<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1999
-----------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: to
------------------ --------------------
Commission file number: 333-49715
--------------------
ALADDIN GAMING ENTERPRISES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0379695
- ----------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
831 Pilot Road, Las Vegas, Nevada 89119
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(702) 736-7114
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
--------- ---------
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of March 31, 1999.
Class A Common Stock, no par value,
2,000,000 shares authorized 1,107,500 issued
Class B Common Stock, no par value,
Non-voting, 8,000,000 shares authorized 2,215,000 issued
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX
<TABLE>
<CAPTION>
PAGE NO.
------------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
March 31, 1999 and December 31, 1998................................ 1
Statement of Operations
For the three months ended March 31, 1999 and 1998 and for the
period from inception (December 3, 1997) through March 31, 1999..... 2
Statement of Stockholders' Equity
For the period from inception (December 3, 1997) through March 31,
1999................................................................ 3
Statement of Cash Flows
For the three months ended March 31, 1999 and 1998 and for the
period from inception (December 3, 1997) through March 31, 1999..... 4
Notes to the Consolidated Financial Statements........................ 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 7-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk............ 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings..................................................... 12
Item 2. Changes in Securities and Use of Proceeds............................. 12
Item 3. Defaults upon Senior Securities....................................... 12
Item 4. Submission of Matters to a Vote of Security Holders................... 12
Item 5. Other Information..................................................... 12
Item 6. Exhibits and Reports on Form 8-K...................................... 12
Signatures .................................................................... 13
Exhibit Index .................................................................... 14
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(unaudited)
ASSETS
<S> <C> <C>
Cash $ 1 $ 1
Investment in unconsolidated affiliate 15,080 17,049
--------- ---------
15,081 17,050
--------- ---------
--------- ---------
LIABILITIES AND MEMBERS' EQUITY
Payable to related party $ 4 $ 3
Common Stock:
Class A, no par value, 2,000,000 shares authorized,
1,107,500 shares issued and outstanding as of March 31,
1999 and December 31, 1998.
Class B, no par value and non-voting 8,000,000 shares
authorized, 2,215,000 shares issued and outstanding,
and 2,215,000 shares reserved pursuant to the warrant
agreement as of March 31, 1999 and December 31, 1998. 13,247 13,247
Additional paid-in capital 14,420 14,420
Deficit accumulated during the development stage (12,590) (10,620)
--------- ---------
15,081 17,050
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 3, 1997) THROUGH MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the period
December 3, 1997
For the three For the three (inception)
months ended months ended through
March 31, 1999 March 31, 1998 March 31, 1999
(unaudited) (unaudited) (unaudited)
---------------- ----------------- -----------------
<S> <C> <C> <C>
Other (income) expenses $ 1 $ 0 $ 4
Equity in loss of unconsolidated affiliate 1,969 3,430 12,586
Income tax expense - - -
---------- ---------- ----------
Net loss accumulated during the development stage $ 1,970 $ 3,430 $ 12,590
---------- ---------- ----------
---------- ---------- ----------
Basic and dilutive loss per share $ (0.59) $ (2.27) $ (4.51)
Shares used in per share calculation 3,322,500 1,513,584 2,792,826
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997)
THROUGH MARCH 31, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Common
Stock Additional
Class A Paid-in Retained
and Class B Capital Earnings Total
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 3, 1997 $ - $ - $ - $ -
Issuance of Class A common stock,
1 share issued - 1 - 1
------- ------- -------- --------
BALANCE, DECEMBER 31, 1997 - 1 - 1
Net loss for the period - - (10,620) (10,620)
Issuance of Class A common stock,
1,107,499 shares issued, and
Class B common stock, 2,215,000
shares issued 13,247 - - 13,247
Issuance of Warrants to purchase
Class B common stock, 2,215,000
Warrants issued - 15,000 - 15,000
Equity costs from unconsolidated
affiliate - (581) - (581)
------- ------- -------- --------
BALANCE, DECEMBER 31, 1998 13,247 14,420 (10,620) 17,047
Net loss for the period - - (1,970) (1,970)
------- ------- -------- --------
BALANCE, MARCH 31, 1999 $13,247 $14,420 $(12,590) $ 15,077
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 3, 1997) THROUGH MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the period
December 3, 1997
For the three For the three (inception)
months ended months ended through March 31,
March 31, 1999 March 31, 1998 1999
(unaudited) (unaudited) (unaudited)
------------------- ---------------------- --------------------
<S> <C> <C> <C>
Cash flows used for investing activities:
Investment in unconsolidated affiliate - (15,000) (15,000)
Cash flows from financing activities:
Proceeds from the issuance of stock - - 1
Proceeds from the issuance of warrants - 15,000 15,000
------ ------- -------
Increase in cash and cash equivalents - - 1
Cash and cash equivalents at beginning of
period 1 1 -
------ ------- -------
Cash and cash equivalents at end of period $ 1 $ 1 $ 1
------ ------- -------
------ ------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Equity contributions - non-cash - $13,247 $13,247
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. ORGANIZATION AND BUSINESS
Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Enterprises"),
was established on December 3, 1997. Enterprises holds a 25% interest in
Aladdin Gaming Holdings, LLC ("Gaming Holdings") and is wholly owned by
Sommer Enterprises, LLC, a Nevada limited liability company ("Sommer
Enterprises"). Aladdin Holdings, LLC, a Delaware limited liability company
("Holdings"), holds a majority interest in Sommer Enterprises. The members of
Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer ("Sommer
Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada
limited liability company ("GW"), a wholly owned subsidiary of Trust Company
of the West ("TCW"), which holds a 5% interest in Holdings.
Enterprises' interest in Gaming Holdings has been accounted for under the
equity method.
Enterprises has no other business or activities other than its
investment in Gaming Holdings which is a development stage company. Gaming
Holdings, through its wholly-owned subsidiary, Aladdin Gaming, LLC
("Gaming"), is developing, constructing and will operate a new hotel and
casino, the Aladdin Hotel and Casino as the centerpiece of an approximately
35-acre resort, casino and entertainment complex in Las Vegas, Nevada. Gaming
Holdings, through its subsidiaries, also owns 100% of Aladdin Music, LLC
("Aladdin Music"). Aladdin Music plans to construct a second hotel and casino
with a music and entertainment theme ("Aladdin Music Project") on the
southeast corner of the 35-acre parcel. Aladdin Music is currently seeking a
joint venture partner and financing for the Aladdin Music Project.
This information should be read in conjunction with the financial
statements set forth in Enterprises' Annual Report on Form 10-K for the year
ended December 31, 1998 and the Form 8-K, dated April 27, 1999.
Accounting policies utilized in the preparation of the financial
information herein presented are the same as set forth in Enterprises' annual
financial statements except as modified for interim accounting policies. The
interim consolidated financial information is unaudited. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the results for the interim periods have
been included. Interim results of operations are not necessarily indicative of
the results of operations for the full year.
