Employment Agreement
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), is made and entered into by and
between Aladdin Gaming LLC ("Company"), Aladdin Holdings, LLC, ("Aladdin
Holdings") and James H. McKennon ("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 in 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 in
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 of the
Aladdin Hotel and Casino and Executive hereby accepts such employment with the
Company for the compensation and on the terms and subject to the conditions in
this Agreement.
2. Term. The term of the Executive's employment under this Agreement
("Term") shall commence on April 15, 1997 ("Commencement Date") and shall
continue for four (4) years, to and including April 14, 2001, 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 of the Aladdin Hotel and Casino and 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 ("Base Salary") of $325,000.00 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. The Board of Directors will consider increases in
the Base Salary no less frequently than annually, commencing at the end of
the first Employment Year hereunder and will be 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, but 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 Operational Date as defined in
Section 4(f)(1)(i) hereof, 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 bonus
will be based on relevant criteria or performance standards as determined
by the Board of Directors in a bonus plan which will be competitive with
industry standards.
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
2
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 therefor
for other members of the executive management group, in effect from time
to time. 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 so incurred, with
such detail, backup and confirmation as the Company may reasonably
require. Subject to any audit the Company deems necessary, the Company
shall promptly reimburse Executive the full amount of any such expenses
incurred by Executive.
f. Right to Purchase LLC Membership Interest. On the Execution Date,
Executive has the right to purchase a membership interest equal to one
(1%) percent of the total membership interests of the Company for a total
purchase price of $600.00, which amount equals 100% of the fair market
value of Executive's membership interest on the date of purchase (the
"Restricted Membership Interest").
(1) During the Term, the Restricted Membership Interest vests as
follows:
(i) 25% of the Restricted Membership Interest on the
date that the Company opens and begins operating the newly
renovated and expanded Aladdin Hotel & Casino (the
"Operational Date") and Executive executes and agrees to be
bound by the Company's Operating Agreement; and
(ii) 25% of the Restricted Membership Interest on each
succeeding annual anniversary of the Operational Date to the
Termination Date;
(2) Upon expiration of the four-year term of this Agreement
(provided Executive was employed by the Company at such
expiration), any unvested Restricted Membership Interest vests
only as follows:
(i) if the Company does not continue to employ Executive
for reason(s) not constituting Cause as defined in Section
5(d)(1-4)
3
hereof or if the Executive does not continue his employment at
the request of the Company for reason(s) constituting Good
Reason as defined in Section 5(d)(5), then an additional 25%
of the Restricted Membership Interest vests; or
(ii) if the Executive's employment with the Company
continues, the 25% of the Restricted Membership Interest
continues to vest in accordance with Section 4(f)(1)(ii) above
as though there had been no Termination Date.
(3) If Executive's employment terminates, the Company has the
right to repurchase any unvested portion of the Restricted
Membership Interest for the purchase price originally paid by
Executive.
(4) If, after the Operational Date, the Company remains an LLC,
has profits from operations but does not make Executive
membership distributions sufficient to pay Executive's tax
obligations from such profits, then the Company will
distribute sufficient cash for Executive to satisfy such
obligations, but only to the extent such distributions are not
sufficient to meet such tax obligations.
g. Executive's Put Right. Executive has the right but not the
obligation to sell his vested Restricted Membership Interest (or shares
exchanged by such Interest) back to the Company only in the following
circumstances:
(1) the Company's IPO has not occurred upon expiration of the
original four-year term of this Agreement and Company does not
continue to employ Executive for reason(s) not constituting
Cause as defined in Section 5(d)(1-4) hereof or the Executive
does not continue his employment at the request of the Company
for reason(s) constituting Good Reason as defined in Section
5(d)(5). This Put right must be exercised in writing by
Executive within thirty (30) days of the expiration of the
four-year term hereunder or it shall become void and without
further effect.
(2) The Company's IPO has not occurred upon Executive becoming
100% vested in Restricted Membership Interest. This Put right
must be exercised in writing by Executive within 30 days of
Executive being 100% vested or it shall become void and
without further effect.
4
The Put purchase price is the fair market value of such Interest (or
shares) on the Valuation Date. Under this Agreement, the Valuation Date
is: (i) the expiration of the four-year term of this Agreement, in the
event of a Put under Section 4(g)(i), or (ii) the date Executive becomes
100% vested, in the event of a Put under Section 4(g)(2). In either case
of (i) or (ii) in the preceding sentence, the fair market value shall be
determined by an independent appraisal firm mutually agreed to by the
Company and Executive, with the cost of such appraisal being paid by the
Company. If Executive exercises the Put hereunder, the Company must
purchase the Restricted Membership Interest or shares within ninety (90)
days of Executive's exercise of the Put.
h. Company's Call Right. If, prior to the date of the Company's IPO,
the Company terminates Executive for Cause as defined in Section 5(d)
hereof (including Executive quitting without Good Reason under Section
5(d)(5)), then the Company shall have the right but not the obligation to
purchase any vested Restricted Membership Interest (or shares exchanged by
such Interest) within thirty (30) days of the Termination Date at a price
equal to two (2) times the price Executive originally paid the Company for
such Restricted Membership Interest. The Call right must be exercised in
writing by the Company within thirty (30) days of the Termination Date or
it shall become void and without further effect. If the Company exercises
the Call hereunder, Executive must tender such Interest or shares and
otherwise complete the transaction hereunder within thirty (30) days of
the Company's exercise of the Call.
i. Auto Allowance. During the Term, the Company shall pay Executive
an auto allowance of $600.00 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 upon expiration
of the four-year 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.
