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April 16, 2014

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Harrah’s to clubs: Pay past-due expenses at Planet Hollywood or leave

Prive at Planet Hollywood

The Prive nightclub at Planet Hollywood. Launch slideshow »

The new owner of the Planet Hollywood resort in Las Vegas has been pressuring the bankrupt Privé and Living Room nightclubs there to either pay their past-due rent and expenses or vacate the premises.

Owned by Miami nightclub company the Opium Group, Privé and Living Room filed for Chapter 11 bankruptcy protection Nov. 11 in Florida.

Since then, Harrah's Entertainment Inc. of Las Vegas has acquired Planet Hollywood and Harrah's has been agitating in the bankruptcy case that it be paid for past-due rent and extra security expenses.

Extra security was hired by Planet Hollywood for the clubs after a scandal last year in which the clubs were temporarily closed for numerous violations of Clark County and Nevada Gaming Commission violations.

In a court filing last week, Harrah's Planet Hollywood subsidiary said these included instances where:

--Privé personnel removed inebriated patrons and left them unattended in the Planet Hollywood casino in various states of consciousness

--Privé patrons used or were under the influence of controlled substances while at the club

--Privé patrons alleged Privé employees physically and sexually assaulted them

--Privé was cited by Clark County Department of Business License officials for allowing topless and lewd activity; and for failing to cooperate with agents

--Privé allowed minors to enter the clubs and served them alcohol

The Gaming Commission initially sought to fine Planet Hollywood's then-owner, OpBiz, $750,000, but that was later reduced to $500,000.

OpBiz then modified the lease with Privé, requiring the club owner to re-pay OpBiz toward the fine with a payment of $125,000 due last June and five monthly payments of $50,000 after that.

Harrah's said in court papers that Privé is in default on its lease because it has made just one of the $50,000 payments; has failed to reimburse Planet Hollywood for $12,388 in extra security costs; has failed to pay all the rent due for January, February and March; and has allowed construction liens totaling $1.433 million to pile up against the property.

Court records indicate Privé has been paying about $85,000 per month in rent.

The bankruptcy judge in the case, A. Jay Cristol, on Jan. 14 ruled that contractors Sun City Electric and Midwest Drywall can pursue their lien lawsuits against Privé in state court.

The Harrah's court papers were filed in response to Privé's motion that it be granted a 90-day extension to decide whether to maintain its lease with Planet Hollywood or cancel the lease and move out of the resort. Thursday of this week is the initial deadline for a decision on the lease.

An attorney for Harrah's argued against an extension, saying in court papers: "A critical factor is whether the debtors have complied with their post (bankruptcy) petition obligations, and they have not."

"If the debtors are unable to pay their post-petition obligations, are they able to reorganize? Will landlord be damaged as a result of debtors' continued occupation? Are the debtors seeking outside financing? Do the debtors have a business plan? Have the debtors explored the possibility of relocating to more reasonably-priced property? Are the debtors simply looking to extend the life of a cash-oriented business while they fail to pay rent, security, or their mechanics’ liens?," Harrah's filing said.

"The debtors should be required to either assume the lease and promptly cure all defaults, or reject the lease and vacate the premises," said the brief filed by Miami attorney Geoffrey Aaronson.

But attorneys for Privé indicated in court papers the company hasn't yet decided whether to remain in Planet Hollywood.

"If the debtors successfully reorganize, they anticipate asking this court for approval to assume the leases," Privé attorneys said in a filing.

Cristol, during a hearing last week, rejected Privé's request for a 90-day extension but gave the company an extra 30 days to decide on the lease.

Privé attorneys, in a motion filed Friday, indicated a hearing would be scheduled so they could argue for the full 90-day extension, not just the 30 days granted last week.

Privé is also seeking a 120-day extension from Thursday's deadline for the right to exclusively file a plan of reorganization.

"The debtors are currently pursuing reorganization options and until such alternatives are fully explored, the debtors cannot decide upon the path which will realize the greatest value to creditors," Privé attorneys said in Friday's filing.

"The (potential) assumption of this lease will be the linchpin of any Chapter 11 plan and such assumption will be addressed as part of the debtors' overall reorganization," Privé said in its request filed by Miami attorneys Robert Schatzman and Steven Solomon.

Separately, Privé filed a financial report showing its cash sales in January totaled $752,703 and that after payment of expenses, including rent, it lost about $153,000 for the month.

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