Certain prior period amounts have been reclassified to conform with the
current period's presentation.
2. AMENDMENTS TO THE CREDIT AGREEMENT
On April 2, 1999, pursuant to the Bank Completion Guaranty, London Clubs
International, plc ("London Clubs") funded approximately $18.5 million in order
to bring the Main Project Budget "In Balance" (as defined in the Credit
Agreement) and the Lenders under the Credit Agreement funded Gaming's March 1999
funding draw ("March Draw") under the Credit Agreement. Upon receipt of the
5
<PAGE>
March Draw on April 2, 1999, Gaming immediately paid the outstanding March 1999
payment to the Design/Builder.
On April 16, 1999, the Lenders under the Credit Agreement approved,
effective as of March 10, 1999, the Second Amendment to the Credit Agreement,
which cured or waived the events of default discussed in Enterprises' Form 10-K
for the year ended December 31, 1998. Specifically, the Second Amendment to the
Credit Agreement provides: (i) the indebtedness incurred in connection with the
Aladdin Music Project has been paid by or on behalf of Aladdin Music and this
event of default has now been waived by the Lenders; (ii) a capital contribution
in the amount of approximately $18.5 million has been made to bring the Main
Project Budget "In Balance;" (iii) the approximately $6.5 million of letters of
credit, which had been previously posted by London Clubs and the Sommer Trust
to fund a prior increase in the Main Project Budget (and resulting imbalance),
have been drawn and the proceeds deposited in Gaming's guaranty deposit account;
(iv) amending certain definitions of the Credit Agreement, including, "Available
Funds," "Indebtedness," and "Realized Savings;" (v) any costs in excess of $36
million for completing the carpark associated with the project will be funded by
the Sommer Trust and London Clubs; (vi) requiring that Gaming maintain a minimum
"Net Worth" at the close of each calendar month, until the end of the fiscal
quarter during which the project opens (and then reverting to the Credit
Agreement's requirement to maintain the minimum Net Worth on a fiscal quarterly
basis thereafter), of not less than $100 million plus 85% of positive Net Income
(as defined in the Credit Agreement); and (vii) other technical amendments to
the Credit Agreement.
3. INCOME TAXES
Enterprises accounts for income taxes using the liability method as set
forth in the Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR
INCOME TAXES. Under the liability method, deferred taxes are provided based on
the temporary differences between the financial reporting basis and the tax
basis of Enterprises' assets and liabilities.
There was no income tax expense or benefit recorded for the period from
inception (December 3, 1997) through March 31, 1999 as Enterprises is a
development stage company and the realization of any deferred tax asset is
uncertain.
4. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133, which becomes
effective in the Year 2000, but may be adopted earlier, requires that entities
record all derivatives as assets or liabilities measured at fair value, with the
change in fair value recognized in earnings or in other comprehensive income,
depending on the use of the derivative and whether it qualifies for hedge
accounting. SFAS 133 amends or supercedes several current accounting statements.
Enterprises is in the process of analyzing SFAS No. 133 and the impact on its
consolidated financial position and results of operations.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the various other reports which have been
previously filed with the United States Securities and Exchange Commission
("SEC"), which may be inspected, without charge, at the Public Reference Section
of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549 or the SEC
internet site address: http://www.sec.gov.
DEVELOPMENT ACTIVITIES
Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Enterprises"), was
established on December 3, 1997. Enterprises holds a 25% interest in Aladdin
Gaming Holdings, LLC ("Gaming Holdings") and is wholly owned by Sommer
Enterprises, LLC, a Nevada limited liability company ("Sommer Enterprises").
Aladdin Holdings, LLC, a Delaware limited liability company ("Holdings") holds a
majority interest in Sommer Enterprises. The members of Holdings are the Trust
Under Article Sixth u/w/o Sigmund Sommer ("Sommer Trust") which holds a 95%
interest in Holdings, and GW Vegas, LLC, a Nevada limited liability company
("GW"), a wholly-owned subsidiary of Trust Company of the West ("TCW"), which
holds a 5% interest in Holdings.
Enterprises has no business or activities other than its investment in
Gaming Holdings which is a development stage company. Gaming Holdings is a
holding company, the material assets of which are 100% of the outstanding common
membership interests and 100% of the outstanding Series A preferred membership
interests of Aladdin Gaming, LLC ("Gaming"). Aladdin Capital Corp. ("Capital")
is a wholly-owned subsidiary of Gaming Holdings and was incorporated solely for
the purpose of serving as a co-issuer of the 13 1/2% Senior Discount Notes
("Notes"). Capital is not expected to have any material operations or assets and
will not have any revenues. Gaming Holdings, through its subsidiaries, also owns
100% of Aladdin Music, LLC ("Aladdin Music").
The operations of Gaming Holdings and its subsidiaries have been limited
to the design, development, financing and construction of a new Aladdin Hotel
and Casino ("Aladdin"). The Aladdin will be the centerpiece of an
approximately 35-acre world-class resort, casino and entertainment complex
("Complex") located on the site of the former Aladdin hotel and casino in Las
Vegas, Nevada, a premier location on Las Vegas Boulevard. The Aladdin has
been designed to include a luxury themed hotel of approximately 2,600 rooms
("Hotel"), an approximately 116,000 square foot casino ("Casino"), an
approximately 1,400-seat production showroom and six restaurants. The
Casino's main gaming area will contain approximately 2,800 slot machines, 87
table games, keno and a race and sports book facility. Included on a separate
level of the Casino will be a 15,000 square foot luxurious gaming section
("The London Club") that is expected to contain an additional 20 to 30 high
denomination table games and approximately 100 high denomination slot
machines. The Complex, which has been designed to promote casino traffic and
to provide customers with a wide variety of entertainment alternatives, will
comprise: (i) the Aladdin; (ii) the themed entertainment shopping mall with
approximately 496,000 square feet of retail space ("Desert Passage"); (iii) a
planned second hotel and casino with a music and entertainment theme
("Aladdin Music Project"); (iv) the newly renovated 7,000-seat Theater of the
Performing Arts ("Theater"); and (v) the approximately 4,800-space car
parking facility ("Carpark" and, together with the Desert Passage,
hereinafter, "Mall Project"). The Mall Project is separately owned in part by
an affiliate of the Gaming Holdings and Aladdin Music is currently seeking a
joint venture partner and financing for the Aladdin Music Project. Gaming
Holdings believes that the completion of the Aladdin will occur during the
second quarter of the year 2000.
7
<PAGE>
RESULTS OF OPERATIONS
Enterprises has no business or activities or material assets other than its
investment in Gaming Holdings, which is a development stage company.
Gaming Holdings has capitalized all qualifying construction costs.
Accordingly, Gaming Holdings does not have any historical operating income.
