-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ODN3f3ZoLamA0vGenB5vNLK6gJuw1mdkZf3vn0coip0JzY96ZlxHlewWh4I4Cgf6 aKn5AJ77cpHxkggUprXkyA== 0000912057-00-015293.txt : 20000426 0000912057-00-015293.hdr.sgml : 20000426 ACCESSION NUMBER: 0000912057-00-015293 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 DATE AS OF CHANGE: 20000425 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALADDIN GAMING ENTERPRISES INC CENTRAL INDEX KEY: 0001059128 STANDARD INDUSTRIAL CLASSIFICATION: 7011 IRS NUMBER: 880379695 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-49715 FILM NUMBER: 589502 BUSINESS ADDRESS: STREET 1: 831 PILOT ROAD CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 7027367114 MAIL ADDRESS: STREET 1: 831 PILOT ROAD CITY: LAS VEGAS STATE: NV ZIP: 89119 10-K 1 10-K - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE) /X/ Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1999 / / 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) Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: None 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / Not applicable. Indicate the number of shares outstanding of each of the registrants' classes of common stock as of March 17, 2000: Class A Common Stock, no par value, 2,000,000 shares authorized, 1,107,500 issued and Class B Common Stock, non-voting, no par value, 8,000,000 shares authorized, 2,215,000 issued. DOCUMENTS INCORPORATED BY REFERENCE Not applicable. - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL. Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Gaming Enterprises"), was established on December 3, 1997. Gaming Enterprises holds a 25% interest in Aladdin Gaming Holdings, LLC, a Nevada limited liability company ("Gaming Holdings") which was established on December 1, 1997. Gaming Holdings initially was owned by Gaming Enterprises (25%), Sommer Enterprises, LLC, a Nevada limited liability company ("Sommer Enterprises") (72%), and GAI, LLC, a Nevada limited liability company ("GAI") (3%). On February 26, 1998, London Clubs International plc ("London Clubs"), through its subsidiary London Clubs Nevada Inc. ("LCNI"), contributed $50 million for a 25% interest in Gaming Holdings common membership interests ("Holdings Common Membership Interests"). Sommer Enterprises contributed a portion of land for Holdings Common Membership Interests. Gaming Enterprises, which is owned 100% by Sommer Enterprises, contributed a portion of land, $7 million of predevelopment costs and $15 million in cash for Holdings Common Membership Interests. After the additional contributions, Sommer Enterprises owns 47% of Gaming Holdings, Gaming Enterprises owns 25% of Gaming Holdings, LCNI owns 25% of Gaming Holdings, and GAI owns 3% of Gaming Holdings. On November 30, 1998, the Trust Under Article Sixth u/w/o Sigmund Sommer ("Sommer Trust") and its affiliates agreed that they will cause Sommer Enterprises and Gaming Enterprises to vote their respective Holdings Common Membership Interests so that (taking into account Holdings Common Membership Interests held by London Clubs or its affiliates) London Clubs controls fifty percent of the voting power of Gaming Holdings. In December 1999, the holders of Holdings Common Membership Interests agreed to restate the capital structure of Gaming Holdings, which restatement provided, in addition to other matters, that LCNI has an option to convert certain preferred membership interests of Gaming Holdings into 15% of Holdings Common Membership Interests, the creation of certain new classes of preferred membership interests and for LCNI's control of the majority of the Board of Managers of Gaming Holdings; however, most material decisions remain subject to the supermajority consent of Gaming Holdings members. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Aladdin Holdings, LLC, a Delaware limited liability company ("AHL"), indirectly holds a majority interest in Gaming Holdings. The members of AHL are the Sommer Trust which holds a 95% interest in AHL and GW Vegas, LLC, a Nevada limited liability company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest in AHL. Gaming Enterprises has no other business or activity other than its investment in Gaming Holdings, which is a development stage company and Gaming Enterprises' sole material asset is 25% of the Holdings Common Membership Interests. Gaming Holdings is a holding company, the material assets of which are 100% of the outstanding common membership interests and 100% of the outstanding Series A preferred interests of Aladdin Gaming, LLC ("Gaming"). Aladdin Capital Corp. ("Capital") is a wholly owned subsidiary of Gaming Holdings and was incorporated solely for the purpose of serving as a co-issuer of the 13 1/2% Senior Discount Notes ("Notes") issued by Gaming Holdings and Capital in 1998. For further details relating to the Notes, and the Indenture relating to the Notes ("Note Indenture"), see Exhibit 4.1 to the Company's Registration Statement on Form S-4 filed on April 9, 1998. Capital will not have any material operations or assets and will not have any revenues. Gaming Holdings, through its subsidiaries, also owns 100% of Aladdin Music, LLC ("Aladdin Music'). Except where the context otherwise requires Gaming Holdings and its subsidiaries are collectively referred to as "Company." Much of the following information relates to Gaming Holdings and its subsidiaries and is included due to the relative significance of Gaming Holdings to Gaming Enterprises. 2 NARRATIVE DESCRIPTION OF BUSINESS ALADDIN. The operations of the Company have been primarily limited to the design, development, financing and construction of a new Aladdin Resort & 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, at the center of Las Vegas Boulevard ("Strip"). The Aladdin has been designed to include a luxury-themed hotel of approximately 2,567 rooms ("Hotel"), an approximately 116,000 square foot casino ("Casino"), an approximately 1,200-seat production showroom and six restaurants. The Hotel will have 1,832 deluxe guestrooms, 404 resort guestrooms, 258 suites, 46 luxury rooms and 27 mega suites for a total of 2,567 rooms. In addition, the Hotel will provide recreational facilities for the guests, including a health spa and outdoor swimming pool complex. The Aladdin is expected to include six restaurants offering a wide range of dining selections. Food service facilities at the Aladdin will include a buffet, contemporary Asian restaurant and a 24-hour casual dining facility. The mezzanine level, which will offer panoramic views of the main casino floor and Las Vegas Boulevard, will feature an Italian restaurant, a steakhouse, and a casual dining/coffee bar. 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 at Aladdin") that is expected to contain approximately 20 to 30 high denomination table games and approximately 100 high denomination slot machines. See "Strategic Alliances-London Clubs." The Aladdin is also expected to include on the mezzanine level of the main building over 90,000 square feet of convention, conference, trade show and reception facilities, including a 37,000-square foot main ballroom, 12,000 square feet of pre-function space and 41,000 square feet of breakout space in 15 separate rooms. THE COMPLEX. 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) a themed entertainment shopping mall with approximately 496,000 square feet of retail space ("Desert Passage"); (iii) a second hotel and casino with a music and entertainment theme ("Aladdin Music Project"); (iv) the newly renovated 7,000 seat Theater of the Performing Arts ("Theater"); and (v) an approximately 4,800 space car parking facility ("Carpark" and, together with the Desert Passage, hereinafter, "Mall Project"). The Mall Project will be separately owned in part by an affiliate of the Company and Aladdin Music is currently seeking a joint venture partner for the Aladdin Music Project. See "Narrative Description of Business--Aladdin Music Project." The theming of the Aladdin and the Desert Passage has been designed to create an environment based upon the Legends of the 1001 Arabian Nights, including the tales of Aladdin, Ali Baba and the 40 Thieves, Sinbad and other legendary stories woven around ancient wealth and wonders. The Aladdin theme will be carefully crafted through the interior and exterior architecture of the Complex. The Aladdin's exterior will be designed to include a highly articulated streetscape and exterior facade that invokes the Legends of the 1001 Arabian Nights. The interior of the Aladdin will utilize rich colors, textures and design, enhancing the fantasy of a mystical, romantic time and place. A significant feature of the Desert Passage will be the themed area to be known as the "Lost City." The Lost City is expected to contain a re-creation of an ancient mystical mountain city and will house a variety of specialty shops and restaurants underneath a 85-foot high ceiling. DESERT PASSAGE. Aladdin Bazaar Holdings, LLC ("Bazaar Holdings"), which is owned 99% by the Sommer Trust, and TrizecHahn Bazaar Centers, Inc. ("THB"), a subsidiary of TrizecHahn Centers, Inc. ("TrizecHahn"), have entered into a joint venture agreement and formed Aladdin Bazaar, LLC ("Aladdin Bazaar") to develop, construct, own and operate the Desert Passage. The Desert Passage, which is 3 contemplated to contain approximately 496,000 square feet of retail space, is expected to include an array of high fashion specialty stores, exotic boutiques, theme restaurants, cafes, and other entertainment offerings. The Desert Passage will be directly connected to the Casino and the Aladdin Music Project upon its completion. ALADDIN MUSIC PROJECT. The Company, through its subsidiary Aladdin Music, is pursuing prospective joint venture partners for the development, construction and opening of the Aladdin Music Project, a music and entertainment-themed hotel casino. The Aladdin Music Project, which is expected to be developed as a second phase by the Company, is expected to include a hotel with approximately 1,000 rooms, a 50,000 square foot casino, three restaurants, including a music-themed restaurant, a 1,500-person nightclub, a health spa and an outdoor swimming pool. Although the Company has not yet secured a joint venture partner, it has expended certain funds on the Aladdin Music Project. While the Company is pursuing prospective joint venture partners and acceptable financing for the Aladdin Music Project, there can be no assurance that the Company will secure an acceptable joint venture partner and secure financing on terms and conditions acceptable to the Company. Without securing an acceptable joint venture partner and financing, there is no assurance that the Company will proceed with the development of the Aladdin Music Project. STRATEGIC ALLIANCES The Company has formed strategic alliances with certain third parties that the Company believes to be uniquely qualified for the development and operation of the Complex. LONDON CLUBS. London Clubs, a prestigious multi-national casino operator, owns through LCNI 25% of the outstanding Holdings Common Membership Interests, and preferred interests that are convertible, at the option of LCNI, into an additional 15% of the Holdings Common Membership Interests. The Sommer Trust and its affiliates agreed that they will cause Sommer Enterprises and Gaming Enterprises to vote their respective Holdings Common Membership Interests so that (taking into account Holdings Common Membership Interests held by London Clubs or its affiliates) London Clubs controls fifty percent of the voting power of Gaming Holdings. Further, the holders of Holding Common Membership Interests entered into an agreement, dated December 10, 1999, which provided, among other matters, that LCNI has the option to convert certain preferred membership interests of Gaming Holdings into 15% of Holdings Common Membership Interests, for the creation of certain new classes of preferred membership interests and, while most material decisions remain subject to the supermajority consent of the members, for LCNI's control of a majority of the Board of Managers of Gaming Holdings. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations." London Clubs has extensive experience in the international marketing of casinos to premium players and maintains a strong presence in the United Kingdom (where it controls the largest share of the London casino market) and the Middle East. In addition to its equity ownership of Gaming Holdings, London Clubs, through its subsidiary LCNI, will direct the operations of, and act as marketing consultant to, The London Club at Aladdin, the luxurious 30,000 square foot area, which includes 15,000 square feet of gaming area, to be located on the mezzanine level of the Casino which will be designed to cater to the needs of the premium-play guest. The Company believes that The London Club at Aladdin will be the first of its kind in the United States managed by a European operator and based on the European concept of luxurious, full service gaming areas for premium players. The London Club at Aladdin's primary business and marketing focus will be to access London Clubs' worldwide member base of upscale casino clientele. The London Club at Aladdin Hotel guests will be escorted through a private entrance to a dedicated registration lobby and then taken via a private elevator to the suites located on the top two floors. Once there, the 24-hour butler and concierge will cater to the care and comfort of The London Club at Aladdin guest. In the elegantly appointed The London Club at Aladdin, the customer may dine in the 100-seat exclusive restaurant, which will offer fine cuisine from around the world. 4 London Clubs has extensive experience in the international marketing of casinos to premium players. London Clubs operates seven casinos in London, one near Johannesburg, South Africa, two in Egypt and one in Lebanon. Each of London Clubs' casinos offers its own individual style, but with comparable internationally recognized standards of service. In recent years, London Clubs has embarked upon a period of expansion, acquiring the Park Tower Casino in London's Knightsbridge in October, 1995, reopening and managing the casino operations of the famous Casino du Liban in Lebanon in December, 1996, and the opening of the Emerald Safari Casino Resort in South Africa in December, 1998. London Clubs provides the Aladdin with an extensive international network of premium casino players, having established substantial goodwill and customer loyalty from high-end customers in the United Kingdom, Europe, Asia and the Middle East. In addition, London Clubs is an experienced service provider to high-end gaming customers and brings a wealth of knowledge to the Aladdin in building and maintaining relationships with and customer loyalty from such clientele. London Clubs also provides the Company with superb promotional opportunities, not only by word of mouth through its network of contacts, but also through international sporting sponsorships, including horse racing and motor racing and its international print publications, which are distributed to members worldwide utilizing London Clubs' substantial database of premium clientele. TRIZECHAHN. The Mall Project will be owned, developed and operated by Aladdin Bazaar, a joint venture between Bazaar Holdings and TBH, a wholly-owned subsidiary of TrizecHahn. TrizecHahn is a wholly-owned subsidiary of TrizecHahn Corporation, a publicly traded real estate company. TrizecHahn was the developer of the Fashion Show Shopping Mall on the Strip and other major shopping malls including Horton Plaza in San Diego, Bridgewater Commons in New Jersey, Valley Fair in San Jose and Park Meadows in Denver. The Company believes that TrizecHahn's proven ability in designing well laid-out retail centers, attracting high quality tenants and successfully promoting and operating its retail projects will benefit the Aladdin by attracting a consistent stream of visitors to the Complex and its various attractions. NORTHWIND. The Complex, once fully constructed, will require substantial amounts of electricity, hot and cold water and heating and cooling. For this purpose, the Company has entered into certain agreements with Northwind Aladdin, LLC ("Northwind"), for the construction of a central utility plant ("Plant") to supply electricity and hot and cold water to certain parts of the Complex. STRATEGY The Company's business and marketing strategies are linked together by the Complex's premier location, its design, mixed-use theme development and strategic partnering. CREATE A "MUST-SEE" DESTINATION. The Company believes that the Aladdin, with its unique, well-executed design, together with the Desert Passage and the renovated Theater, will ensure its place as a "must-see" destination. The Company plans to support the Aladdin theme by an interior design enhancing the fantasy of a mystical and romantic time and place. The Company believes that the Aladdin's main Casino traffic will be driven not only by Hotel guests, but also by the customers directly attracted from the Strip, and that visitor traffic to the Aladdin will also be enhanced by the attractiveness of the Desert Passage. With the addition of the Aladdin Music Project during the second phase of developing the Complex, the Complex will have a combined room count of approximately 3,600 rooms and appeal to what the Company perceives to be a broad customer demographic. MARKETING POSITIONING. The Company intends to focus on three different market segments to attract customers to the Aladdin: - UPSCALE CLIENTELE. The Hotel has been designed to appeal to the upscale clientele, providing the amenities and level of service such high-end guests expect. In particular, 24% of the Hotel's guest 5 rooms and suites will have an area exceeding 620 square feet. Each of the rooms and suites will have a large four or five fixture bathroom with a separate shower, bathtub, up to two washbasins and an enclosed watercloset. The Hotel will provide recreational facilities for its guests, including a health spa and two outdoor swimming pools. The Company intends to promote the Hotel's many features to the upscale market through a variety of media, including high-end print publications, travel agents and event sponsorships. A targeted relationship marketing program is expected to ensure clientele retention and repeat visitation. - PREMIUM PLAYER CLIENTELE. The Company believes that The London Club at Aladdin will be the first of its kind in the United States managed by a European operator and based on the European concept of full-service gaming areas for premium players. The focus on The London Club at Aladdin's business is expected to be the wealthy clientele that form the core of London Clubs' business in London and elsewhere. The Hotel will include 30 suites primarily for use by premium players of Aladdin and The London Club at Aladdin. The Company intends to maintain The London Club at Aladdin's premium player atmosphere through more sophisticated dining options, higher table limits and more formal levels of service and dress. - UPPER-MIDDLE MARKET CLIENTELE. The Hotel's variety of guest rooms and restaurants and the 1,200-seat production showroom, combined with the heavily-themed Casino, Theater and Desert Passage, are expected to appeal broadly to the upper-middle market guest. In addition, the Aladdin Music Project, which will be developed as the second phase of the Complex, is expected to appeal to the upper-middle market by attracting younger, affluent customers to the Complex through its music and entertainment-based theme. The Theater, which is expected to be a major feature of the Complex, will be central to the Company's promotional strategies for this market segment, with publicity expected to be gained through the booking of popular performers. The Company intends to use cooperative advertising and promotion through various media, such as television, radio and print, will be used to promote the Complex to the upper-middle market. CONSTRUCTION BUDGET AND SCHEDULE Fluor Daniel, Inc. is the design/builder ("Design/Builder") of the Aladdin. The Design/Builder has entered into a guaranteed maximum price design/build contract ("Design/Build Contract") (subject to scope changes) with the Company to design and construct the Aladdin. The Design/Build Contract provides the Design/Builder with incentives for completing the Aladdin prior to the Contract Completion Date (as defined herein) and within budget and for payment of liquidated damages to the Company for certain delays. The Design/Build Contract is guaranteed by Fluor Corporation, the parent of the Design/ Builder, subject to certain limitations described in Exhibit 10.15 to this Form 10-K. An equitable adjustment in the Contract Completion Date and guaranteed maximum price may be made for changes that either increase or decrease the Design/Builder's time for performance and/or cost of construction outside what was contemplated in the Design/Build Contract. For the scope of work outside of the Design/ Build Contract, Gaming has entered into various guaranteed maximum price construction contracts, which provide for completion of the respective work on or before the completion date of the Aladdin. 6 The development of the Aladdin commenced during the first quarter of 1998. The Aladdin originally was required by the terms of its financing arrangement to be completed and opened to the public by June 26, 2000. On January 28, 2000, The Bank of Nova Scotia, as Administrative Agent under Gaming's Bank Credit Facility, (as defined in "Item 7--Management's Discussion and Analysis of Financial Condition and Results of Operations"), confirmed the existence of certain force majeure events and extended the outside completion deadline to August 17, 2000. The Company currently believes that the completion of the Aladdin will occur during August 2000, assuming acceleration. The Aladdin project budget ("Budget") was $826 million when Gaming and Gaming Holdings entered into arrangements to finance construction of the Aladdin in February 1998. Since that time and to March 1, 2000, the Budget was increased by an aggregate of $87.8 million to $913 million, which amounts were funded pursuant to the Bank Completion Guaranty by London Clubs and the Sommer Trust. Pursuant to the Contribution Agreement between London Clubs and the Sommer Trust, dated February 26, 1998 ("Contribution Agreement"), Sommer Trust and London Clubs agreed that any amounts required to be paid pursuant to the Bank Completion Guaranty would be funded 75% by the Sommer Trust and 25% by London Clubs. Effective as of October 1, 1999, these contribution percentages were amended to be 60% in the case of the Sommer Trust and 40% in the case of London Clubs. Notwithstanding the Contribution Agreement, the $87.8 million Budget increase was funded approximately $83.5 million by London Clubs and approximately $4.3 million by the Sommer Trust. During March 2000, the Company completed a review of the estimated total costs to complete and open the Aladdin and, as a result of that review, increased the Budget by $60.4 million. The Company advised the Sommer Trust and London Clubs of the need to fund such increase pursuant to the Bank Completion Guaranty. The Sommer Trust advised the Company and London Clubs that it is not at this time making any capital contribution in order to fund any portion of this Budget increase of $60.4 million. In light of the joint and several obligation of the Bank Completion Guaranty, London Clubs has advised the Company that it would fund all of this Budget increase by (a) providing a cash equity contribution to the Company of approximately $13.1 million, which the Company received on March 30, 2000, and (b) establishing a letter of credit in the amount of approximately $47.3 million to be used to fund the Budget increase. The Company believes that the Budget as set out above is reasonable and can be achieved. The Company has submitted the following disputes with the Design/Builder to arbitration ("Arbitration") pursuant to the provisions of the Design/Build Contract: caisson and foundation issues; adjustment of contract allowance; ballroom ceiling heights; trash chutes and laundry chutes; pool area redesign; increases to site work allowance; drywall changes to hotel tower; temporary supply lines; plumbing fixture selections; incentive payments; acceleration; general conditions; and design and project management issues (collectively, "Claims"). The Company believes that these Claims relate to design and work which is base contract work contemplated in the Design/Build Contract and therefore allocated to the Design/ Builder, or alternatively, that the work in question was required as a result of the Design/Builder's failure to provide timely and appropriate design services, which design services the Design/Builder was solely responsible for under the Design/Build Contract, and therefore, the Claims are not an appropriate basis for a change order modifying the Design/Build Contract and the contract time for completion date ("Contract Completion Date"). The Design/Builder has responded to the Company's Claims alleging, among other things, that the Claims relate to unforeseen conditions, and/or are due to the actions of the Company, therefore, the Company is responsible for all costs and delays associated with the Claims. While the Company intends to aggressively and vigorously pursue the Claims, and believes that it will ultimately prevail in the Arbitration, the Claims are only in the preliminary stages of the Arbitration process, and therefore, no assurances can be given with respect to the ultimate outcome. The Design/Builder has presented change orders in the amount of approximately $13.8 million, of which the Company has funded $8.3 million, for the Claims and the Company disputes this amount. However, if the Company is not successful on all the Claims, it could be obligated for all or a part of the remaining amounts claimed by the Design/Builder. Further, if the Company does not prevail on the delay Claims, the Contract Completion Date would be extended, and to the extent Design/Builder completes the Project prior to the revised 7 Contract Completion Date, the Design/Builder would be entitled to an early completion bonus of $100,000 per day (up to a maximum of 90 days). Any such payments by the Company would increase the Project's budget. Notwithstanding the Arbitration, work on the Project continues. Given the significant risks and unforeseen contingencies inherent in the construction process, especially a large scale construction project such as the Aladdin, it is possible that construction costs could be significantly higher than budget and that delays could occur. Such risks and contingencies include, for example, potential shortages of materials and labor, work stoppages, labor disputes, weather interference, unforeseen engineering, environmental or geological problems and unanticipated cost increases, any of which could be beyond the Company's control, and any of which could give rise to delays or cost increases. In addition, difficulties in obtaining any of the requisite licenses, permits, allocations or authorizations from regulatory authorities could also increase the total cost, delay or prevent the construction or opening of the Aladdin or their other components of the Complex or otherwise affect their respective design and features. If construction costs do exceed the amounts set forth in the construction budget, it is expected the potential sources to pay such excess include: (a) the $31.8 million contingency fund of which $22.7 million has been utilized as of December 31, 1999; (b) London Clubs, the Sommer Trust and Bazaar Holdings pursuant to their obligations under the Bank Completion Guaranty of which approximately $67.2 million has been contributed through December 31, 1999; and (c) the Design/Builder, pursuant to its liability under the Design/Build Contract, which liability is guaranteed by Fluor Corporation (subject to certain limitations discussed above). While management believes that its estimates are reasonable, and that the projected targets can be met, there can be no assurance that the Complex will be completed within the time period or budget currently contemplated. In addition, if the additional identified potential funding sources are insufficient or unavailable to fully cover any excess, the Company could be materially and adversely affected. So, while management believes that its estimates are reasonable, and that the projected targets can be met, there can be no assurance that the Complex, including the Aladdin, will be completed within the time period or budget currently contemplated. Failure to complete the Aladdin on budget or on schedule may have a material adverse effect on the Company and its financial operations. The Aladdin, together with the Theater and Desert Passage, is expected to be developed as the first phase of a planned two-phase redevelopment of the Complex. In the second phase, subject to the discussion herein, Aladdin Music plans to develop the Aladdin Music Project. It is currently anticipated that the Aladdin Music Project will open within approximately 24 months after financing and a joint venture partner are secured. The completion and full operation of the Aladdin is not contingent upon the subsequent financing or completion of the Mall Project or the Aladdin Music Project and there can be no assurance that either the Mall Project or the Aladdin Music Project will be completed. If the Mall Project is not completed, the Company will be required to expend additional amounts, which amounts have not been quantified by the Company, with respect to the completion of shared structural space and the cost of parking. COMPETITION The hotel and casino industry is highly competitive. Hotels located on or near the Strip ("Strip Hotels") compete with other Strip Hotels and with other major hotels in downtown Las Vegas. Aladdin will compete with a large number of hotel casinos in the Las Vegas area, with many of the competitors being subsidiaries or divisions of large public companies that may have greater financial or other resources than the Company. Competitors of the Aladdin will include themed resorts on the Strip such as Bellagio, Mandalay Bay Resort, Mirage, Treasure Island Hotel and Casino, Bally's Casino Resort, Monte Carlo Resort & Casino, Luxor Hotel and Casino, Paris Casino Resort and Venetian Hotel Casino. Aladdin is the only major resort 8 casino planned to open on the Strip in 2000. Several other Las Vegas resort casinos have announced future expansions; however, none of these expansions has commenced. The hotel casino operations of the Company will also compete, to some extent, with other hotel casino facilities in Nevada, Atlantic City and worldwide and with the state lotteries. In addition, certain states have recently legalized, and others may or are likely to legalize, casino gaming in specific areas. The passage of the Indian Gaming Regulatory Act in 1988 has led to increases in American Indian gaming operations. The Company expects many competitors to enter such new jurisdictions that authorize gaming. Some of these competitors may have greater financial and other resources than the Company. The Company believes that the legalization of large-scale land-based casino gaming in or near certain major metropolitan areas, particularly in California, from which the Company expects to attract customers could have a material adverse effect on the Las Vegas market. Such proliferation of gaming activities could significantly and adversely affect the business of the Company. The Desert Passage will compete with retail malls in or near Las Vegas, including the Fashion Show Mall, the Forum Shops at Caesars Palace, the Canal Shoppes at the Venetian Hotel Casino, the themed mall attraction being constructed at the Mandalay Bay Resort, and retailers in theme-oriented resorts, all of which may attract consumers away from the Desert Passage and the Complex. EMPLOYEES As of March 15, 2000, the Company had approximately 140 employees. The Company anticipates that immediately prior to completion of the Aladdin, it will employ approximately 3,800 employees in connection with the Aladdin. The Company has undertaken a major recruiting and training program prior to the opening of the Aladdin at a time when other major new facilities have completed recruiting employees. The Company believes it will be able to attract and retain a sufficient number of qualified individuals to operate the Aladdin, however, there can be no assurance that it will be able to do so. Furthermore, the Company does not know whether or to what extent such employees will be covered by collective bargaining agreements, as that determination will be ultimately made by such employees. SERVICE MARKS The Company owns four federally registered trademarks utilizing "Aladdin" for use in connection with casinos and casino entertainment services and hotel and restaurant services (collectively, "Marks"). The company has filed the appropriate documentation with the United States Patent and Trademark Office to ensure the validity of its Marks through the period of time the Aladdin is under construction. A lien on the Marks was granted to the Bank Lenders on February 26, 1998. REGULATION AND LICENSING The ownership and operation of casino gaming facilities in the state of Nevada are subject to: (i) the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, "Nevada Act"); and (ii) various local regulations (collectively, "Gaming Approvals"). The operation of the Casino by the Company will be subject to the licensing and regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming Control Board ("Nevada Board"), and the Clark County Liquor and Gaming Licensing Board ("CCLGLB"). The Nevada Commission, the Nevada Board, and the CCLGLB are collectively referred to as the "Nevada Gaming Authorities." The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy that are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing 9 reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) providing a source of state and local revenues through taxation and licensing fees. Any change in such laws, regulations and procedures could have a material adverse effect on the proposed gaming operations of the Aladdin and the financial condition and results of operations of Aladdin Gaming, LLC, which is defined for this section only as "Company." As operator and manager of the Aladdin, the Company will conduct nonrestricted gaming operations at the Casino and so will be required to be licensed by the Nevada Gaming Authorities. A nonrestricted gaming license permits the holder to operate sixteen or more slot machines, or any number of slot machines with at least one table game. The gaming license will require the periodic payment of fees and will not be transferable. No person will be able to become a member of, or receive any percentage of the profits of, the Company without first obtaining Gaming Approvals. In connection with the registration and licensing of Gaming Holdings as a holding company and a member, each direct and indirect owner of Gaming Holdings, including, but not limited to, Gaming Enterprises, London Clubs, LCNI, London Clubs Holdings, Ltd. (a wholly-owned subsidiary of London Clubs and the holding company for LCNI), AHL, the Sommer Trust, Sommer Enterprises, GAI and their respective owners (collectively, "Aladdin Owners") will be required to obtain from the Nevada Gaming Authorities the applicable Gaming Approvals. Capital will also be subject to being called forward for a finding of suitability as a co-issuer of the Notes in the discretion of the Nevada Gaming Authorities. Gaming Holdings is a "publicly traded corporation" as that term is defined in the Nevada Act. If the Company issues an initial public offering of equity it will also become a "publicly traded corporation" ("IPO Entity") as that term is defined in the Nevada Act. In order for a company that is a publicly traded corporation to receive a gaming license, the Nevada Commission must exempt the company from a regulatory provision in the Nevada Act which makes publicly traded corporations ineligible to apply for or hold a gaming license. However, the Nevada Commission has exempted companies from this provision in the past and has granted gaming licenses to publicly traded corporations. If the Company becomes an IPO Entity, the Company intends to apply for an exemption from this eligibility requirement ("Exemption") in connection with its application for a gaming license. In connection with licensing and receipt of the Exemption, Gaming Holdings, London Clubs, Enterprises and the Company will each also be required to be registered by the Nevada Commission as a publicly traded corporation ("Registered Company"). The following regulatory requirements will be applicable to the Company, Gaming Holdings and the Aladdin Owners upon their receipt of all necessary Gaming Approvals from the Nevada Gaming Authorities. The Company, Gaming Holdings and the Aladdin Owners have not yet obtained from the Nevada Gaming Authorities the Gaming Approvals required in order for the Company to conduct gaming operations at the Aladdin and there can be no assurances given that such Gaming Approvals will be obtained, or that they will be obtained on a timely basis. There can also be no assurances that the Company's officers, managers and key employees will obtain Gaming Approvals from the Nevada Gaming Authorities. As a Registered Company and an entity licensed by the Nevada Gaming Authorities ("Company Licensee"), the Company will be required to periodically submit detailed financial information and operating reports to the Nevada Commission and furnish any other information that the Nevada Commission may require. No person may become a member of, or receive any percentage of profits from, a Company Licensee without first obtaining licenses and approvals from the Nevada Gaming Authorities. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company, Gaming Holdings and the Aladdin Owners to determine whether such individual is suitable or should be licensed as a business associate of a Company Licensee. Officers, managers and certain key employees of the Company and Gaming Holdings must file applications with the Nevada Gaming Authorities and will be required to be licensed or found suitable by the Nevada Gaming Authorities in connection with the Company's application. The Nevada Gaming Authorities may deny an application for licensing or a finding of suitability for any cause they deem reasonable. A finding of 10 suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The entity with whom the applicant is employed or for whom the applicant serves, must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities, and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a Company position. If the Nevada Gaming Authorities were to find an officer, manager or key employee of the Company or Gaming Holdings unsuitable for licensing or to continue having a relationship with the Company or Gaming Holdings, the Company or Gaming Holdings, as the case may be, would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company or Gaming Holdings, as the case may be, to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada. The Company will be required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by the Company will be required to be reported to or approved by the Nevada Commission. If the Company is licensed by the Nevada Gaming Authorities, any (i) guarantees of the Notes issued by the Company or its members; (ii) hypothecation of assets of the Company as security for the Notes; and/or (iii) pledges of the equity securities of the Company as security for the Notes will require the approval of the Nevada Commission in order to remain effective. An approval by the Nevada Commission of a pledge of equity securities does not constitute approval to foreclose on such pledge. Separate approval is required to foreclose on a pledge of equity securities of a Company Licensee and such approval requires the licensing of the indenture trustee unless such requirement is waived upon the application of the indenture trustee. Additionally, any (i) restrictions on the transfer of, and (ii) agreements not to encumber the equity securities of the Company in respect of the Notes, may require the approval of the Nevada Commission in order to remain effective. If it were determined that the Nevada Act was violated by the Company or Gaming Holdings, the Gaming Approvals they hold could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, the Company, Gaming Holdings and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate the Aladdin and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the Aladdin) could be forfeited to the state of Nevada. Limitation, conditioning or suspension of any Gaming Approval or license or the appointment of a supervisor could (and revocation of any Gaming Approval would) materially adversely affect the gaming operations of the Aladdin and the financial position and results of operations of the Company and the Issuers. Any beneficial holder of a Registered Company's voting or non-voting securities (including warrants exercisable into such securities) regardless of the number of shares owned, may be required to file an application, be investigated, and have its suitability as a beneficial holder of the Registered Company's securities determined if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the state of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation. The Nevada Act requires any person who acquires beneficial ownership of more than 5% of a Registered Company's voting securities (including warrants exercisable into voting securities) to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of a Registered Company's voting securities apply to the Nevada Commission for a finding of suitability within thirty days after the Chairman of the Nevada Board mails the written notice requiring such filing. 11 Under certain circumstances, an "institutional investor," as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of the Registered Company's voting securities (including warrants exercisable into voting securities) may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Registered Company, and change in the Registered Company's corporate charter, bylaws, management, policies or operations of the Registered Company, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders or interest holders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for information purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information, including a list of beneficial owners. The applicant is required to pay all costs of investigation. Any person who fails or refuses to apply for a finding of suitability of a license within thirty days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder or beneficial owner found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock or other equity securities of a Registered Company beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Registered Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company, the Registered Company: (i) pays that person any dividend, distribution or interest upon voting securities of the Registered Company; (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person; (iii) pays remuneration in any form to that person for services rendered or otherwise; or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities including, if necessary, the immediate purchase of said voting securities for cash at fair market value. The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Company (such as the Notes) to file an application, be investigated and be found suitable to own the debt security of a Registered Company. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Company can be sanctioned, including the loss of approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation, or similar transaction. The Company will be required to maintain a current members' ledger in Nevada that may be examined by the Nevada Gaming Authorities at any time. The Nevada Commission has the power to require that their respective members' certificates bear a legend indicating that such securities are subject to the Nevada Act. It is unknown at this time whether the Nevada Commission will impose this requirement on the Company. After becoming a Registered Company, London Clubs, Gaming Enterprises, the Company and Gaming Holdings may not make a public offering of any securities (including, but not limited to, the Common Stock of Enterprises upon the exercise of the Warrants) without the prior approval of the Nevada 12 Commission if the securities or the proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. Such approval, if given, does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary is unlawful. The regulations of the Nevada Board and the Nevada Commission also provide that any entity which is not an "affiliated company," as such term is defined in the Nevada Act, or which is not otherwise subject to the provisions of the Nevada Act or such regulations, such as the Company and Gaming Holdings, which plans to make a public offering of securities intending to use such securities, or the proceeds from the sale thereof for the construction or operation of gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes, may apply to the Nevada Commission for prior approval of such offering ("Qualified Public Offering"). The Nevada Commission may find an applicant unsuitable based solely on the fact that it did not submit such an application, unless upon a written request for a ruling, the Nevada Board Chairman has ruled that it is not necessary to submit an application. The exchange offer for the Notes qualified as a public offering. Holdings filed a written request ("Ruling Request") with the Nevada Board Chairman for a ruling that it is not necessary to submit the Exchange Offer for prior approval. On August 21, 1998, the Nevada Board Chairman ruled it was not necessary to submit the exchange offer for the Notes for the Nevada Commission's prior approval. If Gaming Holdings or the Company become an IPO Entity prior to receiving its Gaming Approvals, they intend to file a second Ruling Request with the Nevada Board Chairman for a ruling that it is not necessary to submit the Qualified Public Offering for the Nevada Commission's prior approval. No assurance can be given that such a Ruling Request will be granted or that it will be considered on a timely basis. If the Nevada Board Chairman rules that approval of the Qualified Public Offering is required, the Company or Gaming Holdings, as applicable, will file an application for such approval. If the Ruling Request is not granted, the Qualified Public Offering could be significantly delayed while the Company or Holdings seeks approval of the Nevada Board and the Nevada Commission for the Qualified Public Offering. No assurance can be given that approval of the Qualified Public Offering, if required, will be granted. Changes in control of a Registered Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct whereby a person obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Company must satisfy the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of such Registered Company. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction. The Nevada Legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licensees, and Registered Companies that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before the Registered Company can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Registered Company's Board of Directors in response to a tender offer made directly to the Registered Company's stockholders or interest holders for the purposes of acquiring the Registered Company. 13 License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the state of Nevada and to Clark County, Nevada. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either: (i) a percentage of the gross revenues received; (ii) the number of gaming devices operated; or (iii) the number of table games operated. A casino entertainment tax will also be paid by the Company where certain entertainment is provided in a cabaret, nightclub, cocktail lounge or casino showroom in connection with admissions and the serving or selling of food, refreshments or merchandise. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Board and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the Nevada Board of their participation in such foreign gaming. The revolving fund is subject to increase or decrease at the discretion of the Nevada Commission. Thereafter, Licensees are also required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Nevada Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities or enter into associations that are harmful to the state of Nevada or its ability to collect gaming taxes and fees, or employ, contract with or associate with a person in the foreign operation who has been denied a license or a finding of suitability in Nevada on the ground of personal unsuitability. The sale of alcoholic beverages by the Company on the premises of the Aladdin is also subject to licensing, control and regulation by the CCLGLB. All licenses are revocable and are not transferable. The CCLGLB has full power to limit, condition, suspend or revoke any such license, and any such disciplinary action could (and revocation would) have a material effect on the financial position and results of operations of the Company and the Issuers. ITEM 2. PROPERTIES. Gaming Enterprises does not own or lease any property. The Company owns approximately 35 acres of land on the Strip on the site of the original Aladdin hotel and casino in Las Vegas, Nevada. Such property includes the site on which the Aladdin, Mall Project and the Plant are being constructed and the site on which the Company intends to build the Aladdin Music Project. The Company is obligated to transfer approximately 12.4 acres of land to Aladdin Bazaar at a future date and may contribute approximately 4.8 acres of land to Aladdin Music as part of the development of the Aladdin Music Project. The Company currently leases three facilities of approximately 63,000 square feet for its corporate offices, employee recruiting and warehouse requirements. ITEM 3. LEGAL PROCEEDINGS. Gaming Enterprises is not currently party to any material pending litigation. Other than the Arbitration discussed in "Item 1. Business--Construction Budget and Schedule," the Company is not a party to any material pending litigation. Mr. Jack Sommer, the Chairman of the Gaming Holdings Board and the Gaming Board and a trustee of the Sommer Trust, and the other trustees of the Sommer Trust, are co-defendants in a legal action relating to the then existing Aladdin hotel and casino. The suit was commenced by members of the Aronow family ("Aronow Plaintiffs") in May 1995 in the Supreme Court of the State of New York, County of New York. In their complaint, the Aronow Plaintiffs alleged that Mr. Sommer and the Aronow Plaintiffs were parties to a joint venture to acquire and develop the Aladdin hotel and casino and that Mr. Sommer breached such alleged agreement when the Sommer Trust acquired an interest in the Aladdin hotel and casino in December, 1994. The Aronow Plaintiffs are seeking (among other remedies) to impress a 14 constructive trust upon the Sommer Trust's interest in the Aladdin hotel and casino, an accounting, compensatory damages of not less than $200 million and punitive damages of not less than $500 million. On January 27, 2000, each of the Aronow Plaintiffs' claims against the trustees was dismissed. If this decision stands, there can be no liability as a result of the Aronow Plaintiffs' lawsuit. It is not known at this time whether the Aronow Plaintiffs will decide to attempt to reargue or decide to appeal, or whether any reargument or appeal would be successful. As such, there is no way to evaluate the likelihood of success of any appeal. An adverse decision could have a material and adverse effect on the Company. A lawsuit which was filed by Edward Kanbar, Romano Tio and Adina Winston against Mr. Sommer and the other trustees of the Sommer Trust has been successfully resolved in favor of Mr. Sommer and the other trustees and all appeals have been exhausted. No liability will result from this lawsuit. In 1988, the Sommer Trust and two related entities commenced an action in the Southern District of New York against certain entities owned and controlled by Bronfman family interests ("Bronfman Defendants") alleging, among other things, that the Bronfman Defendants committed violations of Rule 10b-5 under the Securities Exchange Act of 1934, as amended, as well as multiple breaches of fiduciary duties as general partner of a partnership in which the Sommer Trust owns limited partnership interests. Relief requested includes an accounting, imposition of a constructive trust and damages in excess of $100 million. The Bronfman Defendants have asserted counterclaims against plaintiffs and certain Sommer family members individually alleging causes of action for breach of contract, fraud and various related torts. The Bronfman Defendants claim damages in excess of $100 million. The trustees of the Sommer Trust have informed the Company that they are vigorously defending the counterclaim. However, in the event the Bronfman Defendants are successful, the Sommer Trust might be required to pay substantial damages. An adverse decision could have a material and adverse effect on the Sommer Trust. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Neither the capital stock of Gaming Enterprises nor the membership interests of Aladdin Gaming Holdings, LLC has been registered under the Securities Act of 1933 nor under Section 12 of the Securities Exchange Act of 1934. There is no established trading market for either the capital stock of Gaming Enterprises or the common membership interests of Aladdin Gaming Holdings, LLC. Gaming Enterprises is not aware of any bid quotations for the capital stock of Gaming Enterprises or the common membership interests of Aladdin Gaming Holdings, LLC. See Item 12 regarding the numbers of shareholders for Gaming Enterprises. Since inception Gaming Enterprises has not paid any dividends on its equity and due to the Company's current long-term debt arrangements restrict, subject to certain exceptions, the payment of dividends on the Company's equity. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Exhibit 10.12 to this Form 10-K for additional information on the covenants, conditions and restrictions on the Company under the Bank Credit Facility. 16 ITEM 6. SELECTED FINANCIAL DATA. The historical selected financial data set forth below should be read in conjunction with "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and Notes thereto included elsewhere in this Form 10-K. The statement of operations data for the years ended December 31, 1999, 1998 and 1997, and the balance sheet data at December 31, 1999 and 1998 are derived from, and are elsewhere in this Form 10-K. The historical results are not necessarily indicative of the results of operations to be expected in the future.
