UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
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Commission file number: 333-49715
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ALADDIN GAMING ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 88-0379695
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
831 Pilot Road, Las Vegas, Nevada 89119
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(Address of principal executive offices) (Zip Code)
(702) 736-7114
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES NO X
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Indicate the number of shares outstanding of the issuer's classes
of common stock, as of the latest practicable date.
Class A Common Stock, 2,000,000 shares authorized
1,107,500 issued, no par value
Class B Common Stock, Non-voting, 8,000,000 shares authorized
2,215,000 issued, no par value
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - 1
June 30, 1998 and December 31, 1997
Statements of Operations - 2
For the three and six months ended
June 30, 1998 and for the period
from inception (December 3, 1997)
through June 30, 1998
Statements of Stockholders' Equity - 3
For the six months ended June 30, 1998
and for the period from inception
(December 3, 1997) through June 30,
1998
Statements of Cash Flows - 4
For the six months ended June 30, 1998
and for the period from inception
(December 3, 1997) through June 30, 1998
Notes to the Financial Statements 5 - 6
Item 2. Management's Discussion and 7 - 12
Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures 12
About Market Risks
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of 13
Proceeds
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of 13
Security Holders
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
PART I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
June 30, December 31,
1998 1997
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(unaudited)
ASSETS
Cash $ 669 $ 669
Investment in unconsolidated affiliate 22,243,339 331
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$22,244,008 $ 1,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to related party $ 1,500 $ -
Common Stock
Class A, no par value, 2,000,000 and 2,500 shares authorized,
1,107,500 and 1 shares issued and outstanding as of June 30,
1998 and December 31, 1997, respectively.
Class B, no par value and non-voting, 8,000,000 and 0 shares
issued and outstanding, and 2,215,000 and 0 shares reserved
pursuant to the warrant agreement as of June 30, 1998 and
December 31, 1997, respectively. 13,247,203 1
Additional paid-in capital 15,000,999 999
Deficit accumulated during the development stage (6,005,694) -
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$22,244,008 $ 1,000
============ ============
The accompanying notes are an integral part of this financial
statement.
-1-
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND
FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997)
THROUGH JUNE 30, 1998
For the period
For the three For the six months December 3, 1997
months ended ended June 30, (inception) through
June 30, 1998 1998 June 30, 1998
(unaudited) (unaudited) (unaudited)
------------- ------------------ ------------------
Other expenses $ (1,500) $ (1,500) $ (1,500)
Equity in loss of unconsolidated affiliate (1,992,585) (5,422,944) (5,422,944)
Income tax expense (benefit) - - -
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Net loss accumulated during the development stage $ (1,994,085) $ (5,424,444) $ (5,424,444)
============= ============== =============
Basic and Dilutive loss per share $ (0.60) $ (2.24) $ (2.24)
Shares used in per share calculation 3,322,500 2,423,040 2,423,040
The accompanying notes are an integral part of this financial
statement.
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ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997)
THROUGH JUNE 30, 1998
(UNAUDITED)
Common Stock Additional
Class A and Paid in Retained
Class B Capital Earnings Total
------------ ------------ ---------- -------------
BALANCE, DECEMBER 3, 1997 $ - $ - $ - $ -
Issuance of Class A common stock, 1 share
issued 1 999 - 1,000
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BALANCE, DECEMBER 31, 1997 1 999 - 1,000
Net loss accumulated during the
development stage - - (5,424,444) (5,424,444)
Issuance of Class A common stock,
1,107,499 shares issued, and Class B
common stock, 2,215,000 shares issued 13,247,202 - - 13,247,202
Issuance of Warrants to purchase
Class B common stock, 2,215,000 Warrants issued - 15,000,000 - 15,000,000
Equity costs from unconsolidated
affiliate - - (581,250) (581,250)
------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1998 $13,247,203 $15,000,999 $(6,005,694) $22,242,508
============ ============ ============ ============
The accompanying notes are an integral part of this financial
statement.
