<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
--------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM:
COMMISSION FILE NUMBER: 0-14050
THE SANDS REGENT
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------
NEVADA 88-0201135
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
345 NORTH ARLINGTON AVENUE
RENO, NEVADA 89501
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (702) 348-2200
--------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.05 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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
The aggregate market value of the Registrant's $.05 par value Common Stock
held by non-affiliates of the Registrant on September 23, 1998 was $2,701,764.
The aggregate market value is computed with reference to the average price per
share on such date.
Registrant's Common Stock outstanding at September 23, 1998 was 4,498,722
shares.
Portions of Registrant's 1997 Annual Report to the Shareholders are
incorporated into Part II as set forth herein. Portions of Registrant's
definitive Proxy Statement for its November 2, 1998 Annual Meeting of
Shareholders are incorporated into Part III as set forth herein.
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
THE COMPANY
The Company, through a wholly-owned subsidiary, Zante, Inc. ("Zante"), owns
and operates the Sands Regency hotel/casino in downtown Reno, Nevada. The
Company, through three wholly-owned subsidiaries, Patrician, Inc. ("Patrician"),
Gulfside Casino, Inc. ("GCI") and Artemis, Inc., ("Artemis"), owns Gulfside
Casino Partnership (the "Partnership"), which owns the Copa Casino, a dockside
gaming vessel located in Gulfport, Mississippi. GCI, Patrician and Artemis own
.006%, 98.744% and 1.25%, respectively, of the Partnership. Gaming operations
for the Copa Casino commenced in September 1993.
Reno, Nevada. The Sands Regency hotel/casino has approximately 27,000 square
feet of gaming space and 938 hotel rooms, including 32 suites of various sizes.
The complex also includes three restaurants, a coffee house/deli-style
restaurant, a "Pizza Hut", and an "Arby's" restaurant, and an "Orange Julius"
operated by third parties. The facilities also include three cocktail lounges, a
gift shop, a beauty/barber shop and a liquor store, each operated by third
parties, a video arcade, a health club, a swimming pool and almost 12,000 square
feet of convention and meeting space which can seat up to 950 people. The
Company maintains six parking areas on its main hotel/casino property and
adjacent to it, including two parking garages, with a total combined capacity
for approximately 1,000 vehicles. Although the Company offers, on a very limited
basis, complimentary hotel accommodations to select customers, no group
arrangements known as "junkets" are conducted.
The average room occupancy for fiscal 1998 was 83.3% compared to 84.4% for
1997. The hotel's average room rate for the current fiscal year was
approximately $31.00 as compared to $29.00 in the prior fiscal year.
As of September 21, 1998, the casino offered 20 table games, including 14
blackjack tables, 1 craps table, and 2 roulette tables, 2 let it ride tables and
1 three-card poker table; 2 keno games and approximately 700 slot machines. In
connection with the supervision of its gaming activities, the Company's policies
include stringent controls, cross-checks and recording of all receipts and
disbursements.
The Company's Reno, Nevada operations are conducted 24 hours a day, every
day of the year. The primary source of revenues and income to the Company is its
gaming activities, although the hotel, bars, shops, restaurants and other
services are an important adjunct to the gaming activities. The Company's
operating and marketing philosophy emphasizes high volume business, offering
large, attractive hotel rooms at reasonable prices to travel group wholesalers,
primarily from Western Canada, the Pacific Northwest and Northern California.
Gaming accounted for approximately 54% of the Company's revenues in fiscal 1998
and approximately 73% of the gaming revenues were generated by slot machines.
The Company generally does not extend credit to its gaming customers.
The Company has concentrated its resources on renovating and improving
existing Reno facilities and services. Future expansion plans will be considered
based upon future market conditions and the need to add hotel rooms and other
major facilities.
1
<PAGE> 3
Gulfport, Mississippi. The Copa Casino is a permanently moored 500-foot
former cruise ship located in Gulfport, Mississippi. Mississippi, which
legalized casino gaming in September 1991, allows for 24-hour gaming on
riverboats or other floating vessels located on or adjacent to approved
navigable waterways. Such floating facilities need not cruise into the waterways
and, as such, become permanently moored as dockside gaming facilities. Gulfport
is a deep-water port located on U.S. Highway 90 on the Mississippi gulf coast. A
population of approximately 2.5 million resides within a 100-mile radius,
including New Orleans, Louisiana and Mobile, Alabama. Interstate Highway 10,
which is the main thoroughfare between Mobile and New Orleans, lies
approximately 10 miles to the north of the port area. The Gulfport-Biloxi
metropolitan area has almost 9,000 hotel and motel rooms located in the
immediate Gulfport-Biloxi area.
The Copa Casino consists of approximately 24,000 square feet of casino space
located on two decks. As of September 21, 1998, the Copa offered approximately
785 slot machines and 22 table games, including 1 craps table, 2 roulette
tables, 16 blackjack tables, 1 caribbean stud table, 1 three-card poker table
and 1 Spanish 21 table. In addition, the facility also includes 4 cocktail
lounges/bars, a deli-style restaurant, a gift shop and various other ancillary
services and facilities. The deck below the two casino decks contains a
surveillance area, a vault, count rooms and security and various operations and
administrative offices. An additional three decks on the ship are available for
future expansion of gaming and dining facilities.
The Copa Casino is permanently moored dockside at a location known as the
"Horseshoe Site." Such site, which is leased from the Mississippi Department of
Economic and Community Development and the Mississippi State Port Authority, is
between the East and West Piers of the Mississippi State Port in Gulfport,
Mississippi. This location, which includes 8.3 acres of land based facilities,
will accommodate surface parking for approximately 840 vehicles. The leased
facilities also include a docking structure which accommodates the Copa Casino
ship and will allow for mooring of additional vessels. The docking structure
also includes a roadway and pedestrian walk which provides access to the Copa
Casino entrance.
As in Nevada, the Mississippi operations are conducted 24 hours a day every
day of the year. Present operations provide for the offering of complimentary
food and beverage on a limited basis. Group arrangements, known as "junkets,"
are not conducted.
MARKETING
Reno, Nevada. Traditionally, the central component of the Company's
marketing philosophy has been to utilize travel wholesalers to attract group and
air wholesale business to the hotel/casino. This philosophy is based on offering
attractive, well-furnished, large hotel accommodations and quality food and
beverages at prices slightly lower than those of most major hotel/casinos in
Reno. This strategy has proven to be successful and will continue to be one of
the Company's primary focuses in the future. However, because of the significant
increase in the number of Reno area hotel rooms in the last several years and
increased competition from other gaming venues, competition for wholesale
business has intensified. This has resulted in, by necessity, the Sands Regency
developing other areas for revenue generating opportunities.
In the past year, the Sands Regency has developed a more comprehensive
casino marketing program with an emphasis on guest retention, data base
marketing and an increase in advertising awareness. In addition, programs are
being developed to attract business segments that had previously been largely
untapped, such as locals and residents of Northern California, particularly the
Sacramento metropolitan area.
The Company's player tracking system is instrumental in the data base
marketing efforts and in guest recognition. This system allows the casino
marketing efforts to more effectively identify good customers and
2
<PAGE> 4
develop special events, programs and activities that appeal to them. An
aggressive promotion and player events schedule has also been implemented to
allow the Sands Regency to retain guests for longer periods of time and generate
incremental visits.
The Company will also continue to use a flexible approach to pricing its
rooms which is designed to maximize occupancy levels. Hotel rooms are offered at
discount prices to travel wholesalers, as much as six months in advance of
arrival, for block sales of rooms used in travel packages. This is particularly
important to the Company because of the impact of hotel occupancy on the level
of gaming activity. The Company is particularly dependent upon group business
from November through February because of the seasonal decline in other sources
of business. During these months, a substantial amount of the Sands Regency's
hotel capacity is normally prebooked 30 to 180 days in advance on a cancellable
basis.
Significant group and air wholesale market areas continue to include Western
Canada, the Pacific Northwest and Northern California. The Company continues to
expand its marketing areas by adding additional air wholesalers and has been
successful in obtaining wholesale business in Central Canada, the Midwest,
Southwest and Southern California.
The Sands Regency is the lead hotel/casino in the Reno area for several
major travel wholesalers who serve major cities in the West, Midwest and
Southwest United States and in Western and Central Canada. Group and air
wholesale business accounted for approximately 61% of the hotel's occupancy in
fiscal 1998 compared to 62% in fiscal 1997.
In addition to the group and air wholesale business, the Company
aggressively packages and markets convention and military reunion business which
require 300 rooms or less. Other travel package arrangements are also promoted
which are geared toward individual travelers.
The Sands Regency will continue to rely on advertising by travel wholesalers
in their markets. However, an increase in advertising efforts, in both the local
market and selected feeder markets, such as Northern California, is important to
the Sands Regency's long-term success. The Sands Regency has recently increased
local and out-of-market advertising expenditures including radio, billboard, and
print advertising. During periods of time when group business operates at
reduced levels, the Company will also continue to utilize print advertising in
its major market areas, with an emphasis on room rates, to attract individual
customers. These efforts will continue into the future as the Sands Regency
strives to strengthen its position in the Reno market.
Gulfport, Mississippi. The Company has positioned the Copa Casino as a
casino for local residents. Emphasis has been placed on providing a casual and
friendly atmosphere. To maintain this marketing position, the Company's goal is
to provide its products and services at values favored by the Company's guests.
The Company also uses numerous, in-house promotional programs to attract local
residents and other customers. These Company-sponsored promotional and special
event programs include gaming and slot tournaments, football season promotions,
give-a-way programs and seasonal promotions.
The Company has implemented a variety of outside advertising campaigns in
order to attract "drive-up" gaming customers. This includes billboards within a
100-mile radius of Gulfport and newspaper, radio and television advertising in
the local market and in the New Orleans area on a selective basis. In addition,
the Company has implemented drive-up promotions and programs to generate more
frequent customer visits and to identify valued customers. Direct mail programs,
which have resulted in positive customer responses, will continue to be
undertaken to encourage more frequent visits by customers.
3
<PAGE> 5
In fiscal 1997, the Company acquired a computerized slot player tracking and
marketing system which has improved the Company's ability to offer different and
more diverse promotions. The system also provides player tracking information so
as to allow the Company to reward gaming customers with complimentary and other
promotional goods and services.
The Company has also pursued marketing efforts toward developing group
business, primarily bus charters and hotel promotional programs to entice visits
from hotel/motel guests staying in the many non-casino hotel/motel rooms in the
local area. The Company has been successful in attracting bus charters from
various areas within a 500-mile radius including Atlanta, Georgia and Florida.
The Company will continue to utilize various marketing strategies with a
goal of increasing the frequency of casino visits by its customers which
includes implementing programs to identify and retain selected valued customers
and the establishment of promotional programs which cater to senior citizens.
The Company has employed sales representatives to market to tour operators,
travel agents, social groups, corporations and associations.
COMPETITION
Reno, Nevada. The Company competes in the greater Reno area with
approximately sixteen major casinos and hotel/casinos, some of which are larger
than the Sands Regency. In addition, there are numerous other smaller casinos in
the greater Reno area. The Company competes for its customers based upon gaming
activities, room rates, room size and quality of rooms, food, beverages and
location. Competitors of the Company have received governmental approval to
construct an additional 3,700 hotel rooms, of which approximately 600 are
presently under construction. Such governmental approval does not provide
assurance that all of these rooms will be built. If construction is completed on
all hotel rooms presently under construction or approved for construction, the
hotel room capacity in the greater Reno area will increase by approximately an
additional 22%. In the event all approved hotel rooms are built, and depending
on the time frames during which they are completed, management of the Company
believes that this added capacity may have an adverse effect on operations of
the Company.
The Company's Reno operations compete, to a lesser extent, with gaming
operations in other parts of the state of Nevada, such as Laughlin, Las Vegas
and Lake Tahoe. California currently sponsors a state lottery and allows other
non-casino style gaming, including parimutuel wagering, card parlors, bingo and
off-track betting. There is also casino style gaming on various Native American
lands in California. The Company believes that such non-casino style gaming does
not have a significant impact on the Company's operations. The Company believes,
however, that Native American gaming in California does have somewhat of an
impact on the Company's gaming operation and that the general legalization of
casino-style gaming in California could have a material impact on the Company's
operations.
Gulfport, Mississippi. The Company's operations on the Gulf Coast of
Mississippi are in competition with numerous gaming operations currently
established or to be established on vessels or barges moored on the Gulf Coast
of Mississippi, and on boats or barges cruising or moored on the Mississippi
River. Currently there are ten dockside gaming facilities, excluding the
Company, operating along the Gulf Coast of Mississippi, including one in Bay
Saint Louis, one in Gulfport and eight in Biloxi. There is also one gaming
facility presently under construction on the Gulf Coast which is expected to be
completed in the Spring 1999.
Along the Mississippi River, there are presently eighteen Mississippi
dockside casino facilities; one in Natchez, four in Vicksburg, three in
Greenville, one near Lula and nine in Tunica. There is one additional proposed
casino operation to be located along the Mississippi River in Vicksburg which
has been granted a gaming license and other proposed casinos which are presently
involved in litigation regarding proposed locations. There is also one casino
currently in operation on an Indian reservation near Philadelphia, Mississippi.
4
<PAGE> 6
In addition to the above, there are also several other proposed Mississippi
casino operations along the Mississippi River and the Gulf Coast. Requiring both
site approval and gaming licenses, such proposed operations are at various
stages in the developmental process without assurances that development and
operation will occur.
In addition to direct competition which the Company faces in the Mississippi
market, the Company faces competition from riverboats and a possibly reopened
land-based casino in the State of Louisiana, which is an important market area
for the Company's Gulfport casino. Current Louisiana legislation permits
unlimited stakes gaming and a total of fifteen riverboat licenses and one
land-based license have been authorized statewide. At present, there are
fourteen riverboats in operation. Besides these State of Louisiana gaming
operations, it is also anticipated that gaming may be implemented on Indian
reservations near Gulfport and New Orleans.
In the event that all, or a significant number, of these proposed facilities
are licensed, built and operated, management of the Company believes that this
added capacity may have an adverse effect on its Gulfport casino operation.
Management believes that the principal competitive factors will include ease of
access, availability of parking, attractiveness of casino vessels and
surrounding property, proximity to other gaming facilities, and quality of food
and entertainment offered.
General. To a significantly lesser extent, the Company competes with gaming
facilities in New Jersey, Colorado, South Dakota, Illinois, Iowa and other parts
of the world. The Company also competes with various gaming operations on Native
American land, including those located in California, Arizona, Oregon,
Washington, Connecticut, Michigan, Minnesota and Wisconsin. Indian casino gaming
has become a growing sector of the gaming industry as a result of the Indian
Gaming Regulatory Act of 1988, which generally permits unrestricted gaming on
Indian land in any state that allows similar forms of gaming, whether or not
restricted. Other states may legalize various forms of gaming that may compete
with the Company. In any jurisdiction where the Company may commence operations,
it will face competition for desirable sites and qualified personnel.
EMPLOYEES
At June 30, 1998, the Company employed 896 people at the Sands Regency in
Reno, Nevada, including 88 salaried employees and 808 hourly employees. The Copa
Casino employed 478 people, including 55 salaried employees and 423 hourly
employees. None of the Company's employees is represented by a union. The
Company has not experienced any work stoppages or other significant labor
problems and management considers its labor relations to be good.
REGULATION AND LICENSING-GAMING
Nevada. The ownership and operation of casino gaming facilities in Nevada
are subject to (i) The Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local regulation. The
Company's gaming operations are subject to the licensing and regulatory control
of the Nevada Gaming Commission ("Nevada Commission"), the Nevada State Gaming
Control Board ("Nevada Board") and the City of Reno, (together, the "Nevada
Gaming Authorities").
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which 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)
5
<PAGE> 7
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
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) to provide a source of state and local revenues through
taxation and licensing fees. Change in such laws, regulations and procedures
could have an adverse effect on the Company's gaming operations.
Zante operates the Sands Regency hotel/casino and is required to be licensed
by the Nevada Gaming Authorities. The gaming license requires a periodic payment
of fees and taxes and is not transferable. The Company is registered by the
Nevada Commission as a publicly traded corporation ("Registered Corporation")
and as such, it is required periodically to submit detailed financial and
operating reports to the Nevada Commission and furnish any other information
which the Nevada Commission may require. No person may become a stockholder of,
or receive any percentage of profits from Zante without first obtaining licenses
and approvals from the Nevada Gaming Authorities. The Company and Zante have
obtained from the Nevada Gaming Authorities the various registrations,
approvals, permits and licenses required in order to engage in gaming activities
in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or Zante in
order to determine whether such individual is suitable or should be licensed as
a business associate of a gaming licensee. Officers, directors and certain key
employees of Zante must file applications with the Nevada Gaming Authorities and
may be required to be licensed or found suitable by the Nevada Gaming
Authorities. Officers, directors and key employees of the Company who are
actively and directly involved in gaming activities of Zante may be required to
be licensed or found suitable by the Nevada Gaming Authorities. The Nevada
Gaming Authorities may deny an application for licensing for any cause which
they deem reasonable. A finding of suitability is comparable to licensing, and
both require submission of detailed personal and financial information followed
by a thorough investigation. The applicant for licensing or a finding of
suitability 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 corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company or Zante, the companies involved would have to
sever all relationships with such person. In addition, the Nevada Commission may
require the Company or Zante 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 and Zante are 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 Zante must be
reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by Zante, the gaming
licenses it holds could be limited, conditioned, suspended or revoked, subject
to compliance with certain statutory and regulatory procedures. In addition,
Zante, the Company, and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the direction of the
Nevada Commission. Further, a supervisor could be appointed by the Nevada
Commission to operate the Company's gaming properties and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for the reasonable rental value of the Company's gaming properties) could be
forfeited to the State of Nevada. Limitation, conditioning or
6
<PAGE> 8
suspension of any gaming license or the appointment of a supervisor could (and
revocation of any gaming license would) materially adversely affect the
Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of the Company's voting
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 more than 5% of the
Company's voting securities to report the acquisition to the Nevada Commission.
The Nevada Act requires that beneficial owners of more than 10% of the 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. Under certain circumstances, an "institutional
investor," as defined in the Nevada Act, which acquires more than 10%, but not
more than 15%, of the Company's 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 the directors of the Company, any change in the
Company's corporate charter, bylaws, management, policies or operations of the
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; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational 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 or 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 found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The 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 or Zante,
the Company (i) pays that person any dividend or interest upon voting securities
of the 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 for cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its 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
7
<PAGE> 9
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 is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power to require the Company's stock certificates to bear a
legend indicating that the securities are subject to the Nevada Act. The
Company's stock certificates do bear such a legend.
The Company may not make a public offering of its securities without the
prior approval of the Nevada 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.
Changes in control of the Company through merger, consolidation, stock or
asset acquisitions, management or consulting agreements, or any act or conduct
by a person whereby he obtains control, may not occur without the prior approval
of the Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and Nevada Commission in a variety of
stringent standards prior to assuming control of such Registered Corporation.
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 Corporations 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 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 Company's
Board of Directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purposes of acquiring control of the
Registered Corporation.
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 the
counties and cities in which the Nevada licensee's respective operations are
conducted. 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 is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, also pay certain fees and taxes to the
State of Nevada.