The capitalized costs consist primarily of land contributed by certain
members of Gaming Holdings, design fees, financing and commitment fees,
construction costs and interest on qualifying assets. Capitalized costs
include approximately $2.3 million related to the Aladdin Music Project for
necessary predevelopment costs and expenses of the Aladdin Music Project.
Gaming Holdings' operating expenses primarily have consisted of interest,
amortization costs and expenses related to the Notes and pre-opening costs.
Gaming Holdings anticipates that its results of operations from inception
to the opening of the Aladdin will be adversely affected by the expensing of
pre-opening costs and interest not qualifying for capitalization and should not
be indicative of future operations. Accordingly, historical results will not be
indicative of future operating results. Future operating results of Gaming
Holdings are subject to significant business, economic, regulatory and
competitive uncertainties and contingencies, many of which are beyond Gaming
Holdings' control. While Gaming Holdings believes that the Aladdin will be able
to attract a sufficient number of patrons and achieve the level of activity
necessary to permit Gaming Holdings to meet its debt payment obligations,
including the Notes and other indebtedness, and its other obligations, there can
be no assurance with respect thereto.
Because Enterprises' only material asset is its 25% interest in Gaming
Holdings, Enterprises records 25% of Gaming Holdings' losses as equity in loss
of unconsolidated affiliate.
Enterprises recorded a net loss of approximately $2.0 million for the
three months ended March 31, 1999 as compared to approximately $3.4 million
for the three month period ended March 31, 1998. Enterprises' cumulative loss
for the period of inception (December 3, 1997) to March 31, 1999 was
approximately $12.6 million. Gaming Holdings' losses were due to the
pre-opening costs, interest expense, amortization costs and expenses related
to the Notes. The pre-opening costs include approximately $.5 million related
to the Aladdin Music Project.
MATERIAL CHANGES IN FINANCIAL CONDITION
Through March 31, 1999, Gaming Holdings has expended approximately
$241.0 million primarily on the development of the Aladdin, of which
approximately $74.5 million had been expended on repayment of debt associated
with the land contribution to Gaming Holdings, approximately $105.5 million
in construction, furniture, fixtures and equipment, and capitalized interest,
approximately $39.5 million in debt issuance and member equity costs, and
approximately $21.5 million in pre-opening costs, net interest expense, and
other current assets.
LIQUIDITY AND CAPITAL RESOURCES
8
<PAGE>
On February 26, 1998, Gaming Holdings and Capital issued $221.5 million
aggregate principal amount of their 13 1/2% Senior Discount Notes due 2010
("Notes"). The proceeds to Gaming Holdings from the Notes were approximately
$115.0 million. For further details on the Notes, including the covenants,
restrictions and limitations on Gaming Holdings pursuant to the Note
Indenture, see Exhibit 10.1 to Enterprises' Form 10-K for the year ended
December 31, 1998.
Gaming has a $410 million Credit Agreement ("Bank Credit Facility" or
"Credit Agreement") with various financial institutions and the Bank of Nova
Scotia as the administrative agent for the lenders (collectively, "Lenders").
The Credit Agreement consists of three separate term loans. Term A Loan
comprises a term loan of $136 million and matures seven years after the initial
borrowing date. Term B Loan comprises a term loan of $114 million and matures
eight and one-half years after the initial borrowing date. Term C Loan comprises
a term loan of $160 million and matures ten years after the initial borrowing
date. As of March 31, 1999, approximately $69.4 million of the Term B Loan
proceeds, plus accrued interest, and approximately $115.4 million of the Term C
Loan proceeds, plus accrued interest, is available. The Term A Loan has not been
funded. For further details on the Bank Credit Facility, including the
covenants, restrictions and limitations on Gaming pursuant to the Bank Credit
Facility, see Exhibit 10.12 to Enterprises' Form 10-K for the year ended
December 31, 1998 and Exhibit 10.01 to Enterprises' Form 8-K, dated April 27,
1999.
Gaming has operating lease financing of up to $60 million and a term loan
facility of $20 million to obtain gaming equipment and other specified equipment
(collectively, "FF&E Financing"). For further details on the operating lease
financing and term loan facility, including the covenants, restrictions and
limitations on Gaming pursuant to the FF&E Financing, see Exhibit 10.40 to
Enterprises' Form 10-K for the year ended December 31, 1998.
Upon the later of (a) the transfer of the real property under the Mall
Project by Gaming to Aladdin Bazaar, LLC ("Aladdin Bazaar") or (b) the
commencement of Aladdin's operations, Aladdin Bazaar will execute a
promissory note of approximately $16.7 million to Gaming. Principal and
interest on the note is payable by Aladdin Bazaar to Gaming in the amount of
$2 million per year. The required payments are subordinate to various
restrictions under the Aladdin Bazaar operating agreement. Due to the
restrictions upon the payments, there can be no assurance that Gaming will
receive any payments under this note.
London Clubs International, plc ("London Clubs"), the Sommer Trust, and
Aladdin Bazaar Holdings, LLC ("Bazaar Holdings"), which is owned 99% by the
Sommer Trust, have entered into a completion guaranty ("Bank Completion
Guaranty") for the benefit of the Lenders under the Bank Credit Facility, under
which they have agreed to guarantee, among other things, the completion of the
Aladdin. The Bank Completion Guaranty is not subject to any maximum dollar
limitations. The holders of the Notes are not a party to the Bank Completion
Guaranty, however, London Clubs, the Sommer Trust and Bazaar Holdings have
entered into a limited completion guaranty for the benefit of the Noteholders
("Noteholder Completion Guaranty") under which they guarantee completion of the
Aladdin, subject to certain important exceptions, limitations and
qualifications. The Noteholder Completion Guaranty contains certain
intercreditor provisions which significantly limit the rights of the Trustee
under the Noteholder Completion Guaranty.
On April 5, 1999, effective as of March 10, 1999, the Sommer Trust,
London Clubs, Bazaar Holdings and The Bank of Nova Scotia, as administrative
agent for the Lenders, entered into the First Amendment to the Completion
Guaranty, which requires the Sommer Trust, London Clubs and Bazaar Holdings
to guarantee Gaming's minimum net worth as required by the amended Credit
Agreement. Gaming Holdings estimates, and has advised the Sommer Trust,
London Clubs and Bazaar Holdings, that additional capital contributions of
approximately $33 million will be required to maintain such minimum net
worth prior to the opening of the Aladdin.
In connection with the development of the Mall Project, Aladdin Bazaar
will reimburse Gaming Holdings approximately $14.2 million for the
construction of certain areas shared by the Aladdin and the Mall Project and
the facade to the Aladdin. Additionally, Aladdin Bazaar is obligated to spend
no more than $36 million for the Carpark. Therefore, any cost overruns
associated with these items will be borne by Gaming Holdings. In addition,
Gaming Holdings is obligated to pay to Aladdin Bazaar:
9
<PAGE>
(i) a $3.2 million fee per year for a term of 99 years, which is adjusted
annually pursuant to a consumer price index-based formula, for usage of the
Carpark; and (ii) the Gaming Holdings' proportionate share of the operating
costs associated with the Carpark and other common areas.