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997(1) -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Gross revenues..................................... None None None Promotional Allowances............................. None None None Net revenues....................................... None None None Operating expenses................................. $ 1 $ 3 None Operating income (loss)............................ $ (1) $ (3) None Interest income (expense), net..................... None None None Net loss........................................... $8,488 $10,620 None Per Share Data: Loss before extraordinary item..................... $ 2.56 $ 3.69 N/A Extraordinary item................................. None None N/A Basic and diluted loss per share................... $ 2.56 $ 3.69 N/A Other Data: Capital expenditures............................... None None None Cash dividends per common membership interest...... None None None
DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Total assets........................................ $8,563 $17,050 $1 Long-term debt (including current maturities)....... None None None Stockholders' equity................................ 8,559 17,047 1
- - ------------------------ (1) This is for the period from inception (December 1, 1997) through December 31, 1997. 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with 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 at the SEC internet site address: http://www.sec.gov. DEVELOPMENT ACTIVITIES Gaming Enterprises is an indirect subsidiary of AHL and was incorporated in December, 1997, for the sole purpose of issuing warrants and warrant shares as part of the Notes offering. The sole material asset of Gaming Enterprises is 25% of the Holdings Common Membership Interests which represents an indirect interest to the warrant holders of 10% of the outstanding Holdings Common Membership Interests on a fully diluted basis. Gaming 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 Interests in Gaming. The operations of Gaming Holdings and its subsidiaries ("Company") have been limited to obtaining financing for, securing the land for, arranging for the construction of, finalizing the design of, constructing and developing, and applying for the appropriate gaming licenses for the Aladdin. 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 and has no significant operations to date. The Company is in the development stage and has no significant operations to date. The Company has capitalized all qualifying construction costs. Accordingly, the Company 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 $2.2 million related to Aladdin Music for necessary predevelopment costs and expenses of the Aladdin Music Project. The Company's operating expenses primarily have consisted of interest, amortization costs and expenses related to the Notes and pre-opening costs. The Company 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 the Company are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the Company's control. While the Company believes that the Aladdin will be able to attract a sufficient number of patrons and achieve the level of activity necessary to permit the Company 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 Gaming Enterprises' only material asset is its 25% interest in Gaming Holdings, Gaming Enterprises records 25% of Gaming Holdings' losses and preferred dividend in arrears as equity in loss of unconsolidated affiliate. Gaming Enterprises recorded a net loss of approximately $8.5 million and $10.6 million for the years ended December 31, 1999 and 1998, respectively. Gaming Enterprises cumulative loss for the period of inception (December 3, 1997) to December 31, 1999 was approximately $19.1 million. Gaming Holdings' 18 losses were due to the pre-opening costs, interest expense, amortization costs and expenses related to the Note. MATERIAL CHANGES IN FINANCIAL CONDITION Through December 31, 1999, approximately $424.2 million had been expended 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 the Company, approximately $292.6 million in construction, furniture, fixtures and equipment, and capitalized interest, approximately $39.5 million in debt issuance and member equity costs, and approximately $17.6 million in pre-opening costs, net interest expense, and other current assets. LIQUIDITY AND CAPITAL RESOURCES On February 26, 1998, Gaming Holdings and Capital issued $221.5 million in aggregate principal amount of the Notes. The proceeds to the Company from the Notes were approximately $115.0 million and all the proceeds have been utilized by the Company for the development and construction of the Aladdin. For further details on the Notes, including the covenants, restrictions and limitations on the Company pursuant to the Notes Indenture, see Exhibit 10.1 to the Gaming Enterprises' Form 10-K for the year ended December 31, 1999. Gaming has a credit facility ("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 $129.7 million and matures five and one-half 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 December 31, 1999, approximately $7.3 million of the Term B Loan proceeds, plus accrued interest, and approximately $53.3 million of the Term C Loan proceeds, plus accrued interest, is available. As of December 31, 1999, Gaming has approximately $20 million of interest income that has been earned on the Term B and Term C Loan proceeds that is also available. The disbursement of the proceeds of the Term A Loan has not commenced as of the date hereof. Under the Credit Agreement, Gaming had $21.3 million available for its investment in Aladdin Music. However, during the Third Quarter of 1999, pursuant to the Credit Agreement, Gaming could, and did, allocate $15.0 million of such funds to the Theater renovation and reduced the Term A Loan by the remaining $6.3 million. 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 Gaming Enterprises Form 10-K for the year ended December 31, 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"). On March 6, 2000, disbursements under the FF&E Financing commenced. 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 Gaming Enterprises' Form 10-K for the year ended December 31, 1999. Upon the later of (a) the transfer of the real property under the Mall Project by Gaming to 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 subordinated to various restrictions under the Aladdin Bazaar operating agreement. Due to the restrictions upon the payments, there can be no assurances that Gaming will receive any payments under this note. London Clubs, the Sommer Trust, and Aladdin Bazaar Holdings, LLC ("Bazaar Holdings"), which is owned 99% by the Sommer Trust (collectively, "Bank Completion Guarantors"), have entered into a 19 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. From January 1, 1999 to December 31, 1999, a total of approximately $67.2 million in payments has been made pursuant to the Bank Completion Guaranty, which has been funded approximately $62.8 million by London Clubs and approximately $4.4 million by the Sommer Trust. Pursuant to a contribution agreement ("Contribution Agreement"), dated as of February 26, 1998, the Sommer Trust and London Clubs agreed to share all obligations under the Bank Completion Guaranty, 75% and 25%, respectively, and to the extent that one of the parties could not fund its proportionate amount under the Contribution Agreement, the other party could fund the non-contributing party's proportionate amount. However, effective as of October 1, 1999, London Clubs and the Sommer Trust amended the "Contribution Percentage" provided in the Contribution Agreement to be 60% in the case of the Sommer Trust and 40% in the case of London Clubs. 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 that significantly limit the rights of the Trustee under the Noteholder Completion Guaranty. During 1999, the Company increased the Main Project Budget by approximately $79.6 million, of which $12.4 million was funded in the first quarter of 2000. This amount reflected an increase in construction costs of approximately $53.2 million, an increase in pre-opening costs of approximately $21.9 million and an increase in capitalized interest of $4.5 million. Pursuant to the Bank Completion Guaranty, during 1999, a total of $67.2 million was paid, approximately $62.8 million by London Clubs and approximately $4.4 million by the Sommer Trust. The Aladdin project budget ("Budget") was $826 million when Gaming and Gaming Holdings entered into arrangements to finance construction of the Aladdin in February 1998. Since that time and to March 1, 2000, the Budget was increased by an aggregate of $87.8 million to $913 million, which amounts were funded pursuant to the Bank Completion Guaranty by London Clubs and the Sommer Trust. Pursuant to the Contribution Agreement between London Clubs and the Sommer Trust, dated February 26, 1998 ("Contribution Agreement"), Sommer Trust and London Clubs agreed that any amounts required to be paid pursuant to the Bank Completion Guaranty would be funded 75% by the Sommer Trust and 25% by London Clubs. Effective as of October 1, 1999, these contribution percentages were amended to be 60% in the case of the Sommer Trust and 40% in the case of London Clubs. Notwithstanding the Contribution Agreement, the $87.8 million Budget increase was funded approximately $83.5 million by London Clubs and approximately $4.3 million by the Sommer Trust. During March 2000, the Company completed a review of the estimated total costs to complete and open the Aladdin and, as a result of that review, increased the Budget by $60.4 million. The Company advised the Sommer Trust and London Clubs of the need to fund such increase pursuant to the Bank Completion Guaranty. The Sommer Trust advised the Company and London Clubs that it is not at this time making any capital contribution in order to fund any portion of this Budget increase of $60.4 million. In light of the joint and several obligation of the Bank Completion Guaranty, London Clubs has advised the Company that it would fund all of this Budget increase by (a) providing a cash equity contribution to the Company of approximately $13.1 million, which the Company received on March 30, 2000, and (b) establishing a letter of credit in the amount of approximately $47.3 million to be used to fund the Budget increase. The Company believes that the Budget as set out above is reasonable and can be achieved. The Company believes that the Budget as set out above is reasonable and can be achieved. In connection with the development of the Mall Project, Aladdin Bazaar will reimburse the Company approximately $14.2 million for the construction of certain areas shared by the Aladdin and the Mall Project and the facade to the Aladdin. Additionally, Aladdin Bazaar is obligated to spend no more than 20 $36 million for the Carpark. Therefore, any cost overruns associated with these items will be borne by the Company. In addition, the Company is obligated to pay to Aladdin Bazaar: (i) a $3.2 million fee per year for a term of 99 years, which is adjusted every fifth year pursuant to a consumer price index-based formula, for usage of the Carpark; and (ii) the Company's proportionate share of the operating costs associated with the Carpark and other common areas. The Company 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 operation of the Aladdin; however, there can be no assurance that the Funding Transactions will be sufficient for the development, construction and commencement of operation of the Aladdin. Following the commencement of operations of the Aladdin, the Company 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. In addition, upon the opening of the Aladdin, the Company is expected to have an aggregate of $10.0 million available under a working capital facility; however, there can be no assurance such facility will be available to the Company, or that, if available, the facility will be on terms favorable to the Company. Although no additional financing is contemplated, the Company 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 the Company, or that, if available, the financing will be on terms favorable to the Company. There can also be no assurance that estimates by the Company 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. GAMING HOLDINGS CAPITAL RESTRUCTURE On December 10, 1999, the holders of Holdings Common Membership Interests entered into an agreement ("Agreement") to restate the capital structure of Gaming Holdings. The Sommer Trust and London Clubs are collectively referred to below as the "Guarantors." Prior to the execution of the Agreement, if either the Sommer Trust or London Clubs (each a "Guarantor") was unable to make a capital contribution to Gaming Holdings as required under the Bank Completion Guaranty and the Gaming Holdings Operating Agreement, the contributing Guarantor could lend funds to the other Guarantor to satisfy its obligations under the guaranty. Gaming Holdings issued Series A Preferred Shares in exchange for all completion guaranty payments made prior to the execution of the Agreement. The Guarantors determined that this mechanism for contributing such amounts to Gaming Holdings was not adequate. Accordingly, they adopted the Agreement to rescind the loans between them and restate all Completion Guaranty Payments as contributions from the Guarantor providing the capital directly to Gaming Holdings. 21 Pursuant to the Agreement, the Series A Preferred Shares previously issued in exchange for payments made pursuant to the Bank Completion Guaranty ("Completion Guaranty Payments") were rescinded and Gaming Holdings issued (i) Series A Preferred Shares to London Clubs for $11,817,539 of Completion Guaranty Payments plus $2,534,519 of unpaid preferred return accrued on such payments prior to October 1, 1999, (ii) Series C Convertible Preferred Shares to London Clubs for $30,000,000 of Completion Guaranty Payments made prior to October 1, 1999, (iii) Series CC Convertible Preferred Shares to London Clubs for the unpaid cumulative preferred return on the Series C Convertible Preferred Shares that accrued between October 1, 1999 and the date of conversion of the Series C Convertible Preferred Shares, (iv) Series D Preferred Shares to London Clubs representing a profits only interest in Gaming Holdings, and (v) Series E Preferred Shares to the Sommer Trust for $4,333,034 of Completion Guaranty Payments made prior to October 1, 1999. The Agreement further provides that Gaming Holdings shall issue, for all future completion guaranty payments made by the Guarantors (i) Series A Preferred Shares in exchange for the contribution of such payments and (ii) Series D Preferred Shares representing a profits only interest in Gaming Holdings. The Series C Convertible Preferred Shares shall earn a return equal to twenty percent (20%) per annum, cumulative and compounded semi-annually from October 1, 1999. London Clubs has the option to convert all (but not less than all) of the Series C Convertible Preferred Shares into fifteen percent (15%) of the Holdings Common Membership Interests at any time on or before April 30, 2000. If the Series C Convertible Preferred Shares are converted, LCNI's ownership interest would increase to forty percent (40%) of the Holdings Common Membership Interests and Sommer Enterprises' ownership interest would decrease to thirty-two percent (32%) of the Holdings Common Membership Interests, so that, when combined with Sommer Enterprises interest in Gaming Enterprises, Sommer Enterprises would have a total ownership interest of fifty seven percent (57%). The Series CC Preferred Shares shall earn a return equal to twenty percent (20%) per annum, cumulative and compounded semi-annually. Pursuant to a subsequent Letter Agreement between the Guarantors dated February 23, 2000, the Series D Preferred Shares and the Series A Preferred Shares shall earn a combined preferred return equal to the return earned on the Series E Preferred Shares (i.e., thirty percent (30%) per annum, cumulative and compounded semi-annually). The Series E Preferred Shares shall earn a return equal to thirty percent (30%) per annum, cumulative and compounded semi-annually. With respect to the allocation of Profits and Losses, and Distributions including distributions in liquidation, the following is the order of priority of the Preferred Shares: Series A Preferred Shares, Series D Preferred Shares, Series C Convertible, and Series CC Preferred Shares, and collectively (PARI PASSU) Series E and B Preferred Shares. As a function of the Agreement, the Guarantors further amended, effective as of October 1, 1999, the Contribution Agreement so that the "Contribution Percentage" shall mean, for the purposes of Completion Guaranty Payments, (a) sixty percent (60%) in the case of the Sommer Trust and (b) forty percent (40%) in the case of London Clubs. As part of the Agreement, Gaming Holdings, the Sommer Trust, London Clubs and LCNI entered into a Redemption Agreement with regard to their respective right to redeem or purchase, as the case may be, the Series A and D Preferred Shares (as a unit consisting of one Series A Preferred Share and one Series D Preferred Share ("Redeemable Preferred Share")) as follows: Gaming Holdings shall have the right, subject to and in conformity with the provisions of the Indenture to redeem any amount of Redeemable Preferred Shares at an amount equal to the fully accreted value of such shares at the time of redemption, together with a "make whole" agreement whereby the holder of the Redeemable Preferred Shares being redeemed shall be made whole by Gaming Holdings with respect to the holder's costs and expenses incurred in financing the Redeemable Preferred Shares and making them available for redemption by Gaming Holdings. If the Sommer Trust, Sommer Enterprises or a wholly-owned subsidiary of the Sommer Trust or Sommer Enterprises to be designated by the Sommer Trust is in a position to offer payment to London 22 Clubs or LCNI at the fully accreted value on the date of offer to buy Redeemable Preferred Shares of Gaming Holdings held by London Clubs and LCNI, the Sommer Trust, Sommer Enterprises or a wholly-owned subsidiary of the Sommer Trust or Sommer Enterprises to be designated by the Sommer Trust shall have the right from time to time but not the obligation to purchase from London Clubs and LCNI an amount of such shares so that the total Redeemable Preferred Shares held by the Sommer Trust, Sommer Enterprises or a wholly-owned subsidiary of the Sommer Trust or Sommer Enterprises to be designated by the Sommer Trust and all its Affiliates (including such Redeemable Preferred shares they may have held) would be up to 60% of all outstanding Redeemable Preferred Shares at a price equal to their then fully accreted value. Purchase by the Sommer Trust of any Redeemable Preferred Shares held by London Clubs or LCNI shall include a "make whole" payment by the Sommer Trust to London Clubs or LCNI consisting of (i) the Sommer Trust's applicable proportionate share of all fees, transaction costs, call premiums and other expenses borne by London Clubs or LCNI in connection with the financing of the acquisition of the Redeemable Preferred Shares (but solely with respect to the proportionate share of the proceeds from such financing which is directly invested in the Aladdin) and their purchase by the Sommer Trust including interest at the rate of prime plus two percent (2%) per annum from the time expenses were incurred by London Clubs to the time of the make whole payment; and (ii) 100% of any increased tax consequences to London Clubs or LCNI resulting from the purchase of the Redeemable Preferred Shares by the Sommer Trust as opposed to redemption by Gaming Holdings. Upon purchase by the Sommer Trust, and at its option to be exercised at the time of purchase, the Redeemable Preferred Shares purchased from London Clubs or LCNI may either (i) (a) be subordinated to those Redeemable Preferred Shares still held by London Clubs or LCNI, but rank ahead of all other Preferred Shares, and (b) earn a reduced unit return to be no greater than twenty percent (20%) or less than fifteen percent (15%) per annum, cumulative and compounded semi-annually to be determined no later than the time the parties enter into formal amendments to the Operating and Contribution Agreements; or (ii) (a) be PARI PASSU with the Redeemable Preferred Shares still held by London Clubs or LCNI and (b) earn a reduced unit return equal to the yield to worst on the Notes at the time of purchase by the Sommer Trust plus 100 basis points, such return to be per annum, cumulative and compounded semi-annually. In the event that the Sommer Trust is in the position to offer payment as set forth herein, and makes a good faith offer to purchase up to 60% of the Redeemable Preferred Shares but London Clubs or LCNI, as the case may be, is unable to sell such shares for any reason, London Clubs will negotiate in good faith with the Sommer Trust a "make whole" agreement whereby the Sommer Trust shall be compensated no more than its actual losses, taking account of the full costs including financing costs and "make whole" payments it would have incurred in acquiring and holding such shares, and in any event no more than the return it would have received by owning the Redeemable Preferred Shares if offered to purchase from London Clubs or LCNI and exercising the option set forth herein, less the return the Sommer Trust would receive if it acquired an equivalent amount of United States Treasury securities at the then prevailing rate. In the event that the terms of the financing arrangements obtained by London Clubs with respect to financing future Completion Guaranty Payments requires a transfer of Holdings Common Membership Interest to London Club's lenders in the form of non-voting warrants, or otherwise, the Trust and London Clubs have agreed that both LCNI and Sommer Enterprises shall be diluted in such proportions and in such amounts as shall be agreed upon by the parties when the terms of such financing arrangements have been finalized. The holders of Holdings Common Membership Interests also amended the Gaming Holdings Operating Agreement, (a) in regards to the definition of "Permitted Transferee" and "Prohibited Transferee;" (b) to provide that the Board of Managers of Gaming Holdings shall be expanded to seven Board Members and appointed as follows: (i) Aladdin Enterprises shall appoint three Board Members and (ii) LCNI shall appoint four Board Members, and as of March 15, 2000, the Board Members are Jack Sommer, Ronald B. Dictrow and Richard J. Goeglein as Aladdin Enterprises appointees and Alan L. Goodenough, G. Barry C. Hardy, William Timmins and one other appointee who shall be an officer, director or employee of LCI still to be named by LCNI; (c) to provide that the failure of either the 23 Sommer Trust or London Clubs to pay its pro rata shares of Completion Guaranty Payments (i) shall not result in the removal by LCNI if London Clubs has failed to pay its pro rata share, or Aladdin Enterprises, if the Sommer Trust has failed to pay its pro rata share, of one of their respective designated Board Members and (ii) shall not result in the replacement of Jack Sommer as Chairman of the Board; (d) eliminating the requirement of the vote or consent in writing of a Supermajority to declare setting aside or payment of any Distribution with respect to Series A Preferred Shares; and (e) including Music within the definition of Subsidiary of Gaming Holdings. Section 6.7(b), (c) and (d) of the Amended and Restated Purchase Agreement dated as of February 26, 1998 between LCNI, London Clubs, Gaming Holdings, Gaming, Aladdin Holdings, LLC, Sommer Enterprises and the Sommer Trust, which relates to certain participation and approval rights of LCNI with respect to the Aladdin Music Project is deleted. The Board of Managers for Aladdin Music Holdings, LLC and Aladdin Music, LLC shall each have six Board Members appointed as follows: (a) the Sommer Trust shall appoint three Board Members; and (b) London Clubs shall appoint three Board Members. Notwithstanding any other provision in the parties' agreement as detailed above, if the parties are unable for any reason to effect a transfer of fifteen percent (15%) of the Holdings Common Membership Interests to LCNI upon conversion of the Series C Convertible Preferred Shares, no part of the Agreement shall be effective. As of February 23, 2000, the holders of Holdings Common Membership Interests entered into an agreement whereby, if certain payments are made with respect to certain letters of credit issued in connection with Gaming's acquisition of furniture, fixtures and equipment, such payments shall be treated in a manner similar to Completion Guaranty Payments as set forth above. MARKET RISK Effective June 30, 1999, Gaming restructured its interest rate swap arrangements in an effort to reduce future expenditures for interest. Gaming has entered into these agreements to manage interest expense, which is subject to fluctuations due to the variable nature of the London Interbank Offered Rate ("LIBOR"). In exchange for entering into the transaction, Gaming received $500,000 from the counterparty in July, 1999. Beginning June 30, 1999, Gaming has the following interest rate swaps, interest rate ceilings and floor caps, and related notional amounts in effect: (i) an interest rate swap with an original notional amount of $114 million increasing to a maximum of $222.5 million whereby interest is fixed at 5.50% through March 31, 2000; (ii) after March 31, 2000, an interest rate collar with a notional amount of $250 million, a maximum and minimum interest rate of 7.5% and 5.15%, respectively, will go into effect and mature on September 30, 2006; and (iii) an interest rate collar with a notional amount of $160 million, a maximum rate of 8.00%, a minimum rate of 5.15% and a maturity date of March 31, 2003. All rates noted above are LIBOR equivalents only and do not include the impact of the basis point additions to LIBOR that are used in calculating interest expense on Gaming's term loans. The LIBOR applicable to these agreements was 6.16% as of December 31, 1999. The fair market value of the Gaming's interest rate swaps, interest rate ceilings and floor caps as provided by the counterparty, is a net receivable of approximately $4.9 million at December 31, 1999. The notional amounts do not represent amounts exchanged by the parties, and thus are not a measure of exposure of Gaming. The amounts exchanged are normally based on the notional amounts and other terms of the swaps. The variable rates are subject to change over time as LIBOR fluctuates. Neither Gaming nor the counterparty, which is a prominent financial institution, is required to collateralize their respective obligations under these swaps. Gaming is exposed to loss if the counterparty 24 defaults. However, the Company considers the risk of non-performance to be minimal as the counterparty is a member of the Bank Credit Facility. 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 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 No. 133 amends or supercedes several current accounting statements. In July 1999, the FASB issued SFAS No. 137 which delays the effective date of SFAS No. 133 from fiscal year 2000 to fiscal year 2001. Gaming Holdings is in the process of analyzing SFAS No. 133 and the impact on its consolidated financial position and results of operations. CERTAIN FORWARD LOOKING STATEMENTS Certain information included in this Form 10-K and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contains 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 the Design/Build Contract, the Credit Agreement and other agreements, plans for future operations, current construction and development activities (including competition dates and budgets), other business development activities, capital spending, financing sources and 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 the Company. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. There is incorporated by reference the information appearing under the caption "Market Risk" in Item 7 of this Form 10-K. 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Report of Independent Public Accountants To the Board of Directors of Aladdin Gaming Enterprises, Inc.: We have audited the accompanying balance sheets of Aladdin Gaming Enterprises, Inc. (a Nevada corporation in the development stage) as of December 31, 1999 and 1998, and the related statements of operations, stockholders' equity and cash flows for the years ended December 31, 1999 and 1998 and for the period from inception (December 3, 1997) to December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aladdin Gaming Enterprises, Inc. as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years ended December 31, 1999 and 1998 and for the period from inception (December 3, 1997) to December 31, 1999, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Las Vegas, Nevada March 30, 2000 26 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (IN THOUSANDS EXCEPT FOR SHARE DATA)
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ ASSETS Cash and cash equivalents................................... $ 1 $ 1 Investment in unconsolidated affiliate...................... 8,562 17,049 -------- -------- $ 8,563 $ 17,050 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Payable to related party.................................... $ 4 $ 3 Common Stock Class A, no par value, 2,000,000 shares authorized, 1,107,500 issued and outstanding as of December 31, 1999 and December 31, 1998................................... Class B, no par value and non-voting, 8,000,000 shares authorized, 2,215,000 issued and outstanding and 2,215,000 shares reserved pursuant to the warrant agreement as of December 31, 1999 and December 31, 1998.................................................... 13,247 13,247 Additional paid-in capital.................................. 14,420 14,420 Deficit accumulated during the development stage............ (19,108) (10,620) -------- -------- $ 8,563 $ 17,050 ======== ========
See accompanying summary of accounting policies and notes to these financial statements. 27 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998 AND FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997) THROUGH DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997) FOR THE YEAR ENDED FOR THE YEAR ENDED THROUGH DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 ------------------ ------------------ ------------------ Other expenses.............................. $ 1 $ 3 $ 4 Equity in loss of unconsolidated affiliate................................. 8,487 10,617 19,104 Income tax expense (benefit)................ -- -- -- --------- --------- --------- Net loss accumulated during the development stage....................... $ 8,488 $ 10,620 $ 19,108 ========= ========= ========= Basic and diluted loss per share............ $ 2.56 $ 3.69 $ 6.40 Shares used in per share calculation........ 3,322,500 2,876,466 2,984,990
See accompanying summary of accounting policies and notes to these financial statements. 28 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDER'S EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997) THROUGH DECEMBER 31, 1997 (IN THOUSANDS)
ADDITIONAL COMMON STOCK PAID- ACCUMULATED CLASS A AND B IN CAPITAL DEFICIT TOTAL -------------- ----------- ----------- -------- BALANCE, DECEMBER 3, 1997..................... $ -- $ -- $ -- $ -- Issuance of common stock, 1 share issued...... -- 1 -- 1 ------- ------- -------- ------- BALANCE, DECEMBER 31, 1997.................... -- 1 -- 1 Net loss accumulated during the development stage....................................... -- -- (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 accumulated during the development stage....................................... -- -- (8,488) (8,488) ------- ------- -------- ------- BALANCE, DECEMBER 31, 1999.................... $13,247 $14,420 $(19,108) $ 8,559 ======= ======= ======== =======
See accompanying summary of accounting policies and notes to these financial statements. 29 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997) THROUGH DECEMBER 31, 1999 (IN THOUSANDS)
FOR THE PERIOD FROM INCEPTION FOR THE YEAR ENDED FOR THE YEAR ENDED (DECEMBER 3, 1997) DECEMBER 31, 1999 DECEMBER 31, 1998 THROUGH DECEMBER 31, 1999 ------------------ ------------------ -------------------------- Cash flows from operating activities: Net loss............................. $(8,488) $(10,620) $(19,108) Loss of unconsolidated affiliate..... 8,487 10,617 19,104 Increase in related party payable.... 1 3 4 ------- -------- -------- Net cash used in operating activities........................... -- -- -- ------- -------- -------- Cash flows used in 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 ------- -------- -------- Net cash provided by financing activities........................... -- 15,000 15,001 ------- -------- -------- Net 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 disclosures of non-cash investing and financing activities: Stockholders' equity contribution book value Land............................... $ -- $ 6,247 $ 6,247 Construction in progress........... $ -- $ 7,000 $ 7,000 Equity costs from unconsolidated affiliate........................ $ -- $ (581) $ (581)
See accompanying summary of accounting policies and notes to these financial statements. 30 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS AND EQUITY METHOD ACCOUNTING Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Gaming Enterprises"), was established on December 3, 1997. Gaming Enterprises holds a 25% interest in Aladdin Gaming Holdings, LLC, a Nevada limited liability company ("Gaming Holdings") which was established on December 1, 1997. Gaming Holdings initially was owned by Gaming Enterprises (25%), Sommer Enterprises, LLC, a Nevada limited liability company (72%) ("Sommer Enterprises"), and GAI, LLC, a Nevada limited liability company ("GAI") (3%). On February 26, 1998, London Clubs International plc ("London Clubs"), through its subsidiary London Clubs Nevada Inc. ("LCNI"), contributed $50 million for a 25% interest in Gaming Holdings common membership interests ("Holdings Common Membership Interests"). Sommer Enterprises contributed a portion of land for Holdings Common Membership Interests. Gaming Enterprises, which is owned 100% by Sommer Enterprises, contributed a portion of land, $7 million of predevelopment costs and $15 million in cash for Holdings Common Membership Interests. After the additional contributions, Sommer Enterprises owns 47% of Gaming Holdings, Gaming Enterprises owns 25% of Gaming Holdings, LCNI owns 25% of Gaming Holdings, and GAI owns 3% of Gaming Holdings. On November 30, 1998, the Sommer Trust and its affiliates agreed that they will cause Sommer Enterprises and Gaming Enterprises to vote their respective Holdings Common Membership Interests so that (taking into account Holdings Common Membership Interests held by London Clubs or its affiliates) London Clubs controls fifty percent of the voting power of Gaming Holdings. On December 10, 1999, the holders of Holdings Common Membership Interest agreed to restate the capital structure of Gaming Holdings, which restatement provided, in addition to other matters, that LCNI has an option to convert certain preferred membership interests of Gaming Holdings into 15% of Holding Common Membership Interests, the creation of certain new classes of preferred membership interests and for LCNI's control of the majority of the Board of Managers of Gaming Holdings; however, most material decisions remain subject to the supermajority consent of Gaming Holdings members. Aladdin Holdings, LLC, a Delaware limited liability company ("AHL"), indirectly holds a majority interest in Gaming Holdings. The members of AHL are the Trust Under Article Sixth u/w/o Sigmund Sommer ("Sommer Trust") which holds a 95% interest in AHL and GW Vegas, LLC, a Nevada limited liability company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest in AHL. Gaming Enterprises has no other business or activity 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 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. Capital will not have any material operations or assets and will not have any revenues. Gaming Holdings, through its subsidiaries, also owns 100% of Aladdin Music, LLC ("Aladdin Music"). Gaming Holdings and its subsidiaries are collectively referred to herein as "Company." The operations of Gaming Holdings have been primarily limited to the design, development, financing and construction of a new Aladdin Resort and Casino ("Aladdin"). The Aladdin will be the centerpiece of an approximately 35-acre world-class resort, casino and entertainment complex ("Complex") located on the site of the former Aladdin hotel and casino in Las Vegas, Nevada, a premier location at the center of Las Vegas Boulevard. The Aladdin has been designed to include a luxury themed hotel of approximately 31 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2,600 rooms, an approximately 116,000 square foot casino, an approximately 1,200-seat production showroom and six restaurants. The Complex will comprise: (i) the Aladdin; (ii) a themed entertainment shopping mall with approximately 496,000 square feet of retail space ("Desert Passage"); (iii) a second hotel and casino with a music and entertainment theme ("Aladdin Music Project"); (iv) the newly renovated 7,000 seat Theater of the Performing Arts ("Theater"); and (v) an approximately 4,800 space car parking facility ("Carpark" and, together with the Desert Passage, hereinafter, "Mall Project"). The Mall Project will be separately owned in part by an affiliate of the Company and Aladdin Music is currently seeking a joint venture partner for the Aladdin Music Project. Gaming Enterprises' interest in Gaming Holdings has been accounted for under the equity method. Under the equity method, the original investment is recorded at cost, and is adjusted by Gaming Enterprises' share of earnings, losses and distributions, including preferred dividends accrued, received from and made to the investee. CASH AND CASH EQUIVALENTS Gaming Enterprises considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. INCOME TAXES Gaming Enterprises accounts for income taxes using the liability method as set forth in the Statement of Financial Accounting Standard 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 Gaming Enterprises' assets and liabilities. There was no income tax expense or benefit recorded for the period from inception (December 3, 1997) through December 31, 1999 as Gaming Enterprises is a development stage company and the realization of any deferred tax asset is uncertain. LOSS PER BASIC AND DILUTED SHARE Loss per basic and diluted share is based on the weighted average number of shares outstanding. Basic and diluted shares outstanding were 3,322,500, 2,876,466 and 2,984,990 for the years ended December 31, 1999 and 1998 and from inception (December 3, 1997) through December 31, 1999, respectively. Diluted shares include stock options and warrants when dilutive. Due to the loss accumulated during the development stage, Gaming Enterprises' warrants would be anti-dilutive and therefore have not been utilized in the computation of dilutive shares. 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 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 32 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) the derivative and whether it qualifies for hedge accounting. SFAS No. 133 amends or supercedes several current accounting statements. In July 1999, the FASB issued SFAS No. 137 which delays the effective date of SFAS No. 133 from fiscal year 2000 to fiscal year 2001. Gaming Holdings is in the process of analyzing SFAS No. 133 and the impact on its consolidated financial position and results of operations. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. PRIVATE OFFERING On February 26, 1998, Gaming Holdings, Gaming Capital Corp. ("Capital" together with Gaming Holdings, the "Issuers") and Gaming Enterprises consummated a private offering ("Offering") under Rule 144A of the Securities Act of 1933. The private offering consisted of 221,500 units ("Units"), each unit consisting of (i) $1,000 principal amount at maturity of 13 1/2% Senior Discount Notes due 2010 ("Notes") of Gaming Holdings and Capital and (ii) 10 Warrants ("Warrants") to purchase 10 shares of Class B non-voting Common Stock, no par value, of Gaming Enterprises. The Notes and the Warrants became separately transferable on July 23, 1998 and the Warrants became exercisable on July 23, 1998 and will expire on March 1, 2010. The total amount paid for the warrants was $15 million and is reflected as additional paid-in capital in the accompanying financial statements. 33 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENT IN UNCONSOLIDATED AFFILIATE As discussed in Note 1, Gaming Enterprises holds a 25% interest in Gaming Holdings. Summarized condensed financial information of Gaming Holdings as of and for the years ended December 31, 1999 and 1998, is as follows:
1999 1998 -------- -------- (IN THOUSANDS) Aladdin Gaming Holdings, LLC: Statement of Operations Data: Net revenue............................................... None None Net loss.................................................. $ 26,112 $ 42,468 Gaming Enterprises' share of net loss..................... 8,487 10,617 Balance Sheet Data: Assets: Current assets.......................................... $ 89,592 $ 9,970 Property and equipment, net............................. 346,337 128,432 Other assets............................................ 32,771 264,359 -------- -------- Total assets............................................ $468,700 $402,761 ======== ======== Liabilities and Members' Equity Liabilities............................................... $441,464 $416,621 Members' equity Gaming Enterprises...................................... 8,562 17,049 Other members........................................... 18,674 (30,909) -------- -------- Total liabilities and members' equity................... $468,700 $402,761 ======== ========
The changes in Gaming Enterprises' investment in unconsolidated affiliate is as follows:
1999 1998 -------- -------- (IN THOUSANDS) Beginning investment balance................................ $17,049 $ 28,247 Losses...................................................... (8,487) (10,617) Members' share of equity costs.............................. -- (581) ------- -------- Ending Investment Balance................................. $ 8,562 $ 17,049 ======= ========
During 1999, the Company increased the Main Project Budget by approximately $79.6 million, of which $12.4 million was funded in the first quarter of 2000. This amount reflected an increase in construction costs of approximately $53.2 million, an increase in pre-opening costs of approximately $21.9 million and an increase in capitalized interest of $4.5 million. Pursuant to the Bank Completion Guaranty, during 1999, a total of $67.2 million was paid, approximately $62.8 million by London Clubs and approximately $4.4 million by the Sommer Trust. The Aladdin project budget ("Budget") was $826 million when Gaming and Gaming Holdings entered into arrangements to finance construction of the Aladdin in February 1998. Since that time and to 34 ALADDIN GAMING ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENT IN UNCONSOLIDATED AFFILIATE (CONTINUED) March 1, 2000, the Budget was increased by an aggregate of $87.8 million to $913 million, which amounts were funded pursuant to the Bank Completion Guaranty by London Clubs and the Sommer Trust. Pursuant to the Contribution Agreement between London Clubs and the Sommer Trust, dated February 26, 1998 ("Contribution Agreement"), Sommer Trust and London Clubs agreed that any amounts required to be paid pursuant to the Bank Completion Guaranty would be funded 75% by the Sommer Trust and 25% by London Clubs. Effective as of October 1, 1999, these contribution percentages were amended to be 60% in the case of the Sommer Trust and 40% in the case of London Clubs. Notwithstanding the Contribution Agreement, the $87.8 million Budget increase was funded approximately $83.5 million by London Clubs and approximately $4.3 million by the Sommer Trust. During March 2000, the Company completed a review of the estimated total costs to complete and open the Aladdin and, as a result of that review, increased the Budget by $60.4 million. The Company advised the Sommer Trust and London Clubs of the need to fund such increase pursuant to the Bank Completion Guaranty. The Sommer Trust advised the Company and London Clubs that it is not at this time making any capital contribution in order to fund any portion of this Budget increase of $60.4 million. In light of the joint and several obligation of the Bank Completion Guaranty, London Clubs has advised the Company that it would fund all of this Budget increase by (a) providing a cash equity contribution to the Company of approximately $13.1 million, which the Company received on March 30, 2000, and (b) establishing a letter of credit in the amount of approximately $47.3 million to be used to fund the Budget increase. The Company believes that the Budget as set out above is reasonable and can be achieved. The Company is subject to risks common to developing a large scale construction project. While the Company believes that its estimates are reasonable, and that the projected targets can be met, there can be no assurance that the Complex will be completed within the time period or budget currently contemplated. In addition, if the additional identified potential funding sources are insufficient or unavailable to fully cover any excess, the Company could be materially and adversely affected. So, while the Company believes that its estimates are reasonable, and that the projected targets can be met, there can be no assurance that the Complex, including the Aladdin, will be completed within the time period or budget currently contemplated. 4. EQUITY CONTRIBUTIONS On February 26, 1998, Sommer Enterprises, LLC contributed land and $7 million of predevelopment costs in exchange for 100% of the Class A Common Stock in Gaming Enterprises. Gaming Enterprises contributed the land, the $7 million of predevelopment costs and the net proceeds, $15 million allocable from the sale of the warrants to Gaming Holdings in exchange for 25% of the common membership interests in Gaming Holdings. 35 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth the executive officers and the directors of Gaming Enterprises, Gaming Holdings, Gaming and Capital. A "director" of the Gaming Holdings or Gaming as such term is used in this Form 10-K, shall refer to a person who sits on the Board of Managers of Gaming Holdings ("Gaming Holdings Board") or Gaming ("Gaming Board").