8
<PAGE> 10
Any person who is licensed, required to be licensed, required to be
registered, or is under common control with such persons (collectively,
"Licensees"), and who has 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 of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if it knowingly violates any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engages in activities that
are harmful to the State of Nevada or its ability to collect gaming taxes and
fees, or employs a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
Mississippi. The ownership and operation of a gaming business in Mississippi
is subject to extensive laws and regulations, including the Mississippi Gaming
Control Act (the "Mississippi Act") and the regulations (the "Mississippi
Regulations") promulgated thereunder by the Mississippi Gaming Commission (the
"Mississippi Commission") and the Mississippi State Tax Commission Regulations
for Gaming Establishments ("Mississippi Tax Regulations") promulgated by the
Mississippi State Tax Commission ("Mississippi Tax Commission"). The Mississippi
Commission and Mississippi Tax Commission (together the "Mississippi Gaming
Authorities") are empowered to oversee and enforce the Mississippi Act. Gaming
in Mississippi can be legally conducted only on floating vessels of a certain
minimum size in navigable waters of the Mississippi River or in waters of the
State of Mississippi (so called dockside gambling) which lie adjacent and to the
south (principally in the Gulf of Mexico) of the counties of Hancock, Harrison
and Jackson, and only in counties in Mississippi in which the registered voters
have not voted to prohibit such activities. The voters in Jackson County, the
southeastern most county of Mississippi, have voted to prohibit gaming in that
county. However, gaming could be approved in Jackson County in any subsequently
held referendum.
The underlying policy of the Mississippi Act is to ensure that gaming
operations in Mississippi are conducted (i) honestly and competitively, (ii)
free of criminal and corruptive influences, and (iii) in a manner which protects
the rights of the creditors of gaming operations. The laws, regulations and
supervisory procedures of the Mississippi Act seek to (i) establish and maintain
response accounting practices and procedures; (ii) maintain effective control
over the financial practices of licensees, including establishing minimum
procedures for internal fiscal affairs and safeguarding assets and revenues,
providing reliable record keeping, and making periodic reports to the
Mississippi Gaming Authorities; and (iii) provide a source of state and local
revenues through taxation and licensing fees. Changes in such laws, regulations
and procedures could have an adverse effect on the Company.
The Mississippi Act requires that a person (including any corporation or
other entity) must be licensed to conduct gaming activities in Mississippi. A
license will be issued only for a specified location which has been approved as
a gaming site by the Mississippi Commission prior to issuing such license.
Gaming licenses are issued for an initial two year period and are renewable
every two years thereafter. The Mississippi Act also requires that each officer
or director of a gaming licensee, or other person who exercises a material
degree of control over the licensee, either directly or indirectly, must be
found suitable by the Mississippi Commission. The Mississippi Commission will
not issue a license or make a finding of suitability unless it is satisfied,
only after an extensive investigation paid for by the applicant, that the
persons associated with the gaming licensee or applicant for a license are of
good character, honesty and integrity, with no relevant or material criminal
record. In addition, the Mississippi Commission will not issue a license unless
it is satisfied that the licensee is adequately financed or has a reasonable
plan to finance its proposed operations from acceptable sources, and that
persons associated with the applicant have sufficient business probity,
competence and experience to engage
9
<PAGE> 11
in the proposed gaming enterprise. Other parties, including the Partnership's or
the Company's lenders, holders of evidences of indebtedness, underwriters and
employees, may be required to be licensed, and such applications for licensing,
if any, may be denied for any cause deemed reasonable by the Mississippi
Commission. The Mississippi Commission may refuse to issue a work permit to a
gaming employee (i) if the employee has committed larceny, embezzlement or any
crime of moral turpitude, or knowingly violated the Mississippi Act or
Mississippi Regulations, or (ii) for any other reasonable cause.
The Partnership holds the gaming license to the Copa Casino gaming facility
in Gulfport, Mississippi. Patrician, GCI and Artemis, all wholly-owned
subsidiaries of the Company, have been approved as partners of the Partnership.
The license is not transferrable.
In October 1994, the Mississippi Gaming Commission adopted a regulation
requiring, as a condition of licensure or license renewal, that a gaming
establishment's site development plan include certain infrastructure facilities
in close proximity to the casino complex which will amount to at least 25% of
the cost of the casino facility. Parking facilities, roads, sewage and water
systems or facilities normally provided by governmental entities do not meet the
infrastructure requirement. The Mississippi Gaming Commission found the Copa
Casino to be in compliance with this regulation as a result of its construction
of a general purpose pier facility and other improvements that inure to the
benefit of the Mississippi State Port Authority.
The Mississippi Commission has the power to deny, limit, condition, revoke
and suspend any license, finding of suitability or registration, or fine any
person, as it deems reasonable and in the public interest, subject to an
opportunity for a hearing. The Mississippi Commission may fine any licensee or
persons who was found suitable up to $100,000 for each violation of the
Mississippi Act or the Mississippi Regulations, which is the subject of an
initial complaint, and up to $250,000 for each such violation which is the
subject of any subsequent complaint. The Mississippi Act provides for judicial
review of any final decision of the Mississippi Commission by petition to a
Mississippi Circuit Court, but the filing of such petition does not necessarily
stay any action taken by the Mississippi Commission pending a decision by the
Circuit Court.
The Partnership must submit detailed financial and operating reports to the
Mississippi Gaming Authorities. Substantially all loans, leases, sales of
securities and other financing transactions entered into by the Partnership must
be reported to, and, in some cases, approved by, the Mississippi Gaming
Authorities.
Under the Mississippi Regulations, a gaming license may not be held by a
publicly traded company, although an affiliate corporation, such as the Company,
may be publicly held so long as the Company receives the approval of the
Mississippi Commission. The Company has received such approval of the
Mississippi Commission. In addition, approval of any public offering of the
securities of the Company must be obtained from the Mississippi Commission if
any part of the proceeds from that offering are intended to be used to
construct, acquire or finance the operation of gaming facilities in Mississippi
or to retire or extend obligations incurred for any such purpose.
Under the Mississippi Regulations, a person is prohibited from acquiring
control of the Company without prior approval of the Mississippi Commission. The
Company is also prohibited from consummating a plan of recapitalization proposed
by management in opposition to an attempted acquisition of control of the
Company and which involves the issuance of a significant dividend to Common
Stockholders, where such dividend is financed by borrowing from financial
institutions or the issuance of debt securities. In addition, the Company is
prohibited from repurchasing any of its voting securities under circumstances
(subject to certain exemptions) where the repurchase involves more than one
percent of the Company's outstanding Common Stock at a price in excess of 110%
of the then market value of the Company's Common Stock from a person who owns
and has for less than one year owned more than three percent of the Company's
outstanding Common Stock, unless the
10
<PAGE> 12
repurchase has been approved by a majority of the Company's shareholders voting
on the issue (excluding the person from whom the repurchase is being made) or
the offer is made to all other shareholders for the Company.
Any person who, directly or indirectly, or in associations with others,
acquires beneficial ownership of more than five percent of the Common Stock of
the Company must notify the Mississippi Commission of this acquisition and may
be required to be found suitable by the Mississippi Commission. Any person who
becomes a beneficial owner of more than 10% of the Company's Common Stock must
apply for a finding of suitability by the Mississippi Commission. Furthermore,
regardless of the amount of securities purchased, any person who acquires any
beneficial ownership in the Common Stock of the Company may be required to be
found suitable if the Mississippi Commission has reason to believe that the
acquisition and ownership would be inconsistent with the declared policy of
Mississippi. Any person who is required to be found suitable must apply for a
finding of suitability from the Mississippi Commission within 30 days after
being requested to do so, and must deposit with the State Tax Commission a sum
of money which is adequate to pay the anticipated investigatory costs associated
with such finding. Any person who is found not to be suitable by the Mississippi
Commission shall not be permitted to have any direct or indirect ownership in
the Company's Common Stock. Any person who is required to apply for a finding of
suitability and fails to do so, or who fails to dispose of his or her interest
in the Company's Common Stock if found unsuitable, is guilty of a misdemeanor.
If a finding of suitability with respect to any person is not applied for where
required, or if it is denied or revoked by the Mississippi Commission, the
Company is not permitted to pay such person for services rendered, or to employ
or enter into any contract with such person.
The Mississippi legislature has declared that some corporate acquisitions
opposed by management, repurchases of voting securities and other corporate
defense tactics that affect corporate gaming licensees in Mississippi, and
corporations whose stock is publicly traded that are affiliated with those
operations, may be injurious to stable and productive corporate gaming. The
Mississippi Commission has established a regulatory scheme to ameliorate the
potentially adverse effects of these business practices upon Mississippi's
gaming industry and to further Mississippi'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 environmental for the orderly governance of corporate affairs.
Approvals are, in certain circumstances, required from the Mississippi
Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof (commonly referred to as
"greenmail") and before a corporate acquisition opposed by management can be
consummated. Mississippi's gaming regulations also requires prior approval by
the Mississippi Commission if the Company were to adopt a plan of
recapitalization proposed by the Company's Board of Directors in opposition to a
tender offer made directly to its stockholders for the purposes of acquiring
control of the Company.
Neither the Partnership, the Company nor any controlled affiliate may engage
in gaming activities in Mississippi and outside of Mississippi without approval
of the Mississippi Commission. The Mississippi Commission may require, among
other things, that there be adequate governmental regulation of gaming in the
out-of-state location and that there is a means of the Mississippi Commission to
have access to information concerning the out-of-state gaming operations and
persons associated with them.
REGULATION AND LICENSING - ALCOHOLIC BEVERAGES
Nevada. The sale of alcoholic beverages by the Company is subject to
supervision, control and regulation by the City of Reno, which issues licenses
deemed to be nontransferable, revocable privileges, and which has full power to
limit, condition, suspend or revoke such licenses. The Company is presently
licensed to sell
11
<PAGE> 13
alcoholic beverages. Any adverse regulatory act with respect to this license
could have an adverse effect upon the operations of the Company.
Mississippi. The sale of alcoholic beverages by the Copa Casino is subject
to regulation by the Mississippi State Tax Commission, which issues licenses
which are both revocable and non-transferable, and which has full power to
limit, condition, suspend or revoke any such license. The Partnership is
currently licensed to sell alcoholic beverages as an "On-Premises Retailer." Any
adverse regulatory act with respect to this license could have an adverse effect
upon the operation of the Partnership. The sale of light wine and beer by Copa
Casino is also subject to regulation by the Mississippi State Tax Commission,
which issues licenses which are both revocable and non-transferable, and which
has the full power to limit, condition, suspend or revoke any such license.
However, the enforcement of laws regulating the acquisition, use, sale and
distribution of light wine and beer is left to local law enforcement agencies.
The Partnership is currently licensed to sell light wine and beer as a
"Retailer" under a beer permit and privilege license. Any adverse regulatory act
with respect to this license could have an adverse effect upon the operation of
the Partnership.
12
<PAGE> 14
ITEM 2. PROPERTIES
Reno, Nevada. The Company operates the casino and hotel towers at the
Sands Regency on a Company-owned 6.3 acre site in downtown Reno. The
hotel/casino site also includes the original three-story motor lodge and
four-story hotel tower and other buildings and facilities. Garage and surface
parking is provided at the hotel/casino site and also on a 2.7 acre site located
adjacent to the hotel/casino site. In addition, the Company's personnel office
and certain storage facilities are located one-half block from the hotel/casino
site on a Company-owned .5 acre lot. Management considers the Company's facility
to be in good condition and well-maintained.
In addition to the main hotel/casino facility, the Company owns a
smaller property in Reno consisting of an area of approximately .2 acres.
The Company's Reno hotel/casino property is subject to aggregate
encumbrances of approximately $10.8 million as of June 30, 1998.
Gulfport, Mississippi. The Copa Casino gaming facilities are located on
two decks of a 500 foot cruise ship owned by Gulfside Casino Partnership. These
two decks also include four cocktail lounges/bars, a deli-style restaurant and a
gift shop. The deck below the two casino decks contains a surveillance area, a
vault, count rooms, security and various operations and administrative offices.
An additional three decks on the ship are available for future expansion of
gaming and dining facilities. The engines for such cruise ship are disabled. All
gaming activities are conducted while moored dockside.
The Copa Casino is permanently moored dockside at a location known as
the "Horseshoe Site." Such site, which is leased from the Mississippi Department
of Economic and Community Development ("MDECD") and the Mississippi State Port
Authority at Gulfport ("Port"), is between the East and West Piers of the
Mississippi State Port in Gulfport, Mississippi. This location, which includes
8.3 acres of land-based facilities, will accommodate surface parking for
approximately 840 vehicles. The leased facilities also include a docking
structure which accommodates the Copa Casino ship and will allow for mooring of
additional vessels. The docking structure also includes a four-lane roadway and
a pedestrian walk which provides access to the Copa Casino entrance.
The initial term of the lease, as amended, is seven years and ends in
October 1999. The lease provides for three renewal periods of five years each
and one renewal period of ten years if the Partnership, within the first ten
years of the lease agreement, constructs, on the leased premises or within the
city limits of Gulfport, a hotel with a minimum of 350 units. If any of such
renewal options are exercised, the lease term will be extended under the same
terms and provisions of the lease agreement except that the rental amounts will
be adjusted and revised annually, in years six through thirty-two, in accordance
with changes in the Consumer Price Index.
The lease provides for an annual rental of $511,000 (the "Minimum
Rental") plus five percent (5%) of the gross annual gaming revenues over
$25,000,000 (the "Percentage Rental"). In addition to the Minimum Rental and
Percentage Rental set forth above, the Partnership is also required to pay,
monthly, 3% of the gross monthly revenues on all activities other than gaming
(the "Additional Percentage Rent"). The Minimum Rental is to be paid in advance,
in equal monthly installments of $42,542 on the first day of every month during
the lease year. For each month, the Percentage Rental and the Additional
Percentage Rental must be calculated and the amounts due, if any, are to be paid
on or before the 10th day of the following month.
The lease also provides that the MDECD and Port shall have the right to
cancel the lease after the expiration of the initial term for reason of Port
expansion of its own facilities to handle expanded shipping and related
13
<PAGE> 15
commerce activities, unrelated to any business or enterprise which may compete
with the Copa Casino operation, upon giving 12 months written notice to the Copa
Casino. Should it be necessary for MDECD and the Port to exercise its right to
cancel the lease, MDECD and the Port shall use their best efforts to obtain an
alternative site on the Port properties for the relocation of the Copa Casino.
The Copa Casino shall also have a right of first refusal for any location that
is determined not to interfere with normal Port operations.
In July 1996, Copa Casino was notified by the MDECD and the Port that
the Copa Casino lease would be canceled and terminated at the end of the initial
lease term in October 1999 because the Copa Casino's leased site was needed by
the Port to accommodate a purported expansion of Port facilities. Such notice of
cancellation and termination was ruled to be invalid and was voided by a January
1998 judgment in Chancery Court of Harrison County, Mississippi as further
described in Item 3. Legal Proceedings. If the Copa Casino is subsequently
required to vacate its existing site and no suitable replacement sites can be
found, the Company's results of operations could be materially adversely
affected.
ITEM 3. LEGAL PROCEEDINGS
GCI MATTER
In December 1994, a lawsuit was filed by Terry W. Green and Joel R.
Carter, Sr. ("Green and Carter") in the Chancery Court of Harrison County,
Mississippi, First Judicial District against GCI because of GCI's failure to
make payments on promissory note obligations of GCI to Green and Carter. These
note obligations, in the aggregate amount of $6 million, plus interest, are
secured by a pledge of GCI's partnership interest in GCP. Although these
promissory notes and the accrued interest thereon are obligations of GCI, they
are reflected as current liabilities in the Company's Consolidated Balance
Sheets at June 30, 1998 and 1997 upon consolidation. These promissory notes were
owed by GCI when the Company purchased GCI in February 1994 and have not been
assumed or guaranteed by the Company.
In addition to demanding payment of the $6 million plus interest, for
which a partial summary judgment was entered, the lawsuit by Green and Carter
also demanded the appointment of a receiver to take possession of and sell GCI's
ownership interest in GCP and sought attorneys fees which were subsequently
awarded in January 1997 in the amount of $54,000. In May 1995, GCP and Patrician
were joined as necessary parties to the lawsuit.
In July 1996, following a court hearing, the Chancery Court rendered a
judgment that the reallocation of GCI's interest in the partnership may be
appropriate as to the GCP partners but had no effect on the lien position of
Green and Carter. This ruling related to the reduction in GCI's ownership
interest in GCP from an original 60% interest to a .006% interest as a result of
an amendment to the partnership agreement and a partner capital call. The
amendment to the GCP partnership agreement was entered in April 1994 whereby the
profit and loss allocation percentages were amended from 40% to 80% for
Patrician and from 60% to 20% for GCI. Such amendment was entered into to cure a
monetary partnership breach by GCI which occurred prior to the Company's
acquisition of GCI and to properly reflect the relative financial risks of
Patrician and GCI. The partner capital call occurred in January 1996 and was for
the purpose of improving the partnership capital structure. Patrician and
Artemis complied with the capital call; however, GCI failed to comply. As a
result, and in accordance with the partnership agreement, GCI's interest in GCP
was reduced from 20% to .006%. In May 1997, the Partnership Agreement was again
amended to restore the original 60% interest as to GCI. Such was done to resolve
the Chancery Court ruling dilemma.
The effect of the July 1996 judgment was that Green and Carter are
secured by GCI's pre-amendment, pre-capital call 60% ownership interest in GCP.
The fact that the partnership amendments which provided or
14
<PAGE> 16
allowed for the change in partner ownership interests were found to be valid in
a June 1996 arbitration award between Patrician and GCI was ruled as
inconsequential relative to Green and Carter. GCI subsequently filed a motion
for reconsideration of the judgment with the Chancery Court, which was
unsuccessful.
In January 1997, the Chancery Court issued an amendment judgment which
reaffirmed the prior judgments and reserved ruling on the necessity to appoint a
receiver. The ruling also charged GCP, under Mississippi law, with the
obligation to pay the GCI judgment amounts to Green and Carter and to pay Green
and Carter 60% of all monies not designated for normal operational expenses on a
monthly basis, commencing February 1, 1997, until the judgments due Green and
Carter were satisfied. GCP was also required to provide a monthly accounting of
income and operating expenses to Green and Carter.
To date, the required monthly reports have been made which report that no
monies are available for distribution by GCP and that no monies have been
distributed by GCP. Such reports were discontinued, by agreement, in March 1998,
in connection with the settlement negotiations discussed below.
GCI, GCP and Patrician, as joined parties to such lawsuit, have filed an
appeal with the Mississippi Supreme Court because it is the Company's belief
that the Chancery Court's rulings are incorrect and not supported by the facts
or the law. A hearing was scheduled in July 1998 and it was agreed, immediately
before such hearing was to take place, that briefs were to be submitted in lieu
of a hearing because of ongoing settlement negotiations discussed below.
On January 31, 1997, GCI filed for bankruptcy protection under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court of the
Southern District of Mississippi, Southern Division. A Disclosure Statement with
related Plan of Reorganization was filed. A hearing for confirmation has not
been scheduled.
In February 1997, Carter and Green also each filed separate lawsuits in U.
S. District Court for the Southern District of Mississippi, Biloxi Division,
against The Sands Regent and certain officers and directors of The Sands Regent
and GCI. Such lawsuits allege breach of various common law duties and
contractual interference by the defendants and seek compensatory and punitive
damages. Such actions are presently stayed pending settlement negotiations
described below. Nonetheless, management, and the individual defendants, believe
these legal actions to be without merit and will vigorously defend them.
In October 1997, the United States Bankruptcy Court ruled that GCI's
ownership interest in GCP was .006% and that the automatic stay provisions of
the Bankruptcy code only applied as to this .006% interest. The Bankruptcy Court
further held that a May 1997 partnership amendment to restore GCI's ownership
interest in the Company to the original 60%, undertaken in order to resolve the
GCI ownership/security dilemma created by the Chancery Court judgment and to
facilitate a resolution of the Chancery Court proceeding by and through the
Chapter 11 reorganization of GCI, was ineffective and void.
In November 1997, as a result of the above Bankruptcy Court ruling,
Patrician, holder of the 98.744% interest in GCP, also filed for bankruptcy
protection under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court of the Southern District of Mississippi, Southern
Division. This action was deemed necessary in order to protect the 59.994%
ownership interest in GCP which was initially owned by GCI and which is now part
of the interest held by Patrician. A Disclosure Statement and Plan of
Reorganization for Patrician have not yet been filed.