It is anticipated that Aladdin Music will carry out an approximately $8
million renovation to the Theater. However, because Gaming has an obligation to
have the Theater renovated and operational by the opening of the Aladdin, to the
extent a joint venture partner and financing have not been secured for the
Aladdin Music Project in time to meet this obligation, Gaming will be required
to renovate the Theater. Under the Credit Agreement, $8 million has been
designated for the Theater renovation.
Gaming Holdings believes that the funds provided by the Notes, Bank
Credit Facility, FF&E Financing, London Clubs' equity contribution and
contributions pursuant to the Bank Completion Guaranty (collectively,
"Funding Transactions") will be sufficient to develop, complete and commence
operations of the Aladdin, assuming no further delays or additional
construction cost overruns, which: (i) are not covered by the $31.8 million
contingency funds, of which amount $6.8 million is provided for under the
Design/Build Contract and $25 million is provided for under the Credit
Agreement; or (ii) Fluor Corporation and/or its subsidiary Fluor Daniel, Inc.
are not responsible for pursuant to the Fluor Guaranty and the Design/Build
Contract, respectively. As of March 31, 1999, Gaming Holdings has utilized
approximately $10.1 million of the $31.8 million. However, there can be no
assurance that the Funding Transactions will be sufficient for the
development, construction and commencement of the Aladdin.
Following the commencement of operations of the Aladdin, Gaming Holdings
expects to fund its operating, debt service and capital needs, as currently
contemplated, with $15 million of working capital from the Funding Transactions
and operating cash flows. Although no additional financing is contemplated,
Gaming Holdings will seek, if necessary and to the extent permitted under the
Notes Indenture and the terms of the Bank Credit Facility and the FF&E
Financing, additional financing through additional bank borrowings or debt or
equity financings. There can be no assurance that additional financing, if
needed, will be available to Gaming Holdings, or that, if available, the
financing will be on terms favorable to Gaming Holdings. There can also be no
assurance that estimates by Gaming Holdings of its reasonably anticipated
liquidity needs are accurate or that new business developments or other
unforeseen events will not occur, resulting in the need to raise additional
funds.
CERTAIN FORWARD LOOKING STATEMENTS
Certain information included in this Form 10-Q and other materials filed or
to be filed by Enterprises with the SEC (as well as information included in oral
statements or other written statements made, or to be made, by Enterprises)
contain statements that are forward-looking within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such statements include, without limitation,
those relating to plans for future
10
<PAGE>
operations, current construction and development activities (including
completion dates and budgets), other business development activities, capital
spending, financing sources, the effect of regulation (including gaming and
tax regulations) and competition. Such forward-looking information involves
important risks and uncertainties that could significantly affect anticipated
results in the future and, accordingly, such results may differ from those
expressed in any forward-looking statements made by, or on behalf of,
Enterprises. These risks and uncertainties include, but are not limited to,
those relating to the current development and construction activities and
costs and timing thereof, the sources and extent of financing for the
project, dependence on existing management, leverage and debt service
(including sensitivity to fluctuations in interest rates), domestic or
international economic conditions (including sensitivity to fluctuations in
foreign currencies), changes in federal or state tax laws or the
administration of such laws, changes in gaming laws or regulations (including
the legalization of gaming in certain jurisdictions) and application for
licenses and approvals under applicable jurisdictional laws and regulations
(including gaming laws and regulations).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 1999, there have been no material changes in the
information which Enterprises reported in its Form 10-K for the year ended
December 31, 1999, regarding its market risk.
11
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.01 Amendment No. 2 to the Employment Agreement between Aladdin
Gaming, LLC, Aladdin Gaming Holdings, LLC and James H.
McKennon, dated January 27, 1999.
10.02 Amendment No. 2 to the Employment Agreement between Aladdin
Gaming, LLC, Aladdin Gaming Holdings, LLC and Cornelius T.
Klerk, dated January 27, 1999.
10.03 Amendment No. 2 to the Employment Agreement between Aladdin
Gaming, LLC, Aladdin Gaming Holdings, LLC and Jose A.
Rueda, dated January 27, 1999.
10.04 Amendment No. 2 to the Employment Agreement between Aladdin
Gaming, LLC, Aladdin Gaming Holdings, LLC and Lee Galati,
dated January 27, 1999.
27.01 Financial Data Schedule.
(b) Reports on Form 8-K
On April 28, 1999, Enterprises filed a Form 8-K, dated April 27, 1999,
with the United States Securities and Exchange Commission. The Form 8-K
reported on certain amendments to Aladdin Gaming, LLC's credit agreement and
attached revised financial statements for Aladdin Gaming Enterprises, Inc.
and Aladdin Gaming Holdings, LLC.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALADDIN GAMING ENTERPRISES, INC.
May 13, 1999 By: /s/ RONALD DICTROW
----------------------------------------
Ronald Dictrow, Secretary
May 13, 1999 By: /s/ CORNELIUS T. KLERK
----------------------------------------
Cornelius T. Klerk,
Treasurer
13
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
<S> <C> <C>
10.01 Amendment No. 2 to the Employment Agreement between
Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC
and James H. McKennon, dated January 27, 1999.
10.02 Amendment No. 2 to the Employment Agreement between
Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC and
Cornelius T. Klerk, dated January 27, 1999
10.03 Amendment No. 2 to the Employment Agreement between
Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC and
Jose A. Rueda, dated January 27, 1999
10.04 Amendment No. 2 to the Employment Agreement between
Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC and
Lee Galati, dated January 27, 1999
27.01 Financial Data Schedule
</TABLE>
14
<PAGE>
EXHIBIT 10.01
AMENDMENT NO. 2
TO THE EMPLOYMENT AGREEMENT
OF
JAMES H. MCKENNON
This Amendment No. 2 ("Amendment") to the Employment Agreement between
Aladdin Gaming, LLC ("Company"), Aladdin Gaming Holdings, LLC ("Gaming
Holdings") and James H. McKennon ("Executive") is made and entered into this
27th day of January, 1999.
WHEREAS, the Company, Gaming Holdings and Executive entered into an
Employment Agreement effective as of April 15, 1997.
WHEREAS, the Company, Gaming Holdings and Executive entered into the
McKennon Contribution and Amendment Agreement on February 28, 1998, which, in
part, amended the Employment Agreement, (the Employment Agreement, as amended by
the McKennon Contribution and Amendment Agreement, herein after collectively
referred to as "Employment Agreement").