5
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; (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 20 days
thereafter.
e. Termination by Company Without Cause (Termination by Executive
With Good Reason). Subject to Section 5(f), the Company has the right to
terminate this Agreement without Cause (and the Executive has the right to
terminate this Agreement for Good Reason as defined in Section 5(d)
hereof) by giving the other party written notice thereof and the Company
shall provide Executive with the benefits set forth in Section 8(e). A
termination under this Section 5(e) includes Executive's termination
without Cause following a Change of Control. For purposes of this
Agreement, a Change of Control shall be deemed to occur only if any two of
the three directors who are serving on the Board of Directors of the
Company as representatives of the Sommer Family Trust or related entities
on the date of the execution of this Agreement cease to be directors of
the Company.
f. Special Right of Company to Terminate this Agreement. If, within
twelve (12) months from the Commencement Date, substantially complete
6
project financing sufficient for substantially full renovation and
construction for the Aladdin Hotel & Casino Redevelopment and Expansion
Project as set forth in the presentation to GW Vegas prepared by Westwood
Capital LLC and dated July, 1996 (or as subsequently modified) and as
finally approved by the Clark County Commission, has not been secured, the
Company shall have the right but not the obligation to terminate Executive
and this Agreement and Executive shall only be entitled to the benefits in
Section 8(f) hereof.
6. Executive's Covenants: The Executive acknowledges that the Company has
a substantial, legitimate and continuing interest in the protection of its
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 its
Confidential Information, and has invested substantial sums, time and effort and
will continue to invest substantial sums, time and effort to develop, maintain
and protect such relationships and 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, 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 the Company and its businesses which is
confidential, proprietary or not generally known to and cannot be readily
ascertained through proper means by persons or entities (including 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 relating to 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; provided, however, while employed by the
Company and in furtherance of the business and for the benefit of 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. Executive covenants and agrees that he will not
compete with the Company, its affiliates or subsidiaries at any time
during the
7
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 working for a competing business outside
Clark County, Nevada, so long as Executive's work outside Clark County,
Nevada, does not involve competition with the business of the Company in
Clark County, Nevada.
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 employment with 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
8
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 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 four (4) year term
under Section 5(a) hereof, this Agreement shall terminate and be of no
further force and effect, except as provided in Sections 4(f), 4(g), 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 except as provided in Sections 4(f) and 4(g)(2); 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;
9
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 4(f), 4(g)(2), 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 by Company for Cause. 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 4(f), 4(h), 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 by the Company Without Cause. Upon termination of
this Agreement as provided in Section 5(e), this Agreement shall terminate
and be of no further force and effect, except as provided in Sections 6
and 7; provided further that Executive shall be entitled to such salary,
bonus and benefits to which Executive would have been entitled for the
remainder of the four-year term or twelve (12) months, whichever is
longer, as if there had been no earlier termination.
f. Termination By Special Right of the Company. 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, any expense reimbursement amounts accrued to the
Termination Date, and additional benefits as follows: Company paid COBRA
premiums 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 without the
prior written consent of the other; provided, that (i) 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 (ii) nothing
contained in this Agreement shall limit or restrict
10
the Company's ability (A) to merge or consolidate or effect any similar
transaction with any other entity, irrespective of 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
Company.
b. Binding Agreement. This Agreement shall be binding upon, and
inure to the benefit of, the Executive and the Company and their
respective heirs, executors, administrators, legatees and distributees,
successors and permitted assigns.
c. Guarantee. Aladdin Holdings hereby unconditionally and
irrevocably guarantees to Executive the performance of all payment
obligations of the Company, its successors and assigns with respect to the
Agreement; provided, however, that (i) such guarantee shall become void
and without further effect, and (ii) Aladdin Holdings shall cease being a
party to this Agreement, as of the date, if any, of the Funding, defined
as substantially complete project financing sufficient for substantially
full renovation and construction for the Aladdin Hotel and Casino
Redevelopment and Expansion project as set forth in the presentation to GW
Vegas prepared by Westwood Capital LLC and dated July 1996 (or as
subsequently modified) and as finally approved by the Clark County
Commission.
d. Amendment of Agreement. This Agreement may not be modified or
amended except by an instrument in writing signed by the parties hereto.
e. 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.
f. Effect of Prior Agreements. This Agreement contains the entire
understanding between the parties hereto respecting the Executive's
employment by the Company, and supersedes any prior understandings or
agreements between the parties hereto.
11
g. 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 serves as an employee of the
Company during the Term of this Agreement.
h. 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 (i) when delivered, if sent by
telecopy or by hand, (ii) one business day after sending, if sent by
reputable overnight courier service, such as Federal Express, or (iii)
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: James McKennon
22 Burning Tree Ct.
Las Vegas, NV 89113
with a copy to:
If to the Company: Aladdin Holdings LLC
280 Park Avenue
New York, NY 10017
Attn: Ron Dictrow
directed to the attention of the Board of Directors with copies to the
Chairman thereof; 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.
i. 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.
12
j. 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.
k. 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.
l. 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.
m. 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 or
enforcement of this Agreement.
n. 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 State
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.
13
o. 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
principals of conflicts of laws.
EXECUTION DATE ALADDIN GAMING LLC
July 28, 1997 By: /s/ Jack Sommer
-----------------------------
Its: President
ALADDIN HOLDINGS, LLC
By: /s/ Jack Sommer
-----------------------------
Its: President
/s/ James H. McKennon
-----------------------------
James H. McKennon, Executive
14