15
<PAGE> 17
Settlement negotiations are presently underway between Green and Carter, the
Company, GCI, Patrician, Artemis and GCP. As a result of such discussions, all
court actions have been stayed including in Chancery Court, United States
Bankruptcy Court and United States District Court.
PORT MATTER
On January 8, 1998, a judgment was rendered in the Chancery Court of
Harrison County, Mississippi lawsuit between GCP and the MDECD and the Port. The
Chancery Court ruled in favor of GCP in denying the Port's efforts to terminate
the lease at the end of the primary term in October 1999. The Court ruled
adverse to GCP in declaring that the Port was not obligated to approve the
construction of a hotel requested by GCP or approve GCP's request to substitute
another gaming vessel for the present gaming vessel. Damages sought by GCP in
connection with such refusals to approve a hotel or the substitution of a gaming
vessel, and for other claims, were also denied.
On February 6, 1998, GCP filed a Notice of Appeal with the Chancery Court to
appeal to the Mississippi Supreme Court certain of the Court's rulings adverse
to GCP. Specifically, GCP's appeal included appealing the Court's rulings
denying the Port's obligations to reasonably approve a hotel and the
substitution of a gaming vessel and the court's ruling denying damages. MDECD
and the Port have filed a Notice of Cross-Appeal, claiming that the Chancery
Court's ruling disallowing the termination of the lease was incorrect.
Appropriate appeal briefs are to be filed with the Mississippi Supreme Court in
accordance with a briefing schedule which has not been determined.
Management believes that the outcome of this appeal is not presently
predictable or subject to reasonable estimation.
OTHER
GCP is a defendant in a wrongful termination action filed by Mary Ann
Ackerman, a former employee of GCP, in the United States District Court of the
Southern District of Mississippi, Southern Division. Such lawsuit seeks damages
in the amount of $650,000, for alleged violation of the Family Medical Leave
Act. Management believes the lawsuit is without merit and will vigorously defend
against it. The likelihood of an unfavorable outcome is uncertain and a
potential range of losses is not subject to reasonable estimation.
The Company is also a party to various other legal actions, proceedings and
pending claims arising in the normal course of its business. Management does not
expect the outcome of these claims or suits to have a material adverse effect on
the Company's financial position or results of future operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the
fourth quarter of fiscal 1998.
16
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Common Stock of the Company is traded in the Nasdaq National Market
under the symbol "SNDS." The Company recently received notification that its
listing will be discontinued in the event the market value of the Company's
Common Stock does not exceed $5.0 million for ten consecutive trading days on or
before October 19, 1998. If such occurs, the Company will seek listing on the
Nasdaq SmallCap Market. The following table sets forth the range of high and low
closing sales prices as reported by Nasdaq.
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
First Quarter............................ $ 5.13 $3.13
Second Quarter........................... 3.75 2.63
Third Quarter............................ 3.13 2.50
Fourth Quarter........................... 3.50 1.63
1998
First Quarter............................ $3.00 $ 1.94
Second Quarter........................... 2.50 1.63
Third Quarter............................ 2.63 1.56
Fourth Quarter........................... 2.64 1.63
</TABLE>
- -----------
The declaration and payment of dividends in the future, if any, will be
determined by the Board of Directors in light of the conditions then existing,
including the Company's earnings, financial condition, capital requirements and
other factors.
As of September 23, 1998, the Company had 157 shareholders of record and
in excess of 400 beneficial shareholders.
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information appearing under
the caption "The Sands Regent - Selected Financial Data" in the Company's 1998
Annual Report, filed as Exhibit 13 to this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
There is hereby incorporated by reference the information appearing under
the caption "The Sands Regent - Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's 1998 Annual
Report, filed as Exhibit 13 to this Form 10-K.
17
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated by reference the Consolidated Financial
Statements and the Notes to the Consolidated Financial Statements in the
Company's 1998 Annual Report, filed as Exhibit 13 to this Form 10-K. Reference
is made to the Consolidated Financial Statements and the Notes to Consolidated
Financial Statements in Item 14(a)(1) hereof.
With the exception of the aforementioned information and the information
in Items 6 and 7, the Company's 1998 Annual Report is not deemed filed as part
of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information appearing under
the caption "Directors and Executive Officers" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on November 2, 1998,
filed or to be filed with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information appearing under
the caption "Compensation of Executive Officers" in the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held on November 2,
1998, filed or to be filed with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information appearing under
the captions "Principal Shareholders" and "Directors and Executive Officers" in
the Company's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held on November 2, 1998, filed or to be filed with the Securities and
Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information appearing under
the caption "Certain Relationships and Related Transactions" in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
November 2, 1998, filed or to be filed with the Securities and Exchange
Commission.
19
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
Included in Part II of this Report:
Independent Auditors' Report
Consolidated Balance Sheets -- June 30, 1998 and 1997
Consolidated Statements of Operations -- Years Ended June 30,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity -- Years Ended
June 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows -- Years Ended June 30,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES.
Included in Part IV of this Report:
As of and for the Years Ended June 30, 1998, 1997 and 1996:
Independent Auditors' Report on Schedules
Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
20
<PAGE> 22
(a)(3) EXHIBITS
<TABLE>
<S> <C> <C>
3(a)(i) Restated Articles of Incorporation of the Company (Exhibit
3(a) to the Company's Registration Statement (Registration
No. 2-93453) on Form S-1).*
3(a)(ii) Certificate of Amendment to the Restated Articles of
Incorporation of the Company, dated November 2, 1987
(Exhibit 4(a) to the Company's Form 10-Q for the quarter
ended December 31, 1987).*
3(b)(i) Amended and Restated Bylaws of the Company, as amended
April 29, 1985, and currently in effect (Exhibit 3(b) to
the Company's Form 10-K for the fiscal year ended June 30,
1985).*
3(b)(ii) Resolution of Amendment to the Bylaws of the Company,
dated November 2, 1987 (Exhibit 4(b) to the Company's Form
10-Q for the quarter ended December 31, 1987).*
3(b)(iii) Certificate of Amendment of the Amended and Restated Code
of Bylaws, as Amended, of The Sands Regent, dated January
10, 1996 (Exhibit 3(b)(iii) to the Company's Form 10-K for
the fiscal year ended June 30, 1996).*
4(a) Amended Trust Agreement, dated February 22, 1987, among
Antonia Cladianos II as trustor and beneficiary and Pete
Cladianos, Jr. as trustee (Exhibit 4(a) to the Company's
Form 10-K for the fiscal year ended June 30, 1987).*
4(b) Amended Trust Agreement, dated February 19, 1987, among
Pete Cladianos III as trustor and beneficiary and Pete
Cladianos, Jr. as trustee (Exhibit 4(b) to the Company's
Form 10-K for the fiscal year ended June 30, 1987).*
10(a) Amended and Restated Stock Option Plan for Executive and
Key Employees of the Sands Regent and Forms of Stock
Option Agreements (Exhibit 4(a) to the Company's
Registration Statement (Registration No. 33-59574) on Form
S-8).*
10(b) Amendment to the Amended and Restated Stock Option Plan
for Executive and Key Employees of The Sands Regent, dated
November 4, 1997 (Exhibit 10(a) to the Company's Form 10-Q
for the quarter ended December 31, 1997).*
10(c) Amendment to the Amended and Restated Stock Option Plan
for Executive and Key Employees of The Sands Regent, dated
December 12, 1997 (Exhibit 10(b) to the Company's Form
10-Q for the quarter ended December 31, 1997).*
10(d) Non-Qualified Stock Option Agreement, dated May 11, 1998,
by and between Louis J. Phillips and The Sands Regent.**
10(e) Deferred Compensation Plan for Directors of the Company
(Exhibit 10(e) to the Company's Registration Statement
(Registration No. 2-93453) on Form S-1).*
</TABLE>
21
<PAGE> 23
<TABLE>
<S> <C> <C>
10(f) Form of Indemnity Agreement for Directors and Officers of
the Company (Exhibit 10(f) to the Company's Form 10-K for
the fiscal year ended June 30, 1988).*
10(g) Amended and Restated Loan Agreement, dated January 31,
1998, by and between Wells Fargo Bank, National
Association, The Sumitomo Bank, Limited and Zante, Inc.;
and the related Amended and Restated Term Promissory Note;
Amended and Restated Guaranty of Loan (by The Sands
Regent); First Amendment to Deed of Trust, Fixture Filing
and Security Agreement with Assignment of Rents (on the
hotel/casino properties); Deed of Trust, Fixture Filing
and Security Agreement with Assignment of Rents (on
non-hotel/casino properties); and Pledge and Assignment.**
10(h) International Swap Dealers Association, Inc. Master
Agreement for interest rate swap, dated March 23,1994, by
and between First Interstate Bank of Nevada N.A. and
Zante, Inc., and the related Guarantee by The Sands Regent
and Letter Agreement of Confirmation (Exhibit 10(f) to the
Company's Form 10-K for the fiscal year ended June 30,
1994).*
10(i) General Partnership Agreement, effective as of December
31, 1992, between Gulfside Casino, Inc. and Patrician,
Inc. (a wholly-owned subsidiary of the Sands Regent)
(Exhibit 10(a) to the Company's Form 10-Q for the Quarter
ended March 31, 1993).*
10(j) First Amendment to Gulfside Casino, a Mississippi General
Partnership, General Partnership Agreement, dated April
15, 1994, between Gulfside Casino, Inc. and Patrician,
Inc. (both wholly owned subsidiaries of The Sands Regent)
(Exhibit 10(a) to the Company's Form 10-Q for the Quarter
ended March 31, 1994).*
10(k) Second Amendment to Gulfside Casino, a Mississippi General
Partnership, General Partnership Agreement, dated December
9, 1994, between Gulfside Casino, Inc. and Patrician,
Inc., (both wholly-owned subsidiaries of The Sands
Regent)(Exhibit 10(a) to the Company's Form 10-Q for the
Quarter ended December 31, 1994).*
10(l) Gulfside Casino, Inc. Settlement Agreement, dated August
20, 1993, by and between Gulfside Casino, Inc., a
Mississippi Corporation, and Joel R. Carter, Sr. and Terry
Green (Exhibit 10(j) to the Company's Form 10-K for the
year ended June 30,1994).*
10(m) Settlement Agreement dated November 2, 1984, by and
between Hughes Properties, Inc., and Zante, Inc. (Exhibit
10(u) to the Company's Registration Statement
(Registration No. 2-93453) on Form S-1).*
10(n) Franchise Agreement dated October 9, 1986 and as amended
on October 9, 1986, by and between Roma Corporation and
Zante, Inc. (Exhibit 10(r) to the Company's Form 10-K for
the fiscal year ended June 30, 1987).*
10(o) Agreement, dated as of January 2, 1995, between David R.
Wood and The Sands Regent (Exhibit 10(n) to the Company's
Form 10-K for the fiscal year ended June 30, 1995).*
10(p) (Employment) Agreement, dated December 12, 1997, by and
between Ferenc B. Szony (as President and Chief Executive
Officer) and The Sands Regent (Exhibit 10(c) to the
Company's Form 10-Q for the quarter ended December 31,
1997).*
</TABLE>
22
<PAGE> 24
<TABLE>
<S> <C> <C>
10(q) Lease Agreement by and between the Mississippi Department
of Economic and Community Development and the Mississippi
State Port Authority at Gulfport and Gulfside Casino,
Inc., dated August 20, 1992 (Exhibit 10(o) to the
Company's Form 10-K for the fiscal year ended June 30,
1996).*
10(r) Amendment to Lease and Approval of Stock Purchase by and
between the Mississippi Department of Economic and
Community Development and the Mississippi State Port
Authority at Gulfport and Gulfside Casino, Inc., dated
October 28, 1992 (Exhibit 10(p) to the Company's Form 10-K
for the fiscal year ended June 30, 1996).*
10(s) Second Lease Amendment by and between the Mississippi
Department of Economic and Community Development and the
Mississippi State Port Authority at Gulfport and Gulfside
Casino, Inc., Lessee, and Gulfside Casino Partnership,
Substitute Lessee, dated May 12, 1993 (Exhibit 10(q) to
the Company's Form 10-K for the fiscal year ended June 30,
1996).*
10(t) Third Lease Amendment by and between the Mississippi
Department of Economic and Community Development and the
Mississippi State Port Authority at Gulfport and Gulfside
Casino Partnership, dated June 21, 1994 (Exhibit 10(r) to
the Company's Form 10-K for the fiscal year ended June 30,
1996).*
13 1998 Annual Report to Shareholders.**
21 Subsidiaries: Zante, Inc., Patrician, Inc., and Artemis,
Inc., Nevada Corporations, and Gulfside Casino, Inc., a
Mississippi corporation, are wholly owned by the Company.
Patrician, Inc., Gulfside Casino, Inc.,and Artemis, Inc.,
are the sole partners in Gulfside Casino Partnership, a
Mississippi general partnership.
23 Independent Auditors' Consent to the incorporation by
reference into specified registration statement on Form
S-8 of their reports contained in or incorporated by
reference into this report.**
27 Financial Data Schedule.**
</TABLE>
-------------------------------
* Incorporated by reference
** Filed herewith
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the last quarter
of fiscal 1998.
(c) INDEX TO EXHIBITS.
(d) FINANCIAL STATEMENT SCHEDULES.
Financial statement schedules required by Regulation S-X are excluded
from the 1998 Annual Report to the Shareholders by Rule 14a-3(b)(1). See
Schedule II to the Financial Statements appearing under Item 14(a)(2)
hereof.
23
<PAGE> 25
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 the undersigned, thereunto duly authorized.
THE SANDS REGENT
Date: September 24, 1998 By: FERENC B. SZONY
-------------------------------------
Ferenc B. Szony, President
and Chief Executive Officer
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.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
FERENC B. SZONY President (Chief September 24, 1998
- --------------------------- Executive Officer)
Ferenc B. Szony and Director
KATHERENE LATHAM Chairman of the September 24, 1998
- --------------------------- Board of Directors
Katherene Latham
Vice Chairman of the September 24, 1998
- --------------------------- Board of Directors
Pete Cladianos, Jr.
DAVID R. WOOD Executive Vice President, September 24, 1998
- --------------------------- Treasurer, Chief Financial and
David R. Wood Accounting Officer and Director
PETE CLADIANOS III Executive Vice President, September 24, 1998
- --------------------------- Secretary and Director
Pete Cladianos III
JON N. BENGTSON Director September 24, 1998
- ---------------------------
Jon N. Bengtson
LOUIS J. PHILLIPS Director September 24, 1998
- ---------------------------
Louis J. Phillips
</TABLE>
24
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of The Sands Regent:
We have audited the consolidated financial statements of The Sands Regent and
subsidiaries as of June 30, 1998 and 1997, and for each of the three years in
the period ended June 30, 1998, and have issued our report thereon dated
September 2, 1998. Such consolidated financial statements and report are
included in your 1998 Annual Report to Shareholders and are incorporated herein
by reference. Our audits also included the consolidated financial statement
schedule of The Sands Regent and subsidiaries, listed in Item 14. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Deloitte & Touche LLP
Reno, Nevada
September 2, 1998
25
<PAGE> 27
The Sands Regent
Schedule II
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to
Beginning Costs and Balance at
Description of Year Expenses Deductions(1) End of Year
----------- ------- -------- ------------- -----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts Receivable:
Year ended June 30, 1998 ............... $ 119 $ 143 $(190) $ 72
Year ended June 30, 1997 ............... 107 103 (91) 119
Year ended June 30, 1996 ............... 147 136 (176) 107
</TABLE>
- ---------------
(1) Write-offs of uncollectible accounts receivable, net of recoveries
26
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
<S> <C> <C>
10(d) Non-Qualified Stock Option Agreement, dated May 11, 1998, by
and between Louis J. Phillips and The Sands Regent........................................
10(g) Amended and Restated Loan Agreement, dated January 31, 1998,
by and between Wells Fargo Bank, National Association, The
Sumitomo Bank, Limited and Zante, Inc.; and the related Amended
and Restated Term Promissory Note; Amended and Restated
Guaranty of Loan (by The Sands Regent); First Amendment to
Deed of Trust, Fixture Filing and Security Agreement with
Assignment of Rents (on the hotel/casino properties); Deed of
Trust, Fixture Filing and Security Agreement with Assignment
of Rents (on non-hotel/casino properties); and Pledge and Assignment.....................
13 1998 Annual Report to Shareholders.......................................................
23 Independent Auditors' Consent to the incorporation by reference
into specified registration statement on Form S-8 of their
reports contained in or incorporated by reference into this report.......................
27 Financial Data Schedule..................................................................
</TABLE>
<PAGE> 1
EXHIBIT 10(d)
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
THIS AGREEMENT is made by and between The Sands Regent, a Nevada
corporation, hereinafter referred to as "Company," and Louis J. Phillips, a
Director of the Company, hereinafter referred to as "Director":
WHEREAS, the Company wishes to afford the Director the opportunity to
purchase shares of its Common Stock ("Common Stock"); and
WHEREAS, the Board has determined that it would be to the advantage and
in the best interest of the Company and its shareholders to grant the
non-qualified stock option provided for herein to the Director as an inducement
to enter into the service of the Company and as an incentive for increased
efforts during such service, and has advised the Company thereof and instructed
the undersigned officers to issue said Option; and
WHEREAS, the grant of said Option has been made in conformity with Rule
16b-3; and
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1. -- Administrator
- ------------ -------------
"Administrator" shall mean the Board, excluding the Director.
Section 1.2. -- Board
- ------------ -----
"Board" shall mean the Board of Directors of the Company, as constituted
from time to time.
Section 1.3. -- Company
- ------------ -------
"Company" shall mean The Sands Regent, a Nevada corporation.
<PAGE> 2
Section 1.4. -- Exchange Act
- ------------ ------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.5. -- Option
- ------------ ------
"Option" shall mean the non-qualified stock option to purchase Common
Stock of the Company granted under this Agreement.
Section 1.6. -- Rule 16b-3
- ------------ ----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act,
as amended from time to time.
Section 1.7. -- Secretary
- ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.8. -- Securities Act
- ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.9. -- Termination of Directorship
- ------------ ---------------------------
"Termination of Directorship" shall mean the time when the Director
terminates as a member of the Board for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death or retirement.
ARTICLE II.
GRANT OF OPTION
---------------
Section 2.1. -- Grant of Option
- ------------ ---------------
Upon the terms and conditions set forth in this Agreement and in
consideration of the Director's agreement to serve on the Board, effective as of
the date set forth on the signature page hereof (the "Date of Grant"), the
Company irrevocably grants to the Director an option to purchase any part or all
of the aggregate number of shares of Common Stock set forth on the signature
page hereof, subject to adjustment pursuant to Section 2.4 hereof.
Section 2.2. -- Purchase Price
- ------------ --------------
The purchase price of the shares of stock covered by the Option shall be
the amount per share of Common Stock set forth on the signature page hereof, all
without commission or other charge, and subject to adjustment pursuant to
Section 2.4 hereof.
2
<PAGE> 3
Section 2.3. -- Consideration to Company
- ------------ ------------------------
In consideration of the granting of this Option by the Company, the
Director agrees to remain as a member of the Board for a period of at least one
year after the Date of Grant, unless the shareholders of the Company fail to
reelect Director to the Board upon expiration of Director's term of office prior
to the expiration of the one year period.
Section 2.4. -- Adjustments in Option
- ------------ ---------------------
In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend or combination of shares, the Administrator shall make an appropriate
and equitable adjustment in the number and kind of shares as to which the
Option, or portions thereof then unexercised, shall be exercisable, to the end
that after such event the Director's proportionate interest shall be maintained
as before the occurrence of such event. Such adjustment in the Option shall be
made without change in the total price applicable to the unexercised portion of
the Option (except for any change in the aggregate price resulting from
rounding-off of shares quantities or prices) and with any necessary
corresponding adjustment in the Option price per share. Any such adjustment made
by the Administrator shall be final and binding upon the Director, the Company
and all other interested persons.
