condominium units held for sale

48,248

$

PROPERTY AND EQUIPMENT - NET
Property and equipment consist of the following at June 30, 2008 and December 31, 2007 (in thousands):
Estimated
June 30, 2008

Land
Buildings

$

Leasehold improvements
Furniture, fixtures and equipment
Construction in progress:
Development artwork
Las Vegas Project
Miami Project
F5 Ill Project (garage)

265,109
38,106
1,186
7,325

December 31, 2007

$

30-40 years
1 -112 years

- 5 years

5,108
490,668
227,060
6,224
1,031,792
(4,826)

6224
1,653,130
(6,023)

Accumulated depredaUon

265108
31,885
1,186
4,553

4,339
936,759
394,084

Useful Lives

Propertyandequipment..net

$

1,647,107

$

1,026,966

Capitalized interest included in CIP

$

45,512

$

15,373

RELATED AND AFFILITED PARTY TRANSACTIONS AND AGREEMENTS
As of June 30, 2008, approximately 74% and 59%, respectively, of the outstanding voting and economic
interests in the Company were owned or contmllcd directly or indirectly by Jeffley Sofl'er, one of the
principals in Tumberry, a multi-service real estate development and property management business.
Subsidiaries of Fontainebleau Resorts have entered into a variety of agreements with subsidiaries and
affiliates of Turnberiy, certain of which are highlighted below.
The Company had $3.7 million and $1.7 million of related party receivables at June 30, 2008 and
December31, 2007, respectively. The June 30, 2008 balance includes 1) a receivable of approximately
$1.0 million representing estimated withholding tax paid on behalf of a significant preferred unit holder; 2)
a receivable of approximately $0.6 million from Tumben)' Aviation relating to excess billings paid by the
Company for personal use of aircraft; and 3) a receivable of approximately $1.4 million representing

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construction-related amounts paid on behalf of Tumberry Construction Inc. ("TCI") and Tumberry West
Construction, Inc. ("TWC"). The December 31, 2007 balance of $1.7 million includes: 1) a receivable of
approximately $0.6 million from Turaberry Aviation relating to excess billings paid by the Company for
personal use of aircraft; 2) a receivable of approximately $0.6 million representing withholding tax paid on
behalf ofa significant preferred unit holder; and 3) a receivable of approximately $0.5 million representing
construction-related amounts paid on behalf of TCI and TWC.
Included in current liabilities are accounts payables to related parties at June 30, 2008 and December 31,
2007, in the amounts of $0.5 million and $1.5 million, respectively, the majority of which was due to a
Turnberry Aviation entity for the use of its aircraft by Company executives.
Construction payables to related parties, construction retention payable to related parties (both current and
long-term) and contractor fees payable to related parties represent amounts due to TCI and TWC for work
on the Miami Project and the Las Vegas Project, respectively. The sum of these amounts increased by
approximately $109.9 million in the six months ended June 30, 2008, the result of increased development
and construction activities at the Las Vegas Project.

Credit Enhancement Fee Agreement In conjunction with the completion guarantees for the Las Vegas,
Retail and Miami projects issued by Tumbeny entities, subsidiaries of the Company entered into credit
enhancement fee agreements that provide for: (i) a 1% annual credit enhancement fee that the Company
will pay on the undrawn amount of the completion guarantee; (ii) repayment by the Company of any
drawn amounts under the completion guarantee, plus accrued interest at 10% per annum; (iii) repayment
by the Company of any amounts advanced in order to satis& disbursement conditions under the
Company's financing documents, plus accrued interest at 10% per annum; and (iv) repayment of any
amounts paid pursuant to any tide insurance indemnity, plus accrued interest at 10% per annum. The
agreements are dated June 6, 2007, and are effective as long as the underlying payment guarantee exists.
On May 15, 2008, the credit enhancement agreement for the Las Vegas Project was amended to reduce the
amount of the guarantee subject to the credit enhancement fee from $100.0 million to $70.0 million. As of
and for the six months ended June 30, 2008 and the year ended December31, 2007, no payments have
been made and $5.0 million and $2.7 million was accrued to fees payable to related parties, respectively.
Subordination and Deferred Payment Agreements - The Company and Subsidiaries entered into an
affiliate subordination agreement with Turnberry Residential Limited Partners, L.P. ("TRLP"), TCI, and
TWC, in favor of the lenders under the Company's Credit Facilities, Bank of America, N.A., as
administrative agent, and Wells Fargo Bank, National Association, as trustee. This agreement subordinates
the Company's obligations to pay (i) the construction fees to TWC and TCI under the construction
contracts and (ii) the credit enhancement fees, repayment of amounts drawn under the completion
guarantee and certain other amounts due under the credit enhancement fee agreements. The agreement is
dated June 6, 2007, and is effective until all of the Company's subsidiaries obligations to the lenders under
the Company's Credit Facilities have been satisfied. For the six months ended June 30, 2008 and the year
ended December 31,2007, no payments have been made and $5.0 million and $2.7 million has been
accrued as fees payable to related parties, respectively.

7.

FAIR VALUE MEASUREMENTS
As discussed in Note 1, effective January 1, 2008, the Company adopted the provisions of SFAS No. 157,
"Fair Value Measurements "which defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and expands disclosures about fair value
measurements. SFAS 157 also clarifies that fair value is an exit price, representing the amount that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants.

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Exchange traded derivatives valued using quoted prices are classified within Level i of the valuation
hierarchy. However, few classes of derivative contracts are listed on an exchange; thus, the majority of the
Company's derivative positions are valued using readily observable market parameters and are classified
within Level 2 of the valuation hierarchy. Such derivatives include basic interest rate caps, interest rate
swaps, and interest rate collars, In some cases, derivatives may be valued based upon models with
significant unobservable market parameters. These would be classified within Level 3 of the valuation
hierarchy. As of June 30, 2008, the Company did not have any Level 3 classifications. See Note 8 for
fürther details on the derivative instruments.
As of June 30, 2008 and December 31, 2007, all of our derivative instruments carried at fur value were
measured using Level 2 inputs. At June 30, 2008, this included $1.5 million of non-current and total
assets, a $1.2 million current liability and a $29.2 million non-current liability, or $30.4 million of total
liabilities. At December31, 2007, the Company's derivative instruments carried at fair value included a
$0.2 million current asset and a $0.6 million non-current asset, or $0.8 million of total assets, and $29.6
million of non-current and total liabilities.
The current carrying amounts reflected in the accompanying unaudited condensed consolidated balance
sheets for accounts receivable and accounts payable (including related party balances), accrued liabilities
and construction payables, retention and contractor fees approximate their respective fair values because of
their short-term maturities. The Company has $675.0 million of Second Mortgage Notes with a coupon
rate of 10.25% and a book value of $675.0 million. The fair value of this fixed rate long-term debt at June
30, 2008 and December 31,2007 was $445.5 million and $587.3 million, respectively, measured using
trailing values in active markets at the end of the reporting period based upon trading information from
external sources. The carrying amounts of variable rate long-term debt currently approximate their
respective fair values based on the regular resetting of interest rates. Management' s fair value estimates
for the fixed rate debt also approximate the carrying values of such debt.

8. DERIVATIVE INSTRUMENTS
The Company's credit agreements require that subsidiaries of the Company enter into hedging transactions
to limit it's exposure to interest rate fluctuations and the Company utilizes derivative financial instruments
to manage its interest rate risk on variable interest borrowings. Although the Company's derivative
instruments are highly effective in fixing interest rate exposure, not all of the Company's derivative
financial instruments qua1i' for hedge accounting under SPAS No. 133, Accounting for Derivative
Financial Instruments and Hedging Activities, as amended. For the derivative instruments that quali',
adjustments to record the change in fair market value of the agreements are reflected in othér
comprehensive income in members' equity. For the derivative instruments that do not qualif5' or are not
designated as eligible, adjustments to record the change in fair market value of the agreements are reflected
in unrealized loss on derivative instruments in the unaudited condensed consolidated statements of
operations. The unpaid net settlements on hedging instruments are recorded as a receivable or a payable on
the accompanying unaudited condensed consolidated balance sheets. The Company records settlements on
derivative instruments as an adjustment to interest expense in the unaudited condensed consolidated
statement of operations if the instrument qualifies for hedge accounting under SPAS 133. Net settlements
on derivative instruments that do not qualif' under SEAS 133 are recorded as an adjustment to unrealized
loss on derivative instruments in the unaudited condensed consolidated statement of operations. See Note
7 for fair value infonnation related to these instruments.
At June 30, 2008, the Company's subsidiaries were party to three interest rate caps with a total notional
value of $274.8 million (at June 30, 2008) accreting to $440.0 million, seven interest rate swaps with a
total notional value of $666.0 million and nine interest rate collars with a total notional value accreting
from $669.0 million (at June 30, 2008) to $1.2 billion.