WHEREAS, the Employment Agreement, based on then-current information,
would, subject to certain understandings and conditions, vest the Executive with
fifty percent (50%) of his/her Restricted Membership Interests (as defined in
the Employment Agreement) by the expiration of the term of the Employment
Agreement;
WHEREAS, the current development of the Aladdin Hotel and Casino will not
permit the vesting of fifty percent (50%) of the Executive's Restricted
Membership Interests by the expiration of the term of the Employment Agreement;
and
WHEREAS, the Board of Directors for the Company and Gaming Holdings have
approved amending the Employment Agreement to provide, subject to certain
conditions, that the Executive would be vested with fifty percent (50%) of the
Executive's Restricted Membership Interests by the expiration of the term of the
Employment Agreement.
Now, therefore, in consideration of the foregoing, and the following mutual
covenants and agreements, the parties agree as follows:
1. AMENDMENT. Pursuant to Section 9(d) of the Employment Agreement,
Section 4(f) of the Employment Agreement is deleted in its entirety and replaced
with the following:
f. RIGHT TO PURCHASE LLC MEMBERSHIP INTEREST. On the Execution
Date, Executive has the right to purchase a restricted membership
interest in the capital of Gaming Holdings equal to One Percent
(1.0%) of the total membership interests of Gaming Holdings for a
total purchase price of Six Hundred Dollars ($600), which amount
equals One Hundred Percent (100%) of the fair
1
<PAGE>
market value of
Executive's membership interest on the date of purchase (the
"Holdings Restricted Membership Interest").
(1) During the Term, the Holdings Restricted Membership
Interest vests as follows:
(i) Twenty-five Percent (25%) of the Holdings Restricted
Membership Interest on the date that the Company opens
and begins operating the Aladdin Hotel & Casino (the
"Operational Date") and Executive executes and agrees
to be bound by the Company's Operating Agreement; and
(ii) Twenty-five Percent (25%) of the Holdings Restricted
Membership Interest upon the expiration of the four-year
term of this Agreement (provided Executive was employed
by the Company at such expiration);
(iii) Twenty-five Percent (25%) of the Holdings Restricted
Membership Interest on each succeeding annual
anniversary of the Operational Date to the Termination
Date;
(2) In addition to the vesting of Holdings Restricted
Membership Interest pursuant to Section 4(f)(1)(ii), further
upon expiration of the four-year term of this Agreement
(provided Executive was employed by the Company at such
expiration), any unvested Holdings Restricted Membership
Interest vests only as follows:
(i) If the Company does not continue to employ Executive
for reason(s) not constituting Cause as defined in
Section 5(d)(1-4) hereof or if the Executive does not
continue his employment at the request of the Company
for reason(s) constituting Good Reason as defined in
Section 5(d)(5), then an additional twenty-five
percent (25%) of the Holdings Restricted Membership
Interest vests; or
(ii) If the Executive's employment with the Company
continues, the twenty-five percent (25%) of the
Holdings Restricted Membership Interest continues to
vest in accordance with Section 4(f)(1)(iii) above as
though there had been no Termination Date.
(3) If Executive's employment terminates, the Company has
the right to repurchase any unvested portion
2
<PAGE>
of the Holdings Restricted Membership Interest for the purchase
price originally paid by Executive.
(4) While Gaming Holdings remains a pass-through entity
for federal income tax purposes, Gaming Holdings will
periodically distribute cash, to the extent available, to
Executive in an amount equal to the increase in his
cumulative tax liability with respect to his interest in
Gaming Holdings and Gaming Holdings may, at the discretion
of the Gaming Holdings Board, periodically distribute
additional cash, to the extent available, to Executive to
satisfy any additional tax liability arising from his
interest in Gaming Holdings in excess of distributions
otherwise receivable.
2. GAMING LAW. Anything to the contrary herein or in the Employment
Agreement notwithstanding, the parties hereto agree and acknowledge that they
are subject to and that they shall comply in all respects with the gaming laws
of the State of Nevada, including the Nevada Gaming Control Act and (or any
successor statute) the rules and regulations promulgated by the Nevada Gaming
Commission and the State Gaming Control Board. To the extent anything in this
Amendment or the Employment Agreement is inconsistent with any gaming laws or
regulations, the gaming laws and regulations shall control.
3. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of any successor of the Company or Gaming Holdings. Any such successor
of the Company or Gaming Holdings shall be deemed substituted for the Company or
Gaming Holdings under the terms of this Agreement for all purposes. As used
herein, "successor" shall include any person, firm, corporation or other
business entity which at any time, whether by purchase, merger or otherwise,
directly or indirectly acquires all or substantially all of the assets or
business of the Company or Gaming Holdings and supercede any prior understanding
or agreements between the parties hereto and Aladdin Holdings, LLC.
4. ENTIRE AGREEMENT. This Amendment and the Employment Agreement
represent the entire agreement and understanding between the Company, Gaming
Holdings, Aladdin Holdings, LLC and Executive concerning the matters herein and
supercede any prior understandings or agreements between the parties hereto and
Aladdin Holdings, LLC.
5. REMAINING AGREEMENT EFFECTIVE. Any provision of the Employment
Agreement not amended by this Amendment shall remain in full force and effect.
3
<PAGE>
6. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Amendment may
only be amended, canceled or discharged in writing singed by the Executive,
Gaming Holdings and the Company.
7. GOVERNING LAW. This Amendment shall be governed by the laws of the
state of Nevada.
8. CAPITALIZED TERMS. Capitalized terms not defined herein shall have
the meanings described thereto in the Employment Agreement.
9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be considered an original, but all such shall
together constitute but one and the same contract.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above-written.
ALADDIN GAMING, LLC
By: /s/ RICHARD J. GOEGLEIN
-------------------------------------
Richard J. Goeglein
President and Chief Executive Officer
ALADDIN GAMING HOLDINGS, LLC
By: /s/ RICHARD J. GOEGLEIN
-------------------------------------
Richard J. Goeglein
President and Chief Executive Officer
EXECUTIVE
/s/ JAMES H. MCKENNON
----------------------------
Name: James H. McKennon
Title: Senior Vice President
<PAGE>
EXHIBIT 10.02
AMENDMENT NO. 2
TO THE EMPLOYMENT AGREEMENT
OF
CORNELIUS T. KLERK
This Amendment No. 2 ("Amendment") to the Employment Agreement between
Aladdin Gaming, LLC ("Company"), Aladdin Gaming Holdings, LLC ("Gaming
Holdings") and Cornelius T. Klerk ("Executive") is made and entered into this
27th day of January, 1999.
WHEREAS, the Company, Gaming Holdings and Executive entered into an
Employment Agreement effective as of July 1, 1997.