ARTICLE III.
PERIOD OF EXERCISABILITY
------------------------
Section 3.1. -- Commencement of Exercisability
- ------------ ------------------------------
(a) The Option shall become (100%) exercisable on the first anniversary
of the Date of Grant; provided that Director is a member of the Board on such
date.
(b) No portion of the Option which is unexercisable at Termination of
Directorship shall thereafter become exercisable.
Section 3.2. -- Expiration of Option
- ------------ --------------------
The Option may not be exercised to any extent by anyone after the first
to occur of the following events:
(a) The expiration of ten (10) years and one (1) day from the date the
Option was granted; or
(b) The expiration of one (1) year from the date of Director's
Termination of Directorship.
3
<PAGE> 4
Section 3.3. -- Acceleration of Exercisability
- ------------ ------------------------------
In the event of the merger or consolidation of the Company with or into
another corporation, or the acquisition by another corporation or person of all
or substantially all of the Company's assets or eighty percent (80%) or more of
the Company's then outstanding voting stock, or the liquidation or dissolution
of the Company, then this Option shall be exercisable as to all shares covered
hereby, notwithstanding that this Option may not yet have become fully
exercisable under Section 3.1.(a).
ARTICLE IV.
EXERCISE OF OPTION
------------------
Section 4.1. -- Person Eligible to Exercise
- ------------ ---------------------------
During the lifetime of the Director, only the Director may exercise the
Option or any portion thereof. After the death of the Director, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.2, be exercised by the Director's personal
representative or by any person empowered to do so under the Director's will or
under the then applicable laws if descent and distribution.
Section 4.2. -- Partial Exercise
- ------------ ----------------
The Option, if then exercisable, may be exercised in whole or in part at
any time; provided, however, that each partial exercise shall be for not less
than twenty-five (25) shares and shall be for whole shares only.
Section 4.3. -- Manner of Exercise
- ------------ ------------------
The Option, or any exercisable portion thereof, may be exercised solely
by delivery to the Secretary or the Secretary's office of all of the following
prior to the time when the Option or such portion becomes unexercisable under
Section 3.2:
(a) Notice in writing signed by the Director or the other person then
entitled to exercise the Option or portion stating that the Option or portion is
thereby exercised, such notice complying with all applicable rules established
by the Administrator;
(b) Full payment (in cash or by check) for the shares with respect to
which such Option or portion is exercised;
(c) A bona fide written representation and agreement, in a form
satisfactory to the Administrator, signed by the Director or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Director or other person then entitled to exercise such
Option or portion will
4
<PAGE> 5
indemnify the Company against and hold it free and harmless from any loss,
damage, expense or liability resulting to the Company if any sale or
distribution of the shares by such person is contrary to the representation and
agreement referred to above. The Administrator may, in its absolute discretion,
take whatever additional actions it deems appropriate to insure the observance
and performance of such representation and agreement and to effect compliance
with the Securities Act and any other federal or state securities laws or
regulations. Without limiting the generality of the foregoing, the Administrator
may require an opinion of counsel acceptable to it to the effect that any
subsequent transfer of shares acquired on an Option exercise does not violate
the Securities Act, and may issue stop-transfer orders covering such shares.
Share certificates evidencing stock issued upon exercise of this Option shall
bear an appropriate legend referring to the provisions of this subsection (c)
and the agreements herein. The written representation, agreement and legend
referred to in this subsection (c) shall, however, not be required if the shares
to be issued pursuant to such exercise have been registered under the Securities
Act, and such registration is then effective in respect of such shares.
(d) Full payment (in cash or by check) to the Company (or other employer
corporation) of all amounts which, under federal, state or local tax law, it is
required to withhold upon exercise of the Option; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Director, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4. -- Conditions to Issuance of Stock Certificates
- ------------ --------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Administrator shall, in its absolute discretion, determine to be
necessary or advisable;
(c) The obtaining of any approval or other clearance form any state or
federal governmental agency which the Administrator shall, in its absolute
discretion, determine to be necessary or advisable;
5
<PAGE> 6
(d) The payments to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise
of the Option as the Administrator may from time to time establish for reasons
of administrative convenience.
Section 4.5. -- Rights of Shareholders
- ------------ ----------------------
The Director shall not be, nor have any of the rights or privileges of,
a shareholder of the Company in respect of any shares purchasable upon the
exercise of any part of the Option unless and until certificates representing
such shares shall have been issued by the Company to such holder.
ARTICLE V.
OTHER PROVISIONS
----------------
Section 5.1. -- Administration
- ------------ --------------
The Administrator shall have the power to interpret this Agreement and
to adopt such rules for the administration, interpretation and application of
this Agreement as are consistent therewith and to interpret or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Administrator in good faith shall be final and binding upon the Director, the
Company and all other interested persons. No member of the Administrator shall
be personally liable for any action, determination or interpretation made in
good faith with respect to the Option. The Board may at any time and from time
to time exercise any and all rights and duties of the Administrator under this
Agreement.
Section 5.2. -- Option Not Transferable
- ------------ -----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Director or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3. -- Shares to Be Reserved
- ------------ ---------------------
The Company shall at all times during the term of the Option reserve and
keep available such number of shares of Common Stock as will be sufficient to
satisfy the requirements of this Agreement.
6
<PAGE> 7
Section 5.4. -- Notices
- ------------ -------
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Director shall be addressed to the Director at the address given
beneath the Director's signature hereto. By a notice given pursuant to this
Section 5.4, either party may hereafter designate a different address for
notices to be given. Any notice which is required to be given to the Director's
personal representative has previously informed the Company of his status and
address by written notice under this Section 5.4. Any notice shall be deemed
duly given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid deposited (with postage prepared) in a post office or branch post
office regularly maintained by the United States Postal Service, or to a courier
guaranteeing overnight delivery.
Section 5.5. -- Titles
- ------------ ------
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of this Agreement.
Section 5.6. -- Construction
- ------------ ------------
This Agreement shall be administered, interpreted and enforced under the
laws of the State of Nevada.
Section 5.7. -- Conformity to Securities Laws
- ------------ -----------------------------
The Director acknowledges that this Agreement is intended to conform to
the extent necessary with all provisions of the Securities Act and the Exchange
Act and any and all regulations and rules promulgated by the Securities and
Exchange Commission thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, this Agreement shall be
administered, and the Option is granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations to the extent
applicable. To the extent permitted by applicable law, this Agreement shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
7
<PAGE> 8
SIGNATURE PAGE
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
I have read the Non-Qualified Stock Option Agreement (the "Agreement").
As Director, I hereby agree to all of the terms of the Agreement.
Date of Grant: May 11, 1998 Director Social Security Number
or Taxpayer Identification
Number:
Louis J. Phillips ###-##-####
- ----------------------------------- -------------------------------
Director Name (Please Print)
Number of Option Shares: 10,000
4155 Flintlock Circle
- ----------------------------------- Purchase Price Per Share: $2.12
Reno, Nevada 89509
- -----------------------------------
Address
/s/ Louis J. Phillips
-------------------------------
Director Signature
The Company hereby agrees to all of the terms of the Agreement.
THE SANDS REGENT,
a Nevada Corporation
By: /s/ Ferenc B. Szony
-------------------------
Its: President and Chief
Executive Officer
-------------------------
8
<PAGE> 1
EXHIBIT 10(g)
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
THIS AMENDED AND RESTATED LOAN AGREEMENT ("LOAN AGREEMENT") is made and
entered into as of the 31st day of January, 1998, by and between WELLS FARGO
BANK, NATIONAL ASSOCIATION and THE SUMITOMO BANK, LIMITED, hereinafter
individually referred to as a "LENDER" and collectively called "LENDERS", and
WELLS FARGO BANK, NATIONAL ASSOCIATION, as administrative and collateral agent
for Lenders, herein referred to as the "AGENT BANK", and ZANTE, INC., a Nevada
corporation, hereinafter called "BORROWER", with reference to the following
facts:
A. First Interstate Bank of Nevada, National Association, First
Interstate Bank of California and The Daiwa Bank, Limited, as predecessors to
Lenders, and Borrower have entered into that certain Loan Agreement dated March
31, 1993, as amended by that certain First Amendment to Loan Agreement dated
June 27, 1994 and that certain Second Amendment to Loan Agreement and Term and
Revolving Credit Promissory Note dated October 15, 1996 (collectively, the
"EXISTING LOAN AGREEMENT").
B. Lenders and Borrower now desire to amend and restate the Existing
Loan Agreement as set forth herein.
C. In this Loan Agreement all capitalized words and terms shall have the
respective meanings and be construed herein as hereinafter provided in Section
1.1 of this Loan Agreement and shall be deemed to incorporate such words and
terms as a part hereof in the same manner and with the same effect as if the
same were fully set forth.
D. Borrower is the owner of the Real Property and operates the
Hotel/Casino Operation.
E. Sands Regent is the owner of 100% of the issued and outstanding
capital stock of Borrower.
F. Sands Regent has guaranteed Borrower's performance under the Loan,
all subject to the terms and conditions hereinafter set forth.
G. The Loan has been made for the purposes and subject to the terms and
conditions which are hereinafter set forth.
H. Lenders and Borrower now desire to amend and restate the Existing
Loan Agreement and all other loan documents evidencing and/or securing the Loan.
NOW, THEREFORE, in consideration of the foregoing, and other valuable
considerations as hereinafter described, the parties hereto do promise, covenant
and agree to amend and restate in its entirety the Existing Loan Agreement as
follows:
<PAGE> 2
ARTICLE 1
---------
DEFINITIONS
-----------
Section 1.1 Definitions. For the purposes of this Loan Agreement, each
of the following terms shall have the meaning specified with respect thereto,
unless a different meaning clearly appears from the context:
"ACCOUNTS" shall have the meaning set forth in Section 8.24
hereof.
"ADDITIONAL DEED OF TRUST" shall mean that certain Deed of Trust,
Fixture Filing and Security Agreement With Assignment of Rents of even date
herewith executed by Borrower as Trustor and
Debtor encumbering the Additional Property.
"ADDITIONAL PROPERTY" shall mean the Austin Arms Apartment
Building, the Personnel Building and the Residence, together with
all improvements thereon.
"ADDITIONAL SUBSIDIARY" shall mean any Subsidiary of Sands Regent other
than Borrower. However, to the extent, and only to the extent, that either
Borrower or Sands Regent are liable for an obligation of an Additional
Subsidiary (whether pursuant to a guaranty or otherwise), with such liability to
be determined in accordance with GAAP, such obligations shall not constitute an
Additional Subsidiary Item.
"ADDITIONAL SUBSIDIARY ITEM" shall mean any income, expense, assets or
liability of an Additional Subsidiary.
"AGENCY AGREEMENT" shall mean the agreement executed by and among
Lenders, as such agreement may be amended from time to time, setting forth the
respective rights, duties and obligations of each of the Lenders in the Loan.
"AGENT BANK" shall mean Wells Fargo Bank, National Association, and its
successors and assigns, in its capacity as agent for Lenders.
"APPRAISAL" shall mean that market value appraisal of the Premises and
the Hotel/Casino Operation performed by Pannell Kerr Foster International.
"ASSIGNMENT OF EQUIPMENT LEASES, CONTRACTS AND SUBLEASES" shall mean the
assignment dated March 31, 1993 executed by Borrower, as such assignment may be
amended from time to time, as additional security for the Loan, pursuant to
which Borrower assigns to Lenders all of its assignable right, title and
interest under the Equipment Leases and Contracts and Subleases relating to the
Real Property.
-2-
<PAGE> 3
"ASSIGNMENT OF PERMITS, LICENSES AND CONTRACTS" shall mean the
assignment dated March 31, 1993 duly executed by Borrower, as such assignment
may be amended from time to time, as additional security for the Loan, whereby
Borrower assigns to Lenders all of its right, title and interest in and to all
permits, licenses and contracts relating to the Hotel/Casino Operation, except
those gaming permits and licenses and other permits, licenses and contracts
which are unassignable.
"ASSIGNMENT OF LEASES, RENTS AND REVENUES" shall mean the assignment
dated March 31, 1993 duly executed by Borrower, as such assignment may be
amended from time to time, whereby Borrower assigns to Lenders as additional
security for the Loan, all assignable Tenant Leases and all rents, issues,
profits, revenues and income from the Real Property and the Hotel/Casino
Operation and any other business activity conducted by Borrower on the Real
Property, together with any future expansions thereof, related thereto or used
in connection therewith.
"AUSTIN ARMS APARTMENT BUILDING" shall mean that certain parcel of real
property improved with an apartment building more particularly described in
Exhibit "C-3" attached hereto and incorporated herein by reference.
"BANKING BUSINESS DAY" shall mean a day upon which all of the offices
located in the United States (or any successor offices) of each of the Lenders
is open to conduct regular banking business.
"BANKRUPTCY CODE" shall mean the United States Bankruptcy
Code, as amended, 11 U.S.C. Section 101, et seq.
"BORROWER" shall mean Zante, Inc., a Nevada corporation.
"BORROWER'S PERMISSIVE CAPITAL EXPENDITURES" shall mean the expenditures
permitted under Section 5.15(a) hereof.
"BUSINESS PLAN PROJECTIONS" shall mean the business plan projections
(broken down on a quarterly basis) established by Borrower from time to time and
subject to the prior written approval of Lenders, which Lenders may withhold in
Lenders' sole and absolute discretion, which initial Business Plan Projections
are set forth on Exhibit "G" attached hereto and incorporated herein by
reference.
"CAPITAL EXPENDITURES" shall mean, for any period, without duplication,
the aggregate of all expenditures (whether paid in cash or accrued as
liabilities during that period and including capitalized lease liabilities) by
Borrower during such period that, in conformity with GAAP, are required to be
included in or reflected by the property, plant or equipment or similar fixed or
capital asset accounts reflected in the balance sheet of Borrower (including
equipment which is purchased simultaneously with the trade-in of existing
equipment owned by Borrower to the extent of
-3-
<PAGE> 4
(a) the gross amount of such purchase price less (b) the cash proceeds or
trade-in credit of the equipment being traded in at such time), but excluding
capital expenditures made in connection with the replacement or restoration of
assets, to the extent reimbursed or refinanced from insurance proceeds paid on
account of the loss of or damage to the assets being replaced or restored, or
from awards of compensation arising from the taking by condemnation of or the
exercise of the power of eminent domain with respect to such assets being
replaced or restored.
"CAPITAL PROCEEDS" shall mean the net proceeds (after deducting all
reasonable expenses incurred in connection therewith) available to Borrower
from: (i) partial or total condemnation or destruction of any part of the
Premises; (ii) sales of easements, rights-of-way or similar interests in any
portion of the Premises; (iii) insurance proceeds (other than rent insurance and
business interruption insurance) received in connection with damage to or
destruction of the Premises; (iv) the sale or other disposition of any portion
of the Premises in accordance with the provisions of this Loan Agreement, (not
including, however, any proceeds received by Borrower from a sale of FF&E if
such FF&E is replaced by items of equivalent value and utility, in each case
such exclusion to apply only during any period in which no Event of Default has
occurred and is continuing); and (v) any other extraordinary receipt of proceeds
from the sale of Collateral not in the ordinary course of business and treated,
for accounting purposes, as capital in nature.
"CLADIANOS FAMILY" shall mean a collective reference to Pete
Cladianos, Jr. and Katherene Johnson Latham and any lineal
descendants of either of them.
"CLOSING DATE" shall mean the date upon which the First Amendment to
Deed of Trust is recorded in the Official Records of Washoe County, Nevada.
"COLLATERAL" shall mean: (i) all of the real and personal property,
FF&E, contract rights, leases, intangibles and other interests of Borrower which
are subject to the lien and security interest of the Deed of Trust and Financing
Statements; (ii) all rights of Borrower assigned pursuant to the terms of the
Assignment of Permits, Licenses and Contracts, Assignment of Equipment Leases,
Contracts and Subleases and the Assignment of Leases, Rents and Revenues; (iii)
any and all other property and/or intangible rights, interests or benefits
inuring to or in favor of Borrower which are in any manner assigned, pledged,
encumbered or otherwise hypothecated in favor of Lenders to secure repayment of
the Loan; and (iv) the Accounts.
"COMPLIANCE CERTIFICATE" shall mean a compliance certificate as
described in Section 5.5(b) which shall be in the form as set forth in Exhibit
"E" attached hereto and incorporated herein by reference.
-4-
<PAGE> 5
"DEED OF TRUST" shall mean the Deed of Trust, Fixture Filing and
Security Agreement With Assignment of Rents dated March 31, 1993, executed by
Borrower as Trustor and Debtor, as such deed of trust may be amended from time
to time, encumbering the Premises, FF&E and other Collateral more particularly
therein described for the purpose of securing Borrower's performance of the
terms and provisions contained in the Note and the Loan Agreement, and recorded
on April 5, 1993 as Instrument No. 1661414 in the Official Records of Washoe
County, Nevada.
"DEFAULT RATE" shall have the meaning set forth in Section 2.7(b).
"DISTRIBUTIONS" shall mean and collectively refer to any and all cash
dividends, loans, management fees, payments, advances, stock redemptions or
repurchases or other distributions, fees or compensation of any kind or
character whatsoever made by Borrower to Sands Regent.
"EBITDA", when used with reference to Borrower and Sands Regent shall
mean the consolidated net income of Borrower and Sands Regent: (i) plus the
consolidated interest expense, federal income taxes, depreciation and
amortization of Borrower and Sands Regent; (ii) excluding the effect, if any, of
Additional Subsidiaries or transactions with Additional Subsidiaries; and (iii)
plus Gulfport Cash Payments.
"EFFECTIVE FEDERAL TAX RATE" of any Person with respect to any fiscal
period shall mean the quotient which results from dividing that Persons' federal
income tax expense for such fiscal period by that Person's net income before
taxes for such fiscal period.
"ENVIRONMENTAL CERTIFICATE" shall mean the Certificate and
Indemnification Regarding Hazardous Substances dated March 13, 1993, as such
certificate and indemnification has been amended and restated by that certain
Amended and Restated Certificate and Indemnification Regarding Hazardous
Substances of even date herewith, executed by Borrower as a further inducement
to Lenders to make the Loan.
"EQUIPMENT LEASES AND CONTRACTS" shall mean the executed leases and
purchase contracts pertaining to FF&E wherein Borrower is the lessee or vendee,
as the case may be. A summary of those Equipment Leases and Contracts (with
respect to contracts, Borrower is only required to list those certain contracts
which involve payments of more than $5,000 per year; provided, however, all
contracts not listed cannot involve in the aggregate payments in excess of
$50,000 per year; the mere fact that Borrower is not required to list all
contracts shall not impair or affect Lenders' security interest in all contracts
related to the Real Property or the Hotel/Casino Operation) is set forth on
Exhibit "D" attached hereto and incorporated herein by reference.
-5-
<PAGE> 6
"ESTOPPEL CERTIFICATE" shall mean an estoppel certificate duly executed
by any third party requested by Lenders (including, without limitation, lessors
under Equipment Leases, tenants under Leases, subtenants under Subleases, and
any other third parties in privity of contract with Borrower).
"ERISA" shall mean the Employees Retirement Income Security Act of 1974,
as amended from time to time.
"EVENT OF DEFAULT" shall mean any event of default as
defined in Section 6.1 hereof.
"EXISTING PATRICIAN INVESTMENT" shall mean the aggregate loans and/or
capital contributions which have been made to the Patrician Subsidiary and/or
GCI by Sands Regent prior to April, 1993.