NAME AGE POSITION - - ---- -------- -------- Jack Sommer............................... 52 Chairman of the Gaming Holdings Board and the Gaming Board; Director of Gaming Enterprises and Capital; President and Director of Gaming Enterprises Richard J. Goeglein....................... 65 Chief Executive Officer and President of Gaming Holdings, Gaming and Capital; Director of Gaming Holdings, Gaming and Capital Ronald Dictrow............................ 56 Executive Vice President and Director of Gaming Holdings, Gaming and Capital; and Director and Secretary of Gaming Enterprises Alan Goodenough........................... 56 Director of Gaming Holdings, Gaming and Capital G. Barry C. Hardy......................... 52 Director of Gaming Holdings, Gaming and Capital William Timmins........................... 52 Director of Gaming Holdings, Gaming and Capital; Executive Vice President of Gaming Holdings and Gaming, President/Chief Operating Officer of the Aladdin Resort & Casino Jose A. Rueda............................. 63 Senior Vice President/Gaming of Gaming Holdings, Gaming and Capital David Attaway............................. 44 Senior Vice President of Gaming Holdings, Gaming and Capital; President and Chief Operating Officer of the Aladdin Music Project Patricia Becker........................... 48 Senior Vice President/Corporate Affairs and Legal and Secretary of Gaming Holdings, Gaming and Capital Barbara Falvey............................ 41 Senior Vice President/Human Resources of Gaming Holdings, Gaming and Capital Thomas A. Lettero(1)...................... 43 Senior Vice President/Chief Financial Officer/ Treasurer of Gaming Holdings, Gaming and Capital; Treasurer of Gaming Enterprises
36
NAME AGE POSITION - - ---- -------- -------- Mark A. Clayton........................... 34 Vice President and General Counsel of Gaming Holdings and Gaming
- - ------------------------ (1) On March 7, 2000, Mr. Lettero and the Company entered into an employment agreement which agreement becomes effective upon the expiration or waiver of Mr. Lettero's obligations under his prior employment agreement, which the Company anticipates will occur during the second quarter of 2000. Jack Sommer has been the Chairman of the Gaming Holdings Board and a director of Capital since November, 1997 and has been the chairman of the Gaming Board since February, 1998; and President of Gaming Enterprises since December 1997. Mr. Sommer has been a full time resident of Las Vegas since 1988. Mr. Sommer is both a trustee and contingent beneficiary of the Trust. He has over 25 years of experience in developing residential and commercial real estate, including luxury residential projects such as North Shore Towers, in Queens County, New York, and The Sovereign at 425 East 58th Street in Manhattan. The Sommer family has been in the real estate development business for over 100 years, operating for part of that time as Sommer Properties ("Sommer Properties") founded by Mr. Sommer's father (who passed away in 1979), and which is controlled by Mr. Sommer and his mother, Mrs. Viola Sommer. Other developments of Sommer Properties have included 280 Park Avenue, Manhattan, an 820,000 square foot office building in Manhattan formerly owned and currently partially occupied by the Bankers Trust Company; 135 West 50th Street, Manhattan, an 800,000 square foot office building also known as the AMA Building; and 600 Third Avenue, Manhattan, a 500,000 square foot office building. Sommer Properties has also developed over 35,000 single family homes, primarily in New Jersey, as well as several major office buildings and mixed-use developments. Richard J. Goeglein has been Chief Executive Officer and a director of Gaming Holdings and Capital since November 1997 and has been a director of Gaming since February 1998. Mr. Goeglein has spent over 35 years in the hotel/casino and food service industry. He was an Executive Vice President and a member of the Board of Directors of Holiday Inns and Holiday Corp. from 1978 through 1987. Mr. Goeglein also served as President and Chief Executive Officer of Harrah's Hotels and Casinos ("Harrah's") after Holiday Inns acquired Harrah's from 1980 to the Fall of 1984 and as President and Chief Operating Officer of Holiday Corp. (the parent company of Holiday Inns, Harrah's, Hampton Inns and Embassy Suites) from October 1984 through 1987. From 1988 to 1992, Mr. Goeglein participated in several corporate turnarounds in the technology and consumer services fields. In 1992, Mr. Goeglein formed Gaming Associates, Inc. ("Gaming Associates") to take management control of Dunes Hotel and Casino in Las Vegas and to prepare a plan of closure for and carry out the closure of the property. Gaming Associates provided consulting services to the lodging and gaming industries. Mr. Goeglein recently served as a member of the Gaming Oversight Committee of Marriott Corporation ("Marriott") and through Gaming Associates, provided consulting services to Marriott's gaming operations situated outside of the United States through December 1997. Mr. Goeglein served as a director of Hollywood Park, Inc. until October 1998. Ronald Dictrow has been Executive Vice President and Director of Gaming Holdings and Capital since November 1997 and has been a director of Gaming since February 1998; and Director and Secretary of Gaming Enterprises since December 1997. Mr. Dictrow spent the first 12 years of his professional career as a CPA with the New York accounting firm David Berdon & Company and has a master's degree in accounting and taxation. In 1979, he was hired by Sigmund Sommer as Controller with financial responsibility for all of Mr. Sommer's properties. In 1984, Mr. Dictrow became Treasurer and Chief Financial Officer of the Sommer Trust with the additional responsibility for the operations and management of these properties. Mr. Dictrow is an advisor and consultant to Mrs. Viola Sommer and has been an officer and director of Sovereign Apartments, Inc., a New York City cooperative apartment building since 1979. Mr. Dictrow has had business dealings with the Sommer family for over 20 years. 37 Alan Goodenough has been a director of Gaming Holdings, Gaming and Capital since February 1998. Mr. Goodenough, who is the Executive Chairman of London Clubs, has over 30 years of experience in the leisure and gaming industry, having worked as a public company director and at other senior levels with several major public leisure and casino companies in the United Kingdom. Mr. Goodenough is also presently a fellow of the United Kingdom Hotel and Catering Institute and a member of the Institute of Directors of England and Wales. G. Barry C. Hardy has been a director of Gaming Holdings, Gaming and Capital since February 1998. Mr. Hardy has served as Chief Operating Officer of London Clubs since June 1999 and before that as Finance Director of London Clubs since 1989. Before joining London Clubs, Mr. Hardy worked in the leisure and gaming industries. His business experience includes executive level positions with Pleasurama, plc, where he held the offices of Development Director, Group Finance Director and Company Secretary and Mr. Hardy was actively involved in the development of Pleasurama's leisure and casino interests. In 1988, after the acquisition of Pleasurama by Mecca Leisure Ltd., Mr. Hardy was appointed to Mecca's Board as Managing Director of its casino division. William Timmins has been a director of Gaming Holdings, Gaming and Capital since December 1998 and has been Executive Vice President of Gaming Holdings, Gaming and Capital and President and Chief Operating Officer of the Aladdin Resort & Casino since February 2000. Mr. Timmins has served as Executive Director of London Clubs since June 1999, before that as Director of International Operations of London Clubs since March, 1996. Mr. Timmins has over thirty years of experience in the casino industry and before joining London Clubs, Mr. Timmins was the Managing Director of Soceite Participation Investisments Casino, the third largest gaming company in France, from 1990 until 1995. Jose A. Rueda has been the Senior Vice President/Gaming of Gaming Holdings, Gaming and Capital since November 1997. Mr. Rueda has 39 years experience in the gaming industry, including gaming operations as well as the sale and distribution of gaming equipment. He was the Vice President, North East Region of Mikohn Gaming Corporation, which supplies gaming equipment to the casino industry, from 1995 to 1997. Prior to joining Mikohn, Mr. Rueda was with Harrah's for 31 years in a variety of management positions that included Director of Slot Operations, Harrah's Atlantic City, from 1986 to 1994; Vice President of Gaming/Slots, Harrah's Corporate from 1984 to 1986; Vice President of Operations, Harrah's at Trump Plaza from 1983 to 1984 and Vice President of Gaming, Harrah's Corporate from 1980 to 1983. David Attaway has been the Senior Vice President of Gaming Holdings, Gaming and Capital and President and Chief Operating Officer of the Aladdin Music Project since June 1998. Mr. Attaway has 18 years experience in the entertainment, hotel and casino industry in a variety of executive positions. He joined Caesars Tahoe in 1986 and held the following positions during his 12 year tenure: Senior Vice President and General Manager from 1996 to 1998; Senior Vice President of Casino Operations and Marketing, 1996 and Senior Vice President of Marketing, 1992 to 1996. Prior to joining Caesars Tahoe, Mr. Attaway was the Director of Marketing and Finance for Lawlor Event Center in Reno, Nevada from 1983 to 1985. He held management positions with Five Flag Center in Dubuque, Iowa from 1981 to 1983. Patricia Becker has been the Senior Vice President/Corporate Affairs and Legal of Gaming Holdings, Gaming and Capital and Secretary of Gaming Holdings, Gaming and Capital since March 1999. Ms. Becker currently is a director of Fitzgerald's Gaming Corporation and chairs the Compliance Committee. From 1993 to 1995, Ms. Becker was Chief of Staff for Nevada Governor, Bob Miller. From 1985 to 1993, Ms. Becker was with Harrah's, where she held the position of Senior Vice President and General Counsel. Prior to joining Harrah's, she was a member of Nevada State Gaming Control Board from 1983 to 1985. Barbara D. Falvey has been the Senior Vice President of Human Resources of Gaming Holdings, Gaming and Capital since February 2000. Ms. Falvey has 15 years of human resources experience in the gaming industry. From July 1998 to January 2000, Ms. Falvey was the Vice President of Organization 38 Development and Training for Caesars World, Inc., where she was responsible for overseeing employee and organization development activities for all Caesars-owned properties. From 1996 to 1998, Ms. Falvey was Vice President of Human Resources for The Desert Inn in Las Vegas. From 1984 to 1996, she worked in a variety of positions in Human Resources for Caesars Tahoe in Lake Tahoe, Nevada, serving as Director of Human Resources and subsequently Vice President of Human Resources for the property from 1990 to 1996. Thomas A. Lettero, upon the effectiveness of his Employment Agreement, will be Senior Vice President/Chief Financial Officer/Treasurer of Gaming Holdings, Gaming and Capital; and Treasurer of Gaming Enterprises. From December 1994 to March 2000, Mr. Lettero was the Senior Vice President Administration and Chief Financial Officer of Stratosphere Corporation, which filed for reorganization under Chapter 11 of the Bankruptcy Code with its wholly-owned subsidiary, Stratosphere Gaming Corp., on January 27, 1997. The effective date for the companies' Restated Second Amended Plan of Reorganization was October 14, 1998. From March 1994 until December 1994, Mr. Lettero was the Vice President and Chief Financial Officer at Palace Casinos, Inc. ("Palace") in Las Vegas. Palace filed for Chapter 11 Bankruptcy in December 1994. From February 1993 until March 1994, Mr. Lettero served as Vice President of Casino Marketing Administration of MGM Grand Hotel Casino in Las Vegas. From March 1992 until February 1993, Mr. Lettero served as Executive Vice President and Chief Financial Officer of HP Casino Management, L.P. ("HP") in Golden, Colorado, the owner and operator of three Bullwacker casinos in Central City and Blackhawk, Colorado. At HP, as a licensed operator, Mr. Lettero was responsible for opening the properties, all marketing efforts and daily operations. From September 1990 until March 1992, Mr. Lettero served as Chief Financial Officer of Main Street Station in Las Vegas. Main Street Station filed for Chapter 11 Bankruptcy in December 1991, which was converted into a Chapter 7 liquidation in September 1992. From May 1989 until September 1990, Mr. Lettero served as Director of Operational Accounting of Mirage Hotel and Casino in Las Vegas. Mark A. Clayton has been Vice President and General Counsel of Gaming Holdings and Gaming since April 1999, and was from July 1998 to April 1999, Vice President and Associate General Counsel of Gaming Holdings and Gaming. From July 1995 until June 1998, Mr. Clayton served as Vice President and General Counsel of Showboat, Inc. From May 1993 until October 1993 and from October 1993 until June 1995, Mr. Clayton served as Deputy Chief and the Chief, respectively, of the Corporate Securities Division of the Nevada State Gaming Control Board. COMMITTEES There are currently no committees of the Board of Directors of Gaming Enterprises. The Gaming Holdings Operating Agreement provides that there will be Executive Management Committees which will be responsible for the day to day management of Gaming Holdings and Gaming. The Executive Management Committee of Gaming includes the following persons: the President and Chief Executive Officer of Gaming; the Chief Financial Officer of Gaming; the President and Chief Operating Officer of the Aladdin; the President and Chief Operating Officer of the Aladdin Music Project; the Senior Vice President of Human Resources of Gaming; the Senior Vice President/Gaming of Gaming; the Senior Vice President/ Corporate Affairs and Legal of Gaming and a London Club Board member. The Gaming Holdings Board may also establish committees of the Gaming Holdings Board as it may deem necessary or advisable. Each of London Clubs and Sommer Enterprises is entitled to have one of its nominee Gaming Holdings Board members on each such committee. The Gaming Holdings Board has established a Compensation Committee, which currently consists of Messrs. Goeglein, Timmins and Dictrow and Ms. Falvey. 39 ITEM 11. EXECUTIVE COMPENSATION. Gaming Enterprises has not compensated any of its officers during 1997, 1998 or 1999. The following table summarizes the compensation earned during 1999, 1998 and 1997 by Gaming Holdings', Gamings' and Capital's Chief Executive Officer and the four highest compensated executive officers of the Gaming Holdings, Gaming or Capital who earned over $100,000 in 1999, 1998 or 1997.
ANNUAL COMPENSATION(1) LONG-TERM ------------------------------------- COMPENSATION/ OTHER ANNUAL RESTRICTED STOCK ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS COMPENSATION(1) - - --------------------------- -------- -------- -------- ------------ ---------------- --------------- Richard J. Goeglein, Chief Executive Officer....... 1999 $647,753(2) $ 0 $ 17,665(3) $0 $ 7,911(4) 1998 $630,770(2) $ 0 $248,379(5) $0 $22,137(4) 1997 $650,000(2) $ 0 N/A(6) $0(7) $16,343(4) Jose A. Rueda, Senior Vice President............... 1999 $259,195 $ 0 $ 10,000(3) $0 $ 2,364(4) 1998 $243,423 $ 0 $ 10,833(3) $0 $ 1,896(4) 1997 $ 86,538(9) $ 0 N/A(8) $0(10) $ 0 Cornelius T. Klerk, Senior Vice President and Chief Financial Officer(14)... 1999 $241,652 $ 0 $ 10,000(3) $0 $ 348(4) 1998 $195,785 $50,000 $ 10,000(3) $0 $ 381(4) 1997 $ 96,154(9) $ 0 N/A(8) $0(11) $ 0 David Attaway, Senior Vice President............... 1999 $308,104 $ 0 $ 12,000(3) $0 $ 204(4) 1998 $204,669(12) $ 0 $181,663(13) $0 $ 136(4) Mark A. Clayton, Vice President and General Counsel................. 1999 $175,531 $ 0 N/A(8) $0 $ 108(4) 1998 $ 70,908(12) $ 0 N/A(8) $0 $ 54(4)
- - -------------------------- (1) All of the executive officers of the Company (other than Mr. Dictrow) are compensated by Gaming. Mr. Dictrow is principally employed by the Sommer Trust and is compensated by the Sommer Trust. Compensation has been paid on the Company's behalf by Aladdin Holdings, LLC for 1997 and until February 26, 1998. (2) Includes $150,000 paid to GAI in 1999, 1998 and 1997 for consulting fees. (3) Represents automobile allowance paid to executive including federal income tax gross-up. (4) Represents life and disability insurance premiums paid on behalf of the executive. (5) Represents automobile allowance of $19,536 and moving expenses of $228,843 including federal income tax gross-up paid to Mr. Goeglein. (6) GAI purchased vested Holdings Common Membership Interests representing 3% of the outstanding Holdings Common Membership Interests for $1,800. The price paid by GAI for such interests was equal to the fair market value of such interests at the time of purchase. The aggregate amount of all perquisites and other personal benefits received by Mr. Goeglein in 1997 was less than $50,000. (7) Mr. Goeglein purchased unvested Holdings Common Membership Interests representing 2% of the outstanding Holdings Common Membership Interests for a purchase price of $1,200. Such interests had a fair market value of $1,200 on the date of purchase. See "Employment Agreements" for information regarding the vesting of the Holdings Common Membership Interests. 40 (8) The aggregate amount of all perquisites and other personal benefits received by the executive was less than 10% of the total annual salary and bonus paid to the executive. (9) Executive's employment with Gaming began during 1997. (10) Mr. Rueda purchased unvested Holdings Common Membership Interests representing approximately 0.75% of the outstanding Holdings Common Membership Interests for a purchase price of $450. Such interests had a fair market value of $450 on the date of purchase. See "Employment Agreements" for information regarding the vesting of the Holdings Common Membership Interests. (11) Mr. Klerk purchased unvested Holdings Common Membership Interests representing approximately 0.75% of the outstanding Holdings Common Membership Interests for a purchase price of $450. Such interests had a fair market value of $450 on the date of purchase. On March 24, 2000, pursuant to Mr. Klerk's Employment Agreement, the Company purchased for $450 Mr. Klerk's total unvested Holdings Common Membership Interests. (12) The executive's employment with the Company began in 1998. (13) Represents moving expenses of $173,163 and automobile allowance of $8,500 paid to Mr. Attaway including federal income tax gross-up. (14) Mr. Klerk resigned all of his positions effective March 2000. EMPLOYMENT AGREEMENTS Richard J. Goeglein, William Timmins, Jose A. Rueda, David Attaway, Barbara Falvey and Thomas A. Lettero (collectively, "Officers") each signed an employment agreement ("Employment Agreement") with the Company. Patricia Becker is currently negotiating an employment agreement with the Company that is expected to be comparable to the employment agreements discussed herein. The initial term of Mr. Goeglein's Employment Agreement is five years and six months, and the remaining Officers' Employment Agreements have varying durations depending upon when the Employment Agreements were executed. Pursuant to each Employment Agreement, the Officers have such authority, responsibilities and duties as are customarily associated with their positions with Gaming. The Employment Agreements provide that, during the term of their employment, the Officers will devote their full time, efforts and attention to the business and affairs of Gaming. The terms of the Employment Agreements provide for an annual base salary for Mr. Goeglein of $500,000 ($600,000 after the opening of the Aladdin), Mr. Timmins of $252,000 (subject to adjustment after the opening of the Aladdin), Mr. Rueda $250,000, Mr. Attaway $312,000, Ms. Falvey $175,000 ($200,000 after the opening of the Aladdin), and Mr. Lettero $300,000, respectively, plus any bonus granted by the Board of Directors based on relevant criteria and performance standards. All of the Officers have been receiving and are expected to continue to receive their compensation from Gaming, except that prior to February 26, 1998, such amounts were paid by AHL on Gaming's behalf. Mr. Goeglein's Employment Agreement provides for annual bonuses based upon "on target" performances, ranging from 50% to 75% of his base salary, and is subject to certain tax provisions. The Gaming Board will consider increases to the Officers' base salary no less frequently than annually, commencing at the end of each Officer's first employment year. Any increase in base salary shall be within the sole discretion of the Gaming Board. The Employment Agreements provide that the Officers' salary cannot be reduced. After the initial term of Mr. Goeglein's Employment Agreement, Gaming has agreed to retain Mr. Goeglein as a consultant to Gaming for an additional five years at $100,000 per year. The Officers are entitled to receive other employee benefits from Gaming, such as health, pension and retirement and reimbursement of certain expenses. Mr. Lettero's Employment Agreement is effective upon the earlier termination of Mr. Lettero's prior employment agreement and all obligations therein or the waiver of the notification and termination provisions therein. Mr. Lettero's Employment Agreement provides for a 41 signing bonus of $300,000 ("Signing Bonus") which (a) if the Employment Agreement is terminated due to Mr. Lettero's disability, or by the Company for "Cause" or by Mr. Lettero without "Good Reason," each as defined in the Employment Agreement, Mr. Lettero is obligated to pay the Company the net after tax amount of the Signing Bonus or (b) shall be applied to Mr. Lettero's compensation otherwise payable in the third year of the Employment Agreement. Pursuant to the terms of the Employment Agreements, as amended, Messrs. Goeglein and Rueda have purchased for a total purchase price of $1,200 and $450, respectively, unvested Gaming Common Membership Interests which were contributed to Gaming Holdings on February 26, 1998 in return for unvested Holdings Common Membership Interests representing approximately 2.0% and 0.75%, respectively, of the Holdings Common Membership Interests ("Restricted Membership Interests") subject to the receipt of applicable Nevada Gaming Approval. Gaming Enterprises' interest in Gaming Holdings will be unaffected by the vesting of the officers' Restricted Membership Interests. On January 27, 1999, the Gaming Holdings' Board of Directors, except with respect to Mr. Goeglein, amended the vesting schedule of each officer's Restricted Membership Interests during the terms of the Employment Agreement to vest 25% on the date of the opening of the Aladdin and a further 25% upon the expiration of the initial term of the Employment Agreement. If Gaming continues to employ each officer after the expiration of the initial term of his Employment Agreement, 25% of the officer's Restricted Membership Interests will continue to vest on each anniversary of the opening date until such interests are fully vested. After the terms of the Employment Agreements, if Gaming does not continue to employ the officer other than for Cause, or if the officer no longer continues his employment for Good Reason, only an additional 25% of the officer's Restricted Membership Interests vest. Mr. Goeglein's Restricted Membership Interests become fully vested at the earlier of July 1, 2002 and the date on which such interests become publicly traded, conditioned upon Mr. Goeglein's continued relationship with Gaming. If an officer's employment with Gaming and Gaming Holdings terminates, Gaming and Gaming Holdings have the right to repurchase any unvested portion of the officer's Restricted Membership Interest for an amount equal to the purchase price originally paid by the officer for the Common Membership Interests. Under certain circumstances as set forth in the Employment Agreements, including if an initial public offering with respect to the Restricted Membership Interests has not occurred prior to the full vesting of such interests, the officers have the right to sell their vested Restricted Membership Interests to Gaming Holdings at fair market value (subject to the receipt of applicable Gaming Approvals and to certain restrictions on restricted payments set forth in the Notes Indenture and the Bank Credit Facility). If Gaming Holdings does not satisfy its obligation to purchase the Restricted Membership Interests within seven days, the officers have the right to require Gaming to purchase such interests at fair market value (subject to certain restrictions on Restricted Payments set forth in the Note Indenture). After Gaming has satisfied its obligation to purchase the Restricted Membership Interests, Gaming Holdings has the right to call such interests from Gaming for nominal consideration. If, prior to the date of an initial public offering with respect to the Restricted Membership Interests, an officer is terminated for Cause, except with respect to Mr. Goeglein, Gaming and Gaming Holdings have the right to purchase any vested Restricted Membership Interests from the officers at two times the original price paid by the officer for such interests (in each case with corresponding rights in Gaming Holdings to purchase the Common Membership Interests which correspond to such Restricted Membership Interests for nominal consideration). The Company is currently developing a further equity compensation arrangement, or the economic equivalent thereof, for Mr. Timmins, Mr. Attaway, Ms. Falvey, Ms. Becker and Mr. Lettero. The Employment Agreements may be terminated by Gaming with or without Cause (as defined in each Employment Agreement) or by the Officers for Good Reason (as defined in each Employment Agreement). If an Officer is terminated for Cause, he shall be entitled only to such salary, bonus and benefits then accrued or vested. If an Officer is terminated without Cause or upon a Change in Control (as defined in the Employment Agreements), the Officer shall be entitled to such salary, bonus and benefits to which he would have been entitled for the remainder of the four-year term or twelve months, whichever is 42 longer (in the case of Mr. Goeglein, any such amount remaining in connection with his term plus certain other amounts). Each Officer has agreed not to compete with Gaming during the term of the Employment Agreements (plus one additional year if the Officer was terminated for Cause) and has agreed to refrain from certain other activities in competition with Gaming. Each of the Employment Agreements provides that Gaming shall indemnify and hold the Officers harmless to the fullest extent permitted by Nevada law against costs, expenses, liabilities and losses, including reasonable attorneys' fees and disbursements of counsel, incurred or suffered by the Officer in connection with his services as an employee of Gaming during the term of the respective Employment Agreement. Mr. Goeglein's Employment Agreement provides Mr. Goeglein with relocation expense reimbursement, an interest-free mortgage loan of $500,000 from AHL, and certain excise tax gross-up provisions. GAI CONSULTING AGREEMENT Gaming has entered into a consulting agreement (as amended, "Consulting Agreement") with GAI. The Consulting Agreement was subsequently amended on February 26, 1998 to add Gaming Holdings as a party and pursuant to which amendment GAI contributed its Common Membership Interests in Gaming to Gaming Holdings in return for Holdings Common Membership Interests. Pursuant to the Consulting Agreement, GAI will render such consulting services as are reasonably requested by the Gaming Board until June 30, 2002. During the term of the Consulting Agreement, Gaming shall pay GAI a retainer of $12,500 each month as payment for remaining on call to provide services and expertise for such month. In addition, GAI purchased a 3% Common Membership Interest in Gaming which, was contributed to Gaming Holdings on February 26, 1998 in return for a 3% Holdings Common Membership Interest ("GAI Membership Interest") for a purchase price of $1,800. The GAI Membership Interest is fully vested and is subject to certain anti-dilution provisions contained in the Consulting Agreement (but subject to dilution upon exercise of the warrants issued in connection with the offering of the Notes). In addition: (a) if Richard Goeglein is terminated from his employment with Gaming other than for "Cause" or voluntarily terminates for "Good Reason" (as such terms are defined in Mr. Goeglein's Employment Agreement with Gaming) after the consummation of the Funding Transactions and the Offering; or (b) if an initial public offering in respect of the GAI Membership Interest has not occurred prior to July 1, 2002, GAI has the right to sell any shares purchased under the Consulting Agreement back to Gaming Holdings at their fair market value at the time of such sale (subject to the receipt of applicable Gaming Approvals and to certain restrictions on restricted payments set forth in the Notes Indenture and the Bank Credit Facility). If Gaming Holdings does not satisfy its obligation to purchase the GAI Membership Interest within seven days, GAI has the right to require Gaming to purchase such interests at fair market value. After Gaming has satisfied its obligation to purchase the GAI Membership Interest, Gaming Holdings will have the right to call such interests from Gaming at nominal value. Pursuant to the Consulting Agreement, GAI has certain "piggyback" registration rights with respect to its interests purchased pursuant to the Consulting Agreement. Gaming Holdings has agreed to indemnify GAI, its legal counsel and independent accountants against all expenses, claims, losses, damages and liabilities which may arise out of certain acts or omissions committed in connection with the registration of such membership interests, and, in connection with certain acts or omissions not committed in connection with the registration of such membership interests, to the same extent that other senior management and directors of Gaming and Gaming Holdings are indemnified. For further details on the Consultant Agreement, see Exhibit 10.40 to Gaming Enterprises' Registration Statement on Form S-4, Amendment No. 1, filed June 10, 1998, Part II, Item 21. 43 Mr. Goeglein has granted a third party an option to acquire a 15% interest in GAI. The Company believes that any exercise of the option will not have a material adverse effect on the Company. BONUS AND INCENTIVE PLANS Gaming and Gaming Holdings are currently developing bonus and/or incentive plans (subject to supermajority approval by the Gaming Holdings Members, such approval not to be unreasonably withheld). It is expected that the terms of any such plans would be comparable to those customary in the industry. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following tables set forth certain information with respect to the beneficial ownership of and the capital stock of Gaming Enterprises and the membership interests of Gaming Holdings by: (i) each person who, to the knowledge of Gaming Enterprises or the Company, beneficially owns more than 5% of the outstanding capital stock or membership interests (as the case may be); (ii) the directors of Gaming Enterprises and Gaming Holdings; (iii) all executive officers of Gaming Enterprises and Gaming Holdings included in the Executive Compensation Table under "Item 11. Executive Compensation;" and (iv) all directors and executive officers of Gaming Enterprises and Gaming Holdings, respectively, as a group. Neither the capital stock of Gaming Enterprises nor the membership interests of Gaming Holdings is presently listed or traded on any securities exchange or securities market. ALADDIN GAMING ENTERPRISES, INC.
CLASS A COMMON STOCK --------------------------------------------------------- PRIOR TO EXERCISE OF THE ASSUMING FULL EXERCISE OF WARRANTS CLASS A THE WARRANTS CLASS A COMMON STOCK(5) COMMON STOCK (5)(6) --------------------------- --------------------------- NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE SHARES OF CLASS SHARES OF CLASS BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY NAME OF BENEFICIAL OWNER OWNED OWNED OWNED OWNED - - ------------------------ ------------ ------------ ------------ ------------ Viola Sommer, Jack Sommer and Eugene Landsberg, as trustees of the Sommer Trust(1)(2).............. 1,093,103 98.7% 1,093,103 98.7% Jack Sommer(1)(2)................................. 1,093,103 98.7% 1,093,103 98.7% Ronald Dictrow(3)................................. 14,398 1.3% 14,398 1.3% All Directors and Executive Officers as a group (4)............................................. 1,107,500 100% 1,107,500 100%
44 ALADDIN GAMING ENTERPRISES, INC.
CLASS B COMMON STOCK --------------------------------------------------------- PRIOR TO EXERCISE OF THE ASSUMING FULL EXERCISE OF WARRANTS CLASS B THE WARRANTS CLASS B COMMON STOCK COMMON STOCK (5)(6) --------------------------- --------------------------- NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE SHARES OF CLASS SHARES OF CLASS BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY NAME OF BENEFICIAL OWNER OWNED OWNED OWNED OWNED - - ------------------------ ------------ ------------ ------------ ------------ Viola Sommer, Jack Sommer and Eugene Landsberg, as trustees of the Sommer Trust(1)(2).............. 2,186,205 98.7% 2,186,205 49.4% Jack Sommer(1)(2)................................. 2,186,205 98.7% 2,186,205 49.4% Ronald Dictrow(3)................................. 28,795 1.3% 28,795 * All Directors and Executive Officers as a group (4)............................................. 2,215,000 100% 2,215,000 50%
- - ------------------------ * Represents less than one percent of the outstanding shares of Class B Common Stock. (1) The Sommer Trust has an option to acquire 5% of the common membership interest in AHL from GW Vegas (representing all of GW Vegas' common membership interest in AHL). Such option is exercisable at any time prior to December 2001. The address of the Sommer Trust is 280 Park Avenue, New York, New York 10017. (2) Includes Gaming Holdings Common Membership Interests held by the Sommer Trust. Mr. Jack Sommer, who is Chairman and a director of Gaming and Gaming Holdings and a director of Capital and director and the President of Gaming Enterprises, is a trustee and contingent beneficiary of the Sommer Trust. Mrs. Sommer, Mr. Sommer and Mr. Landsberg are each deemed to beneficially own the same interest as the Sommer Trust owns in Gaming Enterprises because each of them is a trustee of the Sommer Trust. (3) Mr. Ronald Dictrow is the Secretary and a director of Gaming Enterprises. Mr. Dictrow's address is 280 Park Avenue, New York, New York 10017. (4) The directors of Gaming Enterprises are Messrs. Sommer and Dictrow. The executive officers of Gaming Enterprises are Messrs. Sommer, Dictrow and Klerk. (5) The Class A Common Stock and Class B Common Stock in Gaming Enterprises held by Sommer Enterprises were pledged on February 26, 1998 to the Bank Lenders under the Credit Agreement. 45 (6) Upon the exercise of the Warrants, holders of the Warrant Shares will own 50% of the outstanding Class B Common Stock and 0% of the outstanding Class A Common Stock of the Issuer.
ALADDIN GAMING HOLDINGS, LLC --------------------------------------------------------------- PERCENTAGE OWNERSHIP OF GAMING HOLDINGS COMMON PERCENTAGE OWNERSHIP OF MEMBERSHIP INTERESTS GAMING HOLDINGS COMMON BENEFICIALLY OWNED PRIOR TO MEMBERSHIP INTERESTS EXERCISE OF THE BENEFICIALLY OWNED ASSUMING NAME OF BENEFICIAL OWNER WARRANTS(9) FULL EXERCISE OF THE WARRANTS(10) - - ------------------------ --------------------------- --------------------------------- Viola Sommer, Jack Sommer and Eugene Landsberg, as trustees of the Sommer Trust (1)(2)(3).................................. 71.1% 61.6% Jack Sommer (2)(3)........................... 71.1% 61.6% London Clubs (3)............................. 50.0% 50.0% Alan Goodenough (3).......................... 0.0% 0.0% G. Barry C. Hardy (3)........................ 0.0% 0.0% William Timmins (3).......................... 0.0% 0.0% Ronald Dictrow (4)........................... * * Richard J. Goeglein (5)(7)................... 3.0% 2.6% Jose A. Rueda (6)(7)......................... 0.0% 0.0% David Attaway (6)............................ 0.0% 0.0% Cornelius T. Klerk (10)...................... 0.0% 0.0% Thomas A. Lettero............................ 0.0% 0.0% Mark A. Clayton.............................. 0.0% 0.0% All Directors and Executive Officers as a group (twelve persons) (8)................. 75.0% 65.0%
* Represents less than one percent of the outstanding Holdings Common Membership Interests. (1) The Sommer Trust has an option to acquire 5% of the common membership interests in AHL from GW Vegas (representing all of GW Vegas' common membership interests in AHL). Such option is exercisable at any time prior to December, 2001. The address of the Sommer Trust is 280 Park Avenue, Floor 38 West, New York, New York 10017. (2) Includes Gaming Holdings Common Membership Interest held by the Sommer Trust. Mr. Jack Sommer, who is Chairman and a director of Gaming Holdings and Gaming and a director of Capital and Gaming Enterprises, is a trustee and contingent beneficiary of the Sommer Trust. Mrs. Sommer, Mr. Sommer and Mr. Landsberg are each deemed to beneficially own the same interest as the Sommer Trust owns in Gaming Holdings because each of them is a trustee of the Sommer Trust. The address for Mrs. Sommer, Mr. Sommer and Mr. Landsberg is 280 Park Avenue, Floor 38 West, New York, New York 10017. (3) London Clubs owns 25% of the Gaming Holdings Common Membership Interests and has an option to convert certain preferred membership interests of Gaming Holdings into 15% of Holdings Common Membership Interests. On November 30, 1998, London Clubs and the Sommer Trust agreed that the Sommer Trust and its affiliates shall vote their respective Holdings Common Membership Interests and cause Gaming Enterprises to vote its Holdings Common Membership Interests so that (taking into account Holdings Common Membership Interests held by London Clubs or its affiliates) London Clubs controls fifty percent of the voting power of Gaming Holdings. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Mr. Alan Goodenough is Executive Chairman of London Clubs and a director of Gaming Holdings, Gaming and Capital. Mr. G. Barry C. Hardy is Chief Operating Officer of London Clubs and a director of 46 Gaming Holdings, Gaming and Capital. William Timmins is Executive Director of London Clubs and is a director of Gaming Holdings, Gaming and Capital. The address of London Clubs and Messrs. Goodenough and Hardy is 10 Brick Street, London, W1Y, 8HQ, United Kingdom. (4) Mr. Ronald Dictrow is a director of Gaming Enterprises and the Executive Vice President/Secretary and a director of Gaming Holdings, Gaming and Capital. Mr. Dictrow's address is 280 Park Avenue, Floor 38 West, New York, New York 10017. (5) Mr. Richard J. Goeglein, who is Chief Executive Officer, President and a director of Gaming Holdings, Gaming and Capital, beneficially owns 100% of GAI, which holds 3% of the Holdings Common Membership Interests; however, Mr. Goeglein has granted to a third party an option to acquire a 15% interest in GAI. Mr. Goeglein's address is 831 Pilot Road, Las Vegas, Nevada 89119. (6) The address of Messrs. Timmins, Rueda, Attaway, Lettero and Clayton is 831 Pilot Road, Las Vegas, Nevada 89119. (7) Messrs. Goeglein and Rueda have rights to acquire beneficial ownership of Gaming Holdings Common Membership Interests representing an aggregate of 2.75% of such interests, which rights do not vest within 60 days. See "Item 11. Executive Compensation." (8) Gaming Holdings owns 100% of the Common Membership Interests and Series A Preferred Interests of Gaming. The Common Membership Interests were, on closing of the Bank Credit Facility, pledged to the Bank Lenders. The Series A Preferred Interests were, on closing of the Notes offering, pledged to the Trustee for the benefit of the Note Holders. (9) Gaming Enterprises owns 25% of the Gaming Holdings Common Membership Interests. Upon full exercise of the warrants issued in connection with the offering of the Notes, holders of the shares issued upon conversion of warrants will indirectly own 10% of the outstanding Holdings Common Membership Interests. (10) Mr. Klerk purchased unvested Holdings Common Membership Interests representing approximately 0.75% of the outstanding Holdings Common Membership Interests for a purchase price of $450. Such interests had a fair market value of $450 on the date of purchase. On March 24, 2000, pursuant to Mr. Klerk's Employment Agreement, the Company purchased for $450 Mr. Klerk's total unvested Holdings Common Membership Interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. THE LONDON CLUB MANAGEMENT AGREEMENT Gaming, London Clubs and LCNI are parties to a management agreement which relates to The London Club at Aladdin. Under the management agreement, London Clubs has agreed to guaranty the obligations of LCNI. In consideration for the services to be furnished by LCNI under the management agreement, Gaming will pay to LCNI a performance-based incentive fee ("Incentive Marketing and Consulting Fee") calculated as follows: (i) 10% of The London Club at Aladdin EBITDA (defined in the management agreement to mean gross revenue attributable to The London Club at Aladdin, less all costs and expenses directly attributable to The London Club at Aladdin), up to and including $15.0 million of EBITDA; plus (ii) 12.5% of The London Club at Aladdin EBITDA, in excess of $15.0 million, up to and including $17.0 million; plus (iii) 25% of The London Club at Aladdin EBITDA, in excess of $17.0 million, up to and including $20.0 million; plus (iv) 50% of The London Club at Aladdin EBITDA, in excess of $20.0 million. The foregoing thresholds will be adjusted in accordance with consumer price index changes every five years. For further details, see Part II, Item 16, Exhibit 10.11 to Gaming Enterprises' Registration Statement on Form S-1 filed April 9, 1999. 47 OTHER PAYMENTS TO CONTROLLING STOCKHOLDERS In consideration for certain expenses incurred by the Sommer Trust prior to February 26, 1998, relating to the management and coordination of the development of the Aladdin, Gaming reimbursed $3.0 million to the Sommer Trust on February 26, 1998. In addition, Gaming will reimburse certain ongoing out-of-pocket expenses of the Sommer Trust relating to the development of the Aladdin, not to exceed $0.9 million. In November 1998, the Sommer Trust agreed to defer reimbursement until the Main Project Budget under the Bank Credit Facility is In Balance (as defined in the Bank Credit Facility). As of December 31, 1999, the Sommer Trust had received approximately $3.3 million of the total $3.9 million reimbursement. In consideration for its obligations under the Keep-Well Agreement (as defined below) and related arrangements, under the London Clubs Purchase Agreement, the parties agreed that London Clubs receive (a) an initial fee of 1.0% of Gaming's indebtedness with respect to a $265.0 million portion of the Bank Credit Facility, which is supported and enhanced by the Keep-Well Agreement, which fee was paid on February 26, 1998, and (b) an annual fee of 1.5%, payable in arrears, of Gaming's annual average indebtedness with respect to a $265.0 million portion of the Bank Credit Facility, which is supported and enhanced by the Keep-Well Agreement for each relevant twelve month period ending on an anniversary of the closing date of the Bank Credit Facility, which amount shall reflect the extent, if any, by which the obligations under the Keep-Well Agreement are reduced or eliminated over time (such fees accrue from the closing date of the Bank Credit Facility, and shall be paid from available proceeds after the opening date of the Aladdin). Additionally, Gaming agreed to reimburse approximately $2.8 million to London Clubs for certain expenses incurred relating to the Aladdin; however, in November 1998, London Clubs agreed to defer the payment of approximately $189,000 of this reimbursement until the Main Project Budget under the Credit Agreement is In Balance (as defined in the Bank Credit Facility). As of December 31, 1999, London Clubs received approximately $2.4 million of this $2.8 million reimbursement obligation. MUSIC INDEBTEDNESS PAYMENTS BY THE SOMMER TRUST AND MR. SOMMER During 1998, the Sommer Trust paid approximately $260,000 to certain trade creditors on behalf of Aladdin Music and Mr. Sommer individually paid $500,000 to a trade creditor on behalf of Aladdin Music. Further, during the first quarter of 1999, the Sommer Trust paid approximately $747,000 to a trade creditor on behalf of Aladdin Music. To the extent permissible, Aladdin Music has agreed, if and when Aladdin Music secures a joint venture partner and financing for the Aladdin Music Project, to reimburse the Sommer Trust and Mr. Sommer such advanced funds. KEEP-WELL AGREEMENT On February 26, 1998, London Clubs, AHL and Bazaar Holdings (collectively, "Sponsors") entered into the Keep-Well Agreement in favor of the Administrative Agent and the Bank Lenders under the Bank Credit Facility. The Keep-Well Agreement is the joint and several agreement of the Sponsors to make certain quarterly cash equity contributions to Gaming from and after the Conversion Date if Gaming fails to comply with certain financial ratios set forth in the Bank Credit Facility. Under the Keep-Well Agreement, the Sponsors are not required to contribute an aggregate of more than $150 million to Gaming ($30 million in any one fiscal year), and are not required to contribute any amounts to Gaming on or after the earlier of the date on which Gaming complies with all of the financial covenants set forth in the Credit Agreement for six consecutive quarterly periods or the date on which the aggregate outstanding principal amounts of the Credit Agreement are reduced below certain amounts. 48 BANK COMPLETION GUARANTY AND NOTEHOLDER COMPLETION GUARANTY London Clubs, the Sommer Trust and Bazaar Holdings have entered into the Bank Completion Guaranty in favor of the Bank Lenders. Pursuant to the Bank Completion Guaranty, such parties have guaranteed, among other things, the timely completion of the Aladdin. The Bank Completion Guaranty is not subject to any maximum dollar limitations. While holders of the Notes are not party to the Bank Completion Guaranty, London Clubs, the Sommer Trust and Bazaar Holdings have entered into the Noteholder Completion Guaranty for the benefit of the holders of the Notes. ARRANGEMENTS WITH RICHARD GOEGLEIN AND GAI Gaming has entered into the Consulting Agreement with GAI. Pursuant to the Consulting Agreement, GAI will render such consulting services as are reasonably requested by the Board of Gaming until June 30, 2002. During the term of the Consulting Agreement, Gaming shall pay GAI a retainer of $12,500 per month as payment for remaining on call to provide services and expertise for such month. Pursuant to the Consulting Agreement, GAI purchased 3% of the Common Membership Interests in Gaming (which were contributed to Gaming Holdings on February 26, 1998 for a 3% interest in Gaming Holdings) for $1,800. Such membership interest is fully vested, subject to certain anti-dilution provisions, put rights and certain "piggyback" registration rights. See "Item 10. Directors and Executive Officers of the Registrant-GAI Consulting Agreement." In addition, Mr. Goeglein's Employment Agreement provided Mr. Goeglein with a relocation expense reimbursement, an interest free mortgage loan of $500,000 from AHL and certain excise tax gross-up provisions. 49 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(l) The following consolidated financial statements of the Company and its subsidiaries have been filed as a part of this report (See "Part II, Item 8: Financial Statements and Supplementary Data"): Independent Auditor's Report; Consolidated Balance Sheets as of December 31, 1999 and 1998; Consolidated Statements of Operations for the Year Ended December 31, 1999 and 1998 and from inception (December 31, 1997) through December 31, 1999; Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1999, 1998 and 1997; Consolidated Statements of Cash Flows for the Year Ended December 31, 1999, 1998 and from inception (December 31, 1997) through December 31, 1999; and Notes to Consolidated Financial Statements: (a)(2) All schedules are omitted because they are not required, inapplicable, or the information is otherwise shown in the financial statements or notes thereto. (a)(3) The following exhibits(1) are filed as part of this form 10-K or incorporated herein by reference.