WHEREAS, the Company, Gaming Holdings and Executive entered into the Klerk
Contribution and Amendment Agreement on February 28, 1998, which, in part,
amended the Employment Agreement, (the Employment Agreement, as amended by the
Klerk Contribution and Amendment Agreement, herein after collectively referred
to as "Employment Agreement").
WHEREAS, the Employment Agreement, based on then-current information,
would, subject to certain understandings and conditions, vest the Executive with
fifty percent (50%) of his/her Restricted Membership Interests (as defined in
the Employment Agreement) by the expiration of the term of the Employment
Agreement;
WHEREAS, the current development of the Aladdin Hotel and Casino will not
permit the vesting of fifty percent (50%) of the Executive's Restricted
Membership Interests by the expiration of the term of the Employment Agreement;
and
WHEREAS, the Board of Directors for the Company and Gaming Holdings have
approved amending the Employment Agreement to provide, subject to certain
conditions, that the Executive would be vested with fifty percent (50%) of the
Executive's Restricted Membership Interests by the expiration of the term of the
Employment Agreement.
Now, therefore, in consideration of the foregoing, and the following mutual
covenants and agreements, the parties agree as follows:
1. AMENDMENT. Pursuant to Section 9(d) of the Employment Agreement,
Section 4(f) of the Employment Agreement is deleted in its entirety and replaced
with the following:
f. RIGHT TO PURCHASE LLC MEMBERSHIP INTEREST. On the Execution
Date, Executive has the right to purchase a restricted membership
interest in the capital of Gaming Holdings equal to Three
Quarters of One Percent (.75%) of the total membership interests
of Gaming Holdings for a total purchase price of Four Hundred
Fifty Dollars ($450), which amount equals One Hundred
1
<PAGE>
Percent (100%) of the fair market value of Executive's membership
interest on the date of purchase (the "Holdings Restricted
Membership Interest").
(1) During the Term, the Holdings Restricted Membership
Interest vests as follows:
(i) Twenty-five Percent (25%) of the Holdings Restricted
Membership Interest on the date that the Company opens
and begins operating the Aladdin Hotel & Casino (the
"Operational Date") and Executive executes and agrees
to be bound by the Company's Operating Agreement; and
(ii) Twenty-five Percent (25%) of the Holdings Restricted
Membership Interest upon the expiration of the four-year
term of this Agreement (provided Executive was employed
by the Company at such expiration);
(iii) Twenty-five Percent (25%) of the Holdings Restricted
Membership Interest on each succeeding annual
anniversary of the Operational Date to the Termination
Date;
(2) In addition to the vesting of Holdings Restricted
Membership Interest pursuant to Section 4(f)(1)(ii), further
upon expiration of the four-year term of this Agreement
(provided Executive was employed by the Company at such
expiration), any unvested Holdings Restricted Membership
Interest vests only as follows:
(i) If the Company does not continue to employ Executive
for reason(s) not constituting Cause as defined in
Section 5(d)(1-4) hereof or if the Executive does not
continue his employment at the request of the Company
for reason(s) constituting Good Reason as defined in
Section 5(d)(5), then an additional twenty-five
percent (25%) of the Holdings Restricted Membership
Interest vests; or
(ii) If the Executive's employment with the Company
continues, the twenty-five percent (25%) of the
Holdings Restricted Membership Interest continues to
vest in accordance with Section 4(f)(1)(iii) above as
though there had been no Termination Date.
2
<PAGE>
(3) If Executive's employment terminates, the Company has
the right to repurchase any unvested portion of the Holdings
Restricted Membership Interest for the purchase price
originally paid by Executive.
(4) While Gaming Holdings remains a pass-through entity
for federal income tax purposes, Gaming Holdings will
periodically distribute cash, to the extent available, to
Executive in an amount equal to the increase in his
cumulative tax liability with respect to his interest in
Gaming Holdings and Gaming Holdings may, at the discretion
of the Gaming Holdings Board, periodically distribute
additional cash, to the extent available, to Executive to
satisfy any additional tax liability arising from his
interest in Gaming Holdings in excess of distributions
otherwise receivable.
2. GAMING LAW. Anything to the contrary herein or in the Employment
Agreement notwithstanding, the parties hereto agree and acknowledge that they
are subject to and that they shall comply in all respects with the gaming laws
of the State of Nevada, including the Nevada Gaming Control Act and (or any
successor statute) the rules and regulations promulgated by the Nevada Gaming
Commission and the State Gaming Control Board. To the extent anything in this
Amendment or the Employment Agreement is inconsistent with any gaming laws or
regulations, the gaming laws and regulations shall control.
3. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of any successor of the Company or Gaming Holdings. Any such successor
of the Company or Gaming Holdings shall be deemed substituted for the Company or
Gaming Holdings under the terms of this Agreement for all purposes. As used
herein, "successor" shall include any person, firm, corporation or other
business entity which at any time, whether by purchase, merger or otherwise,
directly or indirectly acquires all or substantially all of the assets or
business of the Company or Gaming Holdings and supercede any prior understanding
or agreements between the parties hereto and Aladdin Holdings, LLC.
4. ENTIRE AGREEMENT. This Amendment and the Employment Agreement
represent the entire agreement and understanding between the Company, Gaming
Holdings, Aladdin Holdings, LLC and Executive concerning the matters herein and
supercede any prior understandings or agreements between the parties hereto and
Aladdin Holdings, LLC.
5. REMAINING AGREEMENT EFFECTIVE. Any provision of the Employment
Agreement not amended by this Amendment shall remain in full force and effect.
3
<PAGE>
6. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Amendment may
only be amended, canceled or discharged in writing singed by the Executive,
Gaming Holdings and the Company.
7. GOVERNING LAW. This Amendment shall be governed by the laws of the
state of Nevada.
8. CAPITALIZED TERMS. Capitalized terms not defined herein shall have
the meanings described thereto in the Employment Agreement.
9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be considered an original, but all such shall
together constitute but one and the same contract.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above-written.
ALADDIN GAMING, LLC
By: /s/ RICHARD J. GOEGLEIN
-------------------------------
Richard J. Goeglein
President and Chief Executive Officer
ALADDIN GAMING HOLDINGS, LLC
By: /s/ RICHARD J. GOEGLEIN
-------------------------------
Richard J. Goeglein
President and Chief Executive Officer
EXECUTIVE
/s/ CORNELIUS T. KLERK
---------------------------
Name: Cornelius T. Klerk
Title: Senior Vice President and
Chief Financial Officer
4
<PAGE>
EXHIBIT 10.03
AMENDMENT NO. 2
TO THE EMPLOYMENT AGREEMENT
OF
JOSE A. RUEDA
This Amendment No. 2 ("Amendment") to the Employment Agreement between
Aladdin Gaming, LLC ("Company"), Aladdin Gaming Holdings, LLC ("Gaming
Holdings") and Jose A. Rueda ("Executive") is made and entered into this 27th
day of January, 1999.