"EXISTING TITLE INSURANCE COMPANY" shall mean Ticor Title Insurance
Company and its issuing agent Western Title Company, Inc. with offices at 225
South Arlington Avenue in Reno, Nevada 89501, together with such reinsurers with
direct access as are requested by Lenders or other title insurance company or
companies as may be acceptable to Lenders.
"EXISTING TITLE INSURANCE POLICY" shall mean the ALTA Extended Coverage
Lender's Policy of Title Insurance and endorsements issued in favor of Lenders
by Existing Title Insurance Company in the amount of $23,609,516.00 insuring
Lenders that, among other things: (i) the Deed of Trust is a first mortgage lien
on the Hotel/Casino Property without exception as to the condition of title or
priority other than the exceptions permitted to be shown as determined by
Lenders, in their sole and absolute discretion; and (ii) the buildings and
foundations on said Real Property do not encroach upon any easement or upon any
property not owned by Borrower except as shown in said policy in exceptions
approved by Lenders.
"FF&E" shall mean any and all furnishings, fixtures and equipment which
have been installed or are to be installed and used in connection with the
operation of the Real Property, including those items of furnishings, fixtures
and equipment which have been purchased or are to be purchased or leased by
Borrower in connection with the Hotel/Casino Operation.
"FINANCING STATEMENTS" shall mean the Uniform Commercial Code Financing
Statements required to be filed with: (i) the Office of the Secretary of State
of Nevada; and (ii) the Office of the Recorder of Washoe County, Nevada, in
order to perfect the security interest granted to Lenders under the Deed of
Trust and other Loan Documents in accordance with the requirements of the Nevada
Uniform Commercial Code.
"FIRST AMENDMENT TO DEED OF TRUST" shall mean that certain First
Amendment to Deed of Trust of even date herewith amending
-6-
<PAGE> 7
the Deed of Trust and to be recorded on the Closing Date in the Official Records
of Washoe County, Nevada.
"FISCAL QUARTER" shall mean reference to each consecutive three month
period during each Fiscal Year beginning at the commencement of each Fiscal
Year.
"FISCAL YEAR" shall mean the fiscal period beginning on the 1st day of
July of each calendar year and ending on the 30th day of June of each calendar
year.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"GCI" shall mean Gulfside Casino, Inc., a Mississippi corporation which
is a wholly owned subsidiary of Sands Regent, and the holder of a .006%
ownership interest in the Patrician Joint Venture.
"GOVERNMENTAL AUTHORITY" or "GOVERNMENTAL AUTHORITIES" shall mean any
federal, state, regional, county or municipal governmental agency, board,
commission, officer or official whose consent or approval is required or whose
regulations must be followed as a prerequisite to: (i) the continued
Hotel/Casino Operation on the Premises; or (ii) the performance of any act or
obligation or the observance of any agreement, provision or condition of
whatever nature herein contained.
"GUARANTY" shall mean that certain Guaranty of Loan dated March 31, 1993
executed by Sands Regent guarantying all of the obligations of Borrower in
connection with the Loan, as such guaranty has been amended and restated by that
certain Amended and Restated Guaranty of Loan of even date herewith.
"GULFPORT CASH PAYMENTS" shall mean the cash payments which are received
by the Sands Regent from any or all of the Gulfport Subsidiaries; (i) as
dividend payments; or (ii) in repayment of principal or interest under loans
made to one, or both, such entities by Sands Regent.
"GULFPORT RIVERBOAT PROJECT" shall mean the development and operation of
a riverboat gaming operation in Gulfport, Mississippi as contemplated by the
Patrician Joint Venture.
"GULFPORT SUBSIDIARIES" shall mean a collective reference to GCI, to the
Patrician Subsidiary and to the Patrician Joint Venture.
"HAZARDOUS MATERIALS CLAIMS" shall have the meaning set forth in Section
5.21.
"HAZARDOUS MATERIALS LAWS" shall have the meaning set forth in Section
5.21.
-7-
<PAGE> 8
"HOTEL/CASINO OPERATION" shall mean the hotel and casino business which
is conducted on the Hotel/Casino Property and the Parking Lots and the existing
improvements thereon with any future expansions thereof which are related
thereto.
"HOTEL/CASINO PROPERTY" shall mean those parcels of real property which
are more particularly described in Exhibit "C-1" attached hereto and
incorporated herein by reference.
"INDEBTEDNESS" of any Person includes all obligations, contingent or
otherwise, which in accordance with GAAP should be classified upon such Person's
balance sheet as liabilities, but in any event including liabilities secured by
any lien existing on property owned or acquired by such Person or a Subsidiary
thereof whether or not the liability secured thereby shall have been assumed),
obligations which have been or under GAAP should be capitalized for financial
reporting purposes, and all guaranties, endorsements, and other contingent
obligations with respect to Indebtedness of others, including, but not limited
to, any obligations to acquire any of such Indebtedness, to purchase, sell, or
furnish property or services primarily for the purpose of enabling such other
Person to make payment of any of such Indebtedness, or otherwise to assure the
owner of any of such Indebtedness against loss with respect thereto.
"INTEREST RATE SWAP AGREEMENT" shall mean that certain Interest Rate
Swap Agreement dated March 23, 1994 entered into by Wells Fargo Bank, N.A.
(formerly known as First Interstate Bank of Nevada, N.A.), and Borrower.
"LENDER(S)" shall have the meaning set forth in the Preamble of this
Loan Agreement.
"LETTER OF CREDIT" shall mean that certain irrevocable letter of credit
issued on January 14, 1994 by the predecessor to Agent Bank under No. SB2002 in
favor of the State of Nevada Department of Insurance to meet Borrower's Nevada
state self-insurance requirements.
"LOAN" shall mean a collective reference to the Loan evidenced by this
Loan Agreement, which is in the original principal amount not to exceed
$23,609,516 and which is in the outstanding principal balance as of February 1,
1998 of $10,975,000 to be repaid by Borrower in accordance with the terms of the
Note and the Loan Documents.
"LOAN AGREEMENT" shall mean and refer to the Existing Loan Agreement, as
amended and restated by this Loan Agreement.
"LOAN DOCUMENTS" shall mean the collective reference to this Loan
Agreement, the Note, the Deed of Trust as amended by the First Amendment to Deed
of Trust, the Additional Deed of Trust, the Guaranty, the Assignment of
Equipment Leases, Contracts and Subleases, the Assignment of Permits, Licenses
and Contracts, the
-8-
<PAGE> 9
Assignment of Leases, Rents and Revenues, Financing Statements, the Second Deed
of Trust, the Reimbursement Agreement, the Interest Rate Swap Agreement, the
Pledge, the Second Pledge, any Estoppel Certificates, any subordination,
nondisturbance and attornment agreements covering a Tenant Lease, any fixture
filings and all other instruments and agreements required to be executed by or
on behalf of Borrower or any other Person in connection with the Loan.
"LOAN FEE" shall mean a non-refundable loan fee in the amount of
$100,000, which Borrower has paid to Agent Bank for distribution to Lenders, as
set forth in the Agency Agreement, in consideration for the making of the Loan.
"MATURITY DATE" shall mean January 15, 2000.
"MAXIMUM GULFPORT INVESTMENTS" shall mean an amount which is equal to
the sum of Twenty-One Million Dollars ($21,000,000.00); provided, however, that
the Maximum Gulfport Investment shall not exceed Twenty-Six Million Five Hundred
Thousand Dollars
($26,500,000.00).
"NOTE" shall mean the Term and Revolving Credit Promissory Note dated
March 31, 1993 executed by Borrower, as such note is amended and restated by
that certain Amended and Restated Term Promissory Note of even date herewith and
which note is in the original principal amount not to exceed $23,609,516.00
evidencing the Loan, in the form as set forth in Exhibit "B" attached hereto and
incorporated herein by reference.
"PARKING LOTS" shall mean those two (2) additional parcels of real
property utilized as parking lots and which are more particularly described in
Exhibit "C-2" attached hereto and incorporated herein by reference.
"PARTICIPATION INTEREST" shall mean the proportionate interest of each
Lender in the Loan, as set forth on Exhibit "A" attached hereto and incorporated
herein by reference.
"PATRICIAN JOINT VENTURE" shall mean a joint venture between the
Patrician Subsidiary, Gulfside Casino, Inc. and Artemis, Inc., pursuant to that
certain Memorandum of Agreement under date of December 31, 1992, as amended,
wherein the Patrician Subsidiary, Gulfside Casino, Inc. and Artemis, Inc. agree
to conduct the Gulfport Riverboat Project known as "Copa Casino."
"PATRICIAN SUBSIDIARY" shall mean Patrician, Inc., a Nevada corporation.
"PERMITTED ENCUMBRANCES" shall mean, at any particular time: (i) liens
for taxes, assessments or governmental charges not then due and payable or not
then delinquent; (ii) liens for taxes, assessments or governmental charges the
validity of which are being contested in good faith by Borrower by appropriate
-9-
<PAGE> 10
proceedings, provided that Borrower shall have maintained adequate reserves in
accordance with GAAP; (iii) liens created or contemplated by the Loan Documents;
(iv) the liens, encumbrances and restrictions on the Real Property and existing
improvements which are allowed by Lenders to appear in Schedule B, Part I and II
of the Existing Title Insurance Policy or any other title insurance policy
issued at the Closing Date, and similar easements, rights-of-way, zoning and
similar restrictions and other encumbrances and exceptions to title which do not
in any case or in the aggregate materially interfere with the ordinary conduct
of the business of Borrower or the enjoyment of the Real Property, and rights of
lessees, lessors, vendees and/or vendors pursuant to the Equipment Leases and
Contracts and the Tenant Leases; (v) liens in favor of or consented to in
writing by Lenders; (vi) purchase money security interests for FF&E heretofore
acquired, without limitation, or hereafter acquired, if such purchase money
security interests extend only to the hereafter acquired FF&E and only to the
extent of the lesser of the purchase money loan or the fair market value of the
acquired FF&E; (vii) liens of legally valid leases for FF&E; and (viii)
depository institutions, carriers, warehousemen's, mechanics' and materialmen's
liens and other similar inchoate liens, in each case not yet delinquent, or
being contested in good faith provided that adequate reserves are maintained in
accordance with GAAP for any such lien which is being so contested.
"PERSON" means any individual, firm, corporation, trust, association,
partnership, joint venture, tribunal, bank, investment bank, mutual fund or
other entity.
"PERSONNEL BUILDING" shall mean that certain parcel of real property
improved with an office building as more particularly described in Exhibit "C-4"
attached hereto and incorporated herein by reference.
"PLEDGE" shall mean that certain Pledge and Assignment of even date
herewith covering any and all deposit accounts now or hereafter held by Borrower
in favor of Lenders.
"POLICIES OF INSURANCE" shall mean the insurance to be obtained and
maintained by Borrower as provided by Section 5.6 herein.
"PREMISES" shall mean the Hotel/Casino Property and the Parking Lots,
together with existing improvements and all other improvements or property, both
personal and real which now are or hereafter are situated upon the Hotel/Casino
Property and the Parking Lots or form a part of the Hotel/Casino Operation,
including but not limited to any future expansions thereof.
"QUALIFIED GULFPORT INVESTMENTS" shall mean loans or capital
contributions to the Gulfport Subsidiaries, or either of them, to
-10-
<PAGE> 11
be used in the direct or indirect conduct of the Gulfport Riverboat Project.
"REAL PROPERTY" shall mean that real property which is particularly
described by Exhibits "C-1 through C-5" attached hereto and incorporated herein
by reference, together with all improvements thereon, which shall include the
Hotel/Casino Property, the Parking Lots, the Austin Arms Apartment Building, the
Personnel Building and the Residence.
"REFERENCE RATE" shall mean the rate of interest which Wells Fargo Bank,
National Association, or its successor or assigns, from time to time identifies
and publicly announces as its prime rate and is not necessarily, for example,
the lowest rate of interest which Wells Fargo Bank, National Association,
collects from any borrower or group of borrowers.
"REIMBURSEMENT AGREEMENT" shall mean that certain Reimbursement
Agreement dated January 13, 1993 duly executed by Borrower supporting the Letter
of Credit.
"REPORTABLE EVENT" shall mean a reportable event as defined in Title IV
of ERISA, except actions of general applicability by the Secretary of Labor
under Section 110 of ERISA.
"RESIDENCE" shall mean that certain parcel of real property improved
with a single family residence as more particularly described in Exhibit "C-5"
attached hereto and incorporated herein by reference.
"SANDS GROUP" shall mean a collective reference to Sands Regent and to
Borrower.
"SANDS REGENT" shall mean The Sands Regent, a Nevada corporation.
"SECOND DEED OF TRUST" shall mean that certain Deed of Trust, Fixture
Filing and Security Agreement With Assignment of Rents duly executed by Borrower
in favor of Agent Bank, securing the obligations of Borrower under the Interest
Rate Swap Agreement and the Reimbursement Agreement, to be recorded as of the
Closing Date in the Official Records of Washoe County, Nevada and creating a
priority lien junior only to the Deed of Trust, as amended by the First
Amendment to the Deed of Trust.
"SECOND PLEDGE" shall mean that certain Pledge and Assignment of even
date herewith covering any and all deposit accounts now or hereafter held by
Borrower in favor of Agent Bank.
"SUBSIDIARY" shall mean, on the date in question, any Person of which an
aggregate of 50% or more of the stock of any class or classes (or equivalent
interests) is owned of record or beneficially, directly or indirectly, by
another Person and/or
-11-
<PAGE> 12
any of its Subsidiaries, if the holders of the stock of such class or classes
(or equivalent interests) (a) are ordinarily, in the absence of contingencies,
entitled to vote for the election of a majority of the directors (or individuals
performing similar functions) of such Person, even though the right so to vote
has been suspended by the happening of such a contingency, or (b) are entitled,
as such holders, to vote for the election of a majority of the directors (or
individuals performing similar functions) of such Person, whether or not the
right so to vote exists by reason of the happening of a contingency.
"TENANT LEASES" shall mean and collectively refer to all leases and
rental arrangements wherein Borrower is landlord or lessor for the lease or
rental of portions of the Real Property, a summary of which leases and rental
arrangements is marked Exhibit "F" attached hereto and incorporated herein by
reference. Borrower and Lenders agree and acknowledge that Exhibit "F" shall not
include a list of any residential lease or rental agreement; provided, however,
the fact that Borrower has not listed all residential leases and rental
agreements shall not impact or impair Lenders' security interest therein.
"TERM PERIOD" shall mean the period commencing on the Closing Date and
ending on the Maturity Date.
"YEAR 2000 COMPLIANT" shall mean, in regard to any entity, that all
software, hardware, firmware, equipment, goods or systems utilized by or
material to the business operations or financial condition of such entity, will
properly perform date sensitive functions before, during and after the year
2000.
Section 1.2 Interpretation and Construction. In this Loan
Agreement, unless the context otherwise requires:
(a) Articles and Sections mentioned by number only are the
respective Articles and Sections of this Loan Agreement as so numbered.
(b) Words importing a particular gender mean and include every
other gender, and words importing the singular number mean and include the
plural number and vice versa.
(c) Words importing persons mean and include firms, associations,
partnerships (including limited partnerships), societies, trusts, corporations
or other legal entities, including public or governmental bodies, as well as
natural persons.
(d) All times specified herein, unless otherwise specifically
referred, shall be the time in Reno, Nevada.
(e) Any headings preceding the texts of the several Articles and
Sections of this Loan Agreement, and any table of contents or marginal notes
appended to copies hereof, shall be
-12-
<PAGE> 13
solely for convenience of reference and shall not constitute a part of this Loan
Agreement, nor shall they affect its meaning, construction or effect.
(f) If any clause, provision or Section of this Loan Agreement
shall be ruled invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any of the remaining
provisions hereof.
(g) The terms "herein", "hereunder", "hereby", "hereto", "hereof"
and any similar terms as used in the Loan Agreement refer to this Loan
Agreement; the term "heretofore" means before the date of the execution of this
Loan Agreement; and the term "hereafter" means after the date of the execution
of this Loan Agreement.
(h) This Loan Agreement and all matters relating hereto shall be
governed by and construed and interpreted in accordance with the laws of the
State of Nevada.
(i) If any clause, provision or Section of this Loan Agreement
shall be determined to be apparently contrary to or conflicting with any other
clause, provision or Section of this Loan Agreement, then the clause, provision
or Section containing the more specific provisions shall control and govern with
respect to such apparent conflict. The parties hereto agree that each has
contributed to the drafting of this Loan Agreement and in all Loan Documents and
that the provisions herein contained shall not be construed against either
Borrower or Lenders as having been the person or persons responsible for the
preparation thereof.
(j) Except where a different standard is expressly indicated in
this Loan Agreement, all items requiring the consent or approval of Lenders or
Borrower shall be construed as providing that such consent or approval may not
be unreasonably withheld or delayed.
(k) All accounting terms used herein which are not otherwise
specifically defined shall be used in accordance with GAAP.
Section 1.3 No Other Meaning. Unless otherwise defined or the context
otherwise requires, terms for which meanings are provided in this Loan Agreement
shall have such meanings when used in each of the Loan Documents, notices and
other communication delivered from time to time in connection with this Loan
Agreement or any of the Loan Documents.
Section 1.4 No Other References. Unless otherwise specified, references
in this Loan Agreement and in each of the other Loan Documents to any Article or
Section are references to such Article or Section of this Loan Agreement or such
other of the Loan Documents, as the case may be, and unless otherwise
-13-
<PAGE> 14
specified, references in any Article, Section or definition to any clause or
references to such clause of such Article, Section or definition.
ARTICLE 2
---------
AMOUNT, TERMS AND SECURITY OF THE LOAN
--------------------------------------
Section 2.1 The Loan. Subject to the conditions and upon the terms
hereinafter set forth and in accordance with the terms and provisions of the
Note, Lenders severally agree in the proportions set forth on Exhibit "A"
hereto, to make the Loan. Lenders have advanced funds in the amount of the Loan.
The current outstanding principal balance of the Loan as of February 1, 1998 is
$10,975,000.00. In no event shall any Lender be liable to fund any amounts under
the Loan in excess of its respective Participation Interest. In no event shall
Borrower have the right to reborrow any amounts repaid or prepaid under the
Loan.
Section 2.2 Interest Calculation. Interest shall accrue under the Loan
at the rate, or rates, which are set forth by the Note.
Section 2.3 The Note, Interest Accrual and Repayment. The Loan shall be
evidenced by the Note and shall be payable to the order of Lenders. The amount
of each borrowing of the Loan shall be recorded on Agent Bank's internal data
control systems and each payment of principal and/or interest with respect to
the Loan or any portion thereon, when applied, shall be evidenced by entries
made by Agent Bank in Agent Bank's internal data control system showing the date
and amount of each payment of principal and interest with respect thereto. The
aggregate unpaid balance of principal and interest of the Note as set forth on
the most recent data control system printout of Agent Bank shall be rebuttably
presumptive evidence of the sums owing and unpaid on the Note. The Note shall
bear interest and be due and payable in the manner and at the times set forth
therein, the terms whereof are by this reference incorporated herein and made a
part hereof as though fully set forth.
Section 2.4 Security for the Loan. As security for the due and punctual
payment and performance of the Note and all of the other Loan Documents,
Borrower shall provide the Collateral and the Deed of Trust, the Second Deed of
Trust, the Assignment of Permits, Licenses and Contracts, the Assignment of
Leases, Rents and Revenues, the Assignment of Equipment Leases, Contracts and
Subleases, the Pledge, the Second Pledge and all of the other Loan Documents. As
additional security for the due and punctual payment and performance of the Note
and each of the terms, covenants, representations, warranties and provisions
herein contained, the Loan shall be guaranteed by Sands Regent pursuant to its
execution and delivery of the Guaranty.