-3-
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND FOR THE PERIOD
FROM INCEPTION (DECEMBER 3, 1997) THROUGH JUNE 30, 1998
For the period
For the six December 3, 1997
months ended (inception) through
June 30, 1998 June 30, 1998
(Unaudited) (Unaudited)
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Cash Flows used for investing activities:
Investment in unconsolidated affiliate $ (15,000,000) $ (15,000,331)
Cash Flows from financing activities:
Proceeds from the issuance of stock - 1,000
Proceeds from the issuance of warrants 15,000,000 15,000,000
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Increase in cash and cash equivalents - 669
Cash and cash equivalents at beginning of period 669 -
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Cash and cash equivalents at end of period $ 669 $ 669
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Equity contributions - non-cash $ 13,247,202 $ -
The accompanying notes are an integral part of this financial
statement.
-4-
ALADDIN GAMING ENTERPRISES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
1. ORGANIZATION AND BUSINESS
Aladdin Gaming Enterprises, Inc., a Nevada corporation
("Enterprises"), was established on December 3, 1997.
Enterprises holds a 25% interest in Aladdin Gaming Holdings, LLC
("Gaming Holdings") and is wholly owned by Sommer Enterprises,
LLC, a Nevada limited-liability company ("Sommer Enterprises").
Aladdin Holdings, LLC, a Delaware limited liability company
("Holdings"), holds a majority interest in Sommer Enterprises.
The members of Holdings are the Trust Under Article Sixth u/w/o
Sigmund Sommer (the "Sommer Trust") which holds a 95% interest in
Holdings, and GW Vegas, LLC, a Nevada limited-liability company
("GW"), a wholly owned subsidiary of Trust Company of the West
("TCW"), which holds a 5% interest in Holdings.
Enterprises' interest in Gaming Holdings has been accounted
for under the equity method.
Enterprises has no other business or activities other than
its investment in Gaming Holdings which is a development stage
company. Gaming Holdings through its subsidiaries plans to
develop, construct and operate a new hotel and casino, the
Aladdin Hotel and Casino as the centerpiece of an approximately
35 acre world-class resort, casino and entertainment complex in
Las Vegas, Nevada.
2. INCOME TAXES
Enterprises accounts for income taxes using the liability
method as set forth in the Statement of Financial Accounting
Standards No. 109, ACCOUNTING FOR INCOME TAXES. Under the
liability method, deferred taxes are provided based on the
temporary differences between the financial reporting basis and
the tax basis of Enterprises' assets and liabilities.
There was no income tax expense or benefit recorded for the
period from inception (December 3, 1997) through June 30, 1998 as
Enterprises is a development stage company and the realization of
any deferred tax asset is uncertain.
3. AGREEMENTS
Enterprises intends to enter into a Shareholders' Agreement
with the Sommer Trust providing that the Sommer Trust shall have
the right to elect the Board of Directors of Enterprises and
otherwise manage the day to day affairs of Enterprises unless and
until a qualified public offering occurs or the Sommer Trust no
longer owns any equity in Enterprises.
4. PRIVATE OFFERINGS
On February 26, 1998, Gaming Holdings, Aladdin Capital Corp.
("Capital" together with Gaming Holdings, the "Issuers") and
Enterprises consummated a private offering (the "Offering") under
Rule 144A of the Securities Exchange Act of 1933. The private
offering consisted of 221,500 units (the "Units"), each unit
consisting of (i) $1,000 principal amount at maturity of 13 1/2%
Senior Discount Notes due 2010 (the "Notes") of Gaming Holdings
and Capital and (ii) 10 Warrants (the "Warrants") to purchase 10
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shares of Class B non-voting Common Stock, no par value, of
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 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-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 of
the issued and outstanding Series A Preferred Interests of Gaming
Holdings in Aladdin Gaming, LLC.
The Indenture to the Notes contains certain covenants that
(subject to certain exceptions) restrict the ability of the
Issuers 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.
5. EQUITY CONTRIBUTIONS
On February 26, 1998, Sommer Enterprises, LLC contributed a
portion of land and $7.0 million of predevelopment costs in
exchange for 100% of the Class A Common Stock in Enterprises.
Enterprises contributed the portion of land, the $7.0 million of
predevelopment costs and the net proceeds $15.0 million allocable
from the sale of the Warrants to Gaming Holdings in exchange for
25% of the common membership interests in Gaming Holdings.
6. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires companies to
classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity sections of a statement
of financial position, and is effective for financial statements
issued for fiscal years beginning after December 15, 1997. The
Company has adopted SFAS No. 130, during the three-month period
ended March 31,1998 and has determined that such adoption will
not result in comprehensive income different from net income as
reported in the accompanying financial statements.
In June 1997, the FASB issued SFAS no. 131, "Disclosure
about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes additional standards for segment reporting in
financial statements and is effective for fiscal years beginning
after December 15, 1997. The Company currently operates as one
segment.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DEVELOPMENT ACTIVITIES
Aladdin Gaming Enterprises, Inc., a Nevada corporation
("Enterprises"), was established on December 3, 1997. Enterprises
holds a 25% interest in Aladdin Gaming Holdings, LLC. ("Gaming
Holdings") and is wholly owned by Sommer Enterprises, LLC, a
Nevada limited-liability company ("Sommer Enterprises"). Aladdin
Holdings, LLC, a Delaware limited-liability company ("Holdings"),
holds a majority interest in Sommer Enterprises. The members of
Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer
(the "Sommer Trust") which holds a 95% interest in Holdings, and
GW Vegas, LLC, a Nevada limited-liability company ("GW"), a
wholly owned subsidiary of Trust Company of the West ("TCW"),
which holds a 5% interest in Holdings.
Enterprises has no other business or activities other than
its investment in Gaming Holdings which is a development stage
company. Gaming Holdings is a holding company, the material
assets of which are 100% of the outstanding common membership
interests and 100% of the outstanding Series A preferred
membership interests of Aladdin Gaming, LLC ("Gaming"). Aladdin
Capital Corporation ("Capital") is a wholly owned subsidiary of
Gaming Holdings and was incorporated solely for the purpose of
serving as a co-issuer of the 13 1/2% Senior Discount Notes
("Notes"). Capital is not expected to have any material
operations or assets and will not have any revenues.
The operations of Enterprises and Gaming Holdings and its
subsidiaries, collectively known as the Company, have been
limited to the design, development, financing and construction of
a new hotel and casino ("Aladdin"). The Aladdin will be the
centerpiece of an approximately 35 acre world-class resort,
casino and entertainment complex ("Complex") located on the site
of the former Aladdin hotel and casino in Las Vegas, Nevada, a
premier location at the center of the Las Vegas Boulevard
("Strip"). 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 1,400-seat
production showroom and seven restaurants. The casino's main
gaming area will contain approximately 2,800 slot machines, 87
table games, keno and a race and sports book facility. Included
on a separate level of the casino will be a 15,000 square foot
luxurious gaming section that is expected to contain an
additional 20 to 30 high denomination table games and
approximately 100 high denomination slot machines. The Complex,
which has been designed to promote casino traffic and to provide
customers with a wide variety of entertainment alternatives, will
comprise: (i) the Aladdin; (ii) the themed entertainment
shopping mall with approximately 522,000 square feet of retail
space ("Desert Passage"); (iii) a second hotel and casino, with a
music and entertainment theme, expected to be known as "Sound
Republic Hotel Casino" ("Sound Republic"); (iv) the newly
renovated 7,000-seat Theater of the Performing Arts ("Theater");
and (v) the approximately 4,800-space car parking facility
("Carpark" and, together with the Desert Passage, hereinafter,
"Mall Project"). The Mall Project will be separately owned by an
affiliate of the Company and Sound Republic is expected to be
owned 49% by the Company, with an option to acquire 50% of the
project. The grand opening date for the Aladdin and the Mall
Project is currently anticipated to occur during the spring of
the year 2000, with the opening of the Sound Republic expected to
occur within six months after the opening of the Aladdin.
RESULTS OF OPERATIONS
The Company is in the development stage and has no
significant operations to date. The Company has capitalized all
qualifying construction costs except for a portion of the
interest expense incurred during the period. 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. The Company's operating expenses primarily have
consisted of interest, amortization costs and expenses related to
the Notes and the preopening costs of the Aladdin.
-7-
The Company anticipates that its results of operations from
inception to the grand 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 their payment obligations, including
the Notes and other indebtedness, there can be no assurance with
respect thereto.