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The interest rate caps were effective July 2007. Notional amounts totaling $400.0 million mature in
November2010 and notional amounts totaling $40.0 million mature in July 2012. The agreements limit the
Company' s interest rate exposure on one-month LIBOR to no greater than a weighted-average 5.96%.
The interest rate swaps were effective September 2007. Notional amounts totaling $466.0 million mature
in September 2010 and notional amounts totaling $200.0 million mature in January 2012. The Company is
paying a fixed interest rate and receiving interest at three-month LIBOR. The weighted-average fixed rate
payable under these swaps is 4.9 1%.
The interest rate collars were effective September 2007 and October 2007. Notional amounts totaling
$234.0 million mature in September 2010 and notional amounts totaling $250.0 million mature in March
2012. The agreement provides for a weighted-average cap of 5.60% and a weighted-average floor of
4.95%.
The net difference between the interest receivable and the interest payable under the interest rate
agreements was a payable of $1.2 million at June 30, 2008 and a receivable of $0.2 million at December
31, 2007, which is included in 'other long-term liabilities' and 'deposits and other long-terni assets',
respectively, in the accompanying condensed consolidated balance sheets.

9. COMMITMENTS AND CONTINGENCIES
Legal Matters
Krystle Towers - Fontainebleau Las Vegas H, LLC ("FBLV II" and formerly known as. Krystle Towers,
LLC) and Fontainebleau Las Vegas Holdings (together with FBLV II, the "Company Parties"), both
wholly-owned indirect subsidiaries of the Company, were defendants, among others, in litigation filed
March 28, 2005, in the District Court of Clark County, Nevada, The litigation is comprised of 35
consolidated nses in which the plaintifth alleged that the Company Parties and certain other defendants
wrongfully tenninated the plaintiffs' purchase agreements for condominium units in a condominium
development to be located on the Algiers property. Ou October 30, 2007, all parties executed a settlement
agreement obligating the parties to filly release each other and dismiss all cases with prejudice upon the
payment of $6.0 million by the Company Parties and additional consideration by non-Company
defendants. The Company recorded the expense and related liability for this settlement as of September
30, 2007 and made the $6.0 million payment in January 2008. On January 30, 2008, all cases werè
dismissed with prejudice in accordance with the settlement agreement.
On July 17, 2007, a separate action that was initially filed in 2005 and later dismissed was refiled against
the Company Parties by another potential purchaser of a condominium unit in the defunct condominium
development. The plaintiff in this action, which was not consolidated with the other cases, made the same
claims of an equitable interest in the property and monetary damages. On February 13, 2008, the case was
dismissed with prejudice upon the payment of $18,000 by the Company and additional consideration by
non-Company defendants, and the execution of fill releases by the parties.

Termination of an Executive - On May 4, 2006, the Company terminated an executive's employment
with the Company, asserting a right to do so for cause. On May 17, 2006, the executive filed a Demand for
Arbitration with the American Arbitration Association requesting damages in excess of $5 million, plus
fees and costs in connection with the termination of her employment under her employment agreement
with the Company. However, the Company disputed the claims of the executive and filed a counter claim
that claimed damages in excess of $10 million and intended to vigorously defend the Demand for
Arbitration.

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In a related matter, on June 1, 2006, the Company's Board of Managers acted to invalidate, nulli&, and
void an action previously taken on January 31, 2006, in which the Board approved the acceleration of
vesting of an additional 30% (258,750 Class A Units) of the executive's initial equity award of 862,500
Class A Units under the Company's Plan adopted by Equity. Jt is the Company's position that the senior
executive holds 172,500 vested Class A Units in Equity, and has forfeited the remaining 690,000 Class A
Units of the initial equity award granted under the Plan. In accordance with the Plan, any Class A Units
granted to the executive that are forfeited will be reissued to SFALP and will not have an effect on the total
number of outstanding Class A Units of Equity.
In February 2008, all parties agreed to a settlement that obligates the parties to fully release each other and
to dismiss the arbitration with prejudice upon the payment by the Company to the estate of the terminated
executive of $4.5 million and the forgiveness of $0.2 million in amounts receivable from the tenninated
executive. The settlement was recorded as a settlement of litigation expense in the consolidated statement
of operations for the year ended December31, 2007. On May 23, 2008, the Company paid $1.0 million of
the $4.5 million seulement. The remaining $3.5 million unpaid settlement liability at June 30, 2008 is
recorded as an accrued expense within current liabilities on the accompanying condensed consolidated
balance sheet as of June 30, 2008. The Company is required to pay $2.0 million of the settlement by
September 15, 2008 and the remaining $1.5 million by December 31, 2008.
The parties further agreed that the terminated executive holds a total of 220,000 vested Class A Units of
Equity. All remaining Class A Units of the initial equity award granted to the executive on May 11, 2005,
under the Incentive Award Plan were forfeited.

Biloxi - In October 2005, the Company considered entry into the Biloxi, Mississippi market in light of
changes to the Mississippi laws following Hurricane Katrina to permit land-based casinos. The Company
was approached by an investor ("Investor") who proposed ajoint venture to develop a hotel, condominium
and casino project (referred to as the "Biloxi project"). The Company was unsuccessful in negotiating the
acquisition of a key property to enter the market and discontinued efforts to enter the market. The
Company paid $0.3 million as 50% of a deposit on a parcel of land called the Hancock Bank site, with the
expectation by the Company of a successful Biloxi project. Investor also expected that the Company would
be successful and purchased or made additional deposits toward The purchase o the Hancock Bank site
and six other properties that could provide contiguous land for the proposed Biloxi project. In May 2006,
Investor submitted to the Company a request for reimbursement for the Company's purported 80% share
of the $7.3 million in acquisition and other costs that Investor had paid.
Because no formal j oint venture with Investor was consummated and the Company does not hold legal title
to any of the properties involved, the Company recorded only the $0.3 million deposit as of December 31,
2005. The Company's $0.3 million deposit was forfeited on June 27, 2006 and written off. In April 2008,
following approximately two years without further demand by the Investor, the Company received a notice
of claim from counsel representing the estate of the now deceased Investor for reimbursement of an
unspecified amount for the Company's purported share of the acquisition price and maintenance costs for
land acquired by the Investor. No proceeding has been filed against the Company. The Company intends
tò vigorously dispute the claim, denies that any joint venture was formed or that it has any obligation to
Investor's estate to reimburse any sums expended by Investor and asserts that Investot's actions to acquire
land were made individually by the Investor without any participation by the Company.

Turn berry Place On July 27, 2007, certain residents (the "Petitioners") of the Tumberry Place
condominium complex filed suit in Clark County District Court against the Clark County Board of
Commissioners (the "County Board"), petitioning the court to set aside a special use permit granted by the
County Board that allowed the Company to increase the height of the parking garage/convention center
complex (the "Garage Complex") at the Las Vegas Project on the basis that the Garage Complex violated
residential zoning standards. On August 9, 2007, The Company intervened in the action to oppose the

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residents' petition. The Petitioners requested that the court order construction to be halted on the Garage
Complex, the special use permit be set aside, and the County Board to set the matter for rehearing so that
the Petitioners can have adequate time to present their case to the Couiity Board. On October 19, 2007, the
court affirmed the decision of the County Board and denied the petition in its entirety. On or about
November 8, 2007, the Petitioners filed a Notice of Appeal with the Supreme Court of Nevada. The
Petitioners and Company representatives attended a court mandated settlement conference on February 7,
2008, but did not reach a settlement. The parties are in the process of filing briefs with the Supreme Court
of Nevada

FB III - The Company is also a party to five lawsuits by purchasers of units in FB HI asserting a right
not to close. The first lawsuit was flied on January 8, 2007 and settled on August 14, 2008. Settlement
terms included the purchaser/plaintiff terminating his interest in the purchase agreement for one unit, and
applying the deposit from this unit to the purchase of the second unit under contract, such that FB Ill did
not have to provide any additional cash outlay. The second lawsuit was filed on March 7, 2008, and is
currently in discovery. The remaining lawsuits were ified on May 23, May 27,2008 and June 18, 2008,
respectively, and are in the preliminary stages. All ofthese lawsuits arc filed in the Circuit Court of the
Eleventh Judicial Circuit in Miami Dade County, Florida. No substantive rulings have been made in any
case.
The Company has also received and continues to receive notices of objections to closing brought by
purchasers of units in FB III, asserting a right not to close as well as requests to terminate the purchase
agreements. As of June 30, 2008, the Company has agreed to allow the rescission of purchase agreements
for three units with an aggregate purchase price of $2.1 million and to refund the deposits in the amount of
$0.6 million. The unit purchase and sale agreements provide that if they are tenninated by the purchaser,
the Company is entitled to retain the deposit amount equal to 15% of the purchase price as liquidated
damages, and will refund the balance to the purchaser. The Company is in the process of working with
purchasers who have requested to terminate the purchase and sale agreements and is continually evaluating
the remainder of the claims.
In addition, Fontainebleau Florida Tower 3, LLC and Fontainebleau 3 GaragefRestaurant, LLC (the "FB3
Parties"), two fifty-percent owned indirect subsidiaries of the Company, are parties to a lawsuit brought by
a subcontractor on the FB HI project. The subcontractor asserts that it is owed $0.5 million Ihr labor and
materials, and asserts claims of unjust enrichment and an equitable lien against the FB3 Parties. The
Company has tendered the defense of the action to the general contractor on the project.