-14-
<PAGE> 15
Section 2.5 Place and Manner of Payment. All amounts payable by Borrower
to Lenders hereunder or pursuant to the Note, shall be made on the date when
due, provided that if any payment falls due on a date which is not a Banking
Business Day, it shall be due on the next Banking Business Day in lawful money
of the United States of America and in immediately available funds. All such
amounts payable by Borrower shall be made to Agent Bank by wire transfer of
immediately available funds pursuant to the following wire instructions:
Wells Fargo Bank, N.A.
201 3rd Street, 8th Floor
San Francisco, CA 94103
ABA 121-000-248
Acct. 4584702047
Ref: WFBCORP/SYDIC/ZANTE, INC.
If such payment is received by Agent Bank prior to 11:00 a.m. Pacific time, and
is not solely for the account of Agent Bank, Agent Bank shall credit Borrower
with such payment on the day so received and shall disburse to the appropriate
Lenders on the same day such pro rata amounts of payments relating to the Loan
based on the respective proportions the amounts set forth on Exhibit "A" hereto
bear to the aggregate of such amounts set forth in Exhibit "A" hereto, in
immediately available funds. If such payment is received by Agent Bank after
12:00 o'clock noon, Agent Bank shall credit Borrower with such payment as of the
next Banking Business Day and disburse to the appropriate Lenders on the next
Banking Business Day such pro rata amounts of such payment relating to the Loan
based on the respective proportions the amounts set forth on Exhibit "A" hereto
bear to the aggregate of such amounts set forth in Exhibit "A" hereto, in
immediately available funds. Any payment on the Loan made by Borrower to
Agent Bank pursuant to the terms of this Loan Agreement or the Note for the
account of Lenders shall constitute payment to the appropriate Lenders.
Section 2.6 Fees.
(a) Borrower has paid the Loan Fee, in the amount of $100,000, to
Agent Bank for distribution to Lenders as set forth in the Agency Agreement in
consideration for the making of the Loan.
(b) On each anniversary of the recordation of the Deed of Trust
(including April 5, 1998 and April 5, 1999), Borrower shall pay an agency fee to
Agent Bank in the amount of $50,000, in consideration of Agent Bank's acting as
Agent Bank hereunder, which fee shall be retained by Agent Bank for its own
account (the "AGENCY FEE").
-15-
<PAGE> 16
Section 2.7 Late Charges and Default Rate.
(a) If any payment due under the Note is not paid within ten (10)
days following the date such payment is due, Borrower promises to pay a late
charge in the amount of one percent (1%) of the amount of such delinquent
payment and Agent Bank need not accept any late payment made unless it is
accompanied by such one percent (1%) late payment charge.
(b) If any payment due under the Note is not paid within ten (10)
days following the date such payment is due, the total of the unpaid balance of
the principal and the then accrued and unpaid interest owing under the Note
shall collectively and immediately, without any further written notice, commence
accruing interest at a rate equal to three percent (3%) over the Reference Rate
(the "DEFAULT RATE") until such time as all payments and additional interest are
paid.
(c) In the event of the occurrence of an Event of Default,
Borrower agrees to pay all costs of collection, including reasonable attorney's
fees incurred in connection therewith, in addition to and at the time of the
payment of such sum of money and/or the performance of such acts as may be
required to cure such Event of Default. In the event legal action is commenced
for the collection of any sums owing hereunder or under the terms of the Note
Borrower agrees that any judgment issued as a consequence of such action against
Borrower shall bear interest at a rate equal to three percent (3%) over the
Reference Rate until fully paid.
Section 2.8 Voluntary Prepayment. Borrower shall have the right, at any
time, and from time to time, but in no event more often than one (1) time during
any calendar month, to prepay any portion of the unpaid balance of principal
owing under the Note, in whole or in part. Each such prepayment shall be in the
minimum amount of $50,000.00 or additional multiples of $50,000.00, provided
that such limitation shall not apply to prepayments which are made: (i) pursuant
to Section 7.2 below; or (ii) in complete satisfaction of the unpaid principal
amount under the Note. Each prepayment shall be applied in each instance in the
inverse order of maturity of the scheduled principal payments of the Note. No
such prepayment or prepayments, when considered individually or collectively,
shall in any manner reduce or otherwise affect Borrower's obligation to make the
next regularly scheduled monthly payment of principal and/or interest under the
terms of the Note. If Borrower prepays the entire principal amount then
outstanding under the Note, such payment shall be accompanied by a payment equal
to the interest accrued thereon to the date of such prepayment and any other
amount then owing under the terms of the Note. Nothing herein shall be construed
to mean that this provision shall prohibit any Semi-Annual Payment Reduction (as
that phrase is defined in the Note).
-16-
<PAGE> 17
Section 2.9 Net Payments. All payments under this Loan Agreement and the
Note shall be made without set-off or counterclaim and in such amounts as may be
necessary in order that all such payments, after deduction or withholding for or
on account of any present or future taxes, levies, imposts, duties or other
charges of whatsoever nature imposed by the United States or any Governmental
Authority, other than any tax on or measured by the overall gross or net income
of a Lender pursuant to the income tax laws of the United States or any State,
or any jurisdiction where such Lender is organized, resident or doing business
(collectively, the "TAXES"), shall not be less than the amounts otherwise
specified to be paid under this Loan Agreement and the Note. A certificate as to
any additional amounts payable to a Lender under this Section submitted to
Borrower by such Lender shall show in reasonable detail an accounting of the
amount payable and the calculations used to determine in good faith such amount
and shall be conclusive absent manifest error. Any amounts payable by Borrower
under this Section with respect to past payments shall be due within twenty (20)
Banking Business Days following receipt by Borrower of such certificate from
Lenders; any such amounts payable with respect to future payments shall be due
concurrently with such future payments. With respect to each deduction or
withholding for or on account of any taxes, Borrower shall promptly furnish to
Lenders such certificates, receipts and other documents as may be required (in
the reasonable judgment of Lenders) to establish any tax credit to which Lenders
may be entitled. Without in any way affecting any of its rights under this
Section, each Lender agrees that, upon its becoming aware that any of the
present or future payments due it under this Loan Agreement are or will be
subject to deduction for taxes, it will notify Borrower in writing and each
Lender further agrees that it will use reasonable efforts not disadvantageous to
it (in its sole determination) in order to avoid or minimize, as the case may
be, the payment by Borrower of any additional amounts for Taxes pursuant to this
Section. Each Lender represents, to the best of its knowledge, that as of the
Closing Date no such additional taxes or charges are being imposed by the United
States or any Governmental Authority and that no such deductions or withholdings
are required. Each Lender organized outside of the United States shall, within
fifteen (15) days after it becomes a Lender hereunder, provide Borrower with a
duly completed IRS Form 4224 or 1001, as applicable (or successor forms)
properly completed and claiming a complete exemption from withholding or
deduction for or on account of Taxes imposed by the United States. Each such
Lender further agrees to deliver to Borrower on or before the date such form
expires, or after the occurrence of any event requiring any change in the most
recent form delivered by it, any amendments or supplements or additional forms
as may be reasonably requested by Borrower evidencing such exemption, unless an
event has occurred prior to the date on which such documentation is to be
delivered such that, and such Lender notifies Borrower that, it is not entitled
to receive payments without deduction or withholding on account of Taxes imposed
by the United States.
-17-
<PAGE> 18
Section 2.10 Increased Costs. If after the date hereof the adoption of,
or any change in, any applicable law, rule or regulation (including without
limitation Regulation D of the Board of Governors of the Federal Reserve System
and any successor thereto), or any change in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender with any request or directive (whether or not having the force of
law) of any such Governmental Authority, central bank or comparable agency:
(a) With respect to the Loan, shall impose, modify or deem
applicable any reserve imposed by the Board of Governors of the Federal Reserve
System special deposit, capitalization or similar requirement against assets of,
deposits with or for the account of, or credit extended by, any Lender; or
(b) Shall impose on any Lender any other condition affecting the
Loan, the Note or such Lender's obligation to make the Loan;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D or reserve requirements referred to above or a successor
thereto, to impose a cost on) such Lender of making or maintaining the Loan, or
to reduce the rate of return on the Loan or the amount of any sum received or
receivable by such Lender under the Note, then within ten (10) days after demand
by such Lender (which demand shall be accompanied by a certificate setting forth
in reasonable detail the basis of such demand), Borrower shall pay directly to
such Lender such additional amount or amounts as will compensate such Lender for
such increased cost (or in the case of Regulation D or reserve requirements
referred to above or a successor thereto, such costs which may be imposed upon
such Lender) or such reduction in the rate of return or of any sum received or
receivable under the Note. Each Lender agrees to use its best efforts to
minimize such increased or imposed costs or such reduction.
Section 2.11 Borrower's Right to Remove Affected Bank. If: (i) Borrower
receives a notice from any Lender pursuant to this Section, or Borrower is
required to withhold or deduct any Taxes on behalf of any Lender pursuant to
Section 2.9 (each such Lender, an "AFFECTED BANK"); and (ii) as a result of such
notice or withholding obligation Borrower is obligated to pay amounts to or on
behalf of such Affected Bank that are materially greater than such Lender's
Percentage Interest of all payments by Borrower to Lenders (including any other
Affected Banks) hereunder, then Borrower may, within sixty (60) days after the
date on which such notice is given or such withholding obligation arises, so
long as such notice or withholding obligation shall not have been terminated,
and so long as no Event of Default, or event or condition which, with the giving
of notice or the
-18-
<PAGE> 19
passage of time or both, would be an Event of Default hereunder, shall have
occurred and be continuing, elect to terminate such Affected Bank as a party to
this Loan Agreement; provided, that concurrently with such termination: (i)
Borrower shall pay to (or on behalf of, as applicable) such Affected Bank all
interest and fees and other amounts then due and owing to (or on behalf of) such
Affected Bank through such date of termination; (ii) another financial
institution reasonably satisfactory to Borrower and Agent Bank shall agree, as
of such date, to purchase at par and for cash the Participation Interest of the
Affected Bank in the Loans pursuant to an assignment and acceptance agreement
and to become a Lender for all purposes under this Loan Agreement and to assume
all obligations (including all outstanding Loans) of such Affected Bank to be
terminated as of such date; and (iii) all documents and supporting materials
reasonably required by Agent Bank to evidence the substitution of such Affected
Bank shall have been received and approved by Agent Bank as of such date, such
approval not to be unreasonably withheld.
ARTICLE 3
---------
CONDITIONS PRECEDENT
--------------------
Lenders' obligation to enter into this Loan Agreement is subject to
Agent Bank having received prior to or simultaneously with the execution and
delivery of this Loan Agreement, in each case in a form and substance reasonably
satisfactory to Lenders, the following:
Section 3.1 Promissory Note. The Amended and Restated Term Promissory
Note duly executed by Borrower.
Section 3.2 Loan Agreement. This Loan Agreement duly executed by
Borrower, Sands Regent and Lenders.
Section 3.3 Guaranty. The Amended and Restated Guaranty of Loan duly
executed by Sands Regent.
Section 3.4 First Amendment to Deed of Trust. The First Amendment to
Deed of Trust duly executed by Borrower and Lender and acknowledged and recorded
on the Closing Date with the County Recorder of Washoe County, Nevada.
Section 3.5 Additional Deed of Trust. The Additional Deed of Trust duly
executed by Borrower and acknowledged and recorded on the Closing Date with the
County Recorder of Washoe County, Nevada.
Section 3.6 Second Deed of Trust. The Second Deed of Trust duly executed
by Borrower and acknowledged in favor of Agent Bank and recorded on the Closing
Date with the County Recorder of Washoe County, Nevada.
-19-
<PAGE> 20
Section 3.7 Environmental Certificate. The Amended and Restated
Certificate and Indemnification Regarding Hazardous Substances duly executed by
Borrower.
Section 3.8 Pledge. The Pledge duly executed by Borrower in favor of
Lenders.
Section 3.9 Second Pledge. The Second Pledge duly executed by Borrower
in favor of Agent Bank.
Section 3.10 Assignments. The First Amendment to (i) Assignment of
Equipment Leases, Contracts and Subleases, (ii) Assignment of Permits, Licenses
and Contracts and (iii) Assignment of Leases, Rents and Revenues ("LEASES
ASSIGNMENT"), duly executed by Borrower and in the case of the Leases
Assignment, acknowledged with the Leases Assignment recorded on the Closing Date
with the County Recorder of Washoe County, Nevada.
Section 3.11 Financing Statements/Fixture Filings. Appropriate financing
statements and fixture filings as reasonably determined by Lenders duly executed
by Borrower and either recorded with the County Recorder of Washoe County,
Nevada or filed with the Nevada Secretary of State, as appropriate.
Section 3.12 Estoppel Certificates. At Lender's option, Estoppel
Certificates from Roma Franchise Corporation relating to the Tony Roma's
Restaurant operating at the Premises.
Section 3.13 Third Party Consents. Upon Lender's reasonable request,
consents from any third parties deemed necessary by Lenders in order to perfect
assignments and security interests obtained by Lenders in connection with the
Loan.
Section 3.14 Trademarks. Assignment of all trademarks, tradenames and
service marks held by Borrower or its affiliates or used in connection with the
Premises or the Hotel/Casino Operation, in a form and containing terms and
conditions acceptable to Lenders, in their sole and absolute discretion.
Section 3.15 Corporate Resolution and Certificate of Good Standing.
Lenders shall have received the following with respect to each of Borrower and
Sands Regent: (i) a Certificate of Good Standing issued no earlier than five (5)
Banking Business Days prior to the Closing Date by the Secretary of State for
the State of Nevada; and (ii) original Certificate of Corporate Resolution and
Certificate of Incumbency executed by the Secretary of the applicable
corporation and attested to by the President, Vice President, or Treasurer of
such corporation authorizing such corporation to enter into all documents and
agreements to be executed by it pursuant to this Loan Agreement and further
authorizing and empowering the officer or officers who will execute such
documents and agreements with the authority and
-20-
<PAGE> 21
power to execute such documents and agreements on behalf of such corporation.
Section 3.16 Opinion of Counsel. An opinion from counsel(s) of Borrower
and Sands Regent dated as of the Closing Date, to the effect that: (i) Borrower
has the full power and requisite corporate or other authority necessary for the
execution, delivery and performance of its obligations under the Loan Documents
and any other document, agreement, certificate or instrument executed by it in
connection with the Loan; (ii) Sands Regent has the full power and requisite
corporate or other authority necessary for the execution, delivery and
performance of its obligations under the Guaranty and any other document,
agreement, certificate or instrument executed by it in connection with the Loan;
(iii) each Loan Document to which Borrower or Sands Regent is a party and the
Environmental Certificate is valid and binding upon Borrower or Sands Regent, as
the case may be, and enforceable in accordance with its terms except as such
enforcement may be limited by bankruptcy, insolvency reorganization, moratorium
and other laws of general application relating to or affecting the enforcement
of creditors' rights and the exercise of judicial discretion in accordance with
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law); (iv) Borrower has duly authorized the taking
of any and all action necessary to carry out and give effect to the transactions
contemplated to be performed on its part by this Loan Agreement, the Note, the
Deed of Trust, the Financing Statements, the other Loan Documents, the
Environmental Certificate and any other document, agreement, certificate and
instrument executed by it in connection with the Loan; (v) Sands Regent has duly
authorized the taking of any and all action necessary to carry out and give
effect to the transactions contemplated to be performed on its part by the
Guaranty; and (vi) the transactions contemplated by the Loan Agreement will not
violate the usury laws of the State of Nevada.
Section 3.17 Title Insurance Policy. Endorsements to the Existing Title
Insurance Policy issued by the Existing Title Insurance Company, as determined
by Lenders, in their sole and absolute discretion, and a new title insurance
policy insuring the Additional Deed of Trust and the Second Deed of Trust
containing coverage and in an amount determined by Agent Bank, in its sole and
absolute discretion.
Section 3.18 Appraisal. Receipt by Lenders of the Appraisal which sets
forth a market value in an amount acceptable to Lenders for the Premises and
Hotel/Casino Operation and is acceptable to Lenders on the basis of each of
their respective policies for acceptance of appraisals on real property
collateral, which Appraisal Lenders have received and approved.
Section 3.19 Payment of Taxes. Affidavits, certificates, paid bills or
other assurance, evidencing that all past and current real and personal property
taxes and assessments which
-21-
<PAGE> 22
are presently due and payable applicable to the Real Property have been paid in
full.
Section 3.20 Insurance. Certified copies of the policies, together with
original certificates and loss-payable endorsements in favor of Lenders, of
insurance required by Section 5.6 hereof, accompanied by affidavits,
certificates, paid bills or other documents evidencing that all premium payments
are current.
Section 3.21 Reimbursement for Expenses and Fees. Reimbursement of Agent
Bank by Borrower for all reasonable costs and out-of-pocket expenses incurred by
Agent Bank in connection with the Loan, including, but not limited to, escrow
charges, title insurance premiums, recording fees, attorney's fees (which
attorneys' fees shall include Lenders' counsel fees and Nevada counsel fees
which amount shall not exceed $55,000 (exclusive of costs)), and all other like
expenses remaining unpaid as of the Closing Date. The legal fees of $55,000 is
allocated as follows: $12,500 in fees (exclusive of costs) for the period
prior to February 1, 1998 and $42,500 in fees (exclusive of costs) for the
period following February 1, 1998 through the Closing Date.
Section 3.22 Tenant Leases, Equipment Leases and Contracts. Copies of
all of the Tenant Leases, Equipment Leases and Contracts duly executed by the
parties thereto, with an assignment thereof.
Section 3.23 Hazardous Material Report. A recent environmental audit
report, prepared and certified by an environmental auditor acceptable to
Lenders, certifying that no toxic or hazardous substance, waste, pollutant or
contaminant (as those terms are defined or described in federal or Nevada state
laws) are presently stored or contained on, in or under any portion of the Real
Property or, in the alternative, recent environmental questionnaires completed
by Borrower in a form and containing information acceptable to Lenders.
Section 3.24 Financial Statements. Unaudited or audited financial
statements of the Sands Group dated as of the most recently ended Fiscal Quarter
and/or Fiscal Year, together with a certificate from the President, Vice
President or Treasurer of Borrower which shall state that the financial
condition of the Sands Group has not materially adversely changed since the date
of such financial statements.
Section 3.25 Certain Statements. On and as of the Closing Date the
following statements shall be true and correct:
(a) The representations and warranties contained in Article 4
hereof are true and correct in all material respects;
(b) The representations and certifications contained in the
Environmental Certificate are true and correct; and
-22-
<PAGE> 23
(c) No event has occurred or would occur and is continuing which
constitutes an Event of Default hereunder or would constitute an Event of
Default hereunder but for the requirement that notice be given or time elapsed,
or both.
Section 3.26 Agency Fee. Agent shall have received the Agency Fee which
was due and payable in April, 1997.
Section 3.27 Smith Barney Account. Agent shall have received evidence
satisfactory to Agent that a certain account held at Smith Barney and identified
as Account No. 519-38628-19 has been closed and the funds held therein have been
transferred to one of the Accounts.
Section 3.28 Additional Documents. Such additional documents,
affidavits, certificates and opinions as Lenders may reasonably require to
insure compliance with this Loan Agreement.
ARTICLE 4
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Lenders to enter into this Loan Agreement and to make the Loan
hereunder, Borrower makes the following representations and warranties which
shall be deemed to be continuing representations and warranties so long as any
amount hereunder shall be available for borrowing and until payment in full of
the Note:
Section 4.1 Organization; Power and Authorization. Borrower and Sands
Regent: (i) are each corporations duly organized and validly existing under the
laws of the State of Nevada; (ii) are each authorized to do business in the
State of Nevada; (iii) each have all requisite power, authority and legal right
to execute and deliver any document, agreement or certificate to which it is a
party or by which it is bound in connection with the Loan to consummate the
transactions and perform its obligations hereunder and thereunder, and to own
its properties and assets and to carry on and conduct its business as presently
conducted or proposed to be conducted; and (iv) have each taken all necessary
action to authorize the execution, delivery and performance of this Loan
Agreement and/or the other Loan Documents to which they are a party or by which
they are bound and to consummate the transactions contemplated hereunder and
thereunder.