Gaming Holdings recorded a net loss of approximately $8.0
million for the three months ended June 30, 1998 and
approximately $21.7 million for the six months ended June 30,
1998. The loss was due to the preopening costs of the Aladdin
and the interest, amortization costs and expenses related to the
Notes.
Enterprises recorded its 25% share of the Gaming Holdings'
losses as equity in loss of unconsolidated affiliate and reported
a net loss of approximately $2.0 million and $5.4 million for the
three months and six months ended June 30, 1998, respectively.
MATERIAL CHANGES IN FINANCIAL CONDITION
The $826.2 million necessary to fund the development,
financing, construction and opening of the Aladdin will be
derived from a combination of (i) borrowings of up to $410.0
million under the Bank Credit Facility (as defined below); (ii)
operating lease and loan obligations aggregating $80 million
under FF&E financing; (iii) equity contribution by London Clubs
Nevada, Inc. of $50.0 million in cash, $7.0 million in pre-
development costs and $150.0 million appraised fair market value
in land by Holdings and $115.0 million of gross proceeds from the
Notes offering; and (iv) anticipated site work reimbursement of
$14.2 million.
The uses of such funds are budgeted at $826.2 million, which
includes $295.6 million for the Aladdin's construction, $107.5
million for furniture, fixtures and equipment and gaming
equipment, $135.0 million for land, $74.5 million to retire
existing debt, and the balance for other preopening costs,
working capital and financing costs. The uses of such funding
are estimates, which the Company reviews on a periodic basis.
There can be no assurance that these estimates will not change.
The Company believes that the construction budget is reasonable
and the Company has entered into a fixed or guaranteed maximum
price contract (which is subject to price adjustments if the
plans and specifications are changed) for the construction of a
substantial portion of the Aladdin. Given the risks inherent in
the construction process, however, actual construction costs may
be higher.
Through June 30, 1998 approximately $160.2 million had been
expended on development of the Aladdin, of which approximately
$74.5 million had been expended on repayment of debt associated
with the land contributed to the Company, approximately $36.7
million in construction and capitalized interest, approximately
$39.4 million in debt issuance and member equity costs, and
approximately $9.6 million in preopening costs and net interest
expense.
On February 26, 1998, Gaming Holdings, Capital
(collectively, "Issuers") and 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 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 Enterprises.
-8-
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-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 of
the issued and outstanding Series A preferred member interests of
Aladdin Gaming. As of June 30, 1998, all of the proceeds from
the Offering had been disbursed to repay certain previously
existing indebtedness, construction costs and certain fees and
expenses.
The Indenture to the Notes contains certain covenants that
(subject to certain exceptions) restrict the ability of the
Issuers 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.
On February 26, 1998, Aladdin Gaming, LLC entered into a
$410.0 million Credit Agreement ("Bank Credit Facility" or
"Credit Agreement") with various financial institutions and the
Bank of Nova Scotia as the administrative agent for the lenders.
The Credit Agreement consists of three separate term loans. Term
A Loan comprises a term loan of $136.0 million and matures seven
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 Term B Loan and the Term C Loan were funded by the
lenders on February 26, 1998 and the funds are held by Gaming in
a cash collateral account for the future development of the
Aladdin. The Term B Loan and the Term C Loan proceeds could not
be utilized until the proceeds from the Notes were completely
exhausted. As of June 30, 1998 all of the $115.0 million of the
Note proceeds had been utilized. The proceeds from the Term B
Loan and Term C Loan have been funded and the funds placed in a
cash collateral account from which the Company withdraws amounts
monthly. As of June 30, 1998, approximately $2.0 million of the
Term B Loan had been drawn down from the cash collateral account
and approximately $2.8 million of the Term C Loan had been drawn
down from the cash collateral account; and Term A loan had not
been funded.
The Company pays interest on the term loans as follows:
Term A Loan, 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 the Company's EBITDA
results; 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. The Company has entered into various hedge
arrangements for the LIBOR as follows: (a) until Aladdin
commences operation, for the Term A Loan and the Term B Loan
LIBOR is fixed at 5.883% and for the Term C Loan LIBOR is fixed
at 6.485%; and (b) once the Aladdin has commenced operations, for
the Term A Loan and Term B Loan, the maximum LIBOR is 7.00% and
the minimum is 5.65%, and for the Term C Loan, the LIBOR has been
fixed at 6.485%. The hedge arrangements for the Term A Loan and
Term B Loan are in place until the respective loan maturity date
and for the Term C Loan the hedge arrangements are cancelable at
the call date of March 2003. No principal repayments are required
prior to the opening of the casino.