EXHIBIT NO. DESCRIPTION - - --------------------- ----------- 3.1 Articles of Organization of Aladdin Gaming Holdings, LLC ("Gaming Holdings") are incorporated herein by reference from Aladdin Gaming Enterprises, Inc.'s ("Enterprises") (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.3. 3.2 Articles of Incorporation of Aladdin Capital Corp. ("Capital") are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.4. 3.3 Articles of Organization of Aladdin Gaming, LLC ("Gaming") are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.5. 3.4 Articles of Incorporation of Enterprises are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.1; Amendment No. 1 to Articles of Incorporation of Enterprises is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.2. 3.5 Operating Agreement of Gaming Holdings is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed on June 10, 1998, Part II, Item 16, Exhibit 3.7.
- - ------------------------ (1) Copies of exhibits to this Form 10-K will be furnished to any requesting security holder who furnishes the Company a list identifying the exhibits to be copied by the Company at a charge of $.25 per page. Alternatively, these exhibits can be inspected, without charge, at the Public Reference Section of the SEC located at 450 Fifth Street, NW, Washington, DC 20549 or at the SEC internet site: http:// www.sec.gov. 50
EXHIBIT NO. DESCRIPTION - - --------------------- ----------- 3.6 Bylaws of Capital are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.8. 3.7 Operating Agreement of Gaming is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.9. 3.8 Bylaws of Enterprises are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.6. 4.1 Warrant Agreement, dated February 26, 1998, among Enterprises and State Street Bank and Trust Company, as Warrant Agent ("Warrant Agent") is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 4.1. 4.2 Warrant Registration Rights Agreement, dated February 26, 1998, among Enterprises and the Initial Purchasers (as defined) is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 4.2. 4.3 Equity Participation Agreement, dated February 26, 1998, among Sommer Enterprises, LLC, Enterprises, London Clubs Nevada, Inc. ("LCNI") and the Trustee (as defined) is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 4.3. 10.1 Indenture, dated February 26, 1998, among Gaming Holdings, Capital and State Street Bank and Trust Company, as Trustee ("Trustee") is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.1. 10.2 Note Registration Rights Agreement, dated February 26, 1998, among Gaming Holdings, Capital and Merrill Lynch, Pierce Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer Corp. and Scotia Capital Markets (USA) Inc. ("Initial Purchasers") is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.2. 10.3 Noteholder Completion Guaranty, dated February 26, 1998, among the Trust under Articles Sixth u/w/o Sigmund Sommer, London Clubs International, plc ("London Clubs"), Aladdin Bazaar Holdings, LLC and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed on June 10, 1998, Part II, Item 16, Exhibit 10.3. 10.4 Disbursement Agreement, dated February 26, 1998, among Gaming Holdings, Gaming, The Bank of Nova Scotia, as Administrative Agent under the Bank Credit Facility, Disbursement Agent, and Securities Intermediary, U.S. Bank National Association as Servicing Agent and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1 filed on June 10, 1998, Part II, Item 16, Exhibit 10.4. 10.5 The LLC Interest Pledge and Security Agreement, dated February 26, 1998, between Gaming Holdings and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.5.
51
EXHIBIT NO. DESCRIPTION - - --------------------- ----------- 10.6 The Gaming Holdings Collateral Account Agreement, dated February 26, 1998, between Gaming Holdings and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.6. 10.7 Subsidiary Guaranty, dated February 26, 1998, among subsidiaries of London Clubs and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.7. 10.8 Amended and Restated London Clubs Purchase Agreement, dated February 26, 1998, among LCNI, London Clubs, Gaming Holdings, Aladdin Holdings, LLC, Gaming, Sommer Enterprises, LLC, and the Trust Under Article Sixth u/w/o Sigmund Sommer is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.8. 10.9 Closing Schedules to Amended and Restated London Clubs Purchase Agreement are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.9. 10.10 Contribution Agreement, dated February 26, 1998, among the Trust Under Article Sixth u/w/o Sigmund Sommer, Aladdin Holdings, LLC, Sommer Enterprises, LLC, London Clubs and LCNI is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.10. 10.11 Salle Privee Agreement, dated February 26, 1998, among Gaming, LCNI and London Clubs is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.11. 10.12 Credit Agreement, dated February 26, 1998, among Gaming, a syndicate of lenders ("Bank Lenders"), The Bank of Nova Scotia as Administrative Agent, Merrill Lynch Capital Corporation as Syndication Agent and CIBC Oppenheimer Corp as Documentation Agent is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1 filed June 10, 1998, Part II, Item 16, Exhibit 10.13; First Amendment to Credit Agreement dated January 29, 1999, by and among Gaming, Bank Lenders, The Bank of Nova Scotia, as Administrative Agent, Merrill Lynch Capital Corporation as Syndication Agent and CIBC Oppenheimer Corp. as Documentation Agent is incorporated herein by reference from Enterprises (SEC File No. 333-49715) Form 10-K for the year ended December 31, 1999, Part IV Item 14, Exhibit 10.12; Second Amendment to Credit Agreement, dated as of April 5, 1999, effective March 10, 1999, among Aladdin Gaming, LLC, various financial institutions, The Bank of Nova Scotia, Merrill Lynch Capital Corporation and CIBC Oppenheimer Corp. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 8-K, dated April 27, 1999, Item 7, Exhibit 10.01. 10.13 Bank Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth u/w/o Sigmund Sommer, London Clubs, Aladdin Bazaar Holdings, LLC and the Bank Lenders is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.14. First Amendment to Guaranty of Performance and Completion, dated as of April 5, 1999, effective March 10, 1999, by London Clubs International, plc, the Trust Under Article Sixth Under the Will of Sigmund Sommer, Aladdin Bazaar Holding, LLC and The Bank of Nova Scotia is incorporated herein by reference from Enterprises' (SEC 333-49715) Form 8-K, dated April 27, 1999, Item 7, Exhibit 10.02.
52
EXHIBIT NO. DESCRIPTION - - --------------------- ----------- 10.14 Keep-Well Agreement, dated February 26, 1998, among Aladdin Holdings, LLC, London Clubs and Aladdin Bazaar Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.15. 10.15 Design/Build Contract, dated December 4, 1997, between Gaming and Fluor Daniel, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.16; Amendment No. 1 to Design/Build Contract, dated January 21, 1998, between Gaming and Fluor Daniel, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.17; Amendment No. 2 to Design/Build Contract, dated January 28, 1998, between Gaming and Fluor Daniel, Inc. is incorporated herein by reference from Enterprises' File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.18; Fluor Guaranty, dated December 4, 1997, between the Company and Fluor Corporation is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.19. 10.16 Site Work, Development and Construction Agreement, dated February 26, 1998, among Gaming, Aladdin Bazaar, LLC and Aladdin Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.20. 10.17 Construction, Operation and Reciprocal Easement Agreement, dated February 26, 1998, among Gaming, Aladdin Bazaar, LLC and Aladdin Music Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.21. 10.18 Common Parking Area Use Agreement, dated February 26, 1998, between Gaming and Aladdin Bazaar, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.22. 10.19 Music Project Lease, dated February 26, 1998, between Gaming and Aladdin Music Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 2, filed on July 22, 1998, Part II, Item 16 Exhibit 10.23. 10.20 Mall Project Lease, dated February 26, 1998, between Gaming and Aladdin Bazaar, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.24. 10.21 Deed of Trust, Assignment of Rents and Leases, Fixture Filing and Security Agreement, dated February 26, 1998, made by Gaming to Stewart Title of Nevada, as trustee for the benefit of the Bank of Nova Scotia is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.25. 10.22 Development Agreement, dated December 3, 1997, between Aladdin and Northwind Aladdin, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.26.
53
EXHIBIT NO. DESCRIPTION - - --------------------- ----------- 10.23 Energy Service Agreement, dated September 24, 1998, between Aladdin and Northwind Aladdin, LLC is incorporated herein by reference from Enterprises; (SEC File No. 333-49715) Form 10-K for the year ended December 31, 1999, Part IV, Item 14, Exhibit 10.23. Amendment and Agreement to the Energy Service Agreement, dated September 25, 1998, between Northwind Aladdin, LLC and Aladdin Gaming, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended June 30, 1999, Part II, Item 6, Exhibit 10.01. Second Amendment and Agreement to the Energy Service Agreement, dated May 28, 1999, between Northwind Aladdin, LLC and Aladdin Gaming, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended June 30, 1999, Part II, Item 6, Exhibit 10.02. Third Amendment and Agreement to the Energy Service Agreement, dated May 28, 1999, between Northwind Aladdin, LLC and Aladdin Gaming, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended June 30, 1999, Part II, Item 6, Exhibit 10.03. Consent and Ratification and Reaffirmation Agreement, dated May 27, 1999, between The Bank of Nova Scotia in its capacity as the Administrative Agent for the Lenders and Aladdin Gaming, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended June 30, 1999, Part II, Item 6, Exhibit 10.05. Energy Services Coordination Agreement, dated May 28, 1999, between Aladdin Gaming, LLC and Aladdin Bazaar, LLC is incorporated herein by reference from Enterprises (SEC File No. 333-49715) Form 10-Q for the quarter ended June 30, 1999, Part II, Item 6, Exhibit 10.04. Subordination Non-Disturbance and Attornment Agreement and Consent, dated June 7, 1999, between The Bank of Nova Scotia, as the administrative agent for the Aladdin Lenders, Northwind Aladdin, LLC, Aladdin Gaming, LLC and State Street Bank and Trust Company, as collateral agent for the Northwind Noteholders, Aladdin Music, LLC and Aladdin Music Holdings, LLC is incorporated herein by reference from the Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended June 30, 1999, Part II, Item 6, Exhibit 10.06. 10.24 Energy Lease, dated December 3, 1997, between Gaming and Northwind Aladdin, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.28. 10.25 Unicom Guaranty, dated December 3, 1997, between Unicom Corporation and Gaming is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.29. 10.26 Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated September 3, 1997, between TH Bazaar Centers, Inc. and Aladdin Bazaar Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.30; First Amendment to the Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated October 16, 1997, is incorporated herein by reference to Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.31; Second Amendment to Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated May 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.50.
54
EXHIBIT NO. DESCRIPTION - - --------------------- ----------- 10.27 Music Project Memorandum of Understanding and Letter of Intent, dated September 2, 1997, between Gaming and Planet Hollywood International, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.32; Amendment to Music Project Memorandum of Understanding and Letter of Intent, dated October 15, 1997, between Gaming and Planet Hollywood International, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed June 10, 1998, Part II, Item 16, Exhibit 10.50. 10.28 GAI Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming, and GAI, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.34. 10.29 Goeglein Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Richard J. Goeglein is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.35. 10.30 McKennon Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and James H. McKennon is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.36. 10.31 Klerk Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Cornelius T. Klerk is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.37. 10.32 Galati Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Lee A. Galati is incorporated herein by reference to Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.38. 10.33 Rueda Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Jose A. Rueda is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.39. 10.34 GAI Consulting Agreement, dated July 1, 1997, between GAI, LLC and Gaming as amended as of January, 1998 is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.40. 10.35 Employment and Consulting Agreement, dated July 1, 1997, between Gaming and Richard J. Goeglein, as amended as of January, 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.41.
55
EXHIBIT NO. DESCRIPTION - - --------------------- ----------- 10.36 Employment Agreement, dated July 28, 1997, between Gaming and James H. McKennon is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.42. Amendment No. 2 to the Employment Agreement between Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC and James McKennon, dated January 27, 1999 is incorporated herein by reference from Enterprises' (SEC 333-49715) Form 10-Q for the quarter ended March 31, 1999, Part II, Item 6, Exhibit 10.01. 10.37 Employment Agreement, dated July 26, 1997, between Gaming and Cornelius T. Klerk is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.43. Amendment No. 2 to the Employment Agreement between Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC and Cornelius T. Klerk, dated January 27, 1999, is incorporated herein by reference from Enterprises (SEC File No. 333-49715) Form 10-Q for the quarter ended March 31, 1999, Part II, Item 6, Exhibit 10.02. 10.38 Employment Agreement, dated August 19, 1997, between Gaming and Lee A. Galati is incorporated herein by reference from the Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.44. Amendment No. 2 to the Employment Agreement between Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC and Lee Galati, dated January 27, 1999, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended March 31, 1999, Part II, Item 6, Exhibit 10.04. 10.39 Employment Agreement, dated July 1, 1997, between Gaming and Jose A. Rueda is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.45. Amendment No. 2 to the Employment Agreement between Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC and Jose A. Rueda, dated January 27, 1999 is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended March 31, 1999, Part II, Item 6, Exhibit 10.03. 10.40 FF&E Commitment Letter, dated January 23, 1998, between Gaming and General Electric Capital Corporation is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed April 9, 1998, Part II, Item 16, Exhibit 10.46; Facilities Agreement between General Electric Capital Corporation and Gaming, dated June 26, 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q filed August 14, 1998, Part II, Item 6, Exhibit 10.01; Amendment No. 1 to Facilities Agreement between General Electric Capital Corporation and Gaming, dated September 2, 1998. 10.41 Intercreditor Agreement by and among The Bank of Nova Scotia, General Electric Capital Corporation and Gaming, dated as of June 30, 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q filed August 14, 1998, Part II, Item 6, Exhibit 10.02. 10.42 Mall Commitment Letter, dated December 29, 1997, between Aladdin Bazaar, LLC and Fleet National Bank, as Administrative Agent is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.47.
56
EXHIBIT NO. DESCRIPTION - - --------------------- ----------- 10.43 Purchase Agreement, dated February 18, 1998, among Gaming Holdings, Capital, Enterprises, Aladdin Holdings, LLC, the Trust under Article Sixth u/w/o Sigmund Sommer, London Clubs and the Initial Purchasers is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.48. 10.44 Contributed Land Appraisal prepared by HVS International is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.49. 10.45 Employment Agreement dated February 25, 2000 between Aladdin Gaming Holdings, LLC, Aladdin Gaming, LLC and William Timmins. 10.46 Employment Agreement dated December 29, 1999 between Aladdin Gaming Holdings, LLC, Aladdin Gaming, LLC and David Attaway. 10.47 Employment Agreement dated January 31, 2000 between Aladdin Gaming Holdings, LLC, Aladdin Gaming, LLC and Barbara Falvey. 10.48 Employment Agreement dated March 7, 2000 between Aladdin Gaming Holdings, LLC, Aladdin Gaming, LLC and Thomas Lettero. 10.49 Letter Agreement, dated December 10, 1999 between the Trust Under Article Sixth u/w/o Sigmund Sommer, London Clubs International, plc, London Clubs Nevada, Inc., Aladdin Gaming Holdings, LLC, Sommer Enterprises, LLC, Aladdin Gaming Enterprises, Inc., GAI, LLC and Aladdin Holdings, LLC. Letter Agreement, dated February 23, 2000, between the Trust under Article Sixth u/w/o Sigmund Sommer, London Clubs International plc, London Clubs Nevada, Inc., Aladdin Gaming Holdings, LLC, Sommer Enterprises, LLC, Aladdin Gaming Enterprises, Inc. and GAI, LLC. 21.01 List of Subsidiaries. 27.01 Financial Data Schedule. 99.01 Consolidated Financial Statements of Aladdin Gaming Holdings, LLC and subsidiaries.
- - ------------------------ (b) Reports on Form 8-K. During the fourth quarter of the fiscal year ended December 31, 1999, Gaming Enterprises did not file any current Report on Form 8-K. (c) The exhibits required by Item 601 of Regulation S-K filed as part of this Report or incorporated herein by reference are listed in Item 14(a)(3) above, and the exhibits filed herewith are listed on the Index to Exhibits which accompanies this Report. (d) See Item 14(a)(2) of this Report. 57 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by this undersigned, thereunto duly authorized. REGISTRANT: ALADDIN GAMING ENTERPRISES, INC. By: /s/ JACK SOMMER ----------------------------------------- Jack Sommer, PRESIDENT AND DIRECTOR (PRINCIPAL EXECUTIVE OFFICER)
DATE: March 30, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 30, 2000 By: /s/ JACK SOMMER ----------------------------------------- Jack Sommer, PRESIDENT AND DIRECTOR March 30, 2000 By: /s/ RONALD DICTROW ----------------------------------------- Ronald Dictrow, SECRETARY AND DIRECTOR (PRINCIPAL ACCOUNTING OFFICER)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. Other than this Form 10-K, Aladdin Gaming Enterprises, Inc. has not issued, and will not be issuing, any annual report to its security holders covering Aladdin Gaming Enterprises, Inc.'s last fiscal year. Aladdin Gaming Enterprises, Inc. has not sent, and will not send, any proxy statement, form of proxy or other proxy soliciting material to its security holders. 58 EXHIBIT INDEX
EXHIBIT PAGE NO. DESCRIPTION NO. - - --------------------- ----------- -------- 3.1 Articles of Organization of Aladdin Gaming Holdings, LLC ("Gaming Holdings") are incorporated herein by reference from Aladdin Gaming Enterprises, Inc.'s ("Enterprises") (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.3............. 3.2 Articles of Incorporation of Aladdin Capital Corp. ("Capital") are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.4................................................. 3.3 Articles of Organization of Aladdin Gaming, LLC ("Gaming") are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.5....... 3.4 Articles of Incorporation of Enterprises are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.1; Amendment No. 1 to Articles of Incorporation of Enterprises is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.2................ 3.5 Operating Agreement of Gaming Holdings is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed on June 10, 1998, Part II, Item 16, Exhibit 3.7................................................. 3.6 Bylaws of Capital are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.8................................................. 3.7 Operating Agreement of Gaming is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.9............................... 3.8 Bylaws of Enterprises are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 3.6........................................ 4.1 Warrant Agreement, dated February 26, 1998, among Enterprises and State Street Bank and Trust Company, as Warrant Agent ("Warrant Agent") is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 4.1............................... 4.2 Warrant Registration Rights Agreement, dated February 26, 1998, among Enterprises and the Initial Purchasers (as defined) is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 4.2................................................. 4.3 Equity Participation Agreement, dated February 26, 1998, among Sommer Enterprises, LLC, Enterprises, London Clubs Nevada, Inc. ("LCNI") and the Trustee (as defined) is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 4.3................
59
EXHIBIT PAGE NO. DESCRIPTION NO. - - --------------------- ----------- -------- 10.1 Indenture, dated February 26, 1998, among Gaming Holdings, Capital and State Street Bank and Trust Company, as Trustee ("Trustee") is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.1................................................ 10.2 Note Registration Rights Agreement, dated February 26, 1998, among Gaming Holdings, Capital and Merrill Lynch, Pierce Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, CIBC Oppenheimer Corp. and Scotia Capital Markets (USA) Inc. ("Initial Purchasers") is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.2............... 10.3 Noteholder Completion Guaranty, dated February 26, 1998, among the Trust under Articles Sixth u/w/o Sigmund Sommer, London Clubs International, plc ("London Clubs"), Aladdin Bazaar Holdings, LLC and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed on June 10, 1998, Part II, Item 16, Exhibit 10.3............ 10.4 Disbursement Agreement, dated February 26, 1998, among Gaming Holdings, Gaming, The Bank of Nova Scotia, as Administrative Agent under the Bank Credit Facility, Disbursement Agent, and Securities Intermediary, U.S. Bank National Association as Servicing Agent and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1 filed on June 10, 1998, Part II, Item 16, Exhibit 10.4........................................................ 10.5 The LLC Interest Pledge and Security Agreement, dated February 26, 1998, between Gaming Holdings and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.5................................................ 10.6 The Gaming Holdings Collateral Account Agreement, dated February 26, 1998, between Gaming Holdings and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.6................................................ 10.7 Subsidiary Guaranty, dated February 26, 1998, among subsidiaries of London Clubs and the Trustee is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.7..................... 10.8 Amended and Restated London Clubs Purchase Agreement, dated February 26, 1998, among LCNI, London Clubs, Gaming Holdings, Aladdin Holdings, LLC, Gaming, Sommer Enterprises, LLC, and the Trust Under Article Sixth u/w/o Sigmund Sommer is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.8............ 10.9 Closing Schedules to Amended and Restated London Clubs Purchase Agreement are incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.9................................................ 10.10 Contribution Agreement, dated February 26, 1998, among the Trust Under Article Sixth u/w/o Sigmund Sommer, Aladdin Holdings, LLC, Sommer Enterprises, LLC, London Clubs and LCNI is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.10....................
60
EXHIBIT PAGE NO. DESCRIPTION NO. - - --------------------- ----------- -------- 10.11 Salle Privee Agreement, dated February 26, 1998, among Gaming, LCNI and London Clubs is incorporated herein by reference from Enterprises' (SEC File No. 333- 49715) Registration Statement on Form S-1 filed on April 9, 1998, Part II, Item 16, Exhibit 10.11............................. 10.12 Credit Agreement, dated February 26, 1998, among Gaming, a syndicate of lenders ("Bank Lenders"), The Bank of Nova Scotia as Administrative Agent, Merrill Lynch Capital Corporation as Syndication Agent and CIBC Oppenheimer Corp as Documentation Agent is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1 filed June 10, 1998, Part II, Item 16, Exhibit 10.13; First Amendment to Credit Agreement dated January 29, 1999, by and among Gaming, Bank Lenders, The Bank of Nova Scotia, as Administrative Agent, Merrill Lynch Capital Corporation as Syndication Agent and CIBC Oppenheimer Corp. as Documentation Agent is incorporated herein by reference from Enterprises (SEC File No. 333-49715) Form 10-K for the year ended December 31, 1999 Part IV, Item 14, Exhibit 10.12; Second Amendment to Credit Agreement, dated as of April 5, 1999, effective March 10, 1999, among Aladdin Gaming, LLC, various financial institutions, The Bank of Nova Scotia, Merrill Lynch Capital Corporation and CIBC Oppenheimer Corp. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 8-K, dated April 27, 1999, Item 7, Exhibit 10.01............................................... 10.13 Bank Completion Guaranty, dated February 26, 1998, among the Trust Under Article Sixth u/w/o Sigmund Sommer, London Clubs, Aladdin Bazaar Holdings, LLC and the Bank Lenders is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.14. First Amendment to Guaranty of Performance and Completion, dated as of April 5, 1999, effective March 10, 1999, by London Clubs International, plc, the Trust Under Article Sixth Under the Will of Sigmund Sommer, Aladdin Bazaar Holding, LLC and The Bank of Nova Scotia is incorporated herein by reference from Enterprises' (SEC 333-49715) Form 8-K, dated April 27, 1999, Item 7, Exhibit 10.02....... 10.14 Keep-Well Agreement, dated February 26, 1998, among Aladdin Holdings, LLC, London Clubs and Aladdin Bazaar Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.15............................................... 10.15 Design/Build Contract, dated December 4, 1997, between Gaming and Fluor Daniel, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.16; Amendment No. 1 to Design/Build Contract, dated January 21, 1998, between Gaming and Fluor Daniel, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.17; Amendment No. 2 to Design/Build Contract, dated January 28, 1998, between Gaming and Fluor Daniel, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.18; Fluor Guaranty, dated December 4, 1997, between the Company and Fluor Corporation is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.19......................................
61
EXHIBIT PAGE NO. DESCRIPTION NO. - - --------------------- ----------- -------- 10.16 Site Work, Development and Construction Agreement, dated February 26, 1998, among Gaming, Aladdin Bazaar, LLC and Aladdin Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.20............................. 10.17 Construction, Operation and Reciprocal Easement Agreement, dated February 26, 1998, among Gaming, Aladdin Bazaar, LLC and Aladdin Music Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.21.............. 10.18 Common Parking Area Use Agreement, dated February 26, 1998, between Gaming and Aladdin Bazaar, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.22....................................................... 10.19 Music Project Lease, dated February 26, 1998, between Gaming and Aladdin Music Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 2, filed on July 22, 1998, Part II, Item 16 Exhibit 10.23............ 10.20 Mall Project Lease, dated February 26, 1998, between Gaming and Aladdin Bazaar, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333- 49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.24............................. 10.21 Deed of Trust, Assignment of Rents and Leases, Fixture Filing and Security Agreement, dated February 26, 1998, made by Gaming to Stewart Title of Nevada, as trustee for the benefit of the Bank of Nova Scotia is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.25.............. 10.22 Development Agreement, dated December 3, 1997, between Aladdin and Northwind Aladdin, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.26.............................
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EXHIBIT PAGE NO. DESCRIPTION NO. - - --------------------- ----------- -------- 10.23 Energy Service Agreement, dated September 24, 1998, between Aladdin and Northwind Aladdin, LLC is incorporated herein by reference from Enterprises; (SEC File No. 333-49715) Form 10-K for the year ended December 31, 1999, Part IV, Item 14, Exhibit 10.23. Amendment and Agreement to the Energy Service Agreement, dated September 25, 1998, between Northwind Aladdin, LLC and Aladdin Gaming, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended June 30, 1999, Part II, Item 6, Exhibit 10.01. Second Amendment and Agreement to the Energy Service Agreement, dated May 28, 1999, between Northwind Aladdin, LLC and Aladdin Gaming, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended June 30, 1999, Part II, Item 6, Exhibit 10.02. Third Amendment and Agreement to the Energy Service Agreement, dated May 28, 1999, between Northwind Aladdin, LLC and Aladdin Gaming, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended June 30, 1999, Part II, Item 6, Exhibit 10.03. Consent and Ratification and Reaffirmation Agreement, dated May 27, 1999, between The Bank of Nova Scotia in its capacity as the Administrative Agent for the Lenders and Aladdin Gaming, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended June 30, 1999, Part II, Item 6, Exhibit 10.05. Energy Services Coordination Agreement, dated May 28, 1999, between Aladdin Gaming, LLC and Aladdin Bazaar, LLC is incorporated herein by reference from Enterprises (SEC File No. 333-49715) Form 10-Q for the quarter ended June 30, 1999, Part II, Item 6, Exhibit 10.04. Subordination Non-Disturbance and Attornment Agreement and Consent, dated June 7, 1999, between The Bank of Nova Scotia, as the administrative agent for the Aladdin Lenders, Northwind Aladdin, LLC, Aladdin Gaming, LLC and State Street Bank and Trust Company, as collateral agent for the Northwind Noteholders, Aladdin Music, LLC and Aladdin Music Holdings, LLC is incorporated herein by reference from the Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended June 30, 1999, Part II, Item 6, Exhibit 10.06....................................................... 10.24 Energy Lease, dated December 3, 1997, between Gaming and Northwind Aladdin, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.28...................................... 10.25 Unicom Guaranty, dated December 3, 1997, between Unicom Corporation and Gaming is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.29........................................... 10.26 Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated September 3, 1997, between TH Bazaar Centers, Inc. and Aladdin Bazaar Holdings, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.30; First Amendment to the Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated October 16, 1997, is incorporated herein by reference to Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.31; Second Amendment to Limited Liability Company Agreement of Aladdin Bazaar, LLC, dated May 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.50.......................................................
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EXHIBIT PAGE NO. DESCRIPTION NO. - - --------------------- ----------- -------- 10.27 Music Project Memorandum of Understanding and Letter of Intent, dated September 2, 1997, between Gaming and Planet Hollywood International, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.32; Amendment to Music Project Memorandum of Understanding and Letter of Intent, dated October 15, 1997, between Gaming and Planet Hollywood International, Inc. is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed June 10, 1998, Part II, Item 16, Exhibit 10.50............................. 10.28 GAI Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming, and GAI, LLC is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.34.............. 10.29 Goeglein Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Richard J. Goeglein is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.35............................................... 10.30 McKennon Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and James H. McKennon is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.36............................................... 10.31 Klerk Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Cornelius T. Klerk is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.37..... 10.32 Galati Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Lee A. Galati is incorporated herein by reference to Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.38.............. 10.33 Rueda Contribution and Amendment Agreement, dated February 26, 1998, among Gaming Holdings, Gaming and Jose A. Rueda is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.39.............. 10.34 GAI Consulting Agreement, dated July 1, 1997, between GAI, LLC and Gaming as amended as of January, 1998 is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.40....................................................... 10.35 Employment and Consulting Agreement, dated July 1, 1997, between Gaming and Richard J. Goeglein, as amended as of January, 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.41......................................
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EXHIBIT PAGE NO. DESCRIPTION NO. - - --------------------- ----------- -------- 10.36 Employment Agreement, dated July 28, 1997, between Gaming and James H. McKennon is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.42. Amendment No. 2 to the Employment Agreement between Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC and James McKennon, dated January 27, 1999 is incorporated herein by reference from Enterprises' (SEC 333-49715) Form 10-Q for the quarter ended March 31, 1999, Part II, Item 6, Exhibit 10.01........................ 10.37 Employment Agreement, dated July 26, 1997, between Gaming and Cornelius T. Klerk is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.43. Amendment No. 2 to the Employment Agreement between Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC and Cornelius T. Klerk, dated January 27, 1999, is incorporated herein by reference from Enterprises (SEC File No. 333-49715) Form 10-Q for the quarter ended March 31, 1999, Part II, Item 6, Exhibit 10.02....................................................... 10.38 Employment Agreement, dated August 19, 1997, between Gaming and Lee A. Galati is incorporated herein by reference from the Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.44 Amendment No. 2 to the Employment Agreement between Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC and Lee Galati, dated January 27, 1999, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended March 31, 1999, Part II, Item 6, Exhibit 10.04.................... 10.39 Employment Agreement, dated July 1, 1997, between Gaming and Jose A. Rueda is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.45. Amendment No. 2 to the Employment Agreement between Aladdin Gaming, LLC, Aladdin Gaming Holdings, LLC and Jose A. Rueda, dated January 27, 1999 is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q for the quarter ended March 31, 1999, Part II, Item 6, Exhibit 10.03........................ 10.40 FF&E Commitment Letter, dated January 23, 1998, between Gaming and General Electric Capital Corporation is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed April 9, 1998, Part II, Item 16, Exhibit 10.46; Facilities Agreement between General Electric Capital Corporation and Gaming, dated June 26, 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q filed August 14, 1998, Part II, Item 6, Exhibit 10.01; Amendment No. 1 to Facilities Agreement between General Electric Capital Corporation and Gaming, dated September 2, 1998..................................... 10.41 Intercreditor Agreement by and among The Bank of Nova Scotia, General Electric Capital Corporation and Gaming, dated as of June 30, 1998, is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Form 10-Q filed August 14, 1998, Part II, Item 6, Exhibit 10.02....................................................... 10.42 Mall Commitment Letter, dated December 29, 1997, between Aladdin Bazaar, LLC and Fleet National Bank, as Administrative Agent is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.47.............................
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EXHIBIT PAGE NO. DESCRIPTION NO. - - --------------------- ----------- -------- 10.43 Purchase Agreement, dated February 18, 1998, among Gaming Holdings, Capital, Enterprises, Aladdin Holdings, LLC, the Trust under Article Sixth u/w/o Sigmund Sommer, London Clubs and the Initial Purchasers is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, filed on April 9, 1998, Part II, Item 16, Exhibit 10.48............................. 10.44 Contributed Land Appraisal prepared by HVS International is incorporated herein by reference from Enterprises' (SEC File No. 333-49715) Registration Statement on Form S-1, Amendment No. 1, filed June 10, 1998, Part II, Item 16, Exhibit 10.49....................................................... 10.45 Employment Agreement dated February 25, 2000 between Aladdin Gaming Holdings, LLC, Aladdin Gaming, LLC and William Timmins..................................................... 10.46 Employment Agreement dated December 29, 1999 between Aladdin Gaming Holdings, LLC, Aladdin Gaming, LLC and David Attaway..................................................... 10.47 Employment Agreement dated January 31, 2000 between Aladdin Gaming Holdings, LLC, Aladdin Gaming, LLC and Barbara Falvey...................................................... 10.48 Employment Agreement dated March 7, 2000 between Aladdin Gaming Holdings, LLC, Aladdin Gaming, LLC and Thomas Lettero..................................................... 10.49 Letter Agreement, dated December 10, 1999 between the Trust Under Article Sixth u/w/o Sigmund Sommer, London Clubs International, plc, London Clubs Nevada, Inc., Aladdin Gaming Holdings, LLC, Sommer Enterprises, LLC, Aladdin Gaming Enterprises, Inc., GAI, LLC and Aladdin Holdings, LLC. Letter Agreement, dated February 23, 2000, between the Trust under Article Sixth u/w/o Sigmund Sommer, London Clubs International plc, London Clubs Nevada, Inc., Aladdin Gaming Holdings, LLC, Sommer Enterprises, LLC, Aladdin Gaming Enterprises, Inc. and GAI, LLC.............................. 21.01 List of Subsidiaries........................................ 27.01 Financial Data Schedule..................................... 99.01 Consolidated Financial Statements of Aladdin Gaming Holdings, LLC and subsidiaries..............................