Section 4.2 No Conflict With Violation of or Default Under Laws or Other
Agreements. Neither the execution and delivery of this Loan Agreement, the Note,
or any other Loan Document, or any other agreement, certificate or instrument to
which Borrower or Sands Regent is a party or by which Borrower or Sands Regent
is bound in connection with the Loan, nor the consummation of the
-23-
<PAGE> 24
transactions contemplated hereunder or thereunder, or the compliance with or
performance of the terms and conditions herein or therein, is prevented by,
limited by, conflicts in any material respect with, or will result in a material
breach or violation of, or a material default (with due notice or lapse of time
or both) under, or the creation or imposition of any material lien, charge, or
encumbrance of any nature whatsoever upon the property or assets of either
Borrower or Sands Regent by virtue of, the terms, conditions or provisions of:
(i) any indenture, evidence of indebtedness, loan or financing agreement, or
other agreement or instrument of whatever nature to which either of them is a
party or by which either of them is bound; or (ii) any provision of any existing
law, rule, regulation, order, writ, injunction or decree of any court or
Governmental Authority to which either them is subject.
Section 4.3 Litigation. To the best knowledge of Borrower, there is no
action, suit, proceeding, inquiry, hearing or investigation pending or
threatened, in any court of law or in equity, or before any Governmental
Authority, wherein an unfavorable determination, decision, decree, ruling or
finding would: (i) result in any material adverse change in the Hotel/Casino
Operation or in Borrower's or Sands Regent's business, financial condition,
properties or operations; (ii) result in any material adverse change in the
business financial condition, properties or operations of Sands Regent; (iii)
materially adversely affect the transactions contemplated by this Loan Agreement
and the other Loan Documents and Borrower's or Sands Regent's ability to perform
their respective obligations hereunder and thereunder; or (iv) materially
adversely affect the validity or enforceability of this Loan Agreement and the
other Loan Documents. To the best knowledge of Borrower, it is not in violation
of or default with respect to any order, writ, injunction, decree or demand of
any such court or Governmental Authority.
Section 4.4 Agreements Legal Binding Valid and Enforceable. This Loan
Agreement, the Note, the Deed of Trust, and all other Loan Documents when
executed and delivered by Borrower and/or Sands Regent (as applicable), in
connection with the Loan will constitute legal, valid and binding obligations of
Borrower and/or Sands Regent, enforceable against Borrower and/or Sands Regent
in accordance with their respective terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium and other laws of
general application relating to or affecting the enforcement of creditors'
rights and the exercise of judicial discretion in accordance with general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
Section 4.5 Information and Financial Data Accurate; Financial
Statements; No Adverse Change. All information and financial and other data
previously furnished by Borrower in the financial statements referred to in
Section 3.24 hereof is true,
-24-
<PAGE> 25
correct and complete as of the date thereof, and there has been no material
adverse change with respect thereto since the date thereof. No information has
been omitted which would make the information previously furnished in such
financial statements to Lenders misleading or incorrect in any material respect.
Any and all financial statements heretofore furnished to Lenders by Borrower,
pursuant to Section 3.24 hereof: (i) present fairly the financial position of
the entity to which they relate as at their respective dates and the results of
operations and changes in financial position for the periods to which they
apply; and (ii) have been prepared in conformity with GAAP applied on a
consistent basis throughout the periods involved. Since the date of the
financial statements referred to in this Section, there has been no material
adverse change in the financial condition, assets, liabilities, business or
operations of Borrower.
Section 4.6 Governmental Approvals. All timely consents, approvals,
orders or authorizations of, or registrations, declarations, notices or filings
with any Governmental Authority which may be required in connection with the
valid execution and delivery of this Loan Agreement and the other Loan Documents
by Borrower and the carry-out or performance of any of the transactions required
or contemplated hereunder, or thereunder, by Borrower, have been obtained or
accomplished and are in full force and effect, or can be obtained by Borrower.
Section 4.7 Payment of Taxes. Borrower has duly filed or caused to be
filed all federal, state and local tax reports and returns which are required to
be filed by it and has paid or made provisions for the payment of, all taxes,
assessments, fees and other governmental charges which have become due pursuant
to said returns or otherwise pursuant to any assessment received by Borrower
except such taxes, if any, as are being contested in good faith by Borrower by
appropriate proceedings and for which Borrower has maintained adequate reserves
in accordance with GAAP.
Section 4.8 Title to Properties. Borrower has or as of the Closing Date
will have good and marketable title to the Real Property and all of its
properties and assets reflected in the financial statements referred to in
Section 3.24 hereof as owned by it (except those properties and assets disposed
of since the date of said financial statements in the ordinary course of
business or those properties and assets which are no longer used or useful in
the conduct of its business). None of the Collateral is subject to any liens,
encumbrances or restrictions other than Permitted Encumbrances. As of the date
of the financial statements referred to in Section 3.24, none of the property of
Borrower, which is not Collateral, is subject to any material liens,
encumbrances or restrictions other than those liens, encumbrances and
restrictions which are reflected in such financial statements and the notes
thereto.
-25-
<PAGE> 26
Section 4.9 No Untrue Statements. All statements, representations and
warranties made by Borrower concerning either Borrower or Sands Regent in this
Loan Agreement, any other Loan Document and any other agreement, document,
certificate or instrument previously furnished or to be furnished by Borrower to
Lenders under this Loan Agreement: (i) are and shall be true, correct and
complete in all material respects, at the time they were made and on and as of
the Closing Date; (ii) do not and shall not contain any untrue statement of a
material fact; and (iii) do not and shall not omit to state a material fact
necessary in order to make the information contained herein or therein not
misleading or incomplete. Borrower understands that all such statements,
representations and warranties shall be deemed to have been relied upon by
Lenders as a material inducement to make the Loan.
Section 4.10 Brokerage Commissions. Except as previously disclosed in
writing to Lenders, no Person, other than a Lender, or a Person claiming through
a Lender, is entitled to receive any brokerage commission, finder's fee or
similar fee or payment in connection with the consummation of the transactions
contemplated by this Loan Agreement. No brokerage or other fee, commission or
compensation is to be paid by Lenders with respect to the transactions
contemplated hereby, and Borrower agrees to indemnify Lenders against any such
claims for brokerage fees or commissions and to pay all expenses including,
without limitation, reasonable attorney's fees incurred by Lenders in connection
with the defense of any action or proceeding brought to collect any such
brokerage fees or commissions.
Section 4.11 No Defaults. Borrower is not in violation of or in default
with respect to any applicable laws and/or regulations, which violation or
default materially and adversely affects the Real Property or the business,
financial condition, property or operations of Borrower or the Hotel/Casino
Operation. Borrower is not in violation or default (nor is there any waiver in
effect which, if not in effect, would result in a violation or default) in any
material and adverse respect under any indenture, evidence of indebtedness, loan
or financing agreement or other agreement or instrument of whatever nature to
which it is a party or by which it is bound (except for any defaults previously
brought to Lenders' attention in writing, for which Borrower has received a
waiver from Lenders), a default under which materially adversely affect the Real
Property or the business, financial condition, properties or operations of
Borrower or of the Hotel/Casino Operation.
Section 4.12 Employment Retirement Income Security Act of 1974. No
Reportable Event has occurred and is continuing with respect to any Plans under
ERISA, that gives rise to liabilities that materially adversely affect the
financial condition or operations of Borrower or Sands Regent.
-26-
<PAGE> 27
Section 4.13 Policies of Insurance. Each of the copies of the Policies
of Insurance relating to the Real Property, which have been delivered to Lenders
by Borrower: (i) is a true, correct and complete copy of the respective original
thereof as in effect on the date hereof, and no amendments or modifications of
any of said documents or instruments not included in such copies have been made;
and (ii) has not been terminated and is in full force and effect. Borrower is
not in default in the observance or performance of its obligations under said
policies, and Borrower has done all things required to be done as of the date of
this Loan Agreement to keep unimpaired its rights thereunder.
Section 4.14 Equipment Leases and Contracts. A true and complete list of
all executed Equipment Leases and Contracts pertaining to the Real Property, or
any portion thereof, in existence as of the Closing Date, is set forth in
Exhibit "D" attached hereto.
Section 4.15 Tenant Leases. A true and complete list of all executed
Tenant Leases pertaining to the Real Property, or any portion thereof, in
existence as of the Closing Date, is set forth in Exhibit "F" attached hereto.
Section 4.16 Gaming Licenses. To the best knowledge of Borrower, all
gaming licenses required to be held by Borrower are current and in good standing
and Borrower presently holds all gaming licenses necessary for the Hotel/Casino
Operation.
Section 4.17 Environmental Certificate. The representations and
certifications contained in the Environmental Certificate are true and correct.
Section 4.18 Existing Patrician Investment. The amount of the Existing
Patrician Investment is at least $6,800,000.00.
Section 4.19 Governmental Regulations. Borrower is not subject to
regulation under the Investment Company Act of 1940, the Federal Power Act, the
Public Utility Holding Company Act of 1935, the Interstate Commerce Act or any
federal or state statute or regulation limiting its ability to incur
indebtedness for money borrowed.
Section 4.20 Employee Benefit Plans. Other than Borrower's existing
401(k) employer noncontributing retirement plan, Borrower neither maintains nor
participates in any pension, retirement, profit-sharing or similar employee
benefit plan that is subject to any provision of the Employee Retirement Income
Security Act of 1974, as amended from time to time.
Section 4.21 Securities Activities. Borrower is not engaged principally
or significantly in the business of extending credit for the purpose of
purchasing or carrying any "Margin Stock" (as defined in Regulation U of the
Board of Governors of
-27-
<PAGE> 28
the Federal Reserve System in effect from time to time) and not more than
twenty-five percent (25%) of the value of Borrower's assets consists of such
Margin Stock. No part of the proceeds of the Loan will be used to purchase or
carry any Margin Stock or for any other purpose that violates the provisions of
Regulations U or X of the Board of Governors of the Federal Reserve System.
Section 4.22 Management Agreement. No third party management agreement
has been executed by Borrower or otherwise exists affecting the Real Property or
the Hotel/Casino Operation.
Section 4.23 Other Agreements. No other material agreements, contracts
or understandings exist with respect to the Real Property other than as
disclosed in the list of agreements set forth in the exhibits attached to this
Agreement.
Section 4.24 Accounts. Borrower holds no other accounts of any kind or
nature other than the Accounts identified in Exhibit "H" attached hereto.
Borrower is the owner and has possession and control of the Accounts. The
Accounts are genuine, free from liens, adverse claims, set-offs, defaults,
prepayments, defenses or conditions precedent of any kind or character, other
than the rights of setoff provided to Lenders under the Loan Documents and other
than the right of setoff in favor of Prudential Security in connection with
Account No. ORV- 952251-28 held at Prudential Security. No financing statement
covering any of the Accounts is on file in any public office, and Borrower has
not allowed any party to perfect a security interest in any Account by control
or otherwise.
ARTICLE 5
---------
COVENANTS OF BORROWER
---------------------
To induce Lenders to enter into this Loan Agreement, Borrower covenants
to Lenders as follows:
Section 5.1 Permits; Licenses and Legal Requirements. Borrower shall
comply in all material respects with and keep in full force and effect, as and
when required, all permits, licenses and approvals obtained from any
Governmental Authorities which are required for the continued operation and use
of the Premises as a first class hotel/casino facility. Borrower shall comply in
all material respects with all applicable material existing and future laws,
rules, regulations, orders, ordinances and requirements of all Governmental
Authorities, and with all recorded restrictions affecting the Real Property.
Section 5.2 No Change in Character of Business. At all times throughout
the term of the Loan: (i) the Real Property shall be operated by Borrower; and
(ii) Borrower shall not effect a material change in the nature and character of
its business as presently conducted and as presently contemplated.
-28-
<PAGE> 29
Section 5.3 Preservation and Maintenance of Properties and Assets. To
the extent permitted by Sections 5.14 and 5.15, at all times throughout the term
of the Loan: (i) Borrower shall operate, maintain and preserve all material
rights, privileges, franchises, licenses, gaming licenses and other properties
and assets necessary to conduct its business, in accordance with all applicable
governmental laws, ordinances, approvals, rules and regulations and
requirements, including, but not limited to, zoning, sanitary, pollution,
building, environmental and safety laws and ordinances, rules and regulations
promulgated thereunder; and (ii) Borrower shall not remove, demolish, materially
alter, discontinue the use of, sell, transfer, assign, hypothecate or otherwise
dispose of to any Person, any part of its properties and assets necessary for
the continuance of its Hotel/Casino Operation, as presently conducted and as
presently contemplated, other than in the normal course of Borrower's business.
Borrower shall not allow any divestment of Borrower's title in a material
portion of the Collateral, nor shall Borrower allow any involuntary divestment
of Borrower's title in a material portion of the Collateral, unless the value of
such divestment is covered by insurance or by governmental reimbursement.
Section 5.4 Repair of Properties and Assets. To the extent permitted by
Sections 5.14 and 5.15, at all times throughout the term of the Loan, Borrower
shall, at its own cost and expense: (i) maintain, preserve and keep in a manner
consistent with hotel and gaming casino operating practices applicable to a
hotel/casino operation operating in the Reno area, its assets and properties
which are utilized in its Hotel/Casino Operation, including, but not limited to,
the Collateral and all FF&E leased by Borrower in good and substantial repair,
working order and condition, ordinary wear and tear excepted; (ii) from time to
time, make or cause to be made, all necessary and proper repairs, replacements,
renewals, improvements and betterments thereto; and (iii) from time to time,
make such substitutions, additions, modifications and improvements as may be
necessary but so as to not impair the structural integrity and economic value of
said assets and properties. All alterations, replacements, renewals, or
additions made pursuant to this Section shall become and constitute a part of
said assets and property and subject, inter alia, to the provisions of Section
5.3 and subject to the lien of the Deed of Trust and Financing Statements, to
the extent set forth therein.
Section 5.5 Financial Statements: Reports and Books and Records.
(a) At all times throughout the term of the Loan, Borrower and
Sands Regent shall each keep and maintain complete and accurate books and
records in accordance with GAAP, consistently applied. Borrower and Sands Regent
shall each permit Lenders and any authorized representatives of Lenders to have
reasonable access to and to inspect, examine and make copies
-29-
<PAGE> 30
of the books and records, any and all accounts, data and other documents of
Borrower and Sands Regent at all reasonable times upon the giving of reasonable
notice of such intent. In addition: (i) in the event that any Event of Default,
or an event which upon the giving of notice or the passage of time would
constitute an Event of Default occurs; or (ii) in the event of any material
litigation or a material adverse change occurs in the financial condition of
either Borrower or Sands Regent, then in either or both of such events Borrower
and/or Sands Regent shall promptly notify Lenders of such occurrence.
(b) Company prepared unaudited quarterly financial statements of
Borrower and company prepared unaudited quarterly financial statements of Sands
Regent, each including a Balance Sheet and a Statement of Profit and Loss, shall
be submitted to Lenders within forty-five (45) days after the end of each Fiscal
Quarter (collectively the "QUARTERLY FINANCIAL STATEMENTS"). Additionally, the
Quarterly Financial Statements shall be in such a format that they can readily
be reconciled to the Annual Financial Statements (which are referred to below)
for the most recently completed Fiscal Year. Annual audited financial statements
of the Sands Regent, prepared on a consolidated basis, and annual audited
financial statements of Borrower, each including a Balance Sheet and a Statement
of Profit and Loss (collectively the "ANNUAL FINANCIAL STATEMENTS") shall be
submitted by Borrower to Lenders within 120 days of the end of each Fiscal Year,
which Annual Financial Statements shall be certified with an unqualified opinion
by Deloitte & Touche or any other firm of independent certified public
accountants which are first approved by Lenders, together with a copy of the
auditor's letter to management accompanying such reports, if any. Concurrently
with the submission of the Annual Financial Statements such independent
certified public accountants shall additionally furnish to Lenders a Compliance
Certificate, in the form described hereinbelow, certifying that such independent
certified public accountant has no actual knowledge of any Event of Default or
event which with the giving of notice or the passage of time, or both, would
constitute an Event of Default. Within forty-five (45) days after the end of
each Fiscal Quarter, Borrower shall furnish Lenders with a Compliance
Certificate completed and signed by: (i) the Chief Financial Officer of Borrower
declaring whether or not Borrower is in full compliance with all terms,
provisions and covenants required of Borrower in this Loan Agreement; and (ii)
the Chief Financial Officer of Sands Regent declaring whether or not Sands
Regent is in full compliance with all terms, provisions and covenants required
of Sands Regent in this Loan Agreement. A copy of such Compliance Certificate is
marked Exhibit "E", affixed hereto and by this reference incorporated herein and
made a part hereof.
(c) Throughout the term of the Loan, Borrower and/or Sands Regent
shall furnish to Lenders any financial information or other information bearing
on the financial status of the Loan which is reasonably requested by Lenders
through Agent Bank.
-30-
<PAGE> 31
(d) Internally prepared unaudited quarterly financial statements
of the Patrician Joint Venture, including a Balance Sheet and a Statement of
Profit and Loss, shall be submitted to Lenders within sixty (60) days after the
end of each fiscal quarter of the Patrician Joint Venture and annual audited
financial statements of the Patrician Joint Venture, also including a Balance
Sheet and a Statement of Profit and Loss shall be submitted to Lenders within
one hundred twenty (120) days after the end of each fiscal year of the Patrician
Joint Venture, which annual financial statements shall be certified with an
unqualified opinion by a national accounting firm which is commonly referred to
as a "Big Six Accounting Firm" or any other firm of independent certified public
accountants which are first approved by Lenders.
Section 5.6 Insurance. Borrower shall obtain, or cause to be obtained,
and shall maintain or cause to be maintained, at all times throughout the term
of the Loan, at its own cost and expense, and shall deposit with Lenders on or
before the Closing Date, policies or certified copies of policies of fire,
hazard insurance with extended coverage, reasonably acceptable to Lenders,
issued by a company or companies authorized to issue such insurance within the
State of Nevada, insuring all buildings, improvements and contents on the Real
Property in an amount equal to the maximum full insurable value of such
buildings, improvements, furnishings, fixtures and equipment with property
damage, public liability, and such other insurance coverage as Lenders may
reasonably require. Mud and flood insurance shall be obtained to the full extent
if it is required by applicable banking regulations for the insured Real
Property. All policies shall provide that the insurer shall notify Lenders in
writing not less than thirty (30) days prior to the cancellation of any such
policy and afford Lenders the opportunity to cure any default as a result of
which the policy is to be canceled. The property damage and public liability
insurance policies shall name Lenders as additional insureds and shall contain
minimum limits of coverage reasonably acceptable to Lenders. Certified copies of
policies, or certificates thereof, shall be delivered to and held by Lenders and
shall contain a Mortgagee's endorsement naming Lenders as additional loss
payees.
Section 5.7 Taxes. Throughout the term of the Loan, Borrower shall
prepare and timely file all federal, state and local tax returns required to be
filed by it, and Borrower shall promptly pay and discharge when due all taxes,
assessments and other governmental charges or levies imposed upon it, or in
respect of any of its properties and assets except such taxes, if any, as are
being contested in good faith by Borrower as provided in Section 4.7 herein.
Section 5.8 Permitted Encumbrances Only. At all times throughout the
term of the Loan, Borrower shall not create, incur, assume or suffer to exist
any mortgage, deed of trust, pledge, lien, security interest, encumbrance,
attachment, levy,
-31-
<PAGE> 32
distraint, or other judicial process and burdens of every kind and nature except
the Permitted Encumbrances on or with respect to the Collateral and with respect
to matters described in Section 5.7. However, with respect to all tax lien
contests and all other liens involving amounts in excess of $100,000 in the
aggregate, Borrower shall give written notice thereof to Agent Bank promptly
following Borrower's discovery thereof.