The Company is also a party to other claims and litigation related to its business. While it is not possible to
predict with certainty the outcome of these cases, management believes that the ultimate disposition of
these matters will not have a material adverse effect on the Company's consolidated financial condition,
results of operations, or cash flows.

10. GUARANTOR FINANCIAL STATEMENTS
In June 2007, Fontainebleau Las Vegas Holdings, LLC ('PBLV Holdings") and Fontainebleau Las Vegas
Capital Corp., LLC ("Capital", and collectively with FBLV Holdings, the "Issuers"), both wholly-owned
indirect subsidiaries of the Company, issued $675.0 million of 10.25% Second Mortgage Notes due 2015
("Second Mortgage Notes"). Fontainebleau Las Vegas LLC ("FBLV"), Fontainebleau Las Vegas II, LLC
("FBLV II"), and Fontainebleau Resort Properties J, LLC ("FBRP I") (collectively referred to as the
"Guarantor Subsidiaries" and all of which are wholly-owned indirect subsidiaries of Fontainebleau
Resorts), the Issuers and the Company all provided full and unconditional guarantees on ajoint and several
basis in connection with the issuance of the Second Mortgage Notes. However, the guarantee provided by
FBRP Jis subordinated to its guarantee of a bank loan The following condensed consolidating financial
statements present information related to Fontainebleau Resorts (referred to as "Parent" in the following

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tables), the Issuers, the Guarantor Subsidiaries and the nonguarantor subsidiaries of the Company as of
June 30, 2008 and December31, 2007 and for the three and six months ended June 30, 2008 and 2007.
The following condensed consolidating information is presented in the form provided because: (i) the
Guarantor Subsidiaries are wholly-owned subsidiaries of FBLV Holdings (an issuer of the Second
Mortgage Notes); (ii) the guarantees are considered to be Thu and unconditional (that is, if the Issuers fail
to make a scheduled payment, the Guarantor Subsidiaries are obligated to make the scheduled payment
immediately and, if they do not, any holder of the Second Mortgage Notes may immediately bring suit
directly against the Guarantor Subsidiaries for payment of all amounts due and payable); and (iii) the
guarantees are joint and several.

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June 30, 1

Pastero

aus -ouauaurtor

eslausulor
tuboldloulea

Inseam

Subaltlalee

Dlnnleualorrn

Coosnlldurad

ASSETS
CURR ENT ASSETS

45.603

cash and cash equivalents

$

-

e,er depodli il doofe

Reedveblea tom caleced pelles

Prepuld mqsa500 und fluter curare usd5

-

CONDOMINIUM UNITS IN DEVELOPMENT

2,017
543

25.117

4,436

-

S

-

4t240

050,845

1961

-

16)

-

75G

-

751
1961

Zoll

-

2,377

-

125.107)

I)?

-

137

6,064

40,248

70,57)

47,925

riZ7lI
006g

lOSS

-

-

-

-

47950

Tolul carene acoelo

5

GlOSO

--

473

Conthnhiumuiits held tersai,

e.S15

-

-

nl r d e s

S

-

-

1,574

Reodnuble tcm eIeIloIcd entIty

110,2H2

-

-

Inacrucco rccclvahle

S

-

Restdded casts

Accounts recdvuble, nel

-

243960

(25,167)

147,925

-

6,630

26106

1,010,254

602,675

-

1,547,117

Reslaided cesti

-

20730

107,308

1090?

166

0597

39,056

00,498

-

700,067

Oe(ereddnunclug fees

Recsablsc born relatad pertes

-

PCOPEINTYAND EJIPNENT-NET
OTHER ASSETS:

ah&MIanstMe asese, nel
Depusts and ctr.rnoe-crulr.rd essaIs

337

-

41.0)0

-

46,63)

-

46,920

-

71

hrvcotrr ont Ito subnidlerd.,

1,903

(1,618

-

13,672

-

12120G

-

G,cÔMR

4r,237

TOTAL ASSETS

160041

55907

$

1251

$

116348

734,757

5

-

199,762

2,043,121

$

1,664

$

-

(162,205)

62,020

Telai cola concIs

62.307

-

337

-

62,020
973,592

(062,205)

814.107

5

10,317

(187252)

$

$

3,302,572

LL*BILJTIESAND MENBERW Eoury(ccnal)
CURRENT UAEIUI1ES
Accounts payable

s

Accounts payable tu relaTed punIes

$

525

13,597
525

Costithun pasbles to relatad podios
Co'r*srthun neIdlos payable IS rdolcd pode,
Cosstmthon paynbletu cIlIated enity
Ancre ed bilent

159,141

20,170

-

36,260

141,401

10,014

25,167

20,924
I25,067)

Residents Sdcs decants

Coermirbri une guarantee payalde

ZIP

8,855

1,074

4,543

1Z57)

-

3126
I 773

5901

Ancsied superano

rB.172

16,172

3,643

2.565

2.588

10

5.070

5.069

4506

131,730

121,400

675560

792,000

766,340

OEher current (abites

Qursintpcd'es of Icaa4ern detu

7203

Total cussed Noblotas

I2) j 67)

LONG - TERM LIABILITIES

Leng4erm drbl,ret of current ponton

Irrieoloeur Ii subsldlades

323,437

-

2,141,340

(333,437)

Coerolnidton releirtor and conractorlter payable Io

53974

Deterred gali

-

aher Icrg-Icnii rasilales

16)

Fulrsulue srdertsotnelnshsuureirs

-

racel long- crei natILlas

0,573

1,045

cOated perles

Fees payable lo related paule'

3,654

4,569

266,303

266,303

.

64,457

535
-

1,205

1.061

06940

12,620

28,166

373957

771,700

1361,426

(323,437)

2,500,206

33030E

TOTAL LIABILITiES

675006
875506

503,430

1,102.514

(348.004)

2.748.048

MIN ORITY INTS Roer

52,400

5Z40I

REMBERS EQUITY (EEFICrT)

Meorhersl eqsity- ClosnAurds
Members' equity- SelusAror nsterg units
Memburs' emuli- Suies B volino tota

-

Prelbirrnd colta
Ccartdbuled

210.171

rfllul

430130)
(63821)

(458376)

-

Andurnllulated vlrercompçeh erst,, Tous

Total members' aqulty(dedth)

CONFIDENTIAL

-

13,122

Ancurrolated delcO

TOTAl. LIABIlITIES $240 MEMBERS' EOJFIV000FICII)

.

-

(235203)
$

923Cl

492858)
S

1,250900
183925)
116904)
1,140,351

-

-

2101171

(1(6,404)

(162,205)

503,275

(104.092)

323,437

(475.977)

(8,010)
1361,306)

-

(25,394)

212,07)

161,232

(rV,)72)

$

3,012,522

BGD 000550

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 51 of
112
December31, 2O07(RESTATE(

Guarantor

Parat

Non-Gunner

Sesidiaries

lower

Sotoldianl08

Eaflrellnns

Cocoolidaled

ASSETS

CURREITASSET&

Cathandcedn oqsieslenb

9,741

AuMs croe

5

5

18,101

S

-

Rsslcled casi,

3.040

5

6

34,068

3,338

-

1,810

1,810

-

sai

73,330
3,275

-

3,275

-

-

-

lnsjrarere rcraiabIe
Recebedre bon, rebInd parles
Rnoeiabe Rem sOissed eaby

1081

347

-

Inventaire

1,448

-

12,476

-

(l2,47

-

104

604

242

818

590

1,510

2,064

Repaid expenses and eure, wIred asse
job! rained sands

26,020

73,113

08,80

(1Z47

29,060
7,302

PEOPERTYAND EQUIPMENT- NET

10,100

608,804

28060

349,160

COIDOMIIIM UNITS II DEVELOPMEIT

1,873,066

OTNER ASSETS:

Reecicled cash

8,060

315,606

731,546

7,347

Careced fraraing rare

-

10,454

34,092

26,741

Rnkeliex Orna rebind peles
GtherinIsnhmesseeb, nel

-

.