66 EX-10.45 2 EXHIBIT 10.45 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made and entered into this 25th day of February, 2000, by and between Aladdin Gaming, LLC ("Company"), Aladdin Gaming Holdings, LLC ("Gaming Holdings") and William Timmins ("Executive"). WHEREAS, the Company considers it important and in its best interest and the best interest of its owners to foster the employment of key management personnel and desires to retain the services of Executive on the terms and subject to the conditions of this Agreement; WHEREAS, the Executive desires to accept employment with the Company to render services to the Company on the terms and subject to the conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing and the following mutual covenants and agreements, the parties agree as follows: 1. EMPLOYMENT. The Company hereby employs Executive as Executive Vice President of Gaming Holdings and the Company, and Executive shall serve on the Board of Managers for Gaming Holdings and the Company and Executive shall serve as a member on the Company's Executive Committee. Further, Executive shall be the President and Chief Operating Officer of the Aladdin Resort & Casino. Executive hereby accepts such employment and positions for the compensation and subject to the terms and conditions in this Agreement. 2. TERM. (a) The term of the Executive's employment under this Agreement ("Term") shall commence on January 26, 2000 ("Commencement Date") and shall continue to and including January 25, 2003, unless earlier terminated as provided in this Agreement. (The date of any termination of this Agreement as provided herein is the "Termination Date"). (b) Notwithstanding Section 2(a), Executive shall have the right, but not the obligation, to terminate this Agreement on January 26, 2002, and thirty (30) days after such date his right to terminate the Agreement pursuant to this section shall expire. Upon termination of this Agreement as provided in this Section 2(b), this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7. 3. DUTIES AND RESPONSIBILITIES. During the Term, Executive will serve as Executive Vice President of Gaming Holdings and the Company, and Executive shall serve on the Board of Managers for Gaming Holdings and the Company, and Executive shall serve as a member on the Company's Executive Committee and Executive shall serve as President and Chief Operating Officer of the Aladdin Resort & Casino. Executive will have such authority, responsibilities and duties as are customarily associated with this position. At all times Executive shall faithfully and to the best of his abilities perform his duties and responsibilities hereunder to the reasonable 1 satisfaction of the Board of Directors. In addition, Executive shall devote his full time, efforts and attention to the business and affairs of the Company, use his best efforts to further the interest of the Company and at all times conduct himself in a manner which reflects credit upon the Company. 4. COMPENSATION. a. SALARY. For his services hereunder, the Company shall pay Executive a base salary of Two Hundred Fifty-two Thousand Dollars ($252,000) prior to the opening for operation of the Aladdin Resort & Casino and upon the opening for operation of the Aladdin Resort & Casino, the Company will pay the Executive a base salary equal to the 75th percentile of the industry rate (as applicable, "Base Salary") for each consecutive 12-month period during the Term beginning with the Commencement Date. (Each such consecutive 12 month period is an "Employment Year"). Executive's Base Salary will be prorated for any partial Employment Year. On January 26, 2001 and each year thereafter, the Board of Directors will consider an increase in the Base Salary based upon criteria determined by the Board of Directors and applicable to other members of the executive management group. Any such increases, however, shall be in the sole discretion of the Board of Directors. There shall be no reduction in Base Salary during the Term. The Base Salary shall be payable in equal periodic installments subject to customary deductions for social security, other taxes and amounts customarily withheld from salaries of employees of the Company, all in accordance with the Company's usual and customary payroll practices. b. ANNUAL BONUS. From and after the date the Company opens and begins operating the Aladdin Resort & Casino ("Operational Date"), Executive is eligible to receive from the Company an annual cash bonus, provided Executive is employed by the Company on the date the Board of Directors grants the bonus. The Board of Directors will determine such criteria and standards in a bonus plan, which will be competitive with industry standards and applicable to other members of the executive management group. Executive's bonus will be prorated accordingly if the Aladdin Resort & Casino is only partially open and operating during the bonus year. c. BENEFITS. During the Term, Executive shall be entitled to receive from the Company such health, pension, retirement and other employee benefits as the Company provides to other members of the executive management group. During the Term, the Company, at its expense, will provide Executive with term life insurance in the amount of Executive's annual Base Salary. During the Term, the Company, at its expense, will provide Executive with long-term disability coverage under a group long-term disability plan the Company provides other members of the executive management group. d. VACATION. Executive shall be entitled to two (2) weeks paid vacation for each Employment Year, prorated for any partial Employment Year. The Board of Directors in its discretion may increase Executive's vacation entitlement. The timing and duration of specific vacations will take into account the business needs of the Company and will be mutually agreed to by the parties. In the event any such vacation is not used by 2 Executive in any Employment Year, the Executive has a right to accumulate and carry forward such number of unused vacation days from year to year as may be consistent with the Company's policy for other members of the executive management group. Upon termination of employment, all unused vacation time shall be paid to Executive. e. REIMBURSEMENT OF EXPENSES. The Company shall pay all reasonable expenses incurred by Executive in the performance of his duties and responsibilities for the Company. Executive shall submit to the Company statements and documentation reflecting such expenses incurred, with such detail, backup and confirmation as the Company may reasonably require. Subject to any audit Company deems necessary, the Company shall promptly reimburse Executive the full amount of any such expenses incurred by Executive. f. EQUITY INTEREST. Executive will receive a restricted membership interest of one percent (1%), or the economic equivalent thereof, in Gaming Holdings, which Gaming Holdings is currently evaluating which may include, but not be limited to, a "profits only interest," "option," or "phantom stock" (collectively, "Equity"). Such Equity arrangement shall include the right to receive one percent (1%) of the distributions which are made to the holders of Gaming Holdings Common Membership Interests. When Gaming Holdings finalizes the Equity arrangement, the parties will amend this Agreement so that the Executive shall participate in such program substantially in the form previously presented to the Executive. Such Equity arrangement shall vest 50% on the Operational Date and the remaining 50% shall vest one (1) year thereafter; provided, however in the event of a Change of Control, the Equity arrangement shall vest 100% immediately. If Gaming Holdings does not create an Equity arrangement by the Operational Date, the parties will negotiate in good faith to establish a compensation arrangement in lieu of an Equity arrangement, which would have the same economic benefit to the Executive. g. AUTO ALLOWANCE. During the Term, the Company shall pay Executive an auto allowance of Six Hundred Dollars ($600) per month. 5. TERMINATION. This Agreement shall terminate in accordance with the following provisions: a. EXPIRATION OF THE TERM. Unless earlier terminated in accordance with the provisions hereof, this Agreement shall terminate on expiration of the term as provided in Section 2. b. DEATH. If the Executive dies during the Term, this Agreement shall terminate, with the Termination Date being the date of the Executive's Death. c. DISABILITY. If the Executive has been absent from service to the Company as required in this Agreement for a period of ninety (90) days or more during any one hundred eighty (180) day period during the Term as a result of any physical or mental disability, the Company has the right to terminate this Agreement, the Termination Date being ten (10) days after notice thereof is given to Executive. 3 d. TERMINATION BY COMPANY FOR CAUSE. The Company has the right to terminate this Agreement for Cause as defined herein, such termination to be effective immediately upon notice thereof from the Company to Executive. For purposes of this Agreement, Cause shall mean Executive's: (1) conviction of any felony; (2) conviction for embezzlement or misappropriation of money or property of the Company; (3) denial, rejection, suspension or revocation of any gaming license or permit; (4) Executive's material breach of section 6 hereof which material breach has an adverse impact on the Company; and (5) Executive quits his employment with the Company without Good Reason. Good Reason is defined as: (i) the assignment to Executive of duties materially inconsistent with his position and title without his consent; or (ii) a material reduction in Executive's duties, authorities and responsibilities without his consent; or (iii) a reduction by the Company in Executive's Base Salary, in effect immediately prior to such reduction, without his consent, provided Executive gives the Company written notice specifying such assignment or reduction and the Company has not cured or abated such assignment or reduction within twenty (20) days thereafter. e. TERMINATION BY COMPANY WITHOUT CAUSE OR TERMINATION BY EXECUTIVE WITH GOOD REASON OR UPON A CHANGE OF CONTROL. Subject to Section 5(f), (i) the Company has the right to terminate this Agreement without Cause, (ii) the Executive has the right to terminate this Agreement for Good Reason and (iii) the Executive has the right to terminate this Agreement upon a Change of Control by giving the other party written notice thereof. In any of these instances, the Company shall provide Executive with all the benefits set forth in Section 8(e). For purposes of this Agreement, a Change of Control shall be deemed to occur only if collectively the Sommer Family Trust and London Clubs International, plc, through their affiliates, own less than fifty percent (50%) of the membership interests of either Gaming Holdings or the Company. 6. EXECUTIVE'S COVENANTS. The Executive acknowledges that the Company and Gaming Holdings have substantial, legitimate and continuing interests in the protection of their business relationships with others including, without limitation, current and prospective employees, consultants, advisors, customers, vendors, suppliers, partners or joint venturers and financing sources, and in the protection of their Confidential Information and have invested substantial sums, time and effort and will continue to invest substantial sums, time and effort to develop, maintain and protect such relationships and Confidential Information. Accordingly, Executive covenants and agrees as follows: a. CONFIDENTIALITY. During the Term and thereafter, Executive shall keep secret and retain in strictest confidence and shall not, without the prior written consent of the Company or Gaming Holdings, furnish, make available or disclose to any third party or use for the benefit of himself or any third party any Confidential Information. Confidential Information is information related to or concerning Gaming Holdings, the Company and their businesses which is confidential, proprietary or not generally known to and cannot be readily ascertained through proper means by persons or entities (including Gaming Holdings' and the Company's present or future competitors), who can obtain any type of value from its disclosure or use. Confidential Information includes all secret, confidential or proprietary information, knowledge or data specifically relating to Gaming Holdings 4 and the Company, such as, without limitation, finances and financing methods, sources, proposals or plans; operational methods; marketing or development proposals, plans or strategies; pricing strategies; business or property acquisition or development proposals or plans; new personnel acquisition proposals or plans; customer lists and any descriptions or data concerning current or prospective customers. While employed by the Company and in furtherance of the business and for the benefit of Gaming Holdings and the Company, Executive may provide Confidential Information as appropriate to attorneys, accountants, financial institutions, and other persons or entities engaged in business with the Company and to Executive's personal attorney and/or accountant to the extent necessary for such individuals to advise Executive; provided, however, such individuals will be similarly bound to maintain the confidentiality of the information disclosed. Notwithstanding the foregoing, the provisions of this section shall not apply to any communication between the Executive and London Clubs International, plc, or any of its affiliates, officers, directors, employees or agents (collectively, "London Clubs"). b. NON-COMPETITION. 1) Executive covenants and agrees that he will not compete with the Company, its affiliates or subsidiaries at any time during the Term, or for one (1) year from the Termination Date upon a Termination by the Company for Cause under Section 5(d) (including Executive quitting without Good Reason under Section 5(d)(5)). Under this paragraph, Executive agrees that he will not, directly or indirectly, whether as employee, owner, partner, agent, director, officer, consultant, independent consultant or stockholder (except as the beneficial owner of not more than 2% of the outstanding shares of a corporation, any of the capital stock of which is listed on any national or regional securities exchange or quoted in the daily listing of over-the-counter market securities and, in each case, in which the Executive does not undertake any management or operational or advisory role) or in any other capacity, for his own account or for the benefit of any other person or entity, establish, engage, work for or be connected in any manner with any person or entity which is, at the time, engaged in a business which is in competition with the business of the Company (or any of its subsidiaries or affiliates); it being understood that for purposes of this Section 6(b), the business of owning, managing, operating or financing a casino or similar gaming activities in Clark County, Nevada, shall be deemed to be business in which the Company is engaged; provided, however, nothing herein prohibits Executive from a working for a competing business outside Clark County, Nevada. The restrictions and constraints contained in this section shall not apply to any appointment of Executive made by London Clubs. 2) Notwithstanding anything to the contrary contained herein, Executive shall not be subject to the non-competition provisions of this Agreement, if this Agreement is terminated other than pursuant to the provisions of Section 5(d). c. EMPLOYEES OF THE COMPANY. For one (1) year following the Termination Date, Executive shall not, directly or indirectly, solicit, or cause others to solicit, for employment by any person or entity other than the Company, any employee of the Company or encourage any such employee to leave the employment of the Company. 5 d. PROPERTY OF THE COMPANY. Executive acknowledges and agrees that all memoranda, notes, lists, records and other documents or papers, including copies thereof, containing or reflecting Confidential Information (whether or not such items are kept or stored in computer memories, microfiche, hard copy or any other manner) made or compiled by Executive or made available to Executive are and remain the property of the Company ("Company Property") and shall be delivered to the Company promptly upon any termination of this Agreement. Under Section 5 hereof, Executive shall retain no copies of Company Property following the Termination Date. e. REASONABLENESS AND SEVERABILITY OF COVENANTS. The Executive acknowledges and agrees that the Executive's covenants herein are necessary for the protection of the Company's legitimate interests, are reasonable and valid in duration and geographical scope, and in all other respects. If any court determines any of the Executive covenants or any part thereof, invalid or unenforceable, the remainder of the restrictive covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions. f. BLUE-PENCILLING. If any court determines that any of the Executive's covenants, or any part thereof, is unenforceable because of the duration or geographical scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable. 7. NON-DISPARAGEMENT. Each of the parties agrees that after the Termination Date, neither shall, publicly or privately, disparage or make any statements (written or oral) that impugn the integrity, acumen (business or otherwise), ethics or business practices of the other, except in each case, to the extent (but solely to the extent) necessary: (i) in any judicial or arbitral action to enforce the provisions of this Agreement; or (ii) in connection with any judicial or administrative proceeding to the extent required by applicable law. 8. EFFECT OF TERMINATION. The following provisions shall apply in the event of the termination of this Agreement as provided in Section 5 above, and neither party shall have any further liability or obligation to the other, except as provided herein: a. EXPIRATION OF TERM. Upon expiration of the term under Section 5(a) hereof, this agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; b. DEATH. Upon termination of this Agreement as provided in Section 5(b) hereof, this Agreement shall terminate and be of no further force and effect; provided, further, that the Company shall pay to Executive's estate any salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; 6 c. DISABILITY. Upon termination of this Agreement as provided in Section 5(c) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; d. TERMINATION PURSUANT TO SECTION 5(d). Upon termination of this Agreement as provided in Section 5(d) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6 and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; e. TERMINATION PURSUANT TO SECTION 5(e). Upon termination of this Agreement as provided in Section 5(e) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided, further, that Executive shall be entitled to such salary, bonus and benefits including but not limited to health benefits and expense reimbursements to which Executive would have been entitled for the remainder of the Term or twelve (12) months, whichever is longer, as if there had been no earlier termination. 9. GENERAL PROVISIONS. a. ASSIGNMENT. Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive, or the Company or Gaming Holdings without prior written consent of the other; provided, that (1) in the event of the Executive's Death during the Term, the Executive's estate and his heirs, executors, administrators, legatees and distributees shall have the rights and obligations set forth herein, as provided herein, and (2) nothing contained in this Agreement shall limit or restrict the Company's ability (A) to merge or consolidate or effect any similar transaction with any other entity, irrespective or whether the Company is the surviving entity (including a split up, spin off or similar type transaction), provided, that one or more of such surviving entities shall continue to be bound by the provisions hereof binding upon the Company, (B) to assign this Agreement in conjunction with a sale of all or substantially all of the Company's assets, or (C) an assignment of this Agreement to an affiliate controlled by or under common control with the Company. Gaming Holdings has the same rights and obligations under this Section as the Company. b. BINDING AGREEMENT. Except as otherwise provided in this Agreement, this Agreement shall be binding upon, and inure to the benefit of, the Executive, Gaming Holdings and the Company and their respective heirs, executors, administrators, legatees and distributees, successors and permitted assigns. 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 or 7 the assets or business or the Company or Gaming Holdings and supercedes any prior understandings or agreements between the parties hereto. c. AMENDMENT OF AGREEMENT. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. d. SEVERABILITY. If, for any reason, any provision of this Agreement is determined to be invalid or unenforceable, such invalidity or lack of enforceability shall not affect any other provision of this Agreement not so determined to be invalid or unenforceable, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect, irrespective of such invalid or unenforceable provision. Gaming Holdings has the same rights and obligations under this Section as the Company. e. ENTIRE AGREEMENT. Except for those matters detailed in Section 4(f), this Agreement represents the entire agreement and understanding between the Company, Gaming Holdings, and the Executive concerning the matters herein and supercede any prior understandings or agreements between the parties. f. INDEMNIFICATION. The Company shall indemnify and hold Executive harmless to the full extent permitted by Chapter 86 of the Nevada Revised Statutes against costs, expenses, liabilities and losses, including reasonable attorney's fees and disbursements of counsel, incurred or suffered by him in connection with his service as an employee of the company during the Term of this Agreement. g. NOTICES. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (1) when delivered, if sent by telecopy or by hand, (2) one business day after sending, if sent by reputable overnight courier service, such as Federal Express, or (3) three business days after being mailed, if sent by United States certified or registered mail, return receipt requested, postage prepaid. Notices shall be sent by one of the methods described above; provided, that any notice sent by telecopy shall also be sent by any other method permitted above. Notices shall be sent: If to the Executive: William Timmins 2013 Eagle Trace Way Las Vegas, NV 89117 If to the Company Aladdin Gaming Holdings, LLC and/or Gaming Aladdin Gaming, LLC Holdings: 831 Pilot Road Las Vegas, NV 89119 Attn: Richard Goeglein With a copy to: Aladdin Gaming Holdings, LLC Aladdin Gaming, LLC 831 Pilot Road Las Vegas, Nevada 89119 Attn: General Counsel 8 or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. h. INDULGENCES, ETC. Except for Executive's failure to exercise his right to terminate this Agreement pursuant to Section 2(b), neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. i. BINDING ARBITRATION. Except for an action by the company for injunctive or other equitable relief, any dispute or controversy arising under or in connection to this Employment Agreement shall be resolved through binding arbitration, conducted in Las Vegas, Nevada, in accordance with the rules of the American Arbitration Association. Judgment may be entered on the arbitration award in any court of competent jurisdiction. j. HEADINGS. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. Gaming Holdings has the same rights and obligations under this Section as the Company. k. NEUTRAL CONSTRUCTION. Each party to this Agreement has had the opportunity to retain counsel, and to review and participate in the drafting of this Agreement, and, accordingly, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting parties will not be employed or used in any interpretation of enforcement of this Agreement. l. GAMING LAW. Anything to the contrary herein 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 the rules and regulations promulgated by the Nevada Gaming Commission and the Gaming Control Board. To the extent anything in this Agreement is inconsistent with any gaming laws or regulations, the gaming laws and regulations shall control. 9 m. GOVERNING LAW. This Agreement has been executed and delivered in the state of Nevada, and its validity, interpretation, performance, and enforcement shall be governed by the laws of such state, without regard to principles of conflicts of laws. 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/ William Timmins ------------------------------------- William Timmins 10 EX-10.46 3 EXHIBIT 10.46 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made and entered into by and between Aladdin Gaming, LLC ("Company"), Aladdin Gaming Holdings, LLC ("Gaming Holdings") and David Attaway ("Executive"). WHEREAS, the Company considers it important and in its best interest and the best interest of its owners to foster the employment of key management personnel and desires to retain the services of Executive on the terms and subject to the conditions of this Agreement; WHEREAS, the Executive desires to accept employment by the Company to render services to the Company on the terms and subject to the conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing and the following mutual covenants and agreements, the parties agree as follows: 1. EMPLOYMENT. The Company hereby employs Executive as President and Chief Operating Officer of the Aladdin Music Hotel & Casino Project ("Aladdin Music Project") and Senior Vice President of the Company responsible for sales, marketing and entertainment for the Aladdin Resort & Casino. Executive hereby accepts such employment with the Company for the compensation and subject to the terms and conditions in this Agreement. 2. TERM. The term of the Executive's employment under this Agreement ("Term") shall commence on April 15, 1999 ("Commencement Date") and shall continue to and including April 14, 2002, unless earlier terminated as provided in this Agreement. (The date of any termination of this Agreement as provided herein is the "Termination Date"). 3. DUTIES AND RESPONSIBILITIES. During the Term, Executive will serve as President and Chief Operating Officer of Aladdin Music Project and Senior Vice President of the Company. Executive will have such authority, responsibilities and duties as are customarily associated with this position. At all times Executive shall faithfully and to the best of his abilities perform his duties and responsibilities hereunder to the reasonable satisfaction of the Board of Directors. In addition, Executive shall devote his full time, efforts and attention to the business and affairs of the Company, use his best efforts to further the interest of the Company and at all times conduct himself in a manner which reflects credit upon the Company. 4. COMPENSATION. a. SALARY. For his services hereunder, the Company shall pay Executive a base salary of Three Hundred Twelve Thousand Dollars ($312,000) ("Base Salary") for each consecutive 12-month period during the Term beginning with the Commencement Date. (Each such consecutive 12 month period is an "Employment Year"). Executive's Base Salary will be prorated for any partial Employment Year. On April 15, 2000, the Board of Directors will consider an increase in the Base Salary based upon criteria determined by the Board of Directors and applicable to other members of the executive management 1 group. Any such increases, however, shall be in the sole discretion of the Board of Directors. There shall be no reduction in Base Salary during the Term. The Base Salary shall be payable in equal periodic installments subject to customary deductions for social security, other taxes and amounts customarily withheld from salaries of employees of the Company, all in accordance with the Company's usual and customary payroll practices. b. ANNUAL BONUS. From and after the date the Company opens and begins operating the Aladdin Hotel & Casino ("Operational Date"). Executive is eligible to receive from the Company an annual cash bonus, provided Executive is employed by the Company on the date the Board of Directors grants the bonus. Upon the opening of the Aladdin Music Project, seventy percent (70%) of the Executive's bonus will be based on relevant criteria or performance standards related to Aladdin Music Project and thirty percent (30%) will be based on relevant criteria or performance standards related to the Company. The Board of Directors will determine such criteria and standards in a bonus plan, which will be competitive with industry standards and applicable to other members of the executive management group. Executive's bonus will be prorated accordingly if either the Aladdin Hotel and Casino or Aladdin Music Project is only partially open and operating during the bonus year. If the Aladdin Music Project is not open by the first anniversary of the date the Aladdin Hotel and Casino is open to the public, 100% of the Executive's bonus shall be based on the performance of the Company with relevant criteria established by the Board of Directors consistent with Executive's peers. Executive is eligible to participate in the opening bonus for the Aladdin Hotel and Casino established by the Board of Directors provided Executive meets all the criteria for such bonus. c. BENEFITS. During the Term, Executive shall be entitled to receive from the Company such health, pension, retirement and other employee benefits as the Company provides to other members of the executive management group. During the Term, the Company, at its expense, will provide Executive with term life insurance in the amount of Executive's annual Base Salary. During the Term, the Company, at its expense, will provide Executive with long-term disability coverage under a group long-term disability plan the Company provides other members of the executive management group. d. VACATION. Executive shall be entitled to two (2) weeks paid vacation for each Employment Year, prorated for any partial Employment Year. The Board of Directors in its discretion may increase Executive's vacation entitlement. The timing and duration of specific vacations will take into account the business needs of the Company and will be mutually agreed to by the parties. In the event any such vacation is not used by Executive in any Employment Year, the Executive has a right to accumulate and carry forward such number of unused vacation days from year to year as may be consistent with the Company's policy for other members of the executive management group. Upon termination of employment, all unused vacation time shall be paid to Executive. 2 e. REIMBURSEMENT OF EXPENSES. The Company shall pay all reasonable expenses incurred by Executive in the performance of his duties and responsibilities for the Company. Executive shall submit to the Company statements and documentation reflecting such expenses incurred, with such detail, backup and confirmation as the Company may reasonably require. Subject to any audit Company deems necessary, the Company shall promptly reimburse Executive the full amount of any such expenses incurred by Executive. f. LLC PROFIT INTEREST. Gaming Holdings is currently evaluating and developing a "Profits Only Interest" in Gaming Holdings. If Gaming Holdings creates a "Profits Only Interest," the parties will amend this Agreement so that the Executive shall participate in such program substantially in the form previously presented to the Executive, provided, however, any such program shall not provide the Executive with any preferential treatment as compared to similarly situated executives. If Gaming Holdings does not create a "Profits Only Interest," the parties will negotiate to establish a compensation arrangement in lieu of a "Profits Only Interest." g. AUTO ALLOWANCE. During the Term, the Company shall pay Executive an auto allowance of Five Hundred Dollars ($500) per month. 5. TERMINATION. This Agreement shall terminate in accordance with the following provisions: a. EXPIRATION OF THE TERM. Unless earlier terminated in accordance with the provisions hereof, this Agreement shall terminate on expiration of the term as provided in Section 2. b. DEATH. If the Executive dies during the Term, this Agreement shall terminate, with the Termination Date being the date of the Executive's Death. c. DISABILITY. If the Executive has been absent from service to the Company as required in this Agreement for a period of ninety (90) days or more during any one hundred eighty (180) day period during the Term as a result of any physical or mental disability, the Company has the right to terminate this Agreement, the Termination Date being ten (10) days after notice thereof is given to Executive. d. TERMINATION BY COMPANY FOR CAUSE. The Company has the right to terminate this Agreement for Cause as defined herein, such termination to be effective immediately upon notice thereof from the Company to Executive. For purposes of this Agreement, Cause shall mean Executive's: (1) conviction of any felony; (2) embezzlement or misappropriation of money or property of the Company; (3) denial, rejection, suspension or revocation of any gaming license or permit; (4) Executive's material breach of section 6 hereof which material breach has an adverse impact on the Company; and (5) Executive quits his employment with the Company without Good Reason. Good Reason is defined as: (i) the assignment to Executive of duties materially inconsistent with his position and title without his consent; or (ii) a material reduction in Executive's duties, authorities and responsibilities without his consent; or (iii) a reduction by the Company in Executive's Base Salary, in effect immediately prior to such reduction, without his consent, provided 3 Executive gives the Company written notice specifying such assignment or reduction and the Company has not cured or abated such assignment or reduction within twenty (20) days thereafter. e. TERMINATION BY COMPANY WITHOUT CAUSE OR TERMINATION BY EXECUTIVE WITH GOOD REASON OR UPON A CHANGE OF CONTROL. Subject to Section 5(f), (i) the Company has the right to terminate this Agreement without Cause, (ii) the Executive has the right to terminate this Agreement for Good Reason and (iii) the Executive has the right to terminate this Agreement upon a Change of Control by giving the other party written notice thereof. In any of this instances, the Company shall provide Executive with all the benefits set forth in Section 8(e). For purposes of this Agreement, a Change of Control shall be deemed to occur only if collectively the Sommer Family Trust and London Clubs International, plc, through their affiliates, own less than fifty percent (50%) of the membership interests of either Gaming Holdings or the Company. f. SPECIAL RIGHT OF EXECUTIVE TO TERMINATE THIS AGREEMENT. If upon the Operational Date, the Aladdin Music Project has not received sufficient project funding for substantial completion, the Executive shall have the right, but not the obligation, to terminate this Agreement within 120 days of the Operational Date and after such period this Special Right to Terminate shall expire. Under this Special Right to Terminate, the Executive shall be entitled to the benefits in Section 8(f) hereof. 6. EXECUTIVE'S COVENANTS. The Executive acknowledges that the Company and Gaming Holdings have a substantial, legitimate and continuing interest in the protection of their business relationships with others including, without limitation, current and prospective employees, consultants, advisors, customers, vendors, suppliers, partners or joint venturers and financing sources, and in the protection of their Confidential Information and have invested substantial sums, time and effort and will continue to invest substantial sums, time and effort to develop, maintain and protect such relationships and Confidential Information. Accordingly, Executive covenants and agrees as follows: a. CONFIDENTIALLY. During the Term and thereafter, Executive shall keep secret and retain in strictest confidence and shall not, without the prior written consent of the Company or Gaming Holdings, furnish, make available or disclose to any third party or use for the benefit of himself or any third party any Confidential Information. Confidential Information is information related to or concerning Gaming Holdings, the Company and their businesses which is confidential, proprietary or not generally known to and cannot be readily ascertained through proper means by persons or entities (including Gaming Holdings' and the Company's present or future competitors), who can obtain any type of value from its disclosure or use. Confidential Information includes all secret, confidential or proprietary information, knowledge or data specifically relating to Gaming Holdings and the Company, such as, without limitation, finances and financing methods, sources, proposals or plans; operational methods; marketing or development proposals, plans or strategies; pricing strategies; business or property acquisition or development proposals or plans; new personnel acquisition proposals or plans; customer lists and any descriptions or data concerning current or prospective customers. While employed by the 4 Company and in furtherance of the business and for the benefit of Gaming Holdings and the Company, Executive may provide Confidential Information as appropriate to attorneys, accountants, financial institutions, and other persons or entities engaged in business with the Company. b. NON-COMPETITION. 1) Executive covenants and agrees that he will not compete with the Company, its affiliates or subsidiaries at any time during the Term, or for one (1) year from the Termination Date upon a Termination by the Company for Cause under Section 5(d) (including Executive quitting without Good Reason under Section 5(d)(5)). Under this paragraph, Executive agrees that he will not, directly or indirectly, whether as employee, owner, partner, agent, director, officer, consultant, independent consultant or stockholder (except as the beneficial owner of not more than 2% of the outstanding shares of a corporation, any of the capital stock of which is listed on any national or regional securities exchange or quoted in the daily listing of over-the-counter market securities and, in each case, in which the Executive does not undertake any management or operational or advisory role) or in any other capacity, for his own account or for the benefit of any other person or entity, establish, engage, work for or be connected in any manner with any person or entity which is, at the time, engaged in a business which is in competition with the business of the Company (or any of its subsidiaries or affiliates); it being understood that for purposes of this Section 6(b), the business of owning, managing, operating or financing a casino or similar gaming activities in Clark County, Nevada, shall be deemed to be business in which the Company is engaged; provided, however, nothing herein prohibits Executive from a working for a competing business outside Clark County, Nevada. 2) Notwithstanding anything to the contrary contained herein, Executive shall not be subject to the non-competition provisions of this Agreement, if this Agreement is terminated other than pursuant to the provisions of Section 5(d). c. EMPLOYEES OF THE COMPANY. For one (1) year following the Termination Date, Executive shall not, directly or indirectly, solicit, or cause others to solicit, for employment by any person or entity other than the Company, any employee of the Company. d. PROPERTY OF THE COMPANY. Executive acknowledges and agrees that all memoranda, notes, lists, records and other documents or papers, including copies thereof, containing or reflecting Confidential Information (whether or not such items are kept or stored in computer memories, microfiche, hard copy or any other manner) make or compiled by Executive or made available to Executive are and remain the property of the Company ("Company Property") and shall be delivered to the Company promptly upon any termination of this Agreement. Under Section 5 hereof, Executive shall retain no copies of Company Property following the Termination Date. 5 e. REASONABLENESS AND SEVERABILITY OF COVENANTS. The Executive acknowledges and agrees that the Executive's covenants herein are necessary for the protection of the Company's legitimate interests, are reasonable and valid in duration and geographical scope, and in all other respects. If any court determines that any of the Executive covenants or any part thereof, is invalid or unenforceable, the remainder of the restrictive covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions. f. BLUE-PENCILLING. If any court determines that any of the Executive's covenants, or any part thereof, is unenforceable because of the duration or geographical scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable. 7. NON-DISPARAGEMENT. Each of the parties agrees that after the Termination Date, neither shall, publicly or privately, disparage or make any statements (written or oral) that could impugn the integrity, acumen (business or otherwise), ethics or business practices of the other, except in each case, to the extent (but solely to the extent) necessary: (i) in any judicial or arbitral action to enforce the provisions of this Agreement; or (ii) in connection with any judicial or administrative proceeding to the extent required by applicable law. 8. EFFECT OF TERMINATION. The following provisions shall apply in the event of the termination of this Agreement as provided in Section 5 above, and neither party shall have any further liability or obligation to the other, except as provided herein: a. EXPIRATION OF TERM. Upon expiration of the term under Section 5(a) hereof, this agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; b. DEATH. Upon termination of this Agreement as provided in Section 5(b) hereof, this Agreement shall terminate and be of no further force and effect; provided, further, that the Company shall pay to Executive's estate any salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; c. DISABILITY. Upon termination of this Agreement as provided in Section 5(c) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accred to the Termination Date; d. TERMINATION PURSUANT TO SECTION 5(d). Upon termination of this Agreement as provided in Section 5(d) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6 and 7; provided that Executive shall be 6 entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accred to the Termination Date; e. TERMINATION PURSUANT TO SECTION 5(e). Upon termination of this Agreement as provided in Section 5(e) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided, further, that Executive shall be entitled to such salary, bonus and benefits including but not limited to health benefits and expense reimbursements to which Executive would have been entitled for the remainder of the three -year term or twelve (12) months, whichever is longer, as if there had been no earlier termination. f. TERMINATION BY SPECIAL RIGHT OF THE EXECUTIVE. Upon termination of this Agreement as provided in Section 5(f), this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided further that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and expense reimbursement amounts accrued to the Termination Date, and additional benefits as follows: Company paid COBRA premiums (on a monthly basis) for twelve (12) months, and Base Salary for twelve (12) months, (payable in lump sum less customary deductions). 9. GENERAL PROVISIONS. a. ASSIGNMENT. Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive, or the Company or Gaming Holdings without prior written consent of the other; provided, that (1) in the event of the Executive's Death during the Term, the Executive's estate and his heirs, executors, administrators, legatees and distributees shall have the rights and obligations set forth herein, as provided herein, and (2) nothing contained in this Agreement shall limit or restrict the Company's ability (A) to merge or consolidate or effect any similar transaction with any other entity, irrespective or whether the Company is the surviving entity (including a split up, spin off or similar type transaction), provided, that one or more of such surviving entities shall continue to be bound by the provisions hereof binding upon the Company, (B) to assign this Agreement in conjunction with a sale of all or substantially all of the Company's assets, or (C) an assignment of this Agreement to an affiliate controlled by or under common control with the Company. Gaming Holdings has the same rights and obligations under this Section as the Company. b. BINDING AGREEMENT. Except as otherwise provided in this Agreement, this Agreement shall be binding upon, and inure to the benefit of, the Executive, Gaming Holdings and the Company and their respective heirs, executors, administrators, legatees and distributees, successors and permitted assigns. 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 or 7 the assets or business or the Company or Gaming Holdings and supercedes any prior understandings or agreements between the parties hereto and Aladdin Holdings, LLC. c. AMENDMENT OF AGREEMENT. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. d. SEVERABILITY. If, for any reason, any provision of this Agreement is determined to be invalid or unenforceable, such invalidity or lack of enforceability shall not affect any other provision of this Agreement not so determined to be invalid or unenforceable, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect, irrespective of such invalid or unenforceable provision. Gaming Holdings has the same rights and obligations under this Section as the Company. e. ENTIRE AGREEMENT. This Agreement represents the entire agreement and understanding between the Company, Gaming Holdings LLC, and the Executive concerning the matters herein and supercede any prior understandings or agreements between the parties hereto and Aladdin Holdings, LLC. f. INDEMNIFICATION. The Company shall indemnify and hold Executive harmless to the full extent permitted by Chapter 86 of the Nevada Revised Statutes against costs, expenses, liabilities and losses, including reasonable attorney's fees and disbursements of counsel, incurred or suffered by him in connection with his service as an employee of the company during the Term of this Agreement. g. NOTICES. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (1) when delivered, if sent by telecopy or by hand, (2) one business day after sending, if sent by reputable overnight courier service, such as Federal Express, or (3) three business days after being mailed, if sent by United States certified or registered mail, return receipt requested, postage prepaid. Notices shall be sent by one of the methods described above; provided, that any notice sent by telecopy shall also be sent by any other method permitted above, Notices shall be sent: If to the Executive: David Attaway 7429 Doe Avenue Las Vegas, NV 89117 With a copy to: George Echan PO Box 706 Zephyr Cove Lake Tahoe, NV 89448 If to the Company: Aladdin Gaming Holdings, LLC Aladdin Gaming, LLC 831 Pilot Road Las Vegas, NV 89119 Attn: Richard Goeglein 8 With a copy to: Aladdin Gaming Holdings, LLC Aladdin Gaming, LLC 831 Pilot Road Las Vegas, Nevada 89119 Attn: General Counsel or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. h. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. Gaming Holdings has the same rights and obligations under this Section as the Company. i. INDULGENCES, ETC. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. j. BINDING ARBITRATION. Except for an action by the company for injunctive or other equitable relief, any dispute or controversy arising under or in connection to this Employment Agreement shall be resolved through binding arbitration, conducted in Las Vegas, Nevada, in accordance with the rules of the American Arbitration Association. Judgment may be entered on the arbitration award in any court of competent jurisdiction. k. HEADINGS. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. Gaming Holdings has the same rights and obligations under this Section as the Company. l. NEUTRAL CONSTRUCTION. Each party to this Agreement has had the opportunity to retain counsel, and to review and participate in the drafting of this Agreement, and, accordingly, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting parties will not be employed or used in any interpretation of enforcement of this Agreement. m. GAMING LAW. Anything to the contrary herein 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 the rules and regulations promulgated by the Nevada Gaming Commission and the Gaming Control Board. To the extent anything in this Agreement is inconsistent with any gaming laws or regulations, the gaming laws and regulations shall control. 9 n. GOVERNING LAW. This Agreement has been executed and delivered in the state of Nevada, and its validity, interpretation, performance, and enforcement shall be governed by the laws of such state, without regard to principles of conflicts of laws. EXECUTION DATE ALADDIN GAMING LLC December 29, 1999 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/ David Attaway ------------------------------------- David Attaway 10 EX-10.47 4 EXHIBIT 10.47 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made and entered into this ___ day of January, 2000, by and between Aladdin Gaming, LLC ("Company"), Aladdin Gaming Holdings, LLC ("Gaming Holdings") and Barbara Falvey ("Executive"). WHEREAS, the Company considers it important and in its best interest and the best interest of its owners to foster the employment of key management personnel and desires to retain the services of Executive on the terms and subject to the conditions of this Agreement; WHEREAS, the Executive desires to accept employment by the Company to render services to the Company on the terms and subject to the conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing and the following mutual covenants and agreements, the parties agree as follows: 1. EMPLOYMENT. The Company hereby employs Executive as Senior Vice President of the Company responsible for all functions of Human Resources. Executive hereby accepts such employment with the Company for the compensation and subject to the terms and conditions in this Agreement. 2. TERM. The term of the Executive's employment under this Agreement ("Term") shall commence on January 24, 2000 ("Commencement Date") and shall continue to and including January 23, 2003, unless earlier terminated as provided in this Agreement. (The date of any termination of this Agreement as provided herein is the "Termination Date"). 3. DUTIES AND RESPONSIBILITIES. During the Term, Executive will serve as Senior Vice President of the Company responsible for all functions of Human Resources. Executive will have such authority, responsibilities and duties as are customarily associated with this position. Executive will report at a corporate level to the Chief Executive Officer and at the operations level for the Aladdin Resort and Casino to the President and Chief Operating Officer of the Aladdin Resort and Casino. At all times Executive shall faithfully and to the best of her abilities perform her duties and responsibilities hereunder to the reasonable satisfaction of the Board of Managers of the Company. In addition, Executive shall devote her full time, efforts and attention to the business and affairs of the Company, use her best efforts to further the interest of the Company and at all times conduct himself in a manner which reflects credit upon the Company. 