WHEREAS, the Company, Gaming Holdings and Executive entered into an
Employment Agreement effective as of July 1, 1997.
WHEREAS, the Company, Gaming Holdings and Executive entered into the
Rueda Contribution and Amendment Agreement on February 28, 1998, which, in
part, amended the Employment Agreement, (the Employment Agreement, as amended
by the Rueda Contribution and Amendment Agreement, herein after collectively
referred to as "Employment Agreement").
WHEREAS, the Employment Agreement, based on then-current information,
would, subject to certain understandings and conditions, vest the Executive
with fifty percent (50%) of his/her Restricted Membership Interests (as
defined in the Employment Agreement) by the expiration of the term of the
Employment Agreement;
WHEREAS, the current development of the Aladdin Hotel and Casino will
not permit the vesting of fifty percent (50%) of the Executive's Restricted
Membership Interests by the expiration of the term of the Employment
Agreement; and
WHEREAS, the Board of Directors for the Company and Gaming Holdings have
approved amending the Employment Agreement to provide, subject to certain
conditions, that the Executive would be vested with fifty percent (50%) of
the Executive's Restricted Membership Interests by the expiration of the term
of the Employment Agreement.
Now, therefore, in consideration of the foregoing, and the following
mutual covenants and agreements, the parties agree as follows:
1. AMENDMENT. Pursuant to Section 9(d) of the Employment Agreement,
Section 4(f) of the Employment Agreement is deleted in its entirety and
replaced with the following:
f. RIGHT TO PURCHASE LLC MEMBERSHIP INTEREST. On the Execution
Date, Executive has the right to purchase a restricted membership
interest in the capital of Gaming Holdings equal to Three
Quarters of One Percent (.75%) of the total membership interests
of Gaming Holdings for a total purchase price of Four Hundred
Fifty Dollars ($450), which amount equals One Hundred
1
<PAGE>
Percent (100%) of the fair market value of Executive's membership
interest on the date of purchase (the "Holdings Restricted
Membership Interest").
(1) During the Term, the Holdings Restricted Membership
Interest vests as follows:
(i) Twenty-five Percent (25%) of the Holdings Restricted
Membership Interest on the date that the Company opens
and begins operating the Aladdin Hotel & Casino (the
"Operational Date") and Executive executes and agrees
to be bound by the Company's Operating Agreement; and
(ii) Twenty-five Percent (25%) of the Holdings Restricted
Membership Interest upon the expiration of the four-year
term of this Agreement (provided Executive was employed
by the Company at such expiration);
(iii) Twenty-five Percent (25%) of the Holdings Restricted
Membership Interest on each succeeding annual
anniversary of the Operational Date to the Termination
Date;
(2) In addition to the vesting of Holdings Restricted
Membership Interest pursuant to Section 4(f)(1)(ii), further
upon expiration of the four-year term of this Agreement
(provided Executive was employed by the Company at such
expiration), any unvested Holdings Restricted Membership
Interest vests only as follows:
(i) If the Company does not continue to employ Executive
for reason(s) not constituting Cause as defined in
Section 5(d)(1-4) hereof or if the Executive does not
continue his employment at the request of the Company
for reason(s) constituting Good Reason as defined in
Section 5(d)(5), then an additional twenty-five
percent (25%) of the Holdings Restricted Membership
Interest vests; or
(ii) If the Executive's employment with the Company
continues, the twenty-five percent (25%) of the
Holdings Restricted Membership Interest continues to
vest in accordance with Section 4(f)(1)(iii) above as
though there had been no Termination Date.
2
<PAGE>
(3) If Executive's employment terminates, the Company has
the right to repurchase any unvested portion of the Holdings
Restricted Membership Interest for the purchase price
originally paid by Executive.
(4) While Gaming Holdings remains a pass-through entity
for federal income tax purposes, Gaming Holdings will
periodically distribute cash, to the extent available, to
Executive in an amount equal to the increase in his
cumulative tax liability with respect to his interest in
Gaming Holdings and Gaming Holdings may, at the discretion
of the Gaming Holdings Board, periodically distribute
additional cash, to the extent available, to Executive to
satisfy any additional tax liability arising from his
interest in Gaming Holdings in excess of distributions
otherwise receivable.
2. GAMING LAW. Anything to the contrary herein or in the Employment
Agreement notwithstanding, the parties hereto agree and acknowledge that they
are subject to and that they shall comply in all respects with the gaming
laws of the State of Nevada, including the Nevada Gaming Control Act and (or
any successor statute) the rules and regulations promulgated by the Nevada
Gaming Commission and the State Gaming Control Board. To the extent anything
in this Amendment or the Employment Agreement is inconsistent with any gaming
laws or regulations, the gaming laws and regulations shall control.
3. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of any successor of the Company or Gaming Holdings. Any such
successor of the Company or Gaming Holdings shall be deemed substituted for
the Company or Gaming Holdings under the terms of this Agreement for all
purposes. As used herein, "successor" shall include any person, firm,
corporation or other business entity which at any time, whether by purchase,
merger or otherwise, directly or indirectly acquires all or substantially all
of the assets or business of the Company or Gaming Holdings and supercede any
prior understanding or agreements between the parties hereto and Aladdin
Holdings, LLC.
4. ENTIRE AGREEMENT. This Amendment and the Employment Agreement
represent the entire agreement and understanding between the Company, Gaming
Holdings, Aladdin Holdings, LLC and Executive concerning the matters herein
and supercede any prior understandings or agreements between the parties
hereto and Aladdin Holdings, LLC.
5. REMAINING AGREEMENT EFFECTIVE. Any provision of the Employment
Agreement not amended by this Amendment shall remain in full force and effect.
3
<PAGE>
6. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Amendment
may only be amended, canceled or discharged in writing singed by the
Executive, Gaming Holdings and the Company.
7. GOVERNING LAW. This Amendment shall be governed by the laws of the
state of Nevada.
8. CAPITALIZED TERMS. Capitalized terms not defined herein shall have
the meanings described thereto in the Employment Agreement.
9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be considered an original, but all such
shall together constitute but one and the same contract.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above-written.
ALADDIN GAMING, LLC
By: /s/ RICHARD J. GOEGLEIN
-------------------------------
Richard J. Goeglein
President and Chief Executive Officer
ALADDIN GAMING HOLDINGS, LLC
By: /s/ RICHARD J. GOEGLEIN
-------------------------------
Richard J. Goeglein
President and Chief Executive Officer
EXECUTIVE
/s/ JOSE A. RUEDA
-------------------------------
Name: Jose A. Rueda
Title: Senior Vice President
Electronic Gaming
4
<PAGE>
EXHIBIT 10.04
AMENDMENT NO. 2
TO THE EMPLOYMENT AGREEMENT
OF
LEE GALATI
This Amendment No. 2 ("Amendment") to the Employment Agreement between
Aladdin Gaming, LLC ("Company"), Aladdin Gaming Holdings, LLC ("Gaming
Holdings") and Lee Galati ("Executive") is made and entered into this 27th day
of January, 1999.