Depuis and ailier rar-curneirt assole

.
80

41,000

4,244

08,060

.

518325

06,434

S

OrO

S

527,025

5,012

-

121205

lobi dherasads
5

48,067

.

breesortestbr eubeidsjiee

TOTALASSEIS

737

48,087

780

-

-

CosSAI

75,267

.

237

-

1.173,518
-

708,575

(182,245)

-

1,38,082

(182,285)

142.119

S

1,461,890

S

79,541

$

S

326

5

8,517

5

(174.881)

5

2,042,318

5

9,787

LIABILmES MD MEM000S EQUITV(DEFICI1)

CURRENT LIA8IIJIIES:

Acerdspsysble
Pcciedspeprbblorolsledrsrde.

5

-

-

Conseillai payables es rebled parles

20

.

onstadioerpayablelselldcdedly
Anssied beleg

24,307

08,082

64,529

.

12.470

Conetoclicer relation payable Io related parSes

1,507

56715

-

4

1,388

1.474

(12.475)

.

-

Condonihrlum orlI guarantee payable

4,083

2.215

-

6,520

1,063

.
.

RedlenSal arles deparO,

2.883

8,545

learned expenses

.

rerairre,IIis&Nteo

.
0

-

-

.

3,384

2520

.

-

-

2.083

67,892

29,456

815,080

700,000

3.314
2,548

-

71,770

8.929

Taial cur,ere labiles

0,241

15,024

.

08,704

.
I

Cesnrext perles efleng-tems lebt

15,088

874,739

71,770
208.084

(12,475)

Lola-TERM UAOILmES:

Lurg1wndebnetdaiirerlpcitse

.

lsreabneil 'a osbaidanles

-

246,025

2.049,739

-

(244,025)

Consosdien reterlion and estantal bes pa5awe b rebind

.
.

parees

Feespaysblewnddedpaates

34210

Ohorlerg4orsiabuleer

4,755

579

2.180

500

ldsllnrg1elnn1ablhles

1,287

10,190

Falrysbie efderivative irathunmls

30.033
2.087

13,447

1,853

8,597

.

248015

751.612

606,287

(746,025)

2.12.069

254,804

TOTAL L069L111E8

815.000

877,883

819,004

806,763

(256,501)

2.372,713

MEM000r EQOIIY WEFECII)

.

.
.

Mentes1 eqity-SelesAren eeleg mOe
Memberslepdly.Seris B eullip anile

Relenednels

.

.

-

-

-

-

-

Confributed rapId

187,129
(7,795)

(507,365)

72,002

(915)

Acwauloleddeidt

(340,075)

(43,493)

(62.845)

(108,060)

(15865)

S.3l8)

150.050)

842.395

(108.275

kwnrslaIeddlnercanehorsh.elooa

-

Tent rnerbes'e5u09 (de0cï)
TOTAL LIA0ILITIES»lO MEMBERS EQUIIY(DEPICII)

(150,515)
S

06,424

$

527,025

S

1,461,099

$

72,641

197,129
(102,205)

443,731

244,025

(306,274)

-

5

(24,061)

72.020

249,085

(114,081)

6

2,042,310

-19-

CONFIDENTIAL

BGD 000551

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 52 of
112

Three Months En4ed June 30,2048

Guanntor
Parent

NonGjnd

&ibsidlunies

Issuer Subsidiaries

SubntdiaSs

Eliniinabons

Consolidated

REVENUES:
Sale of condenninium'xnts

$

$

Food and beverage
Rs ail

16373

5400

663

-

16370
5,400

$

S

Hots

663

27

-

-

-

ISat revenues

-

-

21

2,456

-

Qher

Z459

24,916

-

24$16

OPERATING EXPENSES:

Costolsalen otcoodominixm vats

14,565

14565

HaIS

4,994

4ß94

Food and beverage

8,526

1526

-

Pelati

52

General and aáxnisbtka

176

Corporale

14

52

690

ter

698

832

7,838

204

11584

11,584

Gain oi sales of assets

-

(200)

Foeeniag

-

Oeprec0on and amuSantes

493

6,139

123

207

Eqviin toss ofsobsidiarias

QUO)

4,646

414

744

32,007

(3Z%7)

44,574

LOSS FROM OPEPAI0ONS

14

4,973

33,580

(32,I)

47,334

(44,574)

Tatal opena6ng expenses

(14)

(4,973)

(5,664)

32,7

22418)

(315)

(4,750)

(0,112)

(6,494)

171M

13,465

40j27

(4,383)

(7,355)

(11,738)

NlOPEPTING (INCOME) EXPENSES:
ISerent Income

Irterast opanse - n

(307)

of capitarrzed bluest

9,480

UoreaIedIoss on derivative instuments
- ret o! set!enrerds

-

rer

Tala! nm-operathg oxoses

NET LOSS BEFORE MIMORIIY INTEREST

(13,085)

4,997

(44,267)

21694

3Z7

(10,661)

-

S

(1)

)

6,112

(9,106)

(44,267)

lNORI1Y INTEREST

ME LOSS

9,2

(307)

45

$

(9,106)

S

(13,085)

$

(10,616)

(44I2)

45

$

32,7

(4467)

- 20 -

CONFIDENTIAL

BGD 000552

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 53 of
112

Three Monbs Ended laie 20, 2®7

OLniuinior

Paint

Non - Guvrdar

&tddiniies

IssuerSubsldianies

&tetthanies

Ccdiled

Elininalions

REVENUES:

HotS

$

$

-

$

$

-

Feed and beeere

45

$

$

660

Retai

663
31

31

-

4,665

665

605

S2l

letal removes

-

5921

OPERAIING EXPRISES:

Hold

4,718

4,718

-

1j23

1,123

-

28

26

-

-

Food an d b ewre

-

Retal

369
96

Gee real and adir [nisùa8im

664

50

-

Gain on sales nf asst

20,805

(112)

Preiir
-

180

Eqetty in less of nibsidiades

3

(112)

(24)

2,163

Depredation and amal nOm

letal

5,505

4,695

20,805

Coeporale

2,139
554

371

29,204

aaOng e>pmses

(29,204)

50,285

2,830

11,166

(29,204)

35,127

(50,285)

(50)

(2,830)

(5,245)

20,204

(20,206)

(231)

LOSS FROM OPERATiONS

50

(1,970)

(2,852)

(510)

8,926

556

NON-OPERATING (IlOCtIE) EXPENSES:

trIerS coolie

trIerS eense- ret

paIedintireet

1,017

(5,563)

-

24,075

13576

UnranOzad bss on thnio9veinsIn'jmeils-t
of setOenierds

Delared f nandc

(148)

fees- reite off
(11)

$

9,304

(51,800)

5

(9,354)

(281)

(135)
1,149

-

775

letal noi-opeiaing expeeses

N EI LOSS

-

2,494

(2,305)

$

(525)

3,643

-

(9)

(30)

14,080

$

(19,325)

21,854

$

29,204

S

(51,800)

-21 -

CONFIDENTIAL

BGD 000553

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 54 of
112

Six Months Eanded June 392008

Non Guartor

&arantor
PureM

IssuerSuboidiales

Sobsidiad

Svb&dianies

Consolidattd

Eliminations

REVEN 8ES:

Sato ofoondominiurnonds

$

$

-

$

Hotel

$

$

-

-

490

Retad

123148

l259

12,509
and beverage

Fc

123,148

-

1400

53

3224

224

-

l4004

40504

109563

109583

10839

10839

2,786

Tol roveoxes

53

-

Other

2,786

OPERAI1NO EXPENSES:
Cost ofsales of condonainiom units
Hotel
and beverage

Fo
ReIaO

199

Genex

378

and adnaìaisfra0oe

Corporate

258

401

-

19348

(200)

(200)