4. COMPENSATION. a. SALARY. For her services hereunder, the Company shall pay Executive a base salary of Three Thousand Three Hundred Sixty Five Dollars and Thirty-Nine Cents ($3,365.39) ("Base Salary") for each week prior to the opening for operation of the Aladdin Resort and Casino beginning with the Commencement Date. Upon the opening for operation of the Aladdin Resort and Casino, the Company will pay the Executive a base salary of Two 1 Hundred Thousand Dollars ($200,000) ("Base Salary") for each consecutive 12-month period during the remainder of the Term. (Each such consecutive 12-month period is an "Employment Year"). Executive's Base Salary will be prorated for any partial Employment Year. On the one-year anniversary of the opening for operation of the Aladdin Resort and Casino, the Board of Managers of the Company will consider an increase in the Base Salary based upon criteria determined by the Board of Managers of the Company and applicable to other members of the executive management group. Any such increases, however, shall be in the sole discretion of the Board of Managers of the Company. There shall be no reduction in Base Salary during the Term. The Base Salary shall be payable in equal periodic installments subject to customary deductions for social security, other taxes and amounts customarily withheld from salaries of employees of the Company, all in accordance with the Company's usual and customary payroll practices. b. ANNUAL BONUS. From and after the date the Company opens and begins operating the Aladdin Hotel & Casino ("Operational Date"). Executive is eligible to receive from the Company an annual cash bonus, provided Executive is employed by the Company on the date the Board of Managers of the Company grants the bonus. The Board of Managers of the Company will determine such criteria and standards in a bonus plan, which will be competitive with industry standards and applicable to other members of the executive management group. c. BENEFITS. During the Term, Executive shall be entitled to receive from the Company such health, pension, retirement and other employee benefits as the Company provides to other members of the executive management group. During the Term, the Company, at its expense, will provide Executive with term life insurance in the amount of Executive's annual Base Salary. During the Term, the Company, at its expense, will provide Executive with long-term disability coverage under a group long-term disability plan the Company provides other members of the executive management group. d. VACATION. Executive shall be entitled to two (2) weeks paid vacation for each Employment Year, prorated for any partial Employment Year. The Board of Managers of the Company in its discretion may increase Executive's vacation entitlement. The timing and duration of specific vacations will take into account the business needs of the Company and will be mutually agreed to by the parties. In the event any such vacation is not used by Executive in any Employment Year, the Executive has a right to accumulate and carry forward such number of unused vacation days from year to year as may be consistent with the Company's policy for other members of the executive management group. Upon termination of employment, all unused vacation time shall be paid to Executive. e. REIMBURSEMENT OF EXPENSES. The Company shall pay all reasonable expenses incurred by Executive in the performance of her duties and responsibilities for the Company. Executive shall submit to the Company statements and documentation reflecting such expenses incurred, with such detail, backup and confirmation as the Company may reasonably require. Subject to any audit Company deems necessary, the Company shall 2 promptly reimburse Executive the full amount of any such expenses incurred by Executive. f. LLC PROFIT INTEREST. Executive will receive a restricted membership interest of 0.25% in Gaming Holdings, or the economic equivalent thereof which Gaming Holdings is currently evaluating which may include, but not be limited to a "profits only interest," "option," or "phantom stock" (collectively, "Equity"). When Gaming Holdings finalizes the Equity arrangement, the parties will amend this Agreement so that the Executive shall participate in such program substantially in the form previously presented to the Executive. Such Equity arrangement shall not provide the Executive with any preferential treatment as compared to similarly situated executives and such Equity arrangement shall have a vesting schedule similar to the other Executives. If Gaming Holdings does not create an Equity arrangement, the parties will negotiate in good faith to establish a compensation arrangement in lieu of an Equity arrangement, which would have the same economic effect to the Executive. g. AUTO ALLOWANCE. During the Term, the Company shall pay Executive an auto allowance of Five Hundred Dollars ($500) per month. 5. TERMINATION. This Agreement shall terminate in accordance with the following provisions: a. EXPIRATION OF THE TERM. Unless earlier terminated in accordance with the provisions hereof, this Agreement shall terminate on expiration of the term as provided in Section 2. b. DEATH. If the Executive dies during the Term, this Agreement shall terminate, with the Termination Date being the date of the Executive's Death. c. DISABILITY. If the Executive has been absent from service to the Company as required in this Agreement for a period of ninety (90) days or more during any one hundred eighty (180) day period during the Term as a result of any physical or mental disability, the Company has the right to terminate this Agreement, the Termination Date being ten (10) days after notice thereof is given to Executive. d. TERMINATION BY COMPANY FOR CAUSE. The Company has the right to terminate this Agreement for Cause as defined herein, such termination to be effective immediately upon notice thereof from the Company to Executive. For purposes of this Agreement, Cause shall mean Executive's: (1) conviction of any felony; (2) embezzlement or misappropriation of money or property of the Company; (3) denial, rejection, suspension or revocation of any gaming license or permit; (4) Executive's material breach of section 6 hereof which material breach has an adverse impact on the Company; and (5) Executive quits her employment with the Company without Good Reason. Good Reason is defined as: (i) the assignment to Executive of duties materially inconsistent with her position and title without her consent; or (ii) a material reduction in Executive's duties, authorities and responsibilities without her consent; or (iii) a reduction by the Company in Executive's Base Salary, in effect immediately prior to such reduction, without her consent, provided Executive gives the Company written notice specifying such assignment or reduction and 3 the Company has not cured or abated such assignment or reduction within twenty (20) days thereafter. e. TERMINATION BY COMPANY WITHOUT CAUSE OR TERMINATION BY EXECUTIVE WITH GOOD REASON OR UPON A CHANGE OF CONTROL. (i) the Company has the right to terminate this Agreement without Cause, (ii) the Executive has the right to terminate this Agreement for Good Reason and (iii) the Executive has the right to terminate this Agreement upon a Change of Control by giving the other party written notice thereof. In any of these instances, the Company shall provide Executive with all the benefits set forth in Section 8(e). For purposes of this Agreement, a Change of Control shall be deemed to occur only if collectively the Sommer Family Trust and London Clubs International, plc, through their affiliates, own less than fifty percent (50%) of the membership interests of either Gaming Holdings or the Company. 6. EXECUTIVE'S COVENANTS. The Executive acknowledges that the Company and Gaming Holdings have a substantial, legitimate and continuing interest in the protection of their business relationships with others including, without limitation, current and prospective employees, consultants, advisors, customers, vendors, suppliers, partners or joint venturers and financing sources, and in the protection of their Confidential Information and have invested substantial sums, time and effort and will continue to invest substantial sums, time and effort to develop, maintain and protect such relationships and Confidential Information. Accordingly, Executive covenants and agrees as follows: a. CONFIDENTIALLY. During the Term and thereafter, Executive shall keep secret and retain in strictest confidence and shall not, without the prior written consent of the Company or Gaming Holdings, furnish, make available or disclose to any third party or use for the benefit of himself or any third party any Confidential Information. Confidential Information is information related to or concerning Gaming Holdings, the Company and their businesses which is confidential, proprietary or not generally known to and cannot be readily ascertained through proper means by persons or entities (including Gaming Holdings' and the Company's present or future competitors), who can obtain any type of value from its disclosure or use. Confidential Information includes all secret, confidential or proprietary information, knowledge or data specifically relating to Gaming Holdings and the Company, such as, without limitation, finances and financing methods, sources, proposals or plans; operational methods; marketing or development proposals, plans or strategies; pricing strategies; business or property acquisition or development proposals or plans; new personnel acquisition proposals or plans; customer lists and any descriptions or data concerning current or prospective customers. While employed by the Company and in furtherance of the business and for the benefit of Gaming Holdings and the Company, Executive may provide Confidential Information as appropriate to attorneys, accountants, financial institutions, and other persons or entities engaged in business with the Company. b. NON-COMPETITION. 4 1) Executive covenants and agrees that he will not compete with the Company, its affiliates or subsidiaries at any time during the Term, or for one (1) year from the Termination Date upon a Termination by the Company for Cause under Section 5(d) (including Executive quitting without Good Reason under Section 5(d)(5)). Under this paragraph, Executive agrees that he will not, directly or indirectly, whether as employee, owner, partner, agent, director, officer, consultant, independent consultant or stockholder (except as the beneficial owner of not more than 2% of the outstanding shares of a corporation, any of the capital stock of which is listed on any national or regional securities exchange or quoted in the daily listing of over-the-counter market securities and, in each case, in which the Executive does not undertake any management or operational or advisory role) or in any other capacity, for her own account or for the benefit of any other person or entity, establish, engage, work for or be connected in any manner with any person or entity which is, at the time, engaged in a business which is in competition with the business of the Company (or any of its subsidiaries or affiliates); it being understood that for purposes of this Section 6(b), the business of owning, managing, operating or financing a casino or similar gaming activities in Clark County, Nevada, shall be deemed to be business in which the Company is engaged; provided, however, nothing herein prohibits Executive from a working for a competing business outside Clark County, Nevada. 2) Notwithstanding anything to the contrary contained herein, Executive shall not be subject to the non-competition provisions of this Agreement, if this Agreement is terminated other than pursuant to the provisions of Section 5(d). c. EMPLOYEES OF THE COMPANY. For one (1) year following the Termination Date, Executive shall not, directly or indirectly, solicit, or cause others to solicit, for employment by any person or entity other than the Company, any employee of the Company. d. PROPERTY OF THE COMPANY. Executive acknowledges and agrees that all memoranda, notes, lists, records and other documents or papers, including copies thereof, containing or reflecting Confidential Information (whether or not such items are kept or stored in computer memories, microfiche, hard copy or any other manner) make or compiled by Executive or made available to Executive are and remain the property of the Company ("Company Property") and shall be delivered to the Company promptly upon any termination of this Agreement. Under Section 5 hereof, Executive shall retain no copies of Company Property following the Termination Date. e. REASONABLENESS AND SEVERABILITY OF COVENANTS. The Executive acknowledges and agrees that the Executive's covenants herein are necessary for the protection of the Company's legitimate interests, are reasonable and valid in duration and geographical scope, and in all other respects. If any court determines that any of the Executive covenants or any part thereof, is invalid or unenforceable, the remainder of the restrictive covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions. 5 f. BLUE-PENCILLING. If any court determines that any of the Executive's covenants, or any part thereof, is unenforceable because of the duration or geographical scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable. 7. NON-DISPARAGEMENT. Each of the parties agrees that after the Termination Date, neither shall, publicly or privately, disparage or make any statements (written or oral) that could impugn the integrity, acumen (business or otherwise), ethics or business practices of the other, except in each case, to the extent (but solely to the extent) necessary: (i) in any judicial or arbitral action to enforce the provisions of this Agreement; or (ii) in connection with any judicial or administrative proceeding to the extent required by applicable law. 8. EFFECT OF TERMINATION. The following provisions shall apply in the event of the termination of this Agreement as provided in Section 5 above, and neither party shall have any further liability or obligation to the other, except as provided herein: a. EXPIRATION OF TERM. Upon expiration of the term under Section 5(a) hereof, this agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; b. DEATH. Upon termination of this Agreement as provided in Section 5(b) hereof, this Agreement shall terminate and be of no further force and effect; provided, further, that the Company shall pay to Executive's estate any salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; c. DISABILITY. Upon termination of this Agreement as provided in Section 5(c) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accred to the Termination Date; d. TERMINATION PURSUANT TO SECTION 5(d). Upon termination of this Agreement as provided in Section 5(d) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6 and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accred to the Termination Date; e. TERMINATION PURSUANT TO SECTION 5(e). Upon termination of this Agreement as provided in Section 5(e) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided, further, that Executive shall be entitled to such salary, bonus and benefits including but not limited to health benefits and expense reimbursements to which Executive would 6 have been entitled for the remainder of the three-year term or twelve (12) months, whichever is longer, as if there had been no earlier termination. 9. GENERAL PROVISIONS. a. ASSIGNMENT. Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive, or the Company or Gaming Holdings without prior written consent of the other; provided, that (1) in the event of the Executive's Death during the Term, the Executive's estate and her heirs, executors, administrators, legatees and distributees shall have the rights and obligations set forth herein, as provided herein, and (2) nothing contained in this Agreement shall limit or restrict the Company's ability (A) to merge or consolidate or effect any similar transaction with any other entity, irrespective or whether the Company is the surviving entity (including a split up, spin off or similar type transaction), provided, that one or more of such surviving entities shall continue to be bound by the provisions hereof binding upon the Company, (B) to assign this Agreement in conjunction with a sale of all or substantially all of the Company's assets, or (C) an assignment of this Agreement to an affiliate controlled by or under common control with the Company. Gaming Holdings has the same rights and obligations under this Section as the Company. b. BINDING AGREEMENT. Except as otherwise provided in this Agreement, this Agreement shall be binding upon, and inure to the benefit of, the Executive, Gaming Holdings and the Company and their respective heirs, executors, administrators, legatees and distributees, successors and permitted assigns. 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 or the assets or business or the Company or Gaming Holdings and supercedes any prior understandings or agreements between the parties hereto and Aladdin Holdings, LLC. c. AMENDMENT OF AGREEMENT. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. d. SEVERABILITY. If, for any reason, any provision of this Agreement is determined to be invalid or unenforceable, such invalidity or lack of enforceability shall not affect any other provision of this Agreement not so determined to be invalid or unenforceable, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect, irrespective of such invalid or unenforceable provision. Gaming Holdings has the same rights and obligations under this Section as the Company. e. ENTIRE AGREEMENT. This Agreement represents the entire agreement and understanding between the Company, Gaming Holdings LLC, and the Executive concerning the matters herein and supercede any prior understandings or agreements between the parties hereto and Aladdin Holdings, LLC. 7 f. INDEMNIFICATION. The Company shall indemnify and hold Executive harmless to the full extent permitted by Chapter 86 of the Nevada Revised Statutes against costs, expenses, liabilities and losses, including reasonable attorney's fees and disbursements of counsel, incurred or suffered by him in connection with her service as an employee of the company during the Term of this Agreement. g. NOTICES. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (1) when delivered, if sent by telecopy or by hand, (2) one business day after sending, if sent by reputable overnight courier service, such as Federal Express, or (3) three business days after being mailed, if sent by United States certified or registered mail, return receipt requested, postage prepaid. Notices shall be sent by one of the methods described above; provided, that any notice sent by telecopy shall also be sent by any other method permitted above, Notices shall be sent: If to the Executive: Barbara Falvey 214 Ultra Drive Henderson, NV 89014 If to the Company: Aladdin Gaming Holdings, LLC Aladdin Gaming, LLC 831 Pilot Road Las Vegas, NV 89119 Attn: Richard Goeglein With a copy to: Aladdin Gaming Holdings, LLC Aladdin Gaming, LLC 831 Pilot Road Las Vegas, Nevada 89119 Attn: General Counsel or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. h. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. Gaming Holdings has the same rights and obligations under this Section as the Company. i. INDULGENCES, ETC. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. 8 j. BINDING ARBITRATION. Except for an action by the company for injunctive or other equitable relief, any dispute or controversy arising under or in connection to this Employment Agreement shall be resolved through binding arbitration, conducted in Las Vegas, Nevada, in accordance with the rules of the American Arbitration Association. Judgment may be entered on the arbitration award in any court of competent jurisdiction. k. HEADINGS. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. Gaming Holdings has the same rights and obligations under this Section as the Company. l. NEUTRAL CONSTRUCTION. Each party to this Agreement has had the opportunity to retain counsel, and to review and participate in the drafting of this Agreement, and, accordingly, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting parties will not be employed or used in any interpretation of enforcement of this Agreement. m. GAMING LAW. Anything to the contrary herein 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 the rules and regulations promulgated by the Nevada Gaming Commission and the Gaming Control Board. To the extent anything in this Agreement is inconsistent with any gaming laws or regulations, the gaming laws and regulations shall control. [Remainder of page intentionally left blank.] 9 n. GOVERNING LAW. This Agreement has been executed and delivered in the state of Nevada, and its validity, interpretation, performance, and enforcement shall be governed by the laws of such state, without regard to principles of conflicts of laws. 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/ Barbara Falvey ------------------------------------- Barbara Falvey 10 EX-10.48 5 EXHIBIT 10.48 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made and entered into this 7th day of March 2000, by and between Aladdin Gaming, LLC ("Company"), Aladdin Gaming Holdings, LLC ("Gaming Holdings") and Thomas A. Lettero ("Executive"). WHEREAS, the Company considers it important and in its best interest and the best interest of its owners to foster the employment of key management personnel and desires to retain the services of Executive on the terms and subject to the conditions of this Agreement; WHEREAS, the Executive desires to accept employment with the Company to render services to the Company on the terms and subject to the conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing and the following mutual covenants and agreements, the parties agree as follows: 1. EMPLOYMENT. a. The Company hereby employs Executive as Senior Vice President and Chief Financial Officer of Gaming Holdings and the Company and Executive shall serve as a member on the Company's Executive Committee. Executive hereby accepts such employment and positions for the compensation and subject to the terms and conditions in this Agreement. b. Notwithstanding anything to the contrary contained in this Agreement, this Agreement shall only be effective upon the earlier of: (i) the lawful termination of Mr. Lettero's current employment agreement and any and all obligations therein; or (ii) the date upon which Mr. Lettero's current employer waives in writing the notification and termination provisions of his current employment agreement ("Effective Date"). 2. TERM. The term of the Executive's employment under this Agreement ("Term") shall commence on the Effective Date ("Commencement Date") and shall continue for three (3) years unless earlier terminated as provided in this Agreement. (The date of any termination of this Agreement as provided herein is the "Termination Date.") 3. DUTIES AND RESPONSIBILITIES. During the Term, Executive will serve as Senior Vice President and Chief Financial Officer of Gaming Holdings and the Company and Executive shall serve as a member on the Company's Executive Committee. Executive will have such authority, responsibilities and duties as are customarily associated with this position. At all times Executive shall faithfully and to the best of his abilities perform his duties and responsibilities hereunder to the reasonable satisfaction of the Board of Directors. In addition, Executive shall devote his full time, efforts and attention to the business and affairs of the Company, use his best efforts to further the interest of the Company and at all times conduct himself in a manner which reflects credit upon the Company. 1 4. COMPENSATION. a. SALARY. For his services hereunder, the Company shall pay Executive a base salary of Three Hundred Thousand Dollars ($300,000) ("Base Salary") for each consecutive 12-month period during the Term beginning with the Commencement Date subject, however, to Section 4(b)(ii). (Each such consecutive 12 month period is an "Employment Year"). Executive's Base Salary will be prorated for any partial Employment Year. On each year after the Commencement Date, the Board of Directors will consider an increase in the Base Salary based upon criteria determined by the Board of Directors and applicable to other members of the executive management group. Any such increases, however, shall be in the sole discretion of the Board of Directors. There shall be no reduction in Base Salary during the Term. The Base Salary shall be payable in equal periodic installments subject to customary deductions for social security, other taxes and amounts customarily withheld from salaries of employees of the Company, all in accordance with the Company's usual and customary payroll practices. b. SIGNING BONUS. (i) Subject to the terms and conditions of this Agreement, including, without limitation, the provisions of Section 4(b)(ii) below, the Company shall pay to the Executive, on the Commencement Date, a signing bonus ("Signing Bonus") in the amount of $300,000. (ii) In the event that this Agreement is terminated pursuant Section 5(c) or (d) below, the Executive shall pay to the Company (a) in the event that the Termination Date with respect such termination occurs prior to the second anniversary of the Commencement Date, an amount equal to the net after-tax amount of the Signing Bonus received by the Executive and (b) in the event that the Termination Date with respect such termination occurs after the second anniversary of the Commencement Date, an amount equal to the product of (x) the net after-tax amount of the Signing Bonus received by the Executive times (y) a fraction (1) the numerator of which shall be the remainder of (A) 365 minus (B) the number of days elapsed from the second anniversary of the Commencement Date to the date of such termination and (2) the denominator of which shall be 365; provided, that during the third Employment Year only, the Base Salary shall be reduced by the amount of the Signing Bonus. In the event that this Agreement is terminated other than pursuant to Section 5(c) or (d) below, the Executive shall be entitled to retain the full amount of the Signing Bonus. c. ANNUAL BONUS. From and after the date the Company opens and begins operating the Aladdin Resort & Casino ("Operational Date"). Executive is eligible to receive from the Company an annual cash bonus, provided Executive is employed by the Company on the date the Board of Directors grants the bonus. The Board of Directors will determine such criteria and standards in a bonus plan, which will be competitive with industry standards and applicable to other members of the executive management group. Executive's bonus 2 will be prorated accordingly if the Aladdin Resort & Casino is only open and operating during a portion of the bonus year. d. BENEFITS. During the Term, Executive shall be entitled to receive from the Company such health, pension, retirement and other employee benefits as the Company provides to other members of the executive management group. During the Term, the Company, at its expense, will provide Executive with term life insurance in the amount of Executive's annual Base Salary. During the Term, the Company, at its expense, will provide Executive with long-term disability coverage under a group long-term disability plan the Company provides other members of the executive management group. e. VACATION. Executive shall be entitled to two (2) weeks paid vacation for each Employment Year, prorated for any partial Employment Year. The Board of Directors in its discretion may increase Executive's vacation entitlement. The timing and duration of specific vacations will take into account the business needs of the Company and will be mutually agreed to by the parties. In the event any such vacation is not used by Executive in any Employment Year, the Executive has a right to accumulate and carry forward such number of unused vacation days from year to year as may be consistent with the Company's policy for other members of the executive management group. Upon termination of employment, all unused vacation time shall be paid to Executive. f. REIMBURSEMENT OF EXPENSES. The Company shall pay all reasonable expenses incurred by Executive in the performance of his duties and responsibilities for the Company. Executive shall submit to the Company statements and documentation reflecting such expenses incurred, with such detail, backup and confirmation as the Company may reasonably require. Subject to any audit Company deems necessary, the Company shall promptly reimburse Executive the full amount of any such expenses incurred by Executive. g. EQUITY INTEREST. Executive will receive a restricted membership interest of one percent (1.0%), or the economic equivalent thereof, in Gaming Holdings which Gaming Holdings is currently evaluating which may include, but not be limited to, a "profits only interest," "option," or "phantom stock" (collectively, "Equity"). Such Equity arrangement shall include the right to receive one percent (1%) of the distributions which are made to the holders of Gaming Holdings Common Membership Interests. When Gaming Holdings finalizes the Equity arrangement, the parties will amend this Agreement so that the Executive shall participate in such program substantially in the form previously presented to the Executive. Such Equity arrangement shall vest 1/3 on each anniversary of the Commencement Date as that upon the completion of the 3-year term of the Agreement, such Equity arrangement shall be fully vested. If Gaming Holdings does not create an Equity arrangement by the Operational Date, the parties will negotiate in good faith to establish a compensation arrangement in lieu of an Equity arrangement, which would have the same economic benefit to the Executive. h. AUTO ALLOWANCE. During the Term, the Company shall pay Executive an auto allowance of Five Hundred Dollars ($500) per month. 3 5. TERMINATION. This Agreement shall terminate in accordance with the following provisions: a. EXPIRATION OF THE TERM. Unless earlier terminated in accordance with the provisions hereof, this Agreement shall terminate on expiration of the term as provided in Section 2. b. DEATH. If the Executive dies during the Term, this Agreement shall terminate, with the Termination Date being the date of the Executive's Death. c. DISABILITY. If the Executive has been absent from service to the Company as required in this Agreement for a period of ninety (90) days or more during any one hundred eighty (180) day period during the Term as a result of any physical or mental disability, the Company has the right to terminate this Agreement, the Termination Date being ten (10) days after notice thereof is given to Executive. d. TERMINATION BY COMPANY FOR CAUSE. The Company has the right to terminate this Agreement for Cause as defined herein, the Termination Date being the date upon which the Company delivers notice thereof to the Executive. For purposes of this Agreement, Cause shall mean Executive's: (1) conviction of any felony; (2) embezzlement or misappropriation of money or property of the Company; (3) denial, rejection, suspension or revocation of any gaming license or permit; (4) Executive's material breach of section 6 hereof which material breach has an adverse impact on the Company; and (5) Executive quits his employment with the Company without Good Reason. Good Reason is defined as: (i) the assignment to Executive of duties materially inconsistent with his position and title without his consent; or (ii) a material reduction in Executive's duties, authorities and responsibilities without his consent; or (iii) a reduction by the Company in Executive's Base Salary, in effect immediately prior to such reduction, without his consent, provided Executive gives the Company written notice specifying such assignment or reduction and the Company has not cured or abated such assignment or reduction within twenty (20) days thereafter; or (iv) the Operational Date has not occurred within 365 calendar days from the Effective Date. e. TERMINATION BY COMPANY WITHOUT CAUSE OR TERMINATION BY EXECUTIVE WITH GOOD REASON OR UPON A CHANGE OF CONTROL. Subject to the provisions of Section 8(e), (i) the Company has the right to terminate this Agreement without Cause, (ii) the Executive has the right to terminate this Agreement for Good Reason and (iii) the Executive has the right to terminate this Agreement upon a Change of Control by giving the other party written notice thereof. In each case above, the Termination Date being the date upon which notice of termination is delivered by the terminating party to the other party. For purposes of this Agreement, a Change of Control shall be deemed to occur only if collectively the Sommer Family Trust and London Clubs International, plc, through their affiliates, own less than fifty percent (50%) of the membership interests of either Gaming Holdings or the Company. 6. EXECUTIVE'S COVENANTS. The Executive acknowledges that the Company and Gaming Holdings have substantial, legitimate and continuing interest in the protection of their 4 business relationships with others including, without limitation, current and prospective employees, consultants, advisors, customers, vendors, suppliers, partners or joint venturers and financing sources, and in the protection of their Confidential Information and have invested substantial sums, time and effort and will continue to invest substantial sums, time and effort to develop, maintain and protect such relationships and Confidential Information. Accordingly, Executive covenants and agrees as follows: a. CONFIDENTIALLY. During the Term and thereafter, Executive shall keep secret and retain in strictest confidence and shall not, without the prior written consent of the Company or Gaming Holdings, furnish, make available or disclose to any third party or use for the benefit of himself or any third party any Confidential Information. Confidential Information is information related to or concerning Gaming Holdings, the Company and their businesses which is confidential, proprietary or not generally known to and cannot be readily ascertained through proper means by persons or entities (including Gaming Holdings' and the Company's present or future competitors), who can obtain any type of value from its disclosure or use. Confidential Information includes all secret, confidential or proprietary information, knowledge or data specifically relating to Gaming Holdings and the Company, such as, without limitation, finances and financing methods, sources, proposals or plans; operational methods; marketing or development proposals, plans or strategies; pricing strategies; business or property acquisition or development proposals or plans; new personnel acquisition proposals or plans; customer lists and any descriptions or data concerning current or prospective customers. While employed by the Company and in furtherance of the business and for the benefit of Gaming Holdings and the Company, Executive may provide Confidential Information as appropriate to attorneys, accountants, financial institutions, and other persons or entities engaged in business with the Company and to Executive's personal attorney and/or accountant to the extent necessary to advise Executive; provided, however, such individual(s) will be similarly bound to maintain the confidentiality of the information disclosed. b. NON-COMPETITION. 1) Executive covenants and agrees that he will not compete with the Company, its affiliates or subsidiaries at any time during the Term, or for one (1) year from the Termination Date upon a Termination by the Company for Cause under Section 5(d) (including Executive quitting without Good Reason under Section 5(d)(5)). Under this paragraph, Executive agrees that he will not, directly or indirectly, whether as employee, owner, partner, agent, director, officer, consultant, independent consultant or stockholder (except as the beneficial owner of not more than 2% of the outstanding shares of a corporation, any of the capital stock of which is listed on any national or regional securities exchange or quoted in the daily listing of over-the-counter market securities and, in each case, in which the Executive does not undertake any management or operational or advisory role) or in any other capacity, for his own account or for the benefit of any other person or entity, establish, engage, work for or be connected in any manner with any person or entity which is, at the time, engaged in a business which is in competition with the business of the Company (or any of its subsidiaries or affiliates); it being understood that for purposes of this Section 6(b), the business of owning, managing, operating or financing a casino or similar gaming 5 activities in Clark County, Nevada, shall be deemed to be business in which the Company is engaged; provided, however, nothing herein prohibits Executive from a working for a competing business outside Clark County, Nevada. 2) Notwithstanding anything to the contrary contained herein, Executive shall not be subject to the non-competition provisions of this Agreement, if this Agreement is terminated other than pursuant to the provisions of Section 5(d). c. EMPLOYEES OF THE COMPANY. For one (1) year following the Termination Date, Executive shall not, directly or indirectly, solicit, or cause others to solicit, for employment by any person or entity other than the Company, any employee of the Company or encourage any such employee to leave the employment of the Company. d. PROPERTY OF THE COMPANY. Executive acknowledges and agrees that all memoranda, notes, lists, records and other documents or papers, including copies thereof, containing or reflecting Confidential Information (whether or not such items are kept or stored in computer memories, microfiche, hard copy or any other manner) made or compiled by Executive or made available to Executive are and remain the property of the Company ("Company Property") and shall be delivered to the Company promptly upon any termination of this Agreement. Under Section 5 hereof, Executive shall retain no copies of Company Property following the Termination Date. e. REASONABLENESS AND SEVERABILITY OF COVENANTS. The Executive acknowledges and agrees that the Executive's covenants herein are necessary for the protection of the Company's legitimate interests, are reasonable and valid in duration and geographical scope, and in all other respects. If any court determines that any of the Executive covenants or any part thereof, invalid or unenforceable, the remainder of the restrictive covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions. f. BLUE-PENCILLING. If any court determines that any of the Executive's covenants, or any part thereof, is unenforceable because of the duration or geographical scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable. 7. NON-DISPARAGEMENT. Each of the parties agrees that after the Termination Date, neither shall, publicly or privately, disparage or make any statements (written or oral) that could impugn the integrity, acumen (business or otherwise), ethics or business practices of the other, except in each case, to the extent (but solely to the extent) necessary: (i) in any judicial or arbitral action to enforce the provisions of this Agreement; or (ii) in connection with any judicial or administrative proceeding to the extent required by applicable law. 8. EFFECT OF TERMINATION. The following provisions shall apply in the event of the termination of this Agreement as provided in Section 5 above, and neither party shall have any further liability or obligation to the other, except as provided herein: 6 a. EXPIRATION OF TERM. Upon expiration of the term under Section 5(a) hereof, this agreement shall terminate and be of no further force and effect, except as provided in Sections 4(b)(ii), 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that, subject to the provisions of Section 4(b)(ii), the Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; b. DEATH. Upon termination of this Agreement as provided in Section 5(b) hereof, this Agreement shall terminate and be of no further force and effect; provided, further, that the Company shall pay to Executive's estate any salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; c. DISABILITY. Upon termination of this Agreement as provided in Section 5(c) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; d. TERMINATION PURSUANT TO SECTION 5(d). Upon termination of this Agreement as provided in Section 5(d) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6 and 7; provided that Executive shall be entitled to such salary, bonus and benefits then accrued or vested to the Termination Date, and any expense reimbursement amounts accrued to the Termination Date; e. TERMINATION PURSUANT TO SECTION 5(e). Upon termination of this Agreement as provided in Section 5(e) hereof, this Agreement shall terminate and be of no further force and effect, except as provided in Sections 6(a), 6(c), 6(d), 6(e), 6(f) and 7; provided, further, that Executive shall be entitled to such salary, bonus and benefits including but not limited to health benefits and expense reimbursements to which Executive would have been entitled for the remainder of the Term or twelve (12) months, whichever is longer, as if there had been no earlier termination. 9. GENERAL PROVISIONS. a. ASSIGNMENT. Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive, or the Company or Gaming Holdings without prior written consent of the other; provided, that (1) in the event of the Executive's Death during the Term, the Executive's estate and his heirs, executors, administrators, legatees and distributees shall have the rights and obligations set forth herein, as provided herein, and (2) nothing contained in this Agreement shall limit or restrict the Company's ability (A) to merge or consolidate or effect any similar transaction with any other entity, irrespective or whether the Company is the surviving entity (including a split up, spin off or similar type transaction), provided, that one or more of such surviving entities shall continue to be bound by the provisions hereof binding upon the Company, (B) to assign this Agreement in conjunction with a sale of all or substantially all of the Company's 7 assets, or (C) an assignment of this Agreement to an affiliate controlled by or under common control with the Company. Gaming Holdings has the same rights and obligations under this Section as the Company. b. BINDING AGREEMENT. Except as otherwise provided in this Agreement, this Agreement shall be binding upon, and inure to the benefit of, the Executive, Gaming Holdings and the Company and their respective heirs, executors, administrators, legatees and distributees, successors and permitted assigns. 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 or the assets or business or the Company or Gaming Holdings and supercedes any prior understandings or agreements between the parties hereto. c. AMENDMENT OF AGREEMENT. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. d. SEVERABILITY. If, for any reason, any provision of this Agreement is determined to be invalid or unenforceable, such invalidity or lack of enforceability shall not affect any other provision of this Agreement not so determined to be invalid or unenforceable, and each such other provision shall, to the full extent consistent with applicable law, continue in full force and effect, irrespective of such invalid or unenforceable provision. Gaming Holdings has the same rights and obligations under this Section as the Company. e. ENTIRE AGREEMENT. Except for those matters detailed in Section 4(f), this Agreement represents the entire agreement and understanding between the Company, Gaming Holdings and the Executive concerning the matters herein and supercede any prior understandings or agreements between the parties. f. INDEMNIFICATION. Notwithstanding the termination of this Agreement, the Company shall indemnify and hold Executive harmless to the full extent permitted by Chapter 86 of the Nevada Revised Statutes against costs, expenses, liabilities and losses, including reasonable attorney's fees and disbursements of counsel, incurred or suffered by him in connection with his service as an employee of the company during the Term of this Agreement. g. NOTICES. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (1) when delivered, if sent by telecopy or by hand, (2) one business day after sending, if sent by reputable overnight courier service, such as Federal Express, or (3) three business days after being mailed, if sent by United States certified or registered mail, return receipt requested, postage prepaid. Notices shall be sent by one of the methods described above; provided, that any notice sent by telecopy shall also be sent by any other method permitted above. Notices shall be sent: 8 If to the Executive: Thomas A. Lettero 8704 Castle View Avenue Las Vegas, NV 89129 If to the Company Aladdin Gaming Holdings, LLC and/or Gaming Aladdin Gaming, LLC Holdings: 831 Pilot Road Las Vegas, NV 89119 Attn: Richard Goeglein With a copy to: Aladdin Gaming Holdings, LLC Aladdin Gaming, LLC 831 Pilot Road Las Vegas, Nevada 89119 Attn: General Counsel or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. h. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. Gaming Holdings has the same rights and obligations under this Section as the Company. i. INDULGENCES, ETC. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. j. BINDING ARBITRATION. Except for an action by the company for injunctive or other equitable relief, any dispute or controversy arising under or in connection to this Employment Agreement shall be resolved through binding arbitration, conducted in Las Vegas, Nevada, in accordance with the rules of the American Arbitration Association. Judgment may be entered on the arbitration award in any court of competent jurisdiction. k. HEADINGS. The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. Gaming Holdings has the same rights and obligations under this Section as the Company. l. NEUTRAL CONSTRUCTION. Each party to this Agreement has had the opportunity to retain counsel, and to review and participate in the drafting of this Agreement, and, accordingly, the normal rule of construction to the effect that any ambiguities are to be resolved 9 against the drafting parties will not be employed or used in any interpretation of enforcement of this Agreement. m. GAMING LAW. Anything to the contrary herein 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 the rules and regulations promulgated by the Nevada Gaming Commission and the Gaming Control Board. To the extent anything in this Agreement is inconsistent with any gaming laws or regulations, the gaming laws and regulations shall control. n. GOVERNING LAW. This Agreement has been executed and delivered in the state of Nevada, and its validity, interpretation, performance, and enforcement shall be governed by the laws of such state, without regard to principles of conflicts of laws. 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/ Thomas A. Lettero ---------------------------------------- Thomas A. Lettero 10 EX-10.49 6 EXHIBIT 10.49 December 10, 1999 London Clubs International, p.l.c. 10 Brick Street London WTY 8HQ, England London Clubs Nevada Inc. c/o Aladdin Gaming, LLC 831 Pilot Road Las Vegas, Nevada 89119 Re: Aladdin Gaming Holdings, LLC Capital Restructuring Ladies and Gentlemen: This letter, when fully executed, shall be a binding legal agreement. Reference is made to the following agreements: 1. Guaranty of Performance and Completion ("Completion Guaranty") dated February 26, 1998, by London Clubs International, plc. ("LCI"), the Trust under Article Sixth u/w/o of Sigmund Sommer (the "Trust") and Aladdin Bazaar Holdings, LLC in favor of the Administrative Agent and the lenders, as amended; 2. Contribution Agreement ("Contribution Agreement") dated February 26, 1998 by and among the Trust, Aladdin Holdings, LLC, Sommer Enterprises, LLC ("Sommer Enterprises"), LCI and London Clubs Nevada Inc. ("LCNI"); 3. Operating Agreement ("Operating Agreement") of Aladdin Gaming Holdings, LLC ("Gaming Holdings") dated February 26, 1998 by and among Sommer Enterprises, LCNI, Aladdin Gaming Enterprises, Inc. ("Gaming Enterprises") and GAI, LLC ("GAI"); and 4. Indenture ("Indenture") dated February 26, 1998 by and among Gaming Holdings, Aladdin Capital Corp. and State Street Bank and Trust Company, as Trustee. Capitalized terms used but not defined herein shall have the meanings assigned to them in the above listed agreements. The Trust, LCI, LCNI, Sommer Enterprises, Gaming Enterprises, GAI and Gaming Holdings hereby agree as follows: I. RESTATEMENT OF OPERATING AGREEMENT AND CONTRIBUTION AGREEMENT In 1999 to and until September 30, 1999 the Guarantors under the Completion Guaranty have contributed directly and indirectly $46,150,572 to the capital of Gaming Holdings as Completion Guaranty Payments. Of this amount, LCI has contributed $41,817,539 and the Trust has contributed $4,333,034. It is anticipated that additional Completion Guaranty Payments will be required. The Operating Agreement and the Contribution Agreement provide terms and conditions with respect to Completion Guaranty Payments, Completion Guaranty Excess Amounts and Delinquent Amounts. The Guarantors acknowledge and agree that in connection with the current status of construction of the Aladdin Hotel and Casino and the amounts of Completion Guaranty Payments, Completion Guaranty Excess Amounts and Delinquent Amounts currently anticipated, the Guarantors believe that the existing mechanism for contributing such amounts is not adequate. Accordingly, the Guarantors and the undersigned parties wish to and hereby restate the Operating Agreement and the Contribution Agreement as appropriate and enter into a new agreement with respect to Completion Guaranty Payments. II 1999 COMPLETION GUARANTY PAYMENTS PRIOR TO OCTOBER 1, 1999. A. CAPITAL CONTRIBUTIONS. Each Completion Guaranty Payment made by a Guarantor directly or indirectly to Gaming Holdings from January 1, 1999 through September 30, 1999 shall be treated as contributed to the capital of Gaming Holdings at the time actually made, and as made by, and credited to the Capital Account of, the Guarantor or the affiliate of the Guarantor that actually advanced the funds. B. THE EXCESS CONTRIBUTION PREFERRED RETURN. For purposes of this Agreement, the Excess Contribution Preferred Return ('ECPR") shall mean the total preferred return which accumulated from January 1, 1999 through September 30, 1999 on LCI's Completion Guaranty Excess Amounts originating prior to October 1, 1999, computed at the rate of 20% per annum. It is determined and agreed that the total ECPR is $ 2,534,519.61. For all purposes of the Operating Agreement, the ECPR shall be treated as accrued and unpaid cumulative preferred return at September 30, 1999. C. SERIES C CONVERTIBLE PREFERRED SHARES. 1. Series C Convertible Preferred Shares are hereby authorized and shall be issued to LCNI as of October 1, 1999, as described and with the rights and properties set forth below. a. Series C Convertible Preferred shares shall be issued to LCNI in exchange for LCNI's capital contribution of $30,000,000 which shall be treated as made with respect to the total Completion Guaranty Excess Amount made by LCI in 1999 prior to October 1, 1999. -2- b. The Series C Convertible Preferred Shares shall earn a return equal to twenty percent (20%) per annum, cumulative and compounded semi-annually from October 1, 1999. 2. LCI shall have the option to cause the conversion of all (but not less than all) of the Series C Convertible Preferred Shares into Common Shares at any time on or before April 30, 2000; the Series C Convertible Preferred Shares shall cease earning a return on April 4, 2000. Such conversion shall be effected as follows, with effect on and from the date immediately following the date of conversion: a. Series C Convertible Preferred Shares relating to the $30,000,000 capital contribution shall be converted into Common Shares. Such transaction shall have no effect on the LCNI Capital Account. b. The Percentage Interest of LCNI shall be increased by 15 percentage points, and the Percentage Interest of Sommer Enterprises shall be decreased by 15 percentage points. The shift of Percentage Interest shall constitute a transfer of a profits interest in Gaming Holdings with respect to periods after the date of conversion, and will not involve or require any transfer of or change in Capital Account amounts at the date of conversion. c. Series CC Preferred Shares are hereby authorized and shall be issued to LCNI in exchange for the accrued and unpaid cumulative preferred return on the Series C Convertible Preferred Shares from October 1, 1999 through the date of conversion. The unamortized amount relating to such Series CC Preferred Shares shall continue to constitute accrued but unpaid cumulative preferred return until such amounts are earned by Gaming Holdings and are both allocated and distributed to the holder. The Series CC Preferred Shares shall earn a return equal to twenty percent (20 %) per annum, cumulative and compounded semi-annually. D. SERIES D PREFERRED SHARES. 1. Series D Preferred Shares are hereby authorized and shall be issued to LCNI or the Trust or a wholly owned subsidiary of the Trust or Sommer Enterprises to be designated by the Trust, as the case may be, as of October 1, 1999, as described and with the rights and properties set forth below. Series D Preferred Shares and Series A Preferred Shares shall be issued: a. to LCNI with respect to the accrued and unpaid preferred return of $2,534,519.61 owed to LCI as of September 30, 1999; b. to LCNI with respect to the amount of capital contributions of $471,157.25 made by LCI on behalf of the Trust in excess of $30,000,000; c. to LCNI with respect to the amount of Completion Guaranty Payments of $11,346,382 made by LCI prior to October 1, 1999 for its own account; and d. with respect to Completion Guaranty Payments made after October 1, 1999, as set forth in Article III, below. Series D Preferred Shares shall earn a return equal to eighteen percent (18%) per annum, cumulative and compounded semi-annually 2. REASONABLE COMMERCIAL EFFORTS. LCI and the Trust will use all reasonable commercial efforts to cause the Series D Preferred Shares issued to them -3- to be redeemable by Gaming Holdings as soon as practicable after the Opening Date (subject to the terms of the Indenture) so as to facilitate a refinancing of Gaming Holdings. LCI and the Trust shall keep each other and their respective financial advisors informed of their efforts in this respect. The Series A and D Preferred Shares shall be subject to a Redemption Agreement between the Trust, LCNI, LCI and Gaming Holdings as provided in Article VI herein. E. SERIES E PREFERRED SHARES. Series E Preferred Shares are hereby authorized and shall be issued to the Trust or a wholly owned subsidiary of the Trust or Sommer Enterprises to be designated by the Trust as of October 1, 1999 with respect to Completion Guaranty Payments made by the Trust in 1999 prior to October 1, 1999 for its own account. The Trust or a wholly owned subsidiary of the Trust or Sommer Enterprises to be designated by the Trust shall be issued Series E Preferred Shares in exchange for the Trust's capital contributions of $4,333,034. Series E Preferred Shares shall replace any Series A Preferred Shares that may have been issued to Sommer Enterprises with respect to Completion Guaranty Payments. Series E Preferred Shares shall earn a return equal to thirty percent (30%) per annum, cumulative and compounded semi-annually. III COMPLETION GUARANTY PAYMENTS AFTER OCTOBER 1, 1999 Series A Preferred Shares and Series D Preferred Shares shall be issued to LCNI and the Trust or a wholly owned subsidiary of the Trust or Sommer Enterprises to be designated by the Trust in consideration of all Completion Guaranty Payments made after October 1,1999 by LCI and the Trust, respectively. IV. ALLOCATIONS OF PROFITS AND LOSSES, AND DISTRIBUTIONS With respect to the allocations of Profits and Losses, and Distributions including distributions in liquidation, the Operating Agreement is hereby amended to provide the following order of priority of Preferred Shares: Series A Preferred Shares, Series D Preferred Shares, Series C Convertible and Series CC Preferred Shares, and, collectively (pari passu) Series E and B Preferred Shares. V. CONTRIBUTION PERCENTAGE The Contribution Agreement is amended to provide that effective October 1, 1999, "Contribution Percentage" shall mean, for the purposes of Completion Guaranty Payments, (a) 60% in the case of the Trust and (b) 40% in the case of LCI. -4- VI. REDEMPTION AGREEMENT Gaming Holdings, the Trust, LCNI and LCI hereby enter into a Redemption Agreement with regard to their respective rights to redeem or purchase, as the case may be, the Series A and D Preferred Shares (as a unit consisting of one Series A Preferred Share and one Series D Preferred Share)("Redeemable Preferred Shares")) as follows: A. REDEMPTION BY GAMING HOLDINGS. 