On June 30, 1998, the Company entered into FF&E financing
which provides for operating lease financing of up to $60.0
million and term loan facility of $20.0 million to obtain gaming
equipment and
-9-
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 completed is either the 30-day
LIBOR plus 478 basis points or the Prime Rate (as defined) plus
275 basis points. After the construction completion date, the
interest rate shall be the 90-day LIBOR plus 478 basis points.
London Clubs International, plc ("London Clubs"), the Sommer
Trust, and Aladdin Bazaar Holdings, LLC ("Bazaar Holdings"), a
subsidiary of the Sommer Trust, have entered into a completion
guaranty ("Bank Completion Guaranty") for the benefit of the
lenders under the Bank Credit Facility, under which they have
agreed to guarantee, among other things, the completion of the
Aladdin. The Bank Completion Guaranty is not subject to any
maximum dollar limitations. The holders of the Notes are not
party to the Bank Completion Guaranty, however, London Clubs, the
Sommer Trust and Bazaar Holdings have entered into a limited
completion guarantee for the benefit of the Noteholders
("Noteholder Completion Guaranty"), under which they guarantee
completion of the Aladdin, subject to certain important
exceptions, limitations and qualifications. The Noteholder
Completion Guaranty contains certain intercreditor provisions
which significantly limit the rights of the Trustee under the
Noteholder Completion Guaranty.
London Clubs, Holdings and Bazaar Holdings have entered into
the Keep-Well Agreement for the benefit of the bank lenders.
Pursuant to the Keep-Well Agreement, London Clubs, Holdings and
Bazaar Holdings have agreed to contribute funds to the Company to
ensure the Company's compliance with certain financial ratios and
other requirements under the Bank Credit Facility for the period
up to the earlier of the date on which the Company complies with
all the financial covenants set forth in the Bank Credit Facility
for six consecutive quarterly periods from and after the
Conversion Date or the date on which the aggregate outstanding
principal amounts of the Bank Credit Facility are reduced below
certain amounts and prior to certain dates, subject to certain
conditions.
In connection with the development of the Mall Project,
Aladdin Bazaar, LLC, will only 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 a car park associated with the
Aladdin project. 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, 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 car park and (ii) the Company's proportionate share
of the operating costs associated therewith.
The funds provided by the funding transactions are expected
to be sufficient to develop, complete and commence operations of
the Aladdin, assuming no delays or construction cost overruns,
which are not covered by the $31.8 million contingency or Fluor
Corporation and/or its subsidiary Fluor Daniel, the
design/builder for the Aladdin. As of June 30, 1998, the Company
expended $1.8 million of the contingency. It is not expected
that additional external funding will need to be obtained in
order to develop and commence the operations of the Aladdin.
However, there can be no assurance that such funds will be
sufficient for the development, construction and commencement 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 $15.0 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.
-10-
Although no additional financing is contemplated, the
Company will seek, if necessary and to the extent permitted under
the Note Indenture and the terms of the Bank Credit Facility,
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.
YEAR 2000
The Company and its subsidiaries are development stage
companies that are developing, constructing, and upon completion
(currently anticipated to occur in the spring of the year 2000),
will operate a hotel casino. The selection of software
applications, hardware and other technology currently in use
principally occurred within approximately the last twelve months.
The only computer systems in place at the current time are
several financial applications, word processing and an internal e-
mail system that are Year 2000 compliant. Accordingly, it is not
expected that the Company will incur significant amounts, if any,
to modify its systems for Year 2000 compliance.
The Company has requested representations regarding Year
2000 compliance from Fluor Corporation and/or its subsidiary
Fluor Daniel, the design/builder for the Aladdin (the
"Design/Builder"), and through Design/Builder will seek similar
representations of the other contractors and subcontractors for
the construction of the Aladdin (collectively, the "Contractors")
to assess the impact of Year 2000 noncompliance on the
construction of the Aladdin. Construction delays will have a
significant impact on the financial results of the Company.