£reopening

7ß55

Depredation ndarnor9Enar

622

233

406

Equity h ls of sobsiiodes

742

0477
1,381

77,300

Tobleratng erpenses

1,249

15354

14,324

19,348

Gain nn sates of assats

(11,366)

97,291

258

8,499

140,324

(97,291)

(LOSS) PROM OPERAI000S

INC0

199

1249

Other

(258)

(8,488)

lOO

(2,195)

(11,690)

(1,780)

34,174

30,103

05543

(42)

L025)

(71,366)

168996

11,366

(20492)

-

(16340)

NON.OPERA11NG (NOOME) EXPENSES:

hte-estincorne

(675)

hterestexpesse-oel ofoa4tatkodioteonst

21,265

Urrealedloss on derivaflve innrnenIs

ratofsethements

(893)

Other
Tolalnon - operating expnarses

(615)

19,071

MINOR[IYINTERESI

(96,616)

28,200

(29,982)

(28,100)

-

-

$

21,493

(19,329)

(96,616)

NET LOSS BEFORE MOORITY INTEREST

NET LOSS

(I)

(1)

$

(19,329)

(29,992)

77366

45

-

$

68159

$

(28,055)

-

$

77366

(96551)

45

(96616)

- 22 -

CONFIDENTIAL

BGD 000554

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 55 of
112
x Months Ended Aine 30, 2001

Guarrior
Issuer SthsIdiies

Parent

NonS

jaranIor

Satsidiries

Subdirañes

ConsoIiS

Eirnirubons

REVENUES:

Hold

12,714

$

-

1,675

Food and bevuage

Roidi

$

12,714
1,675

IntS rei oes

84

7

cth

84
1,339

1,346

7

15,812

15,819

11,500

11,600

2,402

2,402

OPERATING EXPENSES:

Hold

Food and boage
PelaI

64

oeral aord adooioisirative

Corporate

156

0,144

799

50

25,450

(112)

Redog

2,643

699

3

Eqoiio toss of sobsiliades

46,489
73,470

50

3,445

(73,463)

(50)

(3,445)

(1,070)

(2,944)

1,857

-

TS operathg enpeose

LOSS FROM OPERATIONS

25,460
(112)

2,6(3

355

736

10,159

-

-

(Gaio)/loss on salesof assets

Depredation ad amor&aio,

64

-

736

-

(46,489)

-

21,423

(46,489)

51,9

(0,621)

46,489

(39,0)

NON-OPERATING NC0ME) EXPENSES:
Irtereot income
Irtere enpesse- net of capita5zed inter

(231)

(656)

37,612

(233)

1,149

1,639

(5,811)

23,388

(101)

11,6

1,060

3,643

Unrea6zed toss on d&ratKe instruments- net

ofsalfemeots

(1v)

Defruied trancing fees-recite cli

2,494

(21)

Total noro-cçeratiog enpeorses

NET LOSS

803

(74266)

12,807

$

(12,057)

$

2

(45)

(1,326)

(26)

23,692

35,176

(2,110)

$

(32,313)

$

46,489

(74,266)

- 23 -

CONFIDENTIAL

BGD 000555

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 56 of
112

Six Months ended June 30, 2008

Guarartor
CASH FLOWS FROM OPERAI1NG AC1111ES:
Net loss

$

(96816) $

(19329)

Non-guarantor

Sthsidiaries

Issuers

Parent

&jbsidiaries

$

(29982) $

Miniinatiens

(28,055) $

77,366

Consolidated
(96,616)

Adjustments to reconcile net loss to net cash muS in opera tug acth1tes:
Depreciatiarr and amarlizaton

408

kcarlzation ofdeíen'ed tuanohg fees

233

-

Miarizalion of condaniniumuit guarantee
Equfty-bosed compensation

743

1,392

9,035

2162

5,277

16,474

-

2,573

-

-

-

(983)

Change bi market valuo of derivative insbnmeuls - ret olsettermnls
Change br derivafve krshumenl Sablity

-

-

Cost of sales of coi dominium units

-

Reserve for doitthul amrds
-

App0catimt of buyer depodta

Gainamsalesdasset

-

3248

(42)

(1,025)

(637)

(637)

109,563

109,563

-

.

-

(200)

DeferS gain on sate cf interept in FIaIS Uddings

282

-

252

675

14,248

-

-

-

(200)
262,500

262,500

Intacest paid h ldnd

11,201

Foes payable to related parties

467

(77,366)

-

1,845

-

(I)

11,201

-

2,312

77,366

-

Equftyin inconle ofaffiliates

14,148

-

C)raengesin open-al/mug assets and (aMit/es:

Accusnts receivabte, net
Insurance recetvab!e

Receivabfesfrom related partes

Deposits and non- cumnent atirerassetn

(5%)

(4,980)

(12m)

(85,647)

(1,546)

(4)

-

(73,225)

-

Condarninium unit development ewendilures

-

(33)

(4,244)

(230)

(493)

-

-

Prepeld expenses and other currentassets

1,257

(1,043)

(492)

Inventales

249

250

1,257

-

(7,303)

(8,853)

1,791

3,330

Accotrda payable

177

-

1362

AccoJnts payable to related patties

(949)

-

(29)

(4)

253

(440)

(98)

1,372

(5,442)

Accrued interest

-

Accruedexpennec

(964)

buyerdusits liabiOty
-

(285)
(2,054)

2,980

(44,532)

-

-

Otherlmg-fernn5abiliffes

160

144

Net cash (used In) proetded by operating aclMues

(173,506)

-

2,541

Ccndmilnhjm unit jarantee payable

(15542)

(103,781)

(33)

(982)

(44,532)

Otheroicrentliabllties

(2,028)

(746)

-

(I)

2,541

(746)
303

318,349

154,732

180,272

CASH FLOWS FROM IFWESI1NSAC11VIIIES:
Payments fo property and equipment

(504)

-

(1,345)

(928)

(15,808)

(339,191)

(153,427)

25,000

355,427

24,165

25,466

339,619

(316,371)

-

Payments for construction In progresstorelated parties

Proceedsfiom sale ofpropeuly

-

970

ReductIons (additlmrs( to resblcted cash

Nel cash (usedin)provided byinvestingactivfties

(2,777)

-

(508,426)

970

(54,436)

350,156

(208,7911

(180,9773

CASH FLOWS FROM FINANCO43 ACI1VII1ES:

Preeds tau Scatta loan

-

7,005

Corrtnbutms

18339

Distibutions toafl9liated entities

-

Payments at Soof a toan

Payments of deferred Inancing fees

(165)

Net cash (used in) pro'ufded by tnancing activities

19,170

NET (DREASE( INCREASE INCAH N4D CASH EQUIVALENTS

205,450
322,773

-

(324,077)

528,223

(109,1291 $

(111,288)

(78,784)

p

(3,504)

(2,034)
(104,059)

117,617
354,732

4,059

(9,191

-

112,500

-

108,091

20,741

$

80,400

(78,784)

.

(1,304)

(129,870)

CASH ANDCASH EQUIVALENTS -Beginning of pe4aI
CASH AND CASH EQUIVALENTS -End otpeniod

.
(322,773)

7,805

80,400

Preeds tau the Senior Credt Facility

137,812

154,732

172,710

3,9%

118,282 $

8,8

34,898

$

- 24 -

CONFIDENTIAL

BGD 000556

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 57 of
112
Sta Manitas Ended June 30. 2007 (RESTATED)
CASH FLOWS FROM CPEMTIHG ACTIVI11ES:
Net lass

$

Guarantor
Subaidiartas

Issuer

Purent

(14.266) $

(12,057) S

Nan-guarantor
SubsidIarIes

(2,119) 5

Elimloatlons

(32.313) $

46.430

Consolidated
(74.266)

Adjustments to retonde net loss to net casti (used ti) proidud by operating
aodvites
355

-

49

1.200

521

Deprecieton und amarIzados
Amordoatimi of deferred Snanring fees
Amnorlzatirai of condominium unie guarantees

2.494

Equity-bused campunsaton
Change in mazketvalue of deivatne iusturnonls- net at setturnenta
Reserve for doubtful accounts

-

1V)

-

(101)

-

Giri ra, sefecfasset
-

-

-

.

11.354
(223)

-

(7)
(112)
1,897

-

(112)

500)
237)

1.058
5,093
960
3,643

(46,489)

-

503

.

(7)

1.897

-

-

-

-

46,489

Interest paid in kind
Equity in nel loss ofsubstdiudea
C1ianges in

628

.

-

10,382
-

.