1. Gaming Holdings shall have the right, subject to and in conformity with the provisions of the Indenture (and in any event, as soon as practicable after the Notes (as defined in the Indenture) are paid in full), to redeem any amount of Redeemable Preferred Shares at an amount equal to the fully accreted value of such shares at the time of redemption, together with a "make whole" agreement (which shall be comparable to the financing terms obtained by LCI and the Trust, as the case may be, on an all reasonable commercial efforts basis, which efforts LCI and the Trust will keep the other party and its financial advisors informed of), whereby the holder of the Redeemable Preferred Shares being redeemed shall be made whole by Gaming Holdings with respect to the holder's costs and expenses incurred in financing the Redeemable Preferred Shares and making them available for redemption by Gaming Holdings. 2. The parties agree that all disputes concerning redemption of Redeemable Preferred Shares by Gaming Holdings pursuant to VI.A.1. shall be submitted to an expedited dispute resolution procedure. B. PURCHASE BY THE TRUST OF REDEEMABLE PREFERRED SHARES HELD BY LCI. 1. If the Trust, Sommer Enterprises or a wholly owned subsidiary of the Trust or Sommer Enterprises to be designated by the Trust is in a position to offer payment to LCI or LCNI at the fully accreted value on the date of offer to buy Redeemable Preferred Shares of Gaming Holdings held by LCI and LCNI, the Trust, Sommer Enterprises or a wholly owned subsidiary of the Trust or Sommer Enterprises to be designated by the Trust shall have the right from time to time but not the obligation to purchase from LCI and LCNI an amount of such shares so that the total Redeemable Preferred Shares held by the Trust, Sommer Enterprises or a wholly owned subsidiary of the Trust or Sommer Enterprises to be designated by the Trust and all its Affiliates (including such Redeemable Preferred shares they may have held) would be up to 60% of all outstanding Redeemable Preferred Shares at a price equal to their then fully accreted value. LCI agrees to negotiate in good faith with the Trust and/ or Sommer Enterprises any terms in connection with the above contemplated purchase not specified herein. 2. Purchase by the Trust of any Redeemable Preferred Shares held by LCI or LCNI shall include a "make whole" payment by the Trust to LCI or LCNI consisting of (i) the Trust's applicable proportionate share of all fees, transaction costs, call premiums and other expenses borne by LCI or LCNI in connection with the financing of the acquisition of the Redeemable Preferred Shares (but solely with respect to the proportionate share of the proceeds from such financing which are directly invested in the Aladdin Hotel and Casino project) and their purchase by the Trust including interest at the rate of prime plus two percent (2%)per annum -5- from the time expenses were incurred by LCI to the time of the make whole payment; and (ii) 100% of any increased tax consequences to LCI or LCNI resulting from the purchase of the Redeemable Preferred Shares by the Trust as opposed to redemption by Gaming Holdings. 3. Upon purchase by the Trust, and at its option to be exercised at the time of purchase, the Redeemable Preferred Shares purchased from LCI or LCNI may either (i) (a) be subordinated to those Redeemable Preferred Shares still held by LCI or LCNI, but rank ahead of all other Preferred Shares, and (b) earn a reduced unit return to be no greater than twenty percent (20%) or less than fifteen percent (15%) per annum, cumulative and compounded semi-annually to be determined no later than the time the parties enter into formal amendments to the Operating and Contribution Agreements; or (ii) (a) be PARI PASSU with the Redeemable Preferred Shares still held by LCI or LCNI and (b) earn a reduced unit return equal to the yield to worst on the Senior Discount Notes at the time of purchase by the Trust plus 100 basis points, such return to be per annum, cumulative and compounded semi-annually. 4. In the event that the Trust is in the position to offer payment as set forth in Article VI. B (I) and (2) above, and makes a good faith offer to purchase up to 60% of the Redeemable Preferred Shares but LCI or LCNI, as the case may be, is unable to sell such shares for any reason, LCI will negotiate in good faith with the Trust a "make whole" agreement whereby the Trust shall be compensated no more than its actual losses, taking account of the full costs including financing costs and "make whole" payments it would have incurred in acquiring and holding such shares, and in any event no more than the return it would have received by owning the Redeemable Preferred Shares it offered to purchase from LCI or LCNI and exercising the option set forth in VI. B(3)(i), less the return the Trust would receive if it acquired an equivalent amount of United States Treasury securities, at the then prevailing rate. C. In the event that the terms of the financing arrangements obtained by LCI with respect to financing future Completion Guaranty Payments requires a transfer of Gaming Holdings common equity or profits interest to LCI's lenders in the form of non-voting warrants, or otherwise ("Equity Transfer"), LCNI shall be diluted by the initial one-half percent (1/2%) with respect to the initial Equity Transfer. For the next nine (9) quarters after the date of the initial Equity Transfer, Sommer Enterprises and LCNI shall bear any dilution such that with respect to each of the nine (9) quarters, Sommer Enterprises and LCNI shall be diluted in a ratio of 1.5 to 1.2, respectively. For the following nine (9) quarters, LCNI shall bear the full dilutive effect of all additional Equity Transfers not to exceed an equity dilution of 2.7% for such period and not to exceed a total equity dilution of 4.4% for eighteen (18) quarters. The dilution percentages set forth in this section are with respect to LCI's and the Trust's current understanding that a transfer of 5.9% of the common equity of Gaming Holdings is required as part of the cost of LCI's bank financing in the manner set forth above. If such requirements are modified, the foregoing provision shall be modified by agreement of the parties hereto. VII. TRANSFER OF SHARES -6- A. The Operating Agreement is amended to provide that any holder of any class of Preferred Shares of Gaming Holdings shall have the right to Transfer all or part of its Preferred Shares, and all or part of its Common Shares, subject to receipt of all necessary approvals required by the Nevada Gaming Authorities and to the rights of the Lenders, and in no event to a Prohibited Transferee and providing the Trust, Sommer Enterprises, LCI or LCNI, as the case may be, the right of first offer and last refusal as set forth in the Operating Agreement. B. The parties further agree that the definitions of Permitted Transferee and Prohibited Transferee in the Operating Agreement, respectively, are amended to provide as follows: 1. PERMITTED TRANSFEREE: The definition of "Permitted Transferee" is expanded to include all institutional investors, and every potential investor identified on the list prepared by Berenson Minella & Company, dated May 3, 1999, as modified from time to time, by the mutual agreement of LCI and the Trust. 2. PROHIBITED TRANSFEREE: The definition of "Prohibited Transferee" is amended such that all institutional investors, and every potential investor identified on the list prepared by Berenson Minella & Company dated May 3, 1999, as modified from time to time, by the mutual agreement of LCI and the Trust, shall not be Prohibited Transferees. C. If any holder of any class of Preferred or Common Shares of Gaming Holdings has discussions with any prospective transferee of all or any part of such Shares, the holder shall give written notice to each other holder of Shares promptly after such discussions. VIII. BOARD OF MANAGERS A. GAMING HOLDINGS. The Operating Agreement is amended to provide that the Board of Managers shall be expanded to seven Board Members and appointed as follows: (i) Aladdin Enterprises shall appoint three Board Members and (ii) LCNI shall appoint four Board Members. As of the date of this Agreement, the Board Members shall be: Jack Sommer, Ronald B. Dictrow and Richard J. Goeglein as Aladdin Enterprises appointees and Alan L. Goodenough, G. Barry C. Hardy, William Timmins and one other appointee who shall be an officer, director or employee of LCI still to be named as LCNI appointees. This Letter Agreement shall not modify or amend any provision of the Operating Agreement or the Employment and Consulting Agreement relating to Richard Goeglein. B. ALADDIN GAMING, LLC. The Board of Managers of Aladdin Gaming, LLC shall be identical to the Board of Managers of Gaming Holdings. C. ALADDIN MUSIC HOLDINGS, LLC AND ALADDIN MUSIC, LLC. The Board of Managers of Aladdin Music Holdings, LLC and Aladdin Music, LLC shall each have six -7- Board Members appointed as follows: (i) the Trust shall appoint three Board Members and (ii) LCI shall appoint three Board Members. D. FAILURE TO CONTRIBUTE. The Operating Agreement is amended to provide that the failure of either the Trust or LCI to pay its pro rata share of Completion Guaranty Payments (i) shall not result in the removal by LCNI, if LCI has failed to pay its pro rata share, or Aladdin Enterprises, if the Trust has failed to pay its pro rata share, of one of their respective designated Board Members and (ii) shall not result in the replacement of Jack Sommer as Chairman of the Board. E. MEMBER VOTING. The Operating Agreement is amended to eliminate the requirement of the vote or consent in writing of a Supermajority to take the following action: any declaration setting aside or payment of any Distribution with respect to Series A Preferred Shares. All other Supermajority rights shall remain in effect. IX. CONSENTS AND APPROVALS To the extent that any part of this Agreement may require the consent or approval of any person not a party hereto, this Agreement or such part thereof shall not be effective until the obtaining of such consent or approval, and the Parties agree to cooperate and use all reasonable commercial efforts to obtain such consents or approvals. X. MISCELLANEOUS A. SUBSIDIARY. The Operating Agreement is amended to include Music within the definition of Subsidiary of Gaming Holdings. B. LCI SECOND HOTEL OPTIONS. Section 6.7 (b), (c) and (d)of the Amended and Restated Purchase Agreement dated as of February 26, 1998 between LCNI, LCI, Gaming Holdings, Gaming, Aladdin Holdings, LLC, Sommer Enterprises and the Trust, is hereby deleted. C. RESPONSIBILITY FOR CONSENTS. Each party hereto shall be solely obliged to obtain any consent, if necessary, (i) from any member, shareholder, partner of, or other holder of a beneficial interest in, such party, or (ii) related directly to or arising because of such party and not applicable to Gaming Holdings in its own capacity. D. FORMAL AMENDMENTS. The Parties agree to enter into a formal amendment of the Operating Agreement and Contribution Agreement, in accordance with this Agreement and the November 30, 1998 Letter Agreement and the March 30, 1999 Letter Agreement (and such further conforming modifications or amendments to these and other agreements as the parties mutually agree are necessitated as a result thereof, including the admission of the Trust (or a designated wholly-owned subsidiary of the Trust or Sommer Enterprises) as a member of Gaming Holdings, and a more -8- formal Redemption Agreement as promptly as possible after the date hereof; it being the intention of the parties hereto, that, notwithstanding the foregoing, the modifications, amendments and agreement provided for herein shall be effective as of the date hereof. LCNI shall take all necessary action to discontinue its security interest in any Shares held by the Trust or Sommer Enterprises. E. NON-DISQUALIFIED STOCK In any event, the terms of all Preferred Shares described herein shall include such terms as are necessary so that such Preferred Shares are not Disqualified Stock pursuant to, and as defined in, the Indenture. F. COUNTERPARTS. This Agreement may be executed by the parties hereto in any number of counterparts and on separate counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. G. NON WAIVER CLAUSE. This Agreement is intended by the Parties to replace the existing mechanism for Completion Guaranty Payments. Except as expressly provided herein, or as may be expressly provided in the formal amendments to the Operating Agreement and Contribution Agreement, this Agreement shall not modify any right, duty, privilege, obligation or remedy, in contract or law arising out of or related to the Completion Guaranty, the Contribution Agreement, the Operating Agreement, the Indenture, and/or any other contracts or agreements related to the development, construction or operation of the Aladdin Hotel and Casino including, but not limited to, any agreements or contracts with a third party, nor shall entering into this Agreement, or any other act or failure to act, constitute a waiver of any such right, duty, privilege, obligation or remedy. H. EFFECTIVENESS. Notwithstanding any other provision in this Agreement, if the Parties are unable for any reason to effect a transfer of fifteen percent (15%) of the Common Shares of Gaming Holdings to LCNI upon conversion of the Series C Convertible Preferred Shares, no part of this Agreement shall be effective. I. OUTSTANDING LIABILITY. The Trust acknowledges a debt to LCI of approximately $66,000 bearing interest at the rate of twenty percent (20%) per annum (the precise amount of the principal indebtedness to be confirmed by Gaming Holdings) which shall be paid to LCI as soon as practicable. -9- Please indicate your agreement to the provisions of this Agreement by signing the enclosed copy as indicated. Very truly yours, TRUST UNDER ARTICLE SIXTH u/w/o SIGMUND SOMMER By: /s/ Viola Sommer --------------------------------- Viola Sommer, as Trustee and not Individually By: /s/ Jack Sommer --------------------------------- Jack Sommer, as Trustee and not Individually By: /s/ Eugene Landsberg -------------------------------- Eugene Landsberg, as Trustee and not Individually -10- AGREED TO this 10th day of December, 1999 LONDON CLUBS INTERNATIONAL, P.L.C. By: /s/ William Timmins ------------------------------ LONDON CLUBS NEVADA INC. By: /s/ William Timmins ------------------------------ ALADDIN GAMING HOLDINGS, LLC By: /s/ Jack Sommer ------------------------------ SOMMER ENTERPRISES, LLC By: /s/ Jack Sommer ------------------------------ ALADDIN GAMING ENTERPRISES, INC. By: /s/ Jack Sommer ------------------------------ GAI, LLC By: /s/ Richard J. Goeglein ------------------------------ -11- With respect to Article X. B only; AGREED to this 10th day of December, 1999 ALADDIN HOLDINGS, LLC By: /s/ Jack Sommer ----------------------------- -12- February 23, 2000 London Clubs International, plc 10 Brick Street London WTY 8HQ, England London Clubs Nevada Inc. c/o Aladdin Gaming, LLC 831 Pilot Road Las Vegas, Nevada 89119 Re: (i) Restructure Letter Agreement ("Restructure Agreement"), dated as of December 12, 1999, between the Trust under Article Sixth u/w/o Sigmund Sommer (the "Trust"), Aladdin Holdings, LLC ("Aladdin Holdings"), London Clubs International, plc ("LCI"), London Clubs Nevada ("LCNI"), Aladdin Gaming Holdings, LLC ("Gaming Holdings") , Sommer Enterprises, LLC ("Sommer Enterprises") Aladdin Gaming Enterprises, Inc. ("Gaming Enterprises") and GAI, LLC (GAI"); (ii) Operating Agreement, as amended, ("Operating Agreement") of Gaming Holdings, dated as of February 26, 1998 and (iii) Contribution Agreement, as amended, ("Contribution Agreement"), dated as of February 26, 1998 between the Trust, Aladdin Holdings, Sommer Enterprises, LCI and LCNI. ---------------------------------------------------------------------- Ladies and Gentlemen: Reference is made to that certain Facilities Agreement ("Facilities Agreement"), dated as of June 26, 1998, as amended, between General Electric Capital Corporation ("GECC") for itself and as agent for certain participants, and Aladdin Gaming, LLC ("Gaming"). Capitalized terms used but not defined herein shall have the meanings assigned to them in the relevant above listed agreements. The Facilities Agreement provides for $80 million of FF&E financing consisting of a term loan of $20 million and operating leases of $60 million; no funding has occurred pursuant to the Facilities Agreement. Gaming needs to begin purchasing certain FF&E items as soon as practicable. Said items are to be ordered by Leonard Parker Company ("Parker"). Prior to ordering the items, Parker requires that Gaming -13- deliver letters of credit in the total amount of $5 million (the "LCs") and to make cash deposits in the combined amount of approximately $900,000 (the "Cash Deposit", and together with the LCs, the "Deposit Amounts"). In connection with the payment of the above Deposit Amounts, the Trust, LCI, LCNI, Sommer Enterprises, GAI and Gaming Holdings hereby agree as follows: 1. The Trust and LCI shall pay the Deposit Amounts, and all costs and expenses directly related to the payment of the Deposit Amounts, including, without limitation, bank fees, in proportion to their respective Contribution Percentage set forth in the Contribution Agreement with respect to Completion Guaranty Payments (i.e., 60% in the case of the Trust and 40% in the case of LCI). 2. The Trust acknowledges that as of the date of this Agreement it is not able to contribute any portion of the Deposit Amounts. The Trust repeats, reiterates and confirms its explicit contractual agreement to use all reasonable efforts and use all available resources to liquefy, reassign or monetize its assets so that it may fulfil its obligation to pay its proportionate share of the Deposit Amounts. 3. On behalf of Gaming, LCI shall cause the following four LCs to be opened when required, for the benefit of Parker: (i) in the amount of $1 million, expiring on May 31, 2000; (ii) in the amount of $1 million, expiring on June 30, 2000; (iii) in the amount of $1 million, expiring on July 31, 2000; and (iv) in the amount of $2 million, expiring on August 17, 2000. On behalf of Gaming, LCI shall also cause the Cash Deposit to be paid when required to Parker or as directed by Parker. The Cash Deposit and any amounts drawn on the LC shall be repaid to LCI by GECC pursuant to the Facilities Agreement or by Parker. 4. The Trust agrees that if at any time prior to the expiration of any one or more of the LCs it has liquefied its assets sufficiently or otherwise has put itself in a position to contribute all or part of its pro rata share of the Deposit Amounts, it shall immediately reimburse LCI for that amount up to sixty (60%) percent of the amounts, if any, which have been drawn down under the LCs, and, to the extent that the Trust is in a position to do so, produce LCs in an amount up to sixty (60%) percent of the then outstanding LCs. 5. The Deposit Amounts shall be treated as, but shall not be deemed, Completion Guaranty Payments pursuant to the Restructure Agreement and the Operating Agreement. Specifically, the Operating Agreement is amended to provide: (i) If all or any part of the Cash Deposit is not repaid to LCI, by GECC or otherwise, on or before thirty (30) days after the Opening Date ("Deposit Due Date"), Series A and D Preferred Shares of Gaming Holdings shall be issued to LCNI in an amount corresponding to the outstanding amount (the "Deposit Delinquent Amount") as if the Series A and D Preferred Shares had been issued on the date or dates the -14- Deposit Delinquent Amount(s) were paid to Parker or as directed by Parker. LCNI's Capital Account with respect to Series A Preferred Shares shall be increased by the Deposit Delinquent Amount. (ii) If all or any part of the LCs are drawn upon by Parker and such drawn upon amount (the "Drawn Amount") is not repaid to LCI, by GECC or otherwise, by the Deposit Due Date, Series A and D Preferred Shares of Gaming Holdings shall be issued to LCNI in an amount that shall correspond to the Drawn Amount(s) as if the Series A and D Shares had been issued on the respective date or dates on which the LC was drawn down. LCNI's Capital Account with respect to Series A Preferred Shares shall be increased by the Drawn Amount(s). (iii) In the event that LCI is reimbursed for all or any part of the Deposit Delinquent Amount or Drawn Amount ("Reimbursed Amount") after the Deposit Due Date, and Series A and D Preferred Shares have been issued to LCNI as set forth in (i) and (ii) above, LCI and LCNI shall have the option either (x) to refuse the Reimbursed Amount, retain Series A and D Preferred Shares held by LCNI in an amount equal to the Reimbursed Amount (which shares shall continue to be subject to the redemption rights set forth in paragraph VI of the Restructure Agreement) and have no adjustment made to LCNI's Capital Account with respect to the Series A and D Preferred Shares; or (y) to accept the Reimbursed Amount in redemption of Series A and D Preferred Shares held by LCNI in an amount equal to the Reimbursed Amount, or in the event that the Trust has paid the Reimbursed Amount, to cause Series A and D Preferred Shares in an amount equal to the Reimbursed Amount to be transferred to the Trust or Sommer Enterprises (or other Trust Affiliate designated by the Trust). In either case, LCNI shall retain the Series A and D Preferred Returns with respect to the shares, whether previously distributed or not, through the date of payment of the Reimbursed Amount. (iv) In the event that the issuance of the Series A and D Preferred Shares as set forth in this section shall not be permitted in accordance with the Discount Note Indenture, the parties hereto shall provide for some equivalent manner of evidencing such contributions mutually agreeable to the parties. 6. The Operating Agreement and the Restructure Agreement are both amended to provide that in all situations where Series A and D Preferred Shares are issued, such shares shall provide a combined preferred return equal to the return earned on the Series E Preferred Shares (I.E., thirty (30%) percent). 7. Upon receipt of evidence thereof, the Trust shall promptly reimburse LCI for sixty (60%) percent of all costs and expenses of LCI directly related to the payment of the Deposit Amounts (other than the Deposit Amounts themselves), including, without limitation, bank fees, and the reasonable fees and expenses of counsel incurred in connection with the negotiation and documentation of this letter agreement. -15- 8. The parties hereto agree to enter into a formal amendment to the Operating Agreement, in accordance with Paragraph 3 hereof (and such further conforming modifications as the parties mutually agree are necessitated as a result thereof, if any), as promptly as possible after the date hereof; it being the intention of the parties hereto that, notwithstanding the foregoing, the modifications provided for herein shall be effective as of the date hereof. This letter agreement may be executed by the parties hereto in any number of counterparts and on separate counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. [The remainder of this page has been left blank intentionally.] -16- Please indicate your agreement to the provisions of this letter agreement by signing the enclosed copy as indicated. Very truly yours, TRUST UNDER ARTICLE SIXTH u/w/o SIGMUND SOMMER By: /s/ Viola Sommer ------------------------------------ Viola Sommer, as trustee and not individually By: /s/ Jack Sommer ------------------------------------ Jack Sommer, as trustee and not individually -17- Agreed to this 23rd day of February, 2000 LONDON CLUBS INTERNATIONAL, P.L.C. By: /s/ William Timmins ------------------------------- LONDON CLUBS NEVADA INC. By: /s/ William Timmins ------------------------------- ALADDIN GAMING HOLDINGS, LLC By: /s/ Jack Sommer ------------------------------- SOMMER ENTERPRISES, LLC By: /s/ Jack Sommer ------------------------------- ALADDIN GAMING ENTERPRISES, INC. By:/s/ Jack Sommer -------------------------------- GAI, LLC By:/s/ Richard J. Goeglein --------------------------------- -18- EX-21.01 7 EXHIBIT 21.01 LIST OF SUBSIDIARIES ALADDIN GAMING ENTERPRISES, INC. ALADDIN GAMING ENTERPRISES, INC. Aladdin Gaming Holdings, LLC, a Nevada limited liability company ALADDIN GAMING HOLDINGS, LLC (direct and indirect subsidiaries) Aladdin Capital Corp., a Nevada corporation Aladdin Gaming, LLC, a Nevada limited liability company Aladdin Music Holdings, LLC, a Nevada limited liability company Aladdin Music, LLC, a Nevada limited liability company EX-27.01 8 EXHIBIT 27.01
5 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1 0 0 0 0 1 0 0 8,563 0 0 0 0 13,247 (4,688) 8,563 0 0 0 0 8,488 0 0 (8,488) 0 (8,488) 0 0 0 (8,488) (2.56) (2.56)
EX-99.1 9 EXHIBIT 99.1 EXHIBIT 99.1 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Public Accountants To the Board of Directors and Members of Aladdin Gaming Holdings, LLC: We have audited the accompanying consolidated balance sheets of Aladdin Gaming Holdings, LLC (a Nevada limited liability company in the development stage) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, members' equity and cash flows for the years ended December 31, 1999 and 1998 and for the period from inception (December 1, 1997) to December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aladdin Gaming Holdings, LLC and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the years ended December 31, 1999 and 1998, and for the period from inception (December 1, 1997) to December 31, 1999 in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Las Vegas, Nevada March 30, 2000 ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (IN THOUSANDS)
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------- ASSETS Current assets: Cash and cash equivalents................................. $ 1,669 $ 1,248 Restricted cash and cash equivalents...................... 80,471 -- Interest receivable restricted cash....................... 222 859 Receivables, related parties.............................. 8 77 Other receivables......................................... 1 765 Inventory................................................. 59 60 Prepaid assets............................................ 320 119 Restricted land to be transferred......................... 6,842 6,842 -------- -------- Total current assets.................................... 89,592 9,970 -------- -------- Property and equipment: Land...................................................... 33,407 33,407 Furniture, fixtures and equipment......................... 950 272 Construction in progress.................................. 274,398 86,557 Capitalized interest...................................... 37,758 8,213 -------- -------- 346,513 128,449 Less accumulated depreciation and amortization.............. (176) (17) -------- -------- Net property and equipment................................ 346,337 128,432 -------- -------- Other assets: Restricted cash and cash equivalents...................... -- 227,983 Other assets.............................................. 2,067 2,061 Debt issuance costs, net of accumulated amortization of $6,442 and $2,831 as of December 31, 1999 and 1998, respectively............................................ 30,704 34,315 -------- -------- Total other assets...................................... 32,771 264,359 -------- -------- $468,700 $402,761 ======== ======== LIABILITIES AND MEMBERS' EQUITY Current liabilities: Current maturities of long-term debt...................... $ 4,700 $ -- Accounts payable.......................................... 2,752 1,005 Construction payable...................................... 12,193 12,063 Obligation to transfer land............................... 6,842 6,842 Accrued interest.......................................... 2,183 1,734 Accrued expenses.......................................... 2,068 2,502 -------- -------- Total current liabilities............................... 30,738 24,146 -------- -------- Long-term debt, net of discount............................. 403,393 388,353 Related party payables...................................... 7,330 4,119 Advances to purchase membership interests................... 3 3 Commitments and contingencies............................... -- -- Members' equity: Preferred membership interest............................. 75,044 -- Common membership interest, 10,000,000 membership interests authorized; 1,000,000 common membership interests issued and outstanding as of December 31, 1999 and 1998................................................ 28,608 28,608 Deficit accumulated during the development stage.......... (76,416) (42,468) -------- -------- Total members' equity................................... 27,236 (13,860) -------- -------- $468,700 $402,761 ======== ========
See accompanying summary of accounting policies and notes to consolidated financial statements. ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 1998 AND THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) THROUGH DECEMBER 31, 1999 (IN THOUSANDS)
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) FOR THE YEAR ENDED FOR THE YEAR ENDED THROUGH DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 ------------------- ------------------- ------------------- Pre-opening costs.......................... $ 11,735 $ 24,737 $ 36,472 Other (income) expense: Interest income.......................... (8,280) (12,472) (20,752) Interest expense......................... 52,202 38,416 90,618 Less: Interest capitalized............... (29,545) (8,213) (37,758) -------- -------- -------- Total other (income) expense........... 14,377 17,731 32,108 -------- -------- -------- Net loss accumulated during the development stage.................................... $ 26,112 $ 42,468 $ 68,580 ======== ======== ========
See accompanying summary of accounting policies and notes to consolidated financial statements. ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) THROUGH DECEMBER 31, 1999 (IN THOUSANDS)
SOMMER ENTERPRISES, LLC ALADDIN GAMING ENTERPRISES, LLC ------------------------------------- ------------------------------------- DEFICIT DEFICIT ACCUMULATED ACCUMULATED COMMON PREFERRED DURING THE COMMON PREFERRED DURING THE MEMBERSHIP MEMBERSHIP DEVELOPMENT MEMBERSHIP MEMBERSHIP DEVELOPMENT INTEREST INTEREST STAGE INTEREST INTEREST STAGE ---------- ---------- ----------- ---------- ---------- ----------- BALANCE, DECEMBER 1, 1997.... $ -- $ -- $ -- $ -- $ -- $ -- Member Contributions......... 1 -- -- -- -- -- -------- -------- -------- -------- -------- -------- BALANCE, DECEMBER 31, 1997....................... 1 -- -- -- -- -- Net loss for the period...... -- -- (19,960) -- -- (10,617) Member Contributions......... (47,317) -- -- 28,247 -- -- Members' equity costs........ (1,093) -- -- (581) -- -- -------- -------- -------- -------- -------- -------- BALANCE, DECEMBER 31, 1998....................... (48,409) -- (19,960) 27,666 -- (10,617) Net loss for the period...... -- -- (12,273) -- -- (6,528) Member Contributions......... -- 34,613 -- -- -- -- Restatement of Preferred Interests.................. -- (30,280) -- -- -- -- Preferred Return............. -- 1,944 (2,637) -- -- (1,402) Restatement of Preferred Return..................... -- (1,069) (1,046) -- -- (557) -------- -------- -------- -------- -------- -------- BALANCE, DECEMBER 31, 1999....................... $(48,409) $ 5,208 $(35,916) $ 27,666 $ -- $(19,104) ======== ======== ======== ======== ======== ========
See accompanying summary of accounting policies and notes to consolidated financial statements. ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (CONTINUED) FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) THROUGH DECEMBER 31, 1999 (IN THOUSANDS)
LONDON CLUBS NEVADA, INC. GAI, LLC ------------------------------------- ------------------------------------- DEFICIT DEFICIT ACCUMULATED ACCUMULATED COMMON PREFERRED DURING THE COMMON PREFERRED DURING THE MEMBERSHIP MEMBERSHIP DEVELOPMENT MEMBERSHIP MEMBERSHIP DEVELOPMENT INTEREST INTEREST STAGE INTEREST INTEREST STAGE ---------- ---------- ----------- ---------- ---------- ----------- BALANCE, DECEMBER 1, 1997.... $ -- $ -- $ -- $ -- $-- $ -- Member Contributions......... -- -- -- 2 -- -- -------- ------- -------- ---- --- ------- BALANCE, DECEMBER 31, 1997....................... -- -- -- 2 -- -- Net loss for the period...... -- -- (10,617) -- -- (1,274) Member Contributions......... 50,000 -- -- -- -- -- Members' equity costs........ (581) -- -- (70) -- -- -------- ------- -------- ---- --- ------- BALANCE, DECEMBER 31, 1998....................... (49,419) -- (10,617) (68) -- (1,274) Net loss for the period...... -- -- (6,528) -- -- (783) Member Contributions......... -- 32,595 -- -- -- -- Restatement of Preferred Interests.................. -- 30,280 -- -- -- -- Preferred Return............. -- 3,665 (1,402) -- -- (168) Restatement of Preferred Return..................... -- 3,296 (557) -- -- (67) -------- ------- -------- ---- --- ------- BALANCE, DECEMBER 31, 1999....................... $(49,419) $69,836 $(19,104) $(68) $-- $(2,292) ======== ======= ======== ==== === =======
See accompanying summary of accounting policies and notes to consolidated financial statements. ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (CONTINUED) FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) THROUGH DECEMBER 31, 1999 (IN THOUSANDS)
TOTAL ------------------------------------- DEFICIT ACCUMULATED COMMON PREFERRED DURING THE MEMBERSHIP MEMBERSHIP DEVELOPMENT INTEREST INTEREST STAGE ---------- ---------- ----------- BALANCE, DECEMBER 1, 1997................................. $ -- $ -- $ -- Member Contributions...................................... 3 -- -- ------- ------- -------- BALANCE, DECEMBER 31, 1997................................ 3 -- -- Net loss for the period................................... -- -- (42,468) Member Contributions...................................... 30,930 -- -- Members' equity costs..................................... (2,325) -- -- ------- ------- -------- BALANCE, DECEMBER 31, 1998................................ 28,608 -- (42,468) Net loss for the period................................... -- -- (26,112) Member Contributions...................................... -- 67,208 -- Restatement of Preferred Interests........................ -- -- -- Preferred Return.......................................... -- 5,609 (5,609) Restatement of Preferred Return........................... -- 2,227 (2,227) ------- ------- -------- BALANCE, DECEMBER 31, 1999................................ $28,608 $75,044 $(76,416) ======= ======= ========
See accompanying summary of accounting policies and notes to consolidated financial statements. ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1999 AND 1998 AND THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) THROUGH DECEMBER 31, 1999 (IN THOUSANDS)
FOR THE PERIOD FROM INCEPTION (DECEMBER 1, 1997) FOR THE YEAR ENDED FOR THE YEAR ENDED THROUGH DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999 ------------------- ------------------- ------------------- Cash flows from operating activities: Net loss.................................. $ (26,112) $ (42,468) $ (68,580) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization............. 159 17 176 Amortization of debt costs................ 3,611 2,831 6,442 Amortization of original issue discount... 19,740 14,306 34,046 Change in assets and liabilities: Interest receivable....................... 637 (859) (222) Inventory................................. 1 (60) (59) Prepaid expense........................... (201) (118) (320) Receivables............................... 833 (842) (8) Other assets.............................. (6) (2,061) (2,067) Accounts payable.......................... 1,747 3,394 2,752 Accrued expenses.......................... (434) 113 2,068 Accrued interest.......................... 449 1,734 2,183 Related party payable..................... 3,211 3,354 6,565 --------- --------- --------- Net cash provided by (used in) operating activities................................ 3,635 (20,659) (17,024) --------- --------- --------- Cash flows from investing activities: Payments for construction in progress..... (187,711) (66,184) (253,895) Payments for furniture and equipment...... (678) (272) (950) Payments for capitalized interest......... (29,545) (8,213) (37,758) (Increase) Decrease in restricted cash.... 147,512 (227,983) (80,471) --------- --------- --------- Net cash used in investing activities....... (70,422) (302,652) (373,074) --------- --------- --------- Cash flows from financing activities: Proceeds from issuance of notes........... -- 100,047 100,047 Proceeds from long-term debt.............. -- 274,000 274,000 Repayment of long-term debt............... -- (547) (547) Debt issuance costs....................... -- (37,146) (37,146) Members' contributions.................... 67,208 65,000 132,211 Members' equity costs..................... -- (2,325) (2,325) Payment of debt on contributed land....... -- (74,477) (74,477) Payable to related parties................ -- -- 1 Advances to purchase membership interests............................... -- -- 3 --------- --------- --------- Net cash provided by financing activities... 67,208 324,552 391,767 --------- --------- --------- Net increase in cash........................ 421 1,241 1,669 Cash at beginning of period................. 1,248 7 -- --------- --------- --------- Cash at end of period....................... 1,669 $ 1,248 $ 1,669 --------- --------- --------- Supplemental disclosures of cash flow information and non-cash investing and financing activities: Cash paid for interest, net of amount capitalized............................... (5,118) $ 11,332 $ 6,214 Members' contributions book value Land...................................... -- 33,407 33,407 Construction in progress.................. -- 7,000 7,000 Equipment acquired equal to assumption of debt...................................... -- 547 547 Increase in construction payables........... 130 12,063 12,193 Preferred dividends......................... 7,836 -- --
See accompanying summary of accounting policies and notes to consolidated financial statements. ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION Aladdin Gaming Holdings, LLC, a Nevada limited liability company ("Gaming Holdings"), was formed on December 1, 1997. Gaming Holdings initially was owned by Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Gaming Enterprises") (25%), Sommer Enterprises, LLC, a Nevada limited liability company ("Sommer Enterprises") (72%), and GAI, LLC, a Nevada limited liability company ("GAI") (3%). On February 26, 1998, London Clubs International plc ("London Clubs"), through its subsidiary London Clubs Nevada Inc. ("LCNI"), contributed $50 million for a 25% interest in Gaming Holdings common membership interests ("Holdings Common Membership Interests"). Sommer Enterprises contributed a portion of land for Holdings Common Membership Interests. Gaming Enterprises, which is owned 100% by Sommer Enterprises, contributed a portion of land, $7 million of predevelopment costs and $15 million in cash for Holdings Common Membership Interests. After the additional contributions, Sommer Enterprises owns 47% of Gaming Holdings, Gaming Enterprises owns 25% of Gaming Holdings, LCNI owns 25% of Gaming Holdings, and GAI owns 3% of Gaming Holdings. On November 30, 1998, the Sommer Trust and its affiliates agreed that they will cause Sommer Enterprises and Gaming Enterprises to vote their respective Holdings Common Membership Interests so that (taking into account Holdings Common Membership Interests held by London Clubs or its affiliates) London Clubs controls fifty percent of the voting power of Gaming Holdings. See Note 3 for additional disclosures regarding voting power. On December 10, 1999, the holders of Holdings Common Membership Interest agreed to restate the capital structure of Gaming Holdings, which restatement provided, in addition to other matters, that LCNI has an option to convert certain preferred membership interests of Gaming Holdings into 15% of Holding Common Membership Interests, the creation of certain new classes of preferred membership interests and for LCNI's control of the majority of the Board of Managers of Gaming Holdings; however, most material decisions remain subject to the supermajority consent of Gaming Holdings members. See "Note 3. Classes of Interest." Aladdin Holdings, LLC, a Delaware limited liability company ("AHL"), indirectly holds a majority interest in Gaming Holdings. The members of AHL are the Trust Under Article Sixth u/w/o Sigmund Sommer ("Sommer Trust") which holds a 95% interest in AHL and GW Vegas, LLC, a Nevada limited liability company ("GW"), a wholly owned subsidiary of Trust Company of the West ("TCW"), which holds a 5% interest in AHL. Gaming Holdings is a holding company, the material assets of which are 100% of the outstanding common membership interests and 100% of the outstanding Series A preferred interests of Aladdin Gaming, LLC ("Gaming"). Aladdin Capital Corp. ("Capital") is a wholly owned subsidiary of Gaming Holdings and was incorporated solely for the purpose of serving as a co-issuer of the 13 1/2% Senior Discount Notes ("Notes"). Capital will not have any material operations or assets and will not have any revenues. Gaming Holdings, through its subsidiaries, also owns 100% of Aladdin Music, LLC ("Aladdin Music"). Gaming Holdings and its subsidiaries are collectively referred to herein as "Company." The operations of the Company have been primarily limited to the design, development, financing and construction of a new Aladdin Resort and Casino ("Aladdin"). The Aladdin will be the centerpiece of an approximately 35-acre world-class resort, casino and entertainment complex ("Complex") located on the site of the former Aladdin hotel and casino in Las Vegas, Nevada, a premier location at the center of Las Vegas Boulevard. The Aladdin has been designed to include a luxury themed hotel of approximately 2,600 rooms, an approximately 116,000 square foot casino, an approximately 1,200-seat production showroom and six restaurants. ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Complex will comprise: (i) the Aladdin; (ii) a themed entertainment shopping mall with approximately 496,000 square feet of retail space ("Desert Passage"); (iii) a second hotel and casino with a music and entertainment theme ("Aladdin Music Project"); (iv) the newly renovated 7,000 seat Theater of the Performing Arts ("Theater"); and (v) an approximately 4,800 space car parking facility ("Carpark" and, together with the Desert Passage, hereinafter, "Mall Project"). The Mall Project will be separately owned in part by an affiliate of the Company and Aladdin Music is currently seeking a joint venture partner for the Aladdin Music Project. The consolidated financial statements include the accounts of Gaming Holdings and its wholly-owned subsidiaries. Significant inter-company accounts are eliminated in consolidation. CASH, CASH EQUIVALENTS AND RESTRICTED CASH The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 1999, restricted cash consisted of cash and cash equivalents held for construction and development of the Aladdin. PROPERTY AND EQUIPMENT Property and equipment consists primarily of expenditures incurred for the design and construction of the Aladdin and have been capitalized as construction in progress. These amounts are expected to be reclassified to buildings and land improvements upon completion of the facility and will be depreciated over the useful life of the assets. Furniture, fixtures and equipment are stated at cost and depreciation is computed using the straight-line method over the estimated useful life of between three and ten years. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using first-in first-out method. FAIR VALUE OF CERTAIN FINANCIAL INSTRUMENTS The carrying amount of cash equivalents, receivables and all current liabilities approximates fair value because of the short term maturity of these instruments. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. See Note 2 for additional fair value disclosures. INTEREST COSTS Interest costs associated with major construction projects are capitalized. Interest is capitalized on amounts expended to construct the Aladdin using the weighted-average cost of the Company's outstanding borrowings. The capitalized interest will be recorded as part of the asset to which it relates and will be amortized over the asset's useful life. Capitalization of interest ceases when the project is substantially complete. ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTEREST RATE SWAPS The Company uses interest rate swaps and similar financial instruments to assist in managing interest incurred on its long-term debt. The difference between amounts received and amounts paid under such agreements, as well as any costs or fees, is recorded as a reduction of, or addition to, interest expense as incurred over the life of the swap or similar financial instruments. PRE-OPENING COSTS In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position No. 98-5 REPORTING ON THE COSTS OF START-UP ACTIVITIES ("SOP 98-5"). The provisions of SOP 98-5 are effective for fiscal years beginning after December 15, 1998 and require that the costs associated with start-up activities (including pre-opening costs of casinos) be expensed as incurred. SOP 98-5 permits early adoption in fiscal years for which annual financial statements have not yet been issued. Effective January 1, 1998, the Company adopted the provisions of SOP 98-5. Pre-opening costs include, but are not limited to, salary related expenses for new employees and management opening team, travel and lodging expenses, training costs, advertising and marketing, organizational costs and all temporary facility costs (i.e. rent, insurance, utilities, etc.). DEBT DISCOUNT AND ISSUANCE COSTS Debt discount and issuance costs are capitalized and amortized to expense based on the terms of the related debt agreements using the effective interest method or a method which approximates the effective interest method. INCOME TAXES The Company is a limited liability company and will be taxed as a partnership for federal income tax purposes. Accordingly, no provision for federal income taxes was recorded because the taxable income or loss is included in the income tax returns of the members. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 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 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. In July 1999, the FASB issued SFAS No. 137 which delays the effective date of SFAS No. 133 from fiscal year 2000 to fiscal year 2001. Gaming Holdings is in the process of analyzing SFAS No. 133 and the impact on its consolidated financial position and results of operations. ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts have been reclassified to conform with 1999 presentations. 2. LONG-TERM DEBT Long-term debt and current maturities of long-term debt are comprised of the following:
DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- (IN THOUSANDS) Long-term debt: Senior Discount Notes (Net of unamortized discount of $87,407 at 12/31/99 and $107,147 at 12/31/98)................... $134,093 $114,353 -------- -------- Term B Loan............................... $114,000 $114,000 Term C Loan............................... 160,000 160,000 -------- -------- $408,093 $388,353 Less current maturities of long-term debt.................................. 4,700 -- -------- -------- Total long-term debt.................... $403,393 $388,353 ======== ========
SENIOR DISCOUNT NOTES On February 26, 1998, Gaming Holdings, Capital and Gaming Enterprises consummated a private offering ("Offering") under Rule 144A of the Securities Act of 1933. The Offering consisted of 221,500 units ("Units"), each Unit consisting of: (i) $1,000 principal amount of maturity of 13 1/2% Senior Discount Notes due 2010 ("Notes") of Gaming Holdings and Capital; and (ii) 10 warrants ("Warrants") to purchase 10 shares of Class B non-voting common stock, no par value, of Gaming Enterprises. The Notes and the Warrants became separately transferable on July 23, 1998. The Warrants became exercisable on July 23, 1998, and will expire on March 1, 2010. On August 26, 1998, Gaming Holdings and Capital completed an exchange offer for 100% of the aggregate principal amount of the Notes pursuant to a registration statement dated July 23, 1998. The Notes were exchanged for notes with substantially the same terms issued in the private placement on February 26, 1998. The initial accreted value of the Notes was $519.40 per $1,000 principal amount at maturity of the Notes. The Notes will mature on March 1, 2010. The Notes will accrete at 13 1/2% (computed on a semi- ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LONG-TERM DEBT (CONTINUED) annual bond equivalent basis) based on the initial accreted value, calculated from February 26, 1998. Cash interest on the Notes will not accrue prior to March 1, 2003. Thereafter, cash interest on the Notes will accrue at the rate of 13 1/2% per annum based on the accreted value at maturity of the Notes and will be payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2003. The Notes are secured by a first priority pledge of all the issued and outstanding Series A Preferred Interests of Gaming held by Gaming Holdings. The Indenture relating to the Notes contains certain covenants that (subject to certain exceptions) restrict the ability of Gaming Holdings, Capital and certain of their subsidiaries to, among other things: (i) make restricted payments; (ii) incur additional indebtedness and issue preferred stock; (iii) incur liens; (iv) pay dividends or make other distributions; (v) enter into mergers or consolidations; (vi) enter into certain transactions with affiliates; or (vii) enter into new lines of business. Gaming Holdings' future interest and principal payments required under the Notes will be funded from distributions by Gaming to the extent available. Gaming has certain restrictions which limit its ability to distribute cash to Gaming Holdings (see the following discussion under "Term Loans"). There can be no assurance that Gaming's distributions will be sufficient to meet the required principal and interest payments of the Notes. TERM LOANS AND CURRENT MATURITIES OF LONG-TERM DEBT Gaming has a credit facility ("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 $129.7 million and matures approximately five and one-half years after the initial borrowing date. Term B Loan comprises a term loan of $114.0 million and matures eight and one-half years after the initial borrowing date. Term C Loan comprises a term loan of $160.0 million and matures ten years after the borrowing date. The disbursement of the proceeds of the Term A Loan has not commenced as of the date hereof. Under the Credit Agreement, Gaming had $21.3 million available for its investment in Aladdin Music. However, during the third quarter of 1999, pursuant to the Credit Agreement, Gaming could, and did, allocate $15 million of such funds to the Theater renovation and reduced the Term A Loan from $136 million to $129.7 million. The Company pays interest on the term loans as follows: Term A Loan, at the London Interbank Offered Rate ("LIBOR") plus 300 basis points until the Aladdin commences operations, then LIBOR plus an amount between 150 basis points and 275 basis points depending upon Gaming's earnings before interest, taxes, depreciation and amortization ("EBITDA"); Term B Loan, LIBOR plus 200 basis points while the funds are held in the cash collateral account and LIBOR plus 350 basis points once the funds are utilized for the construction of the Aladdin; and Term C Loan, LIBOR plus 200 basis points while the funds are held in the cash collateral account and LIBOR plus 400 basis points once the funds are utilized for the construction of the Aladdin. Interest on the term loans is due quarterly. ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LONG-TERM DEBT (CONTINUED) Principal payments for the Term Loans do not commence until the end of the first quarter following the commencement of operations of the Aladdin. The following table details the required yearly principal amortization during operations.