WHEREAS, the Company, Gaming Holdings and Executive entered into an
Employment Agreement effective as of July 1, 1997.
WHEREAS, the Company, Gaming Holdings and Executive entered into the Galati
Contribution and Amendment Agreement on February 28, 1998, which, in part,
amended the Employment Agreement, (the Employment Agreement, as amended by the
Galati Contribution and Amendment Agreement, herein after collectively referred
to as "Employment Agreement").
WHEREAS, the Employment Agreement, based on then-current information,
would, subject to certain understandings and conditions, vest the Executive with
fifty percent (50%) of his/her Restricted Membership Interests (as defined in
the Employment Agreement) by the expiration of the term of the Employment
Agreement;
WHEREAS, the current development of the Aladdin Hotel and Casino will not
permit the vesting of fifty percent (50%) of the Executive's Restricted
Membership Interests by the expiration of the term of the Employment Agreement;
and
WHEREAS, the Board of Directors for the Company and Gaming Holdings have
approved amending the Employment Agreement to provide, subject to certain
conditions, that the Executive would be vested with fifty percent (50%) of the
Executive's Restricted Membership Interests by the expiration of the term of the
Employment Agreement.
Now, therefore, in consideration of the foregoing, and the following mutual
covenants and agreements, the parties agree as follows:
1. AMENDMENT. Pursuant to Section 9(d) of the Employment Agreement,
Section 4(f) of the Employment Agreement is deleted in its entirety and replaced
with the following:
f. RIGHT TO PURCHASE LLC MEMBERSHIP INTEREST. On the Execution
Date, Executive has the right to purchase a restricted membership
interest in the capital of Gaming Holdings equal to One Quarter
of One Percent (.25%) of the total membership interests of Gaming
Holdings for a total purchase price of One Hundred Fifty Dollars
($150), which amount equals One Hundred
1
<PAGE>
Percent (100%) of the fair market value of Executive's membership
interest on the date of purchase (the "Holdings Restricted
Membership Interest").
(1) During the Term, the Holdings Restricted Membership
Interest vests as follows:
(i) Twenty-five Percent (25%) of the Holdings Restricted
Membership Interest on the date that the Company opens
and begins operating the Aladdin Hotel & Casino (the
"Operational Date") and Executive executes and agrees
to be bound by the Company's Operating Agreement; and
(ii) Twenty-five Percent (25%) of the Holdings Restricted
Membership Interest upon the expiration of the four-year
term of this Agreement (provided Executive was employed
by the Company at such expiration);
(iii) Twenty-five Percent (25%) of the Holdings Restricted
Membership Interest on each succeeding annual
anniversary of the Operational Date to the Termination
Date;
(2) In addition to the vesting of Holdings Restricted
Membership Interest pursuant to Section 4(f)(1)(ii), further upon
expiration of the four-year term of this Agreement (provided
Executive was employed by the Company at such expiration), any
unvested Holdings Restricted Membership Interest vests only as
follows:
(i) If the Company does not continue to employ Executive
for reason(s) not constituting Cause as defined in
Section 5(d)(1-4) hereof or if the Executive does not
continue his employment at the request of the Company
for reason(s) constituting Good Reason as defined in
Section 5(d)(5), then an additional twenty-five
percent (25%) of the Holdings Restricted Membership
Interest vests; or
(ii) If the Executive's employment with the Company
continues, the twenty-five percent (25%) of the
Holdings Restricted Membership Interest continues to
vest in accordance with Section 4(f)(1)(iii) above as
though there had been no Termination Date.
2
<PAGE>
(3) If Executive's employment terminates, the Company has
the right to repurchase any unvested portion of the Holdings
Restricted Membership Interest for the purchase price
originally paid by Executive.
(4) While Gaming Holdings remains a pass-through entity
for federal income tax purposes, Gaming Holdings will
periodically distribute cash, to the extent available, to
Executive in an amount equal to the increase in his
cumulative tax liability with respect to his interest in
Gaming Holdings and Gaming Holdings may, at the discretion
of the Gaming Holdings Board, periodically distribute
additional cash, to the extent available, to Executive to
satisfy any additional tax liability arising from his
interest in Gaming Holdings in excess of distributions
otherwise receivable.
2. GAMING LAW. Anything to the contrary herein or in the Employment
Agreement notwithstanding, the parties hereto agree and acknowledge that they
are subject to and that they shall comply in all respects with the gaming
laws of the State of Nevada, including the Nevada Gaming Control Act and (or
any successor statute) the rules and regulations promulgated by the Nevada
Gaming Commission and the State Gaming Control Board. To the extent anything
in this Amendment or the Employment Agreement is inconsistent with any gaming
laws or regulations, the gaming laws and regulations shall control.
3. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of any successor of the Company or Gaming Holdings. Any such
successor of the Company or Gaming Holdings shall be deemed substituted for
the Company or Gaming Holdings under the terms of this Agreement for all
purposes. As used herein, "successor" shall include any person, firm,
corporation or other business entity which at any time, whether by purchase,
merger or otherwise, directly or indirectly acquires all or substantially all
of the assets or business of the Company or Gaming Holdings and supercede any
prior understanding or agreements between the parties hereto and Aladdin
Holdings, LLC.
4. ENTIRE AGREEMENT. This Amendment and the Employment Agreement
represent the entire agreement and understanding between the Company, Gaming
Holdings, Aladdin Holdings, LLC and Executive concerning the matters herein
and supercede any prior understandings or agreements between the parties
hereto and Aladdin Holdings, LLC.
5. REMAINING AGREEMENT EFFECTIVE. Any provision of the Employment
Agreement not amended by this Amendment shall remain in full force and effect.
3
<PAGE>
6. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Amendment may
only be amended, canceled or discharged in writing singed by the Executive,
Gaming Holdings and the Company.
7. GOVERNING LAW. This Amendment shall be governed by the laws of the
state of Nevada.
8. CAPITALIZED TERMS. Capitalized terms not defined herein shall have
the meanings described thereto in the Employment Agreement.
9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be considered an original, but all such
shall together constitute but one and the same contract.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above-written.
ALADDIN GAMING, LLC
By: /s/ RICHARD J. GOEGLEIN
-----------------------
Richard J. Goeglein
President and Chief Executive Officer
ALADDIN GAMING HOLDINGS, LLC
By: /s/ RICHARD J. GOEGLEIN
-----------------------
Richard J. Goeglein
President and Chief Executive Officer
EXECUTIVE
/s/ LEE GALATI
--------------
Name: Lee Galati
Title: Senior Vice President/
Human Resources
4
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