972

-

-

Deferred fnancing fees-write off

700
3,432
960

3

412

(458)
(37)

-

eradng assets and ltabtlities:

Acoountsrecstvablo neI
Recelvablee from related parles
Inventories

(36)

Acaved istorest
Acolued eiqeenses

Btrer depoells tattliny
Dthercurreretflablllles
Acaued bonuses
Cosdoniinium unitguamntee payable
Other long-less liablitea

1,598

(290)

Prepuid expenses and other current assets
Condominium und dovoloprserd oxpondituros
Depoàts and other assets non-auzreut
A000iurslapayuble
Aocounls payable to related pastes

-

497

-

(197)
(58,634)

(35,284)
118
2,849

-

.

512
4,634

(1)

-

8,850

.

(2,227)

-

(2,129)
235
(1,248)

.

-

-

1,252

192

(6,894)

-

Netcash (usedln)pro4ded bycçeratng arIettes

IS

-

(121)

22,350)
(80)
(27)
-

(4031

.

15

150

lin

Deferred income

(461)
236

.

(226)
40
2,215
828
-

-

235

(1,130)

637

(20,212)

627

-

(6,894)
637

-

22.172)

(61,355)

.

(104,410)

(63)
(134,227)

(196)
(45,294)

(44,274)

-

(434)
(187,146)

(152,489)
(686,7/91

(6711

CASH FLOWS FROM INVES7ThIG ACIIVIIIES:

Parsestaforproperty and equipment
Paymentsforcraisbiuolion ¡n progresslo rulutedpartss
Proceedst'oin seleofprope-ty

-

(175)

(3,780)

(3.845)

-

Reducitmi torestilcted casta
hot cash used in investing artudtes

(25,0901

112

1660,095)

(29,045)

1663,9401

1,104

112

(1,436,570)
(1,624,038)

CASH FLOWS FROM RNANCING ACTNITIES:
Proceeds from the MiamI SenlorCredlt Faofitea
Pt'oceedsfrom acote loan
Proceeds from the Pn,dental loan
Pi'oceeeds troni Miami Mezzanine loan
Proceeds from the Lac Vegaa SenicrOedit Fadlty
Proceeds from the Serail Morigago Notes
Proceeds from the Retal Senior loan
Proceeds from the Mezzanine Reail loan
Proceeds from the PIK preferred private plaoement
Proceeds from the aerdoroedit hoility
Froceeds fran buyer deposits available forconstnjction
Proceeds from terrnlsaton of derlvatvo Insthmrnents
Proceeds from related parly
Contributed capitel
Diattbuled capital
Paymentto related patSy
Payment ofthe Sofler preferred unit
Peymeziton the Prudenuial loan
Payments on Senior 0-edt Facility
Payments eri Senior 0-edt Facility
Payments for deferred financing loes

-

-

.

-

.
-

-

-

1,534

43,872
(81,476)

-

-

-

.

85,368

-

-

2,051

-

(3,300)

-

(45,013)

(43,872)
-

(199,099)

.

(20,164)

(41,225)

(339.035)
(23,747)

664,611

-

910,784

10/.538

1,773,891

1,909

45,443

-

1150,000)

-

(521)
80,958
41,701

1,833

CASH AND CASH EQUIVALENTS - Beginning of period

(8,637)

9,678

$

33,064

(43.872)
(45.813)
(199,099)
(150.000)
(339,035)

.

-

NET(DECREASE)INCREASEINCASHANDCASHEQUIVALENTS

CASHANDCASH EQUIVALENTS -End ofpetiod

2,051
3,580
43,872
361,287

2,046
297,822
-

158,241

-

40,000
700,000
675,000
125,400
85,000
182,955
85,368

125,400
85,000

-

162,955

280,829
19,525
32,500

-

702,

675,000

-

Netcash provided byfiaandng solitudes

280,829
19,525
32,500
40,000

$

-

$

11,511

(85.857)

(292)
9

1,617

749

5

46,192

- 25 -

CONPIDENTIAL

BOD 000557

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112
11. SUBSEQUENT EVENTS
In July 2008, a wholly-owned indirect subsidiary of Fontainebleau Resorts signed a non-binding memorandum
of understanding with Istithmar Hotels FZE, an affiliate of Nakheel PJSC, regarding the potential formation of a
joint venture initially to develop a luxury hotel and resort at the crown of the Palm Jebel Ali, Dubai. The joint
venture is expected to be a 50-50 joint venture, with each party contributing the same initial consideration to the
development of the resort. A Company subsidiary would serve as the developer of the project and earn a
development fee in connection with those services. It is also contemplated that a separate wholly-owned indirect
subsidiary of Fontainebleau Resorts would serve as the resort manager of the resort and earn a separate fee. Any
such development would be subject to, among other things, obtaining adequate financing, securing appropriate
land, and securing appropriate development and construction permits and other necessary licenses. The parties
have not signed any definitive agreements in respect of the proposed development, and there can be no assurance
that any such agreements will be signed. Fontainebleau Resorts' involvement in this project would require it to
raise, invest and spend significant amounts of capital. Them can be no assurance that it will elect to do so or be
able to do so on tenns that are acceptable to it.
Also in July 200S, a wholly-owned indirect subsidiary of the Company entered into a lease agreement for
approximately 10,500 square feet of office space and 59,000 square feet of warehouse space as well as related
parking lot spaces at a location near the Las Vegas project. The lease commences August 1, 2008 and runs
through July 31, 2013, and calls for monthly rent of approximately $43,000 for the first year, increasing to
approximately $47,000 in the final year of the lease. The total rental commitment (exclusive of any common
area or similar charges) is approximately $2.4 million over the life of the lease.

Reopening of the Chateau and the Versailles Hotel Towers - Prior to the close of the second quarter 2008,
the scheduled reopening date of the FO I Towers was changed from July 1, 2008 to September 6, 2008. In
August 2008, the scheduled reopening dat6 of the FO I Towers was changed again, to October 18, 2008. One
group with a scheduled arrival date of October 20, 2008 has asserted a contractual right to cancel its booking if
the Chateau and Versailles hotel towers are not open at least 60 days before the group's scheduled anival. The
group further asserted a right to collect liquidated damages in the amount of $3 million in the event of such
termination. The Company disputes the group's liquidated damages claim and on August 17, 2008, the
Company notified the group that it was terminating the contract without liability as a consequence of delays
caused by force majeure events. Although it is likely that this group will assert a right to damages, the Company
cannot quanti the range of potential damages and no provision for liability has been made.
The Company has 13 customers with group reservations under contract between September 6 and October 18,
2008. The Company is negotiating the amount of reimbursements of cost due to the cancellations such as
transportation, reprint collateral material or other incidental expenses. Excluding any potential damages relating
to the October 20, 2008 group noted in the preceding paragraph, the Company estimates that the total amount
paid related to the delayed opening date will be approximately $1.3 million.

- 26 -

CONFIDENTIAL

BGD 000558

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112

Dep. Ex. 92

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 60 of
112

From:
To:
Sent:
Subject:

Doug Pardon
Doug Pardon
9/23/2008 3:07:13 PM
Fontainebleau Notes - Call wI Freeman on 9/23/08

$120m unfunded LEH exposure on retail loans
Working on contingencies w! LEI-J, with our credit facilities, with equity
Want to make sure there are no legal issues with substituting equity for the retail fadlities
Softer is leading the process from managing the muitiple equity sponsors
Wont comment on middle eastern interest in LV
Lehman is the servicer and is telling them they will fund on the facility
Understands its in the best interesi to solve this process w/ consents
Don told them it should be easy getting a consent if equity is involved and they should be able to get a consent w/o equity
bid it would be more expensive

Doug Pardon
Brigade Capital Management
5th
Avenue, Suite 1301
717
New York, NY 10022
212-745-9764 (P)
212-745-9701 (F)
dp©briqadecapital.com

92

I L1444Ì
CONFIDENTIAL

BGD 001616

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Dep. Ex. 97

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112

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Dep. Ex. 104

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112

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112

Dep. Ex. 115

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112

DATE:
TO:

Las Vegas Bank Group

FROM:

h

October 22, 2008

Jim Freeman

SUBJECT:

Retail Loan Agreement

We are writing to to prOvide an update to the company's October 7, 2008 memo regarding
the retail facility. We submitted our draw package for the October 27th draw last Thursday
and it was approved by the disbursement agent yesterday. The draw included a $3.7 million
funding request from the retail facility to fund the shared costs of the podium. As outlined
previously, we expect these monthly shared cost fundings to remain modest for the
foreseeable future.