Notwithstanding, the Company has entered into a guaranteed
maximum price contract with the Design/Builder for the
construction of the Aladdin that contains liquidated damages
provisions in the event that the substantial completion of the
construction of the Aladdin is not completed by the contract
time, as defined by, and adjusted pursuant to, the Design/Build
Contract. There can be no assurance that the systems of the
Contractors or other companies on which the Company may rely,
such as vendors, will be properly converted before the Year 2000
and that failure to convert by another company will not have an
adverse effect on the Company's operations.
START-UP ACTIVITIES
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
preopening 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 has adopted the
provisions of SOP 98-5.
CERTAIN FORWARD LOOKING STATEMENTS
Certain information included in this Form 10-Q 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 relating to plans for future
operations, construction and development, other business
development activities, capital spending, financing sources, the
effect of regulation (including gaming and tax regulations) and
competition. Such forward-looking information involves important
risks and uncertainties that could significantly affect
anticipated results in
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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 development and construction
activities, dependence on existing management, leverage and debt
service (including sensitivity to fluctuations in interest
rates), domestic or international economic conditions (including
sensitivity to fluctuations in foreign currencies), changes in
federal or state tax laws or the administration of such laws,
changes in gaming laws or regulations (including the legalization
of gaming in certain jurisdictions) and application for licenses
and approvals under applicable jurisdictional laws and
regulations (including gaming laws and regulations).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
As of June 30, 1998, the Company did not hold any
investments in market risk sensitive instruments.
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PART II Other Information
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(A) Not applicable
(b) On July 24, 1998, Aladdin Gaming Holdings, LLC and
Aladdin Capital Corp. (collectively, "Company") offered
("Exchange Offer"), subject to certain terms and conditions, to
exchange $1,000 in principal amount of its 13 1/2% Series B Senior
Discount Notes due 2010 ("New Notes") for each $1,000 in
principal amount of its outstanding 13 1/2% Series A Senior
Discount Noted due 2010 ("Old Notes"), of which an aggregate
principal amount of $221.5 million is outstanding.
Under the terms of the Exchange Offer, the Company agreed to
accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on August 25,
1998, unless extended. The Exchange Offer is subject to the
terms and provisions of the Note Registration Rights Agreement,
dated February 26, 1998, among the Company, Merrill Lynch, Pierce
Fenner & Smith Incorporated, Credit Suisse First Boston
Corporation, CBIC Oppenheimer Corp. and Scotia Capital Market
(USA) Inc.
The Old Notes were, and the New Notes will also be, issued
pursuant to an Indenture, dated February 26, 1998, among the
Company and State Street Bank and Trust Company, as trustee. The
terms of the New Notes are identical in all material respects to
the Old Notes, except that the Old Notes (but not the New Notes)
provide that the certain liquidated damages if a registration
statement has not been filed or is not effective by a certain
deadline, liquidated damages will accrue.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
10.01 Facilities Agreement between General Electric
Capital Corporation and Aladdin Gaming, LLC
dated June 26, 1998
10.02 Intercreditor Agreement by and among The Bank
of Nova Scotia, General Electric Capital
Corporation and Aladdin Gaming, LLC dated as
of June 30, 1998
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrants have duly caused this report to be
signed on their behalf by the undersigned thereunto duly
authorized.
ALADDIN GAMING ENTERPRISES, INC.
August 14, 1998 By: /s/ Ronald Dictrow
Ronald Dictrow, Secretary
August 14, 1998 By: /s/ Cornelius T. Klerk
Cornelius T. Klerk, Chief
Accounting Officer and
Treasurer
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EXHIBIT INDEX
PAGE
EXHIBIT NO. DESCRIPTION NO.
10.01 Facilities Agreement between General Electric 16
Capital Corporation and Aladdin Gaming, LLC
dated June 26, 1998
10.02 Intercreditor Agreement by and among The Bank 199
of Nova Scotia, General Electric Capital
Corporation and Aladdin Gaming, LLC dated as
of June 30, 1998
27.01 Financial Data Schedule 234
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