PRINCIPAL AMORTIZATION (AFTER COMMENCEMENT OF OPERATIONS) TERM A LOAN TERM B LOAN TERM C LOAN - - ---------------------- ----------- ----------- ----------- (IN THOUSANDS) Year 1 $ 16,000 $ 1,200 $ 1,600 Year 2 20,000 1,200 1,600 Year 3 28,000 1,200 1,600 Year 4 32,000 1,200 1,600 Year 5 33,750 1,200 1,600 Year 6 -- 68,000 1,600 Year 7 -- 40,000 48,400 Year 8 -- -- 102,000 -------- -------- -------- TOTALS $129,750 $114,000 $160,000 ======== ======== ========
In addition to the principal amortization schedules, the Company is required to make mandatory prepayments beginning the first quarter following the commencement of operations of the Aladdin. The mandatory prepayments are based on a percentage of Gaming's excess cash flow as defined in the Credit Agreement. The mandatory prepayments are due quarterly and the percentages of excess cash flow are detailed below:
PERCENTAGE OF EXCESS CASH FLOW ---------------- Year 1 65% Year 2 60% Year 3 and thereafter 55%
As security for the Bank Credit Facility, the Company has entered into a deed of trust in favor of the Lenders securing the Notes and all obligations of the Company under the Bank Credit Facility, encumbering the Aladdin (including any and all leasehold interests) as a first priority lien. In addition, the Company has either assigned or entered into security agreements in favor of the Lenders for all present and future leases, accounts, accounts receivable, licenses and any other tangible or intangible assets owned or leased by the Company, subject to the rights of the FF&E Lenders under the FF&E Financing (see the following discussion under "Furniture, Fixtures and Equipment Financing ("FF&E Financing")). As further security for the Bank Credit Facility and to the extent permissible, the owners of the Company have pledged their interests in the Company to the Lenders and Gaming Holdings has pledged its interest in Gaming to the Lenders other than the Series A Preferred Interests. The Bank Credit Facility contains covenants that (subject to certain exceptions) restrict the ability of Gaming and its subsidiaries to, among other things: (i) incur additional indebtedness, liens or other encumbrances; (ii) pay dividends or make similar distributions; (iii) sell assets or make investments; (iv) ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LONG-TERM DEBT (CONTINUED) enter into mergers, consolidations, or acquisition transactions; or (v) enter into certain transactions with affiliates. FURNITURE, FIXTURES AND EQUIPMENT FINANCING ("FF&E FINANCING") On June 30, 1998, the Company entered into FF&E Financing that provides for operating lease financing of up to $60.0 million and a term loan facility of $20.0 million to obtain gaming equipment and other specified equipment. Funding under the FF&E Financing is available beginning six months prior to the construction completion date of the Aladdin. Repayment of principal and interest is due in quarterly installments upon the construction completion date of the Aladdin. The term of the operating lease financing is 36 months (with the Company having two, one year options to renew) and the term of the loan facility is five years. The interest rate from the funding date until the construction of the Aladdin is complete is either the 30-day LIBOR plus 478 basis points or the Prime Rate plus 275 basis points. After the construction completion date, the interest rate shall be the 90-day LIBOR plus 478 basis points. On March 6, 2000, the disbursements under the FF&E Financing commenced. INTEREST RATE SWAPS Effective June 30, 1999, Gaming restructured its interest rate swap arrangements in an effort to reduce future expenditures for interest. Gaming has entered into these agreements to manage interest expense, which is subject to fluctuations due to the variable nature of the London Interbank Offered Rate ("LIBOR"). In exchange for entering into the transaction, Gaming received $500,000 from the counterparty in July, 1999. Beginning June 30, 1999, Gaming has the following interest rate swaps, interest rate ceilings and floor caps, and related notional amounts in effect: (i) an interest rate swap with an original notional amount of $114 million increasing to a maximum of $222.5 million whereby interest is fixed at 5.50% through March 31, 2000. After March 31, 2000, an interest rate collar with a notional amount of $250 million, a maximum and minimum interest rate of 7.5% and 5.15%, respectively, will go into effect and mature on September 30, 2006; and (ii) an interest rate collar with a notional amount of $160 million, a maximum rate of 8.00%, a minimum rate of 5.15% and a maturity date of March 31, 2003. All rates noted above are LIBOR equivalents only and do not include the impact of the basis point additions to LIBOR that are used in calculating interest expense on Gaming's term loans. The LIBOR applicable to these agreements on December 31, 1999 was set at 6.16% as of December 31, 1999. The fair market value of the Company's interest rate swaps, interest rate ceilings and floor caps as provided by the counterparty to the swaps, is a net receivable of approximately $4.9 million at December 31, 1999. The notional amounts do not represent amounts exchanged by the parties, and thus are not a measure of exposure of the Company. The amounts exchanged are normally based on the notional amounts and other terms of the swaps. The variable rates are subject to change over time as LIBOR fluctuates. Neither the Company nor the counterparty, which is a prominent financial institution, is required to collateralize their respective obligations under these swaps. The Company is exposed to loss if the counterparty defaults. However, the Company considers the risk of non-performance to be minimal as the counterparty is a member of the bank credit facility. The Company does not hold or issue rate agreements for trading purposes. ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LONG-TERM DEBT (CONTINUED) FAIR VALUE OF LONG-TERM DEBT The estimated fair value of the Company's long-term debt, current maturities of long-term debt and interest rate swaps have been determined using appropriate market information and valuation methodologies. Considerable judgment is required to determine the estimates of fair value; thus, the estimates provided herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
DECEMBER 31, 1999 ---------------------------- CARRYING AMOUNT FAIR VALUE --------------- ---------- (IN THOUSANDS) Senior Discount Notes.............................. $134,093 $ 88,635 Term B Loan........................................ 114,000 114,000 Term C Loan........................................ 160,000 160,000 Interest Rate Swaps (Receivable)................... -- (4,886)
The fair value of the Company's Senior Discount Notes is based on dealer quotes for those instruments. The fair values of the Company's Term B Loan and Term C Loan are assumed to approximate carrying values as the interest rate on the loans fluctuate with changes in LIBOR (i.e., a variable rate loan). The fair market value of the Company's interest rate swaps is based on the estimated termination values at December 31, 1999 as provided by the counterparty to the swaps. 3. CLASSES OF INTEREST Preferred Membership Interest is comprised of the following:
SOMMER LCNI ENTERPRISES, LLC TOTAL -------- ---------------- -------- (IN THOUSANDS) Series A........................................... $36,559 -- $36,559 Series C (Convertible to Common)................... 30,000 -- 30,000 Series CC.......................................... 1,496 -- 1,496 Series D........................................... 1,781 -- 1,781 Series E........................................... -- 5,208 5,208 ------- ------ ------- TOTAL.............................................. $69,836 $5,208 $75,044 ======= ====== =======
On December 10, 1999, the holders of Holdings Common Membership Interests entered into an agreement ("Agreement") to restate the capital structure of Gaming Holdings. The Sommer Trust and London Clubs are collectively referred to below as the "Guarantors." Prior to the execution of the Agreement, if either of the Sommer Trust or London Clubs (each a "Guarantor") was unable to make a capital contribution to Gaming Holdings as required under the Bank Completion Guaranty (as defined in Note 5. "Related Party Transactions and Guarantees") and the Gaming Holdings Operating Agreement, the contributing Guarantor could lend funds to the other Guarantor to satisfy its obligations under the guaranty. Gaming Holdings issued Series A Preferred Shares ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. CLASSES OF INTEREST (CONTINUED) in exchange for all completion guaranty payments made prior to the execution of the Agreement. The Guarantors determined that this mechanism for contributing such amounts to Gaming Holdings was not adequate. Accordingly, they adopted the Agreement to rescind the loans between them and restate all Completion Guaranty Payments as contributions from the Guarantor providing the capital directly to Gaming Holdings. Pursuant to the Agreement, the Series A Preferred Shares previously issued in exchange for payments made pursuant to the Bank Completion Guaranty were rescinded and Gaming Holdings issued (i) Series A Preferred Shares to London Clubs for $11,817,539 of Completion Guaranty Payments plus $2,534,519 of unpaid preferred return accrued on such payments prior to October 1, 1999, (ii) Series C Convertible Preferred Shares to London Clubs for $30,000,000 of Completion Guaranty Payments made prior to October 1, 1999, (iii) Series CC Convertible Preferred Shares to London Clubs for the unpaid cumulative preferred return on the Series C Convertible Preferred Shares that accrued between October 1, 1999 and the date of conversion of the Series C Convertible Preferred Shares, (iv) Series D Preferred Shares to London Clubs representing a profits only interest in Gaming Holdings, and (v) Series E Preferred Shares to the Sommer Trust for $4,333,034 of Completion Guaranty Payments made prior to October 1, 1999. The Agreement further provides that Gaming Holdings shall issue, for all future completion guaranty payments made by the Guarantors (i) Series A Preferred Shares in exchange for the contribution of such payments and (ii) Series D Preferred Shares representing a profits only interest in Gaming Holdings. The Series C Convertible Preferred Shares shall earn a return equal to twenty percent (20%) per annum, cumulative and compounded semi-annually from October 1, 1999. London Clubs has the option to convert all (but not less than all) of the Series C Convertible Preferred Shares into fifteen percent (15%) of the Holdings Common Membership Interests at any time on or before April 30, 2000. If the Series C Convertible Preferred Shares are converted, LCNI's ownership interest would increase to forty percent (40%) of the Holdings Common Membership Interests and Sommer Enterprises' ownership interest would decrease to thirty-two percent (32%) of the Holdings Common Membership Interests, so that, when combined with Sommer Enterprises interest in Gaming Enterprises, Sommer Enterprises would have a total ownership interest of fifty seven percent (57%). The Series CC Preferred Shares shall earn a return equal to twenty percent (20%) per annum, cumulative and compounded semi-annually. The Series A Preferred Shares earn a return equal to twelve percent (12%) per annum, cumulative and compounded semi-annually. Pursuant to a subsequent Letter Agreement between the Guarantors dated February 23, 2000, the Series D Preferred Shares and the Series A Preferred Shares shall earn a combined preferred return equal to the return earned on the Series E Preferred Shares (i.e., thirty percent (30%) per annum, cumulative and compounded semi-annually). The Series E Preferred Shares shall earn a return equal to thirty percent (30%) per annum, cumulative and compounded semi-annually. With respect to the allocation of Profits and Losses, and Distributions including distributions in liquidation, the following is the order of priority of the Preferred Shares: Series A Preferred Shares, Series D Preferred Shares, Series C Convertible, and Series CC Preferred Shares, and collectively (pari passu) Series E and B Preferred Shares. Series B Preferred Shares would be issued to LCNI in the event of and in exchange for any payment required by London Clubs to pay down Gaming's Bank Credit Facility pursuant to Section 13 of the Keep-Well Agreement. As of December 31, 1999, there are no Series B Preferred Shares outstanding. ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. CLASSES OF INTEREST (CONTINUED) As a function of the Agreement, the Guarantors further amended, effective as of October 1, 1999, the Contribution Agreement so that the "Contribution Percentage" shall mean, for the purposes of Completion Guaranty Payments, (a) sixty percent (60%) in the case of the Sommer Trust and (b) forty percent (40%) in the case of London Clubs. As part of the Agreement, Gaming Holdings, the Sommer Trust, London Clubs and LCNI entered into a Redemption Agreement with regard to their respective right to redeem or purchase, as the case may be, the Series A and D Preferred Shares (as a unit consisting of one Series A Preferred Share and one Series D Preferred Share "Redeemable Preferred Share") as follows: Gaming Holdings shall have the right, subject to and in conformity with the provisions of the Indenture to redeem any amount of Redeemable Preferred Shares at an amount equal to the fully accreted value of such shares at the time of redemption, together with a "make whole" agreement whereby the holder of the Redeemable Preferred Shares being redeemed shall be made whole by Gaming Holdings with respect to the holder's costs and expenses incurred in financing the Redeemable Preferred Shares and making them available for redemption by Gaming Holdings. If the Sommer Trust, Sommer Enterprises or a wholly-owned subsidiary of the Sommer Trust or Sommer Enterprises to be designated by the Sommer Trust is in a position to offer payment to London Clubs or LCNI at the fully accreted value on the date of offer to buy Redeemable Preferred Shares of Gaming Holdings held by London Clubs and LCNI, the Sommer Trust, Sommer Enterprises or a wholly-owned subsidiary of the Sommer Trust or Sommer Enterprises to be designated by the Sommer Trust shall have the right from time to time but not the obligation to purchase from London Clubs and LCNI an amount of such shares so that the total Redeemable Preferred Shares held by the Sommer Trust, Sommer Enterprises or a wholly-owned subsidiary of the Sommer Trust or Sommer Enterprises to be designated by the Sommer Trust and all its Affiliates (including such Redeemable Preferred shares they may have held) would be up to 60% of all outstanding Redeemable Preferred Shares at a price equal to their then fully accreted value. Purchase by the Sommer Trust of any Redeemable Preferred Shares held by London Clubs or LCNI shall include a "make whole" payment by the Sommer Trust to London Clubs or LCNI consisting of (i) the Sommer Trust's applicable proportionate share of all fees, transaction costs, call premiums and other expenses borne by London Clubs or LCNI in connection with the financing of the acquisition of the Redeemable Preferred Shares (but solely with respect to the proportionate share of the proceeds from such financing which are directly invested in the Aladdin) and their purchase by the Sommer Trust including interest at the rate of prime plus two percent (2%) per annum from the time expenses were incurred by London Clubs to the time of the make whole payment; and (ii) 100% of any increased tax consequences to London Clubs or LCNI resulting from the purchase of the Redeemable Preferred Shares by the Sommer Trust as opposed to redemption by Gaming Holdings. Upon purchase by the Sommer Trust, and at its option to be exercised at the time of purchase, the Redeemable Preferred Shares purchased from London Clubs or LCNI may either (i) (a) be subordinated to those Redeemable Preferred Shares still held by London Clubs or LCNI, but rank ahead of all other Preferred Shares, and (b) earn a reduced unit return to be no greater than twenty percent (20%) or less than fifteen percent (15%) per annum, cumulative and compounded semi-annually to be determined no later than the time the parties enter into formal amendments to the Operating and Contribution Agreements; or (ii) (a) be pari passu with the Redeemable Preferred Shares still held by London Clubs or LCNI and (b) earn a reduced unit return equal to the yield to worst on the Notes at the time of purchase by the Sommer Trust plus 100 basis ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. CLASSES OF INTEREST (CONTINUED) points, such return to be per annum, cumulative and compounded semi-annually. In the event that the Sommer Trust is in the position to offer payment as set forth herein, and makes a good faith offer to purchase up to 60% of the Redeemable Preferred Shares but London Clubs or LCNI, as the case may be, is unable to sell such shares for any reason, London Clubs will negotiate in good faith with the Sommer Trust a "make whole" agreement whereby the Sommer Trust shall be compensated no more than its actual losses, taking account of the full costs including financing costs and "make whole" payments it would have incurred in acquiring and holding such shares, and in any event no more than the return it would have received by owning the Redeemable Preferred Shares if offered to purchase from London Clubs or LCNI and exercising the option set forth herein, less the return the Sommer Trust would receive if it acquired an equivalent amount of United States Treasury securities, at the then prevailing rate. In the event that the terms of the financing arrangements obtained by London Clubs with respect to financing future Completion Guaranty Payments requires a transfer of Holdings Common Membership Interest to London Club's lenders in the form of non-voting warrants, or otherwise, the Trust and London Clubs have agreed that both LCNI and Sommer Enterprises shall be diluted in such proportions and in such amounts as shall be agreed upon by the parties when the terms of such financing arrangements have been finalized. The holders of Holdings Common Membership Interests also amended the Gaming Holdings Operating Agreement, in regards to (a) the definition of "Permitted Transferee" and "Prohibited Transferee;" (b) to provide that the Board of Managers of Gaming Holdings shall be expanded to seven Board Members and appointed as follows: (i) Aladdin Enterprises shall appoint three Board Members and (ii) LCNI shall appoint four Board Members, and as of March 15, 2000, the Board Members are Jack Sommer, Ronald B. Dictrow and Richard J. Goeglein as Aladdin Enterprises appointees and Alan L. Goodenough, G. Barry C. Hardy, William Timmins and one other appointee who shall be an officer, director or employee of LCI still to be named by LCNI; (c) to provide that the failure of either the Sommer Trust or London Clubs to pay its pro rata shares of Completion Guaranty Payments (i) shall not result in the removal by LCNI if London Clubs has failed to pay its pro rata share, or Aladdin Enterprises, if the Sommer Trust has failed to pay its pro rata share, of one of their respective designated Board Members and (ii) shall not result in the replacement of Jack Sommer as Chairman of the Board; (d) eliminating the requirement of the vote or consent in writing of a Supermajority to declare setting aside or payment of any Distribution with respect to Series A Preferred Shares; (e) including Music within the definition of Subsidiary of Gaming Holdings. Section 6.7(b), (c) and (d) of the Amended and Restated Purchase Agreement dated as of February 26, 1998 between LCNI, London Clubs, Gaming Holdings, Gaming, Aladdin Holdings, LLC, Sommer Enterprises and the Sommer Trust, which relates to certain participation and approval rights of LCNI with respect to the Aladdin Music Project is deleted. The Board of Managers for Aladdin Music Holdings, LLC and Aladdin Music, LLC shall each have six Board Members appointed as follows: (a) the Sommer Trust shall appoint three Board Members; and (b) London Clubs shall appoint three Board Members. Notwithstanding any other provision in the parties' agreement as detailed above, if the parties are unable for any reason to effect a transfer of fifteen percent (15%) of the Holdings Common Membership ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. CLASSES OF INTEREST (CONTINUED) Interests to LCNI upon conversion of the Series C Convertible Preferred Shares, no part of the Agreement shall be effective. Except for matters affecting the rights of the holders of Preferred Interests to distributions, including upon redemption, and matters affecting the anti-dilution protections and tag-along participation rights of the holders of the Warrants and the Warrant Shares (which may not be amended without the consent of Aladdin Gaming Enterprises, Inc.), all management and voting rights will be vested in the Gaming Holdings Common Membership Interests. As of February 23, 2000, the holders of Holdings Common Membership Interests entered into an agreement whereby, if certain payments are made with respect to certain letters of credit issued in connection with the acquisition of furniture, fixture, and equipment, such payments shall be treated in a manner similar to Completion Guaranty Payments as set forth above. 4. LEASES The Company leases certain real property, furniture and equipment. At December 31, 1999 aggregate minimum rental commitments under noncancelable operating leases with initial or remaining terms of one year or more consisted of the following:
YEAR ENDING DECEMBER 31, OPERATING LEASES ------------------------ ---------------- (IN THOUSANDS) 2000 $804 2001 180 2002 3 ---- Total Minimum Lease Payments $987 ====
Rental expense amounted to approximately $.7 million and $0.5 million for the years ended December 31, 1999 and 1998. 5. RELATED PARTY TRANSACTIONS AND GUARANTEES LAND CONTRIBUTION AND RESTRICTED LAND As discussed in Note 1, both Sommer Enterprises, LLC and Gaming Enterprises contributed land to the Company. The land was originally owned by AHL, a related party under common control, and therefore the land has been recorded at its carryover basis. In addition, the land was subject to certain indebtedness which was paid by the Company on the date of the contribution. The indebtedness exceeded the carryover basis of the land and therefore resulted in a negative contribution by Sommer Enterprises, LLC. The carryover basis of the land was approximately $40.25 million, but a portion of the land has been classified as restricted land due to a requirement to transfer the land to Aladdin Bazaar, LLC. Aladdin Bazaar, LLC is owned effectively 37.5% by the Sommer Trust. Aladdin Bazaar, LLC is currently constructing and will operate a themed entertainment shopping mall and 4,800-space car parking facility (together known as the "Mall Project"). The Mall Project is expected to be an integral part of the Aladdin ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. RELATED PARTY TRANSACTIONS AND GUARANTEES (CONTINUED) entertainment complex. The carryover basis of the land was allocated to the Mall Project based on an appraisal of the entire land parcel. PURCHASE OF RESTRICTED MEMBERSHIP INTERESTS Certain members of the Company's executive management have purchased unvested restricted membership interests, in the aggregate, of 2.75% of the Company, subject to the Company granting further unvested restricted membership interests to certain senior executives or developing alternative economic arrangements. Except for Mr. Goeglein, these membership interests will vest 25% on the opening of the Aladdin and 25% upon the expiration of the term of the executive's employment agreement. If Gaming continues to employ the executive after the expiration of the employment agreement, 25% of the interest will continue to vest on each anniversary of the Aladdin opening date until such interests are fully vested. After the term of the employment agreement, if Gaming does not continue to employ the executive, other than for Cause (as defined), or if the officer no longer continues his employment for Good Reason (as defined), only an additional 25% of the interest vests. Mr. Goeglein's membership interests become fully vested at the earlier of July 1, 2002 or the date on which such interests become publicly traded, conditioned upon Mr. Goeglein's continued relationship with Gaming. As of December 31, 1999, none of these membership interests had vested. EMPLOYMENT AGREEMENTS The Company has entered into employment contracts with six members of its senior management. The terms of these agreements provide for an aggregate annual amount of approximately $1.8 million, with one agreement which provided for a signing bonus of $300,000, plus any bonuses granted by the Board of Directors and based on relevant criteria and performance standards. The agreements have varying duration, but no agreement has a duration exceeding five years and six months. The agreements were entered into at varying times from 1997 to 2000. One agreement additionally provides for the individual to be retained as a consultant for $100,000 per year for 5 years after the initial term. GAI, LLC CONSULTING AGREEMENT Gaming has entered into a consulting agreement with GAI, LLC, a Nevada limited liability company, 100% beneficially owned by Gaming's Chief Executive Officer; however, an option to acquire a 15% interest in GAI, LLC has been granted to a third party. This agreement requires Gaming to pay to GAI, LLC a retainer of $12,500 per month until June 30, 2002 for remaining on call to provide services and expertise for such month. THE LONDON CLUB MANAGEMENT AGREEMENT Gaming, London Clubs and LCNI are parties to a management agreement which relates to the operations to be managed by London Clubs ("The London Club"). Under this agreement, London Clubs has agreed to guaranty the obligations of LCNI. In consideration for the services to be furnished by LCNI under the management agreement, Gaming will pay to LCNI a performance-based incentive fee. This fee will be calculated based on a range of percentages applied to certain thresholds of The London Club EBITDA (defined as gross revenue attributable to The London Club, less all costs and expenses directly attributable to The London Club). ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. RELATED PARTY TRANSACTIONS AND GUARANTEES (CONTINUED) COMPLETION GUARANTY AND KEEP-WELL AGREEMENT London Clubs, the Sommer Trust and Aladdin Bazaar Holdings, LLC ("Bazaar Holdings"), which is owned 99% by the Sommer Trust, have entered into a completion guaranty for the benefit of the Lenders under the Bank Credit Facility, under which they have agreed to guarantee, among other things, the completion of the Aladdin. The guaranty is not subject to any maximum dollar limitations. In addition, AHL, London Clubs and Bazaar Holdings (collectively, "Sponsors") have entered into an agreement ("Keep-Well Agreement") in favor of the Lenders under the Bank Credit Facility. The Keep-Well Agreement requires the Sponsors to make certain quarterly cash equity contributions to Gaming beginning with the commencement of operations if Gaming fails to comply with the minimum fixed charge coverage ratio set forth in the Bank Credit Facility. Under the Keep-Well Agreement, the Sponsors are not required to contribute an aggregate of more than $150.0 million to Gaming ($30.0 million in any one fiscal year), and are not required to contribute any amounts to Gaming on or after the earlier of the date on which Gaming complies with all of the financial covenants set forth in the Credit Agreement for six consecutive quarterly periods or the date on which the aggregate outstanding principal amounts of the Credit Agreement are reduced below certain amounts. The Sommer Trust, London Clubs, Aladdin Bazaar Holdings, LLC and the Bank of Nova Scotia, as administrative agent for the Lenders, have entered into the First Amendment to the Guaranty of Performance and Completion, dated as of March 10, 1999 ("First Amendment to the Bank Completion Guaranty"). The First Amendment to the Bank Completion Guaranty requires that the Sommer Trust, London Clubs and Aladdin Bazaar Holdings, LLC jointly and severally guarantee that Gaming maintains the minimum Net Worth required by the Second Amendment to the Credit Agreement. During 1999, London Clubs received a fee of $2.65 million for its obligations under the Keep-Well Agreement and in addition is entitled to an annual fee of 1.5%, payable in arrears, of the Company's annual average indebtedness with respect to a $265.0 million portion of the Bank Credit Facility, which is supported by the Keep-Well Agreement. Such fees accrue from the closing date of the Bank Credit Facility and are payable from available cash flow after the opening of the Aladdin. As of December 31, 1999, the Company had accrued approximately $7.3 million in Keep-Well fees to London Clubs, which is reported in the Balance Sheet as Related Party Payables. Additionally, the Company agreed to reimburse approximately $2.8 million to London Clubs for certain expenses incurred relating to the Aladdin; however, London Clubs has agreed to defer the payment of approximately $189,000 of this reimbursement until after the opening of the Aladdin. As of December 31, 1999, London Clubs received approximately $2.4 million of this $2.8 million reimbursement obligation. In consideration for certain expenses incurred by the Sommer Trust prior to February 26, 1998, relating to the management and coordination of the development of the Aladdin, the Company reimbursed $3.0 million to the Sommer Trust on February 26, 1998. In addition, Gaming will reimburse certain ongoing out-of-pocket expenses of the Sommer Trust relating to the development of the Aladdin, not to exceed $0.9 million. The Sommer Trust agreed to defer such reimbursement until after the opening of the Aladdin. As of December 31, 1999, the Sommer Trust had received approximately $3.3 million of the total $3.9 million reimbursement. ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. RELATED PARTY TRANSACTIONS AND GUARANTEES (CONTINUED) PAYMENT OF MUSIC INDEBTEDNESS During 1998, the Sommer Trust paid approximately $260,000 to certain trade creditors on behalf of Aladdin Music and Mr. Sommer, the Company's Chairman of the Board, individually paid $500,000 to a trade creditor on behalf of Aladdin Music. Further, during the first quarter of 1999, the Sommer Trust paid approximately $747,000 to a trade creditor on behalf of Aladdin Music. To the extent permissible, Aladdin Music has agreed, if and when Aladdin Music secures a joint venture partner and financing for the Aladdin Music Project to reimburse the Sommer Trust and Mr. Sommer such advanced funds. 6. COMMITMENTS AND CONTINGENCIES CONSTRUCTION AND PRE-OPENING COSTS During 1999, the Company increased the Main Project Budget by approximately $79.6 million. This amount reflected an increase in construction costs of approximately $53.2 million, an increase in pre-opening costs of approximately $21.9 million and an increase in capitalized interest of $4.5 million. Pursuant to the Bank Completion Guaranty, during 1999, a total of $67.2 million was paid, approximately $62.8 million by London Clubs and approximately $4.4 million by the Sommer Trust. The remaining $12.4 million was funded in the first quarter of 2000. The Aladdin project budget ("Budget") was $826 million when Gaming and Gaming Holdings entered into arrangements to finance construction of the Aladdin in February 1998. Since that time and to March 1, 2000, the Budget was increased by an aggregate of $87.8 million to $913 million, which amounts were funded pursuant to the Bank Completion Guaranty by London Clubs and the Sommer Trust. Pursuant to the Contribution Agreement between London Clubs and the Sommer Trust, dated February 26, 1998 ("Contribution Agreement"), Sommer Trust and London Clubs agreed that any amounts required to be paid pursuant to the Bank Completion Guaranty would be funded 75% by the Sommer Trust and 25% by London Clubs. Effective as of October 1, 1999, these contribution percentages were amended to be 60% in the case of the Sommer Trust and 40% in the case of London Clubs. Notwithstanding the Contribution Agreement, the $87.8 million Budget increase was funded approximately $83.5 million by London Clubs and approximately $4.3 million by the Sommer Trust. During March 2000, the Company completed a review of the estimated total costs to complete and open the Aladdin and, as a result of that review, increased the Budget by $60.4 million. The Company advised the Sommer Trust and London Clubs of the need to fund such increase pursuant to the Bank Completion Guaranty. The Sommer Trust advised the Company and London Clubs that it is not at this time making any capital contribution in order to fund any portion of this Budget increase of $60.4 million. In light of the joint and several obligation of the Bank Completion Guaranty, London Clubs has advised the Company that it would fund all of this Budget increase by (a) providing a cash equity contribution to the Company of approximately $13.1 million, which the Company received on March 30, 2000, and (b) establishing a letter of credit in the amount of approximately $47.3 million to be used to fund the Budget increase. The Company believes that the Budget as set out above is reasonable and can be achieved. The Company is subject to risks common to developing a large scale construction project. While the Company believes that its estimates are reasonable, and that the projected targets can be met, there can be no assurance that the Complex will be completed within the time period or budget currently contemplated. In addition, if the additional identified potential funding sources are insufficient or unavailable to fully ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. COMMITMENTS AND CONTINGENCIES (CONTINUED) cover any excess, the Company could be materially and adversely affected. So, while the Company believes that its estimates are reasonable, and that the projected targets can be met, there can be no assurance that the Complex, including the Aladdin, will be completed within the time period or budget currently contemplated. ENERGY SERVICES AGREEMENT The Company entered into an energy services agreement for hot and cold water and electricity that will be purchased by the Company and the Mall Project (which would include the tenants of the mall) over initial terms of 20 years. The central utility plant is being constructed by Northwind Aladdin, LLC ("Northwind") on land owned by the Company and leased to Northwind. The central utility plant and equipment (collectively, "Costs") will be owned by Northwind, which will pay all costs in connection with the construction, purchase and installation. The current budget for the Costs is $40.0 million. The charges payable under the energy services agreement will include a fixed component applied to the Costs paid by Northwind and reimbursement of operational-related costs. The Company's share of Costs under its energy services agreement is based on the total Costs (currently budgeted at $40 million) less the amounts payable by the Mall Project and Aladdin Music, if and when, Aladdin Music enters into an energy services agreement with Northwind. The Mall Project's share of Costs is approximately $2.9 million. The Company will account for the energy services contract as a capitalized power purchase obligation when the utility plant becomes operational in the first quarter of 2000. MALL PROJECT COSTS In connection with the development of the Mall Project, Aladdin Bazaar, LLC will reimburse the Company approximately, $14.2 million for the construction of certain areas shared by the Aladdin and the Mall Project and the facade to the Aladdin. Additionally, Aladdin Bazaar, LLC is obligated to spend no more than $36.0 million for the parking garage. Therefore, any cost overruns associated with these items will be borne by the Company. In addition, the Company is obligated to pay Aladdin Bazaar, LLC: (i) a $3.2 million fee per year for a term of 99 years, which is adjusted annually pursuant to a consumer price index-based formula, for usage of the parking garage; and (ii) the Company's proportionate share of the operating costs associated therewith. CONSTRUCTION ARBITRATION Fluor Daniel, Inc. is the design/builder ("Design/Builder") of the Aladdin. The Design/Builder has entered into a guaranteed maximum price design/build contract ("Design/Build Contract") (subject to scope changes) with the Company to design and construct the Aladdin. During the course of construction, a number of issues and items have arisen in connection with various change orders and delay claims submitted with the project and the scope of the Design/Build Contract. The Company has submitted these matters ("Claims") to arbitration ("Arbitration") pursuant to the provisions of the Design/Build Contract. The Company believes that the Claims relate to design and work which is base work contemplated in the Design Build Contract and therefore should be included in the guaranteed maximum price of the Design/ ALADDIN GAMING HOLDINGS, LLC AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. COMMITMENTS AND CONTINGENCIES (CONTINUED) Builder. The Design/Builder has responded to the Company's argument in Arbitration, alleging, among other things, that the Claims relate to unforeseen conditions, and/or are due to the actions of the Company, and therefore, the Company is responsible for all costs and delays associated with the Claims. While the Company intends to aggressively and vigorously pursue the Claims, and believes that it will ultimately prevail in arbitration, the Claims are only in the preliminary stages of the Arbitration process, and therefore, no assurances can be given with respect to the ultimate outcome. The Design/Builder has presented Claims in the amount of approximately $13.8 million of which amount the Company has funded $8.3 million. -----END PRIVACY-ENHANCED MESSAGE-----