There has been no substantive change to the retail facility since our prior memo. Lehman
BrotheÊs' commitment to the facility has not been rejected in bankruptcy and the facility
remains in fullforce and effect. We have been in daily discussions with Lehman Brothers'
representatives as well as the co-lenders tó the retail facility. Lehman Brothers has
indicated to us that it has sought the necessary approvals to fund its commitment this
month. If Lehman Brothers is not in a position to perform, we have received assurances
from the co-lenders to the retail facility that they would fund Lehman's portion of the draw.
We expect to continue working through the bankruptcy process with Lehman and the colenders to craft a permanent solution if one becomes necessary. As you can imagine, the
bankruptcy overlay makes the timing and form of an ultimate resolution difficult to predict.
Construction continues to move forward rapidly on the project, hopefully you have been out
to see the site recently to see the building taking form. We expect to top out the towerwithin
the next month. The preview center is slated to open to the public in the next couple of
weeks and we remain on schedule to open in the 4°' quarter of next year.

FO NIAI NE B LEAU
CONFIDENTIAL

MJX 001177

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112

Dep. Ex. 126
FILED UNDER SEAL

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112

Dep. Ex. 127
FILED UNDER SEAL

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112

Dep. Ex. 128
FILED UNDER SEAL

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112

Dep. Ex. 129
FILED UNDER SEAL

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112

Dep. Ex. 137
FILED UNDER SEAL

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112

Dep. Ex. 151

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 99 of
112
From:
To:
Sent:
Subject:

Vincent Fu
Steve Aheam; John Casparian; Kevin Hickam; James Eustice
6/5/2008 11:09:10 AM
Fontainebleau Update

Management now expects a $200MM cost overrun due to structure and design changes. Recall earlier, Nakheel Hotels (Dubai)
bought a 50% stake of Fontainebleau Miami for $375MM and the assumption of certain debt. $262MM was up-streamed to
Fontainebleau Resorts holding company. This money will be used to fund the $200MM cost overrun. This means that the
$1 00MM construction completion guarantee and $5OMM liquidity reserve will still be intact. The remaining $62MM will be
available to either Las Vegas or Miami properties.
Project is still on time - although garage is 6 weeks behind schedule because of the concrete T collapse. However the garage is
36th

already 70% complete and will open well ahead of opening. Main building recently reached the
floor and expected to top off
Q& There was no construction strike over safety similar to MGM CityCenter and Cosmopolitan (although strike is over as of
today).

Condo sales are now slated to start in September, and projected to sell for 18 months afterwards.
Fontainebleau Resorts is looking to expand into two markets (Vietnam).

Vincent C. Fu
churchill Paciric Asset Management LLc
Gol South Figueroa St. I suite 36001 Los Angeles, A 90017
Tel: [phone] Fax: [phone]
E-mail: víuiSchurchillpacificnet

CONFID FNJTIAL

r.pnl-1 nnini

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 100 of
112

Dep. Ex. 154

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 101 of
112
From:
To:
CC:

Sent:
Subject:

Vincent Fu
Steve Abeam; John Caspamian; Kevin Hickam
Zachary Carboni; James Eustice

10/23/2008 9:15:19AM
Fontainebleau Update

The letter bélow from Jim Freeman - CFO explains the latest
-Oct27- $3.7MM draw package was approved for disbursement
-Have assurances" from co-lenders of retail facility that they would fund Lehman's portion of draw if not able to perform

We are writing to to provide an update to the company's October 7, 2008 memo regarding
the retail facility. We submitted our draw package for the October 27i draw last Thursday
and it was approved by the disbursement agent yesterday. The draw included a $3.7 million
funding request from the retail facility to fund the shared costs of the jodium. As outlined
previously, we expect these monthly shared cost fundings to remain modest for the
foreseeable future.
There has been no substantive change to the retail facility since our prior memo. Lehman
Brothers' commitment to the facility has not been rejected in bankruptcy and the facility
remains in full force and effect. We have been in daily discussions with Lehman Brothers'
representatives as well as the co-lenders to the retail facility. Lehman Bräthers has
indicated to us that it has sought the necessary approvals to fund its commitment this
month. If Lehman Brothers is not in a position to perform, we have received assurances
from the co-lenders to the retail facility that they would fund Lehman's portion of the draw.
We expect to continue working through the bankruptcy proÇess with Lehman and the colenders
to craft a permanent solution if one becomes necessary. As you can imagine, the
bankruptcy overlay makes the timing and form of an ultimate resolution difficult to predict.
Construction continues to move forward rapidly on the project, hopefully you have been out
to see the site recentlí to see the building taking form. We expect to top out the tower within
the next month. The preview center is slated to open to the public in the next couple of
weeks and we remain on schedule to open in the 4th quarter of next year.

Vincent C, Fu
churchill Pacific Asset Management LLc
601 South Figueroa St. I Suite 36001 Los Asgeles, cAsool7
Tel: (213) 4S94496 J Fax: [phone]
E-mail: vtu,churchillpacir,c.net

CONFIDENTIAL

CRCH 001032

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 102 of
112

Dep. Ex. 158

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 103 of
112
From:
To:
Sent:

Subject:
Attachments:

Vincent Fu
John Casparian; Steve Ahearn; Kevin Hickam
10)29)2008 2:20:12 PM
Fontainebleau - Update
Fontainebleau2.xls; FONTAINEBLEAU - Oct2.jpg; fonlainebleau - Oct.jpg

Glen Schaffer commented that this will be a top hotel on the strip and will be different from anything else - focus on style over
theme, Is ready to compete against CityCenter as Mandalay Bay did against Bellagio when opening.
Retail Loan:
Lehman's commitment to the facility has not been rejécted ¡n bankruptcy and Fontainebleau does not expect that to change.
Suspect the loan will be sold out of bankruptcy to a buyer. Every month Fontainebleau expects to put in a $SMM to sSMM
request for funds. More than half of the $315MM retail construction loan has been funded - $8SMM of men debt fully funded

-Co-lendêrs have been "supportive" in finishing the project

Construction: Q409 opening
$1 .3 billion spend - 55% completion
All of the 5675MM in bond proceeds has been used, $320MM of 5700MM TL has been used, the company will then draw on the
delayed draw term loan and finally the revolver.

The bright side to the economic downturn is lower costs - Fontainebleau is expected to reopen some contracts to bidding. lt's
early to say but they said they felt they could save los of millions maybe up to $1 00MM in construction.

Tower currently up to 61St floor - there ae two floprs to go. Glass is up to the
hotel is expected to top out in the next 2 weeks.

33Çd

floor. Bathrooms to the 24th floor. The

Condos:
-Preview center will be opening next 1-2 weeks
-Important in not only selling condos but advertising the Fontainebleau name
Other:
Fontainebleau Miami grand opening Nov.14
Looking to expand internationally in Dubai and Vietnam

Vincent C. Fu
churchill Pacific Asset Management tic
601 South Figueroa St. I Suite 36001 Los Pngeles, CA90017
Tel: [phone] Fax: [phone]

E-mail: vfuchurchillpacific.net

HIGHLY CONFIDENTIAL

CRCH 000866

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 104 of
112

Dep. Ex. 160

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 105 of
112
From:

Martin Kim

To:

John Casparian; Kevin Hickam; Steve Ahearn
Vincent Fu

CC:

Sent:
Subject:

12/4/2006 1:21:03 PM

Fontainebleau Earnings - Q3

This was an extremely short call - maybe less than 10 minutes. Here are my notes:

Lehman brothers - not a lot of update there; the fund remains relatively modest. The facility is still functioning.
There is no change. We continue to worlc with co-lenders of the facility if there is an alternative solution to Lehman
brothers.
-

There is no change in the construction budget.
Miami is open for a weelc now
Glass curtain wall is going UI) in March? Building is topped off now.

Questions

Glass curtain - other places using it?
We are the only building on the Vegas strip that is using a sheer glass curtain wall. I'm sure there are other buildings
that use it around the world.

So its been tested?
Yes

Will it be working before you open?
Yes. We will have a sign tip well before opening.

Lehman issue - can you flush out anymore in terms of where you are and when you hope when you have the thing
locked down?
It dàesn't change things frmndamentally front the last conference call. Discussion are underway. We feel good in the
interim basis, and we work towards a solutions. In the meantime, the facility is in good shape, and it is funded. It's
difficult to pinpoint timing due to credit markets.
If other lenders have to talce Lehman piece, how much will it be?
We haven't gotten into the magnitude of.. .because it is a separate private facility, we haven't disclosed that.
-

Martin Kim
Churchill Pacific Meet Management LW
Gol South Figueroa St. ISuite 36001 Los Mgeles, CA 90017
Tel: [phone] Fax: [phone]

CONFIDENTIAL

CRCH 001013

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 106 of
112

Dep. Ex. 175

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 107 of
112
Frqrn
To:
Sent:
Subject;

Henry Chyung
Patrick Dooley
61212008 11:28:31 AM

Fontainebleu announced a $200 million increase to its bidget, To fund this, they are downstreaming $200 million from
the parent (tiich is the money that was raised when the parent sold 50% of its stake in its Miami hotel a few months
ago). This is not a big surprise. Bank debt still in the mid-80's and bonds still in the low 70s. The prolect is still
scheduled to open Q4 2009.
Henry Chyung
canyon Capital Ad4sors
2000 Avenue of the Stais, 11th Floor
Los Angeles, CA 90067
Work: [phone]
Mobile: [phone]
hchyungcanyonpartners.com

DONFIDENTIAL

CN? 044601

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 108 of
112

Dep. Ex. 182

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 109 of
112

From:
Sent:
To:

Mitèh Julis
Monday, March 02, 2009 8:26 AM
Chaney Sheffield; Josh Friedman; Bobby Turner; Patrick Doolcy
Richard Bosworth
Re: Fontainebleau Summary
imageool .jØg

.

Cc:

Slibiect:
Attachments:
Thanks
Mitchell R. JUlis

Co-Chairman and Co-CEO
Canyon Partners, LLC
200aÂvenue of the Stärs, 11th Floor
Los Angeles, CA 90067
Main: 310-272-1000
Direct: $10-272-1234
Fax: [phone]
miulis©canyonpartners.com

From: Chaney Sheffield
o: Mitch Julis; Jpsh Friedman; Bobby Turner; Patrick Dooley
Cc: Richard Bosworth
Sent: Mon-Mar 02 08:24:43 2009
SUbject; Re; Fontaiñebleau Summary
They are in compliance with loan dobument requirements forfunding.
Theirfebuary draw request was a day late and bofa tried to use the opportunity to encourage management to give an
update cali and revise their projections and budget.
The company denied the request for a call and highlighted that they were not required to submit a new budget and that
they were in compliance.

The tone of the letters wes certainly forceful on both sides.

From: Mitch Julis
Tó: Josh Friedman; Bobby Turner; Chaney Sheffield; Patrick Dooley
Cc: Richard Bosworth . --

Sent: Mon Mar02 08:16:59 2009
Subject: Re: Fontainebleau Summary
Chaney was saying the banks açe trying to cut off their commitment on the construction loan -- don't know whêthèr there
is ropm in the loan doca
Mitchèll R. Julis
Co-Chairman and Co,CEO
Cänyon Partners, LW
2000 Avenue of the Stars, 11th Floor
Los Angeles, ÇA 90067
Main: 310-272-IOOQ
Direct: 310-272-1234

Fax: 3i0-2721237

--

mjulis©canyonpadners.com

CONF UJENTIAL

CNY 004937

Case 1:09-md-02106-ASG Document 381-3 Entered on FLSD Docket 12/05/2013 Page 110 of
112
Proni: Josh Friedman
To: Bobby Turner; Chaney Sheffield; Mitch Julis; Patrick Dooley
Cc: Richard Bosworth
Sent: Mon Mar02 08:13:24 2009
Subject: Re: Fontainebleau Summary
Thanks

From: Bobby Turner
To: Chaney SheffieId Mitch Julis; Josh Friedman; Patrick Dooley
Cc: Richard Bosworth

Sent: Mon Mar 0207:51:59 2009
Subject: RE: Fontainebleau Summary
Richard Bosworih was in Vegas recentlyand heard from one of the prbject's consultants that the developer was planning
on finishing out the project and then mothballing it until the market turns.

K. Robert Turner
Managing Pañner
Canyon Partners, LLC
Canyon Capital Realty Advisors
www.ciuf.com
www.canyoncapitaLcom

2000 Avenue of the Stars, 11th Floor
Los Angeles, CA 90067
Çre: 310.272.1522
(Fax) 31 0.272.1523

From: Chancy Sheffield
Sent: Monday, March 02, 2009 7:31 AM
To: Mitch 3ulis; Josh Friedmán; Patiick Dooley; Bobby Turner
Cc: Chaney Sheffield
Subject: rontalnebleau Summary

We Own:
$38.5MM of the L+325 TL due 6(14114
$16.7MM of the L+325 DÛ TL due 811 4/14
Both tranches are pari-passu

Overview of Project:

-

Fontainebleau Is a $3.SBn high-end luxury casino resort under construction on the north end of theLas Vegas
Strip
"Targets consumers with a high level of discretionary income and a desire for aesthetic quality'
Described as Wynn towewIth a Venetian conventIon element, a Mandalay pool, a Borgata steaichouse, a
Caesars nightclub and a Palms rooftop lounge ali rolled ihto one
Location is somewhat challenging on 24.5 acres compriséd of the former El Ranch Hotel and Algiers Hotel
North of Riviera aoros the street from Circus Circus
With suspension of Echelon, Fontainebleau is somewhat orphaned from the action center of the strip
lt will be a 63-story casino with 3,889 rooms (including i 018 condo-hotel units)
Còndo units were expected to generate $700MM of proceeds to pay down bank debt ($690k per unit)
779 studio units (489 sq fi)
239 apartments (883 sq fi)
o
Turnberry isa leader in the Las Vegas condo market
100,000 square feet of gaming space (with 40-ft tail ceilings)
2

CONFIDENTIAL

CNY 004938

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1,700 slot machines and 125 table games
280,000 square feet of convention space
291,000 square feet of retail space (separately financed with a $400MM facility arranged by Lehman Brothers)
Numerous F&B outlets and a 56,000 square foot spa
Rooftop peo1 area atop a 12,1 acre, 68-ft high podium with cabanas and lush landscaping
Penthouse restauraht, lounge and gaming locatIon atop the hoto! tower
3,200 seat multi-level theater
The project is on budget and on schedule to open in October2009

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Project Status: 66% Complete as of January (last Project status Report). Still under conshuction
Wide speculation that the project will be put on hold for restructuring discussion

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lien bank debt quoted in mid

20's
o Even if the project Is funded to completion, almost certain covenant violations are expected
SofA has sent numerous letters to the Company requesting a status update call with the lenders that the
Company has rebuffed
Costs have increased slightly, but the Company claims the project is on schedule for an October 2009 opening
Funding obiigations for the Retail financing held by Lehman Brothers are supposedly being shared by the other
lenders in the facility
Worth noting that the sponsors here do have significant experience with the-Las Vegas Condo Market (Turnberry)
and casino/resort operations (Shaeffer)
o Redevdlopment of Fontainebleau Miami has been well received by reviewers. We have not received a
financial update yet

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Expected Cash Flow:
Company originally guided for $S2OMM of EBITDA (assumed continued growth in Vegas visitation and hotel room
rates on thé strip)
The best comparables to the project are Wynn Las Vegas (and to a lesser extent the Venetian)

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o Wynn Las Vegas has 2,716 and a l t000 sq foot casino and 200,000 square feet of convention space
o Venetian has 4,000 rooms, I 20,Ô00 sq fool casino and 1.2MM square feet of convention space with the
Expo Center
With the Palazzo now open, the Venetian I Palazzo has over 7,000 rooms, 225,000 sq feet of

gaming space at 2.2MM square feet of convention space
Both Wynn and the Venetian generated -'$400MM of OEBIIDA at their peak in 2007
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Wynn's run-rate EBITIDA fell to below -'$200MM ¡ri the
Quarter
The Venetian/Palazzo resort's run rate EBITDA fell to $340MM of EBITDA - this project is much larger than
Fontainebleau with I Ox the convention space
Given the smaller size, unfavorable strip location, and inability to command premium roorri-rates due to the
oversupply in the Las Vegas Market, I believe a $200MM run-rate is appropriate run rate. Given the ramp-up period
required for new developments, 2010 EBITDA is likely to come in below the $200MM run rate

Capital Structure;
Owned by Jeff Soffer (lumberry Group), Glenn Shaeffer (former President and CFO of Mandalay), and Crown
(purchased 19.6% of the company for $2SOMM, representing an equity valuation of $1 .2755n in April of 2007)

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Chaney Stieffleici
Canyon Capital Advisecs LLO
20U0 Avenue of the Stars
Los Angeles, CA 90067
ph) 310,272.1062; fx) 310.272.1063
csheffieid©canyonpartners.com

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