Section 5.9 Advances. At any time during the term of the Loan, if
Borrower should fail: (i) to perform or observe; or (ii) to cause to be
performed or observed, any covenant or obligation of Borrower under this Loan
Agreement or any of the other Loan Documents, then Lenders, upon the giving of
reasonable notice, may (but shall be under no obligation to) take such steps as
are necessary to remedy any such non-performance or non-observance and provide
for payment thereof. All amounts advanced by Lenders pursuant to this Section
shall become an additional obligation of Borrower to Lenders secured by the Deed
of Trust and other Loan Documents and shall become due and payable by Borrower
on the next interest payment date after Borrower receives notice of the amount,
together with interest thereon at a rate per annum equal to the Default Rate
(such interest to be calculated from the date of such advancement to the date of
payment thereof by Borrower).
Section 5.10 Further Assurances. Borrower will do, execute, acknowledge
and deliver, or cause to be done, executed, acknowledged and delivered, such
amendments or supplements hereto or to any of the Loan Documents or the
Environmental Certificate and such further documents, instruments and transfers
as Lenders may require for the curing of any defect in the execution or
acknowledgement hereof or in any of the Loan Documents or the Environmental
Certificate, or in the description of the Real Property or other Collateral or
for the proper evidencing of giving notice of each lien or security interest
securing repayment of the Loan. Further, upon the execution and delivery of the
Deed of Trust, each of the other Loan Documents and the Environmental
Certificate and thereafter, from time to time, Borrower shall fully cooperate in
causing the Deed of Trust, each of the other Loan Documents and the
Environmental Certificate and each amendment and supplement thereto to be filed,
registered and recorded and to be refiled, re-registered and re-recorded in such
manner and in such places as may be required by Lenders, in order to publish
notice of and fully protect the liens of the Deed of Trust, the other Loan
Documents and the Environmental Certificate and to protect or continue to
perfect the security interests created by the Deed of Trust and other Loan
Documents in the Real Property and Collateral and to perform or cause to be
performed from time to time any other actions required by law and execute or
cause to be executed any and all instruments of further assurance that may be
necessary for such publication, perfection, continuation and protection.
-32-
<PAGE> 33
Section 5.11 Indemnification. Borrower agrees to and does hereby
indemnify, protect, defend and save harmless each Lender and their respective
trustees, officers, employees, agents, attorneys and shareholders from and
against any and all losses, damages, expenses or liabilities of any kind or
nature from any suits, claims, or demand, including reasonable counsel fees
incurred in investigating or defending such claim, suffered by any of them and
caused by, relating to, arising out of, resulting from, or in any way connected
with this Loan Agreement and the transactions contemplated herein, unless caused
by: (i) the gross negligence or intentional misconduct of such Lender, its
officers, agents, and employees; or (ii) the material breach of this Loan
Agreement by such Lender. In case any action shall be brought against a Lender
based upon any of the above and in respect of which indemnity may be sought
against Borrower, such Lender shall promptly notify Borrower in writing, and
Borrower shall assume the defense thereof, including the employment of counsel
selected by Borrower and reasonably satisfactory to such Lender, the payment of
all costs and expenses and the right to negotiate and consent to settlement.
Upon reasonable determination made by such Lender, such Lender shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, and Borrower agrees to pay a reasonable attorney's fee of any
such separate counsel, which is employed due to a conflict of interest. Borrower
shall not be liable for any settlement of any such action effected without its
consent, but if settled with Borrower's consent, or if there be a final judgment
for the claimant in any such action, Borrower agrees to indemnify and save
harmless each Lender from and against any loss or liability by reason of such
settlement or judgment, unless such loss or liability is caused by the gross
negligence or intentional misconduct of any Lender, its officers, agents or
employees, or by the material breach of this Loan Agreement by any Lender. The
provisions of this Section shall survive the termination of this Loan Agreement
and the repayment of the Loan. If only one or more (but less than all) of the
Lenders are guilty of gross negligence, intentional misconduct or material
breach of this Loan Agreement, as contemplated by this Section, such conduct
shall not release Borrower from any obligation, which it would otherwise have
hereunder, to indemnify those Lenders which are not guilty of such conduct.
Section 5.12 Inspection of the Real Property. At all times during the
Term Period, Borrower shall provide or cause to be provided to Lenders and any
authorized representatives of Lenders, accompanied by representatives of
Borrower, the reasonable right of entry and free access to the Real Property to
inspect same on reasonable prior notice to Borrower.
Section 5.13 Compliance With Other Loan Documents. Borrower shall comply
with each and every term, condition and agreement contained in the Loan
Documents which are applicable to Borrower.
-33-
<PAGE> 34
Section 5.14 Negative Covenants of Borrower and Sands Regent. Until the
payment in full of all sums owing hereunder or under the Note, Borrower (and/or
where applicable, Sands Regent) agree they will comply or cause compliance with
the following Negative Covenants:
(a) Borrower shall not consolidate with or merge into, or sell
(whether in one transaction or in a series of transactions) all or substantially
all of its assets to any Person without the prior written consent of Lenders.
(b) Borrower shall not create any Subsidiaries without the prior
written consent of Lenders.
(c) Other than as set forth in Section 5.14(d)(bb) hereinbelow,
Borrower shall not make or advance Distributions of any kind or character
whatsoever to Sands Regent without the prior written consent of Lenders.
(d) Other than investments which were held by Borrower prior to
October 3, 1991, Borrower shall not make any investments (whether by way of
loan, stock purchase, capital contribution, or otherwise) or guaranty any
indebtedness other than the following:
(aa) Investments in: (x) obligations backed by the full
faith and credit of the United States Government maturing not more than
one (1) year after the date of acquisition thereof; (y) open market
commercial paper issued by any corporation organized and doing business
under the laws of the United States of America or any State thereof,
with a maturity not in excess of nine (9) months from the date of
acquisition thereof which has the highest credit rating by either
Standard & Poor's Corporation or Moody's Investor Service, Inc.; (z)
certificates of deposit issued by any bank, trust company or savings and
loan association organized under the laws of the United States of
America or any State thereof having a combined capital and surplus of
not less than Thirty Million Dollars ($30,000,000.00) and maturing not
more than one (1) year after the date of such acquisition thereof; (xx)
short term repurchase agreements relating to obligations of the kind set
forth in (a) above with commercial banks having a combined capital and
surplus of not less than One Hundred Million Dollars ($100,000,000.00);
(yy) Investment grade (rated "A-" or better by Standard and Poors or
given an equivalent rating by a commonly used bond rating institution)
tax free bonds; and (zz) shares of a money market investment company
registered under the Investment Company Act of 1940 investing primarily
in one or more of the short term instruments in clauses (a) through (e)
above and having assets in excess of One Hundred Million Dollars
($100,000,000.00).
-34-
<PAGE> 35
(bb) Loans to Sands Regent provided that the advanced and
unpaid principal amount under such Loans shall not exceed One Million
Dollars ($1,000,000.00) outstanding at any one time.
(cc) Advances or loans to employees provided that the
aggregate of such advances or loans do not exceed Two Hundred Fifty
Thousand Dollars ($250,000.00) outstanding at any one time.
(dd) Investments received by Borrower in settlement of
disputed obligations with customers or suppliers in the ordinary course
of business.
(ee) Borrower shall be permitted to engage in, or incur
obligations under, the following:
(aaa) Indorsement of negotiable instruments for
deposit or collection in the ordinary course of business.
(bbb) Interest rate or currency swap, cap or collar
agreements entered into by Borrower in the ordinary course of its
business for hedging purposes.
(ccc) Surety and appeal bonds and reimbursement
obligations for letters of credit obtained in the ordinary course
of business.
(e) Other than investments which were held by Sands Regent prior
to October 3, 1991, Sands Regent shall not make any investments (whether by way
of loan, stock purchase, capital contribution, or otherwise) or guaranty any
indebtedness other than the following:
(aa) Investments in: (x) obligations backed by the full
faith and credit of the United States Government maturing not more than
one (1) year after the date of acquisition thereof; (y) open market
commercial paper issued by any corporation organized and doing business
under the laws of the United States of America or any State thereof,
with a maturity not in excess of nine (9) months from the date of
acquisition thereof which has the highest credit rating by either
Standard & Poor's Corporation or Moody's Investor Service, Inc.; (z)
certificates of deposit issued by any bank, trust company or savings and
loan association organized under the laws of the United States of
America or any State thereof having a combined capital and surplus of
not less than Thirty Million Dollars ($30,000,000.00) and maturing not
more than one (1) year after the date of such acquisition thereof; (xx)
short term repurchase agreements relating to obligations of the kind set
forth in (a) above with commercial banks having a combined capital and
surplus of not less than One Hundred Million Dollars
-35-
<PAGE> 36
($100,000,000.00); (yy) Investment grade (rated "A-" or better by
Standard and Poors or given an equivalent rating by a commonly used bond
rating institution) tax free bonds; and (zz) shares of a money market
investment company registered under the Investment Company Act of 1940
investing primarily in one or more of the short term instruments in
clauses (a) through (e) above and having assets in excess of One Hundred
Million Dollars ($100,000,000.00).
(bb) Loans or capital contributions to Gulfport
Subsidiaries, or either of them, in an aggregate amount not to exceed an
amount which is determined by subtracting: (i) the amount of the
Existing Patrician Investment; from, (ii) the Maximum Gulfport
Investment; provided that such loans or capital contributions constitute
Qualified Gulfport Investments.
(cc) Loans or capital contributions (other than Qualified
Gulfport Investments) to any Person, provided that the aggregate amount
advanced to all such Persons does not exceed: (i) One Million Dollars
($1,000,000.00); less, (ii) the aggregate amount of capital expenditures
made, additional fixed assets acquired and capital leases entered into
by Sands Regent subsequent to the Closing Date; and less, (iii)
Borrower's Permissive Capital Expenditures.
(dd) Advances or loans to employees provided that the
aggregate of such advances or loans do not exceed Two Hundred Fifty
Thousand Dollars ($250,000.00) outstanding at
any one time.
(ee) Investments received by Sands Regent in settlement of
disputed obligations with customers or suppliers in the ordinary course
of business.
(ff) Sands Regent shall be permitted to engage in, or
incur obligations under, the following:
(aaa) Indorsement of negotiable instruments
for deposit or collection in the ordinary course of
business.
(bbb) Interest rate or currency swap, cap or collar
agreements entered into by Sands Regent in the ordinary course of
its business for hedging purposes.
(ccc) Surety and appeal bonds and reimbursement
obligations for letters of credit obtained in the ordinary course
of business.
Section 5.15 Financial Covenants of Borrower and Sands Regent. Until the
payment in full of all sums owing hereunder or
-36-
<PAGE> 37
under the Note, Borrower (and/or where applicable, Sands Regent) agree they will
comply or cause compliance with the following Financial Covenants:
(a) Notwithstanding the provisions contained in Section 5.3,
Borrower shall not, without the prior written consent of Lenders, make capital
expenditures or acquire additional fixed assets or equipment or enter into
capital leases in an aggregate amount during any applicable Fiscal Year, in an
amount not less than ninety percent (90%) and not more than one hundred ten
percent (110%) of the total amount set forth in the Business Plan Projections,
unless otherwise approved by Lenders in writing. Capital Expenditures shall only
be used for the purpose of improving or maintaining the Premises and shall be
measured by Lenders annually on the Borrower's fiscal year basis.
(b) At all times during the term of the Loan, Borrower must
achieve, on a rolling four quarter basis, EBITDA of at least ninety percent
(90%) of the EBITDA set forth in Borrower's Business Plan Projections.
(c) Borrower shall provide Lenders, on a quarterly basis, with a
reconciliation of actual EBITDA and Capital Expenditures (with supporting
calculations) as compared to the EBITDA and Capital Expenditures line items set
forth in Business Plan Projections.
Section 5.16 Suits or Actions Affecting Borrower. Throughout the term of
the Loan, Borrower shall promptly advise Lenders in writing within ten (10) days
of Borrower's knowledge thereof of: (i) any claims, litigation, proceedings or
disputes against, or to the actual knowledge of Borrower, threatened or
affecting Borrower or Sands Regent, which, if adversely determined, would have a
material adverse effect on the Real Property or the business, operations,
properties or financial conditions of Borrower or Sands Regent; (ii) any
material labor controversy resulting in a strike against the Real Property; or
(iii) any proposal by any Governmental Authority to acquire any of the material
assets or business of Borrower.
Section 5.17 Account Analysis of Operating Accounts. In the event that
the cost to Agent Bank of maintaining any operating and payroll accounts
maintained by Borrower or Sands Regent at a branch of the Agent Bank during the
duration of the Loan exceeds the fee and interest income earned by Agent Bank
with respect to any such account, in accordance with quarterly analysis reports
as prepared and submitted from time to time by Agent Bank to Borrower, then, in
that event, Borrower shall reimburse Agent Bank for each such loss which is so
determined.
Section 5.18 Additional Properties. In the event that any properties
which are now owned or hereafter acquired by Borrower hereafter become part of
the Real Property, Borrower agrees to execute such documents or instruments as
may be requested by
-37-
<PAGE> 38
Lenders for the purpose of encumbering such property as additional Collateral
for the Loan, which documents and instruments shall be negotiated in good faith
and promptly executed by Borrower and delivered to Lenders immediately
thereafter. Furthermore, Borrower agrees to give written notice to Agent Bank
within ten (10) days of the date such property or portions of such property
commence being used in any material respect in connection with the Hotel/Casino
Operation.
Section 5.19 Notice to State Gaming Control Board. Borrower shall make
all required reports and disclosures to the Nevada State Gaming Control Board,
including, but not limited to, reporting this Loan transaction as required by
Regulation 8.130(2) of the Regulations of Nevada Gaming Commission and State
Gaming Control Board. Lenders shall reasonably cooperate with Borrower in
providing any information or signatures required in connection therewith.
Section 5.20 Tradenames, Trademarks and Servicemarks. Borrower shall not
assign or in any other manner alienate its interest in any tradenames,
trademarks or servicemarks relating or pertaining to the Premises or the
Hotel/Casino Operation during the term of the Loan.
Section 5.21 Notice of Hazardous Materials. Within ten (10) days after
an executive officer of Borrower obtaining actual knowledge thereof, Borrower
shall immediately advise Lenders in writing of: (i) any and all enforcement,
clean-up, removal or other governmental or regulatory actions instituted,
completed or threatened pursuant to any applicable federal, state or local laws,
ordinances or regulations relating to any Hazardous Materials (as defined in the
Environmental Certificate) affecting the Real Property ("HAZARDOUS MATERIALS
LAWS"); (ii) all material claims made or threatened by any third party against
Borrower or the Real Property relating to damage, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous Materials (the matters
set forth in clauses (i) and (ii) above are hereinafter referred to as
"HAZARDOUS MATERIALS CLAIMS"); and (iii) the discovery of any occurrence or
condition on any real property adjoining or in the vicinity of the Real Property
that could cause Borrower or any part thereof to be classified as a "borderzone
property" under the provisions of, or to be otherwise subject to any
restrictions on the ownership, occupancy, transferability or use of the Real
Property under, any Hazardous Materials Laws.
Section 5.22 Leases and Contracts. Borrower shall not enter into any
contracts or leases affecting the Real Property without the prior written
consent of Lenders, other than the following:
(a) With respect to leases, Borrower shall be entitled to enter
into space leases within the Real Property so long as such space leases are with
non-affiliated third parties at
-38-
<PAGE> 39
prevailing market rents, consistent with the Business Plan Projections, have a
term of not more than five (5) years, cover no more than 5,000 square feet and
are on Borrower's standard form lease which has been utilized with respect to
the existing leases.
(b) With respect to any other contracts, Borrower shall be
entitled to enter into contracts without the prior written consent of Lenders so
long as such contracts are with non-affiliated third parties at prevailing
market rates, do not have a term longer than five (5) years, do not require
expenditures by Borrower of more than $150,000 per year and are consistent with
the Business Plan Projections.
With respect to the leases and contracts which Borrower is permitted to execute
without the prior written consent of Lenders, Borrower agrees to provide Lenders
with copies of such leases and contracts immediately upon execution thereof.
Section 5.23 Lease Approvals. Subject to Section 5.22, Borrower shall
submit to Lenders any leases of space in the Real Property which are ready for
signature. The tenant and each lease shall be subject to the approval of
Lenders, other than with respect to leases described in Section 5.22, which do
not require prior consent of Lenders. Lenders may request such financial or
other information with respect to the proposed tenant as it shall deem
necessary.
Section 5.24 Books and Records. Borrower shall keep, at its principal
place of business or at the Premises, the records, books of accounting and other
documents, reports and papers relating to the operation of the Real Property.
Lenders shall be entitled, at any reasonable time, to inspect the Real Property,
all records relating thereto, and the books and other financial records of
Borrower and Sands Regent, wherever located, and Borrower shall cooperate with
Lenders in enabling Lenders to accomplish such inspection and permit Lenders to
make such copies as Lenders may request.
Section 5.25 Compliance with Contracts. Borrower shall comply with the
material terms of all Equipment Leases, Leases and Contracts. Borrower will not
materially amend any of the Equipment Leases, Leases and Contracts without the
prior written consent of Lender and will not terminate any of the Equipment
Leases, Leases and Contracts or accept a surrender thereof, or waive, excuse,
condone or in any manner release or discharge any party to any of the Equipment
Leases, Leases and Contracts from the obligations and agreements of such party
to be performed thereunder without the prior written consent of Lenders.
Section 5.26 Title Exceptions. Borrower shall not impose any restrictive
covenants, easements, rights of way or encumbrances upon the Real Property
without the prior written consent of Lenders.
-39-
<PAGE> 40
Section 5.27 Lenders' Expenses. Subsequent to the Closing Date, Borrower
shall pay all reasonable expenses directly or indirectly incurred in connection
with the Loan and its administration and enforcement. All such fees and expenses
shall be paid promptly upon the submission of statements therefor. Upon an Event
of Default, Borrower shall pay all reasonable costs and expenses of any
appraisal or reappraisal of the Premises as required by laws or regulations
affecting Lenders.
Section 5.28 No Further Liens. All equipment, personal property,
fixtures and other property subject to the lien of the security interest granted
to Lenders in the Deed of Trust shall be fully paid for by Borrower, and no
security interest, lien or other encumbrance, other than that granted to Lenders
and the Permitted Encumbrances, shall exist thereon.
Section 5.29 Removal of Liens. If at any time an encumbrance, lien or
charge is placed or claimed upon the Real Property, Borrower shall satisfy and
remove such encumbrance, lien or charge by bonding or by other method
satisfactory to Lenders or cause the Existing Title Insurance Company to provide
affirmative coverage over such liens, as Lenders may require. In addition to all
other rights and remedies of Lenders referred to in this Loan Agreement, if such
encumbrance, lien or charge is not removed within thirty (30) days, Lenders, at
their sole discretion, may pay off the same, and Borrower shall reimburse
Lenders within five (5) days of Lender's demand for payment.
Section 5.30 Notices Received. Borrower shall comply with and promptly
furnish to Lenders true and complete copies of any notices pertaining to the
Real Property by any governmental agency, or any other political subdivision in
which the Real Property is located or which exercises jurisdiction over Borrower
or the Real Property. Borrower shall promptly notify Lenders of any fire or
other casualty or any notice of taking or eminent domain proceeding affecting
the Real Property.
Section 5.31 No Transfer or Further Encumbrance. So long as any amount
or obligation is outstanding by Borrower to Lenders under any of the Loan
Documents, Borrower will not, without the prior written consent of Lenders:
(a) Further Encumbrance. Create, incur, assume, permit or suffer
to exist, after knowledge of the existence thereof, any mortgage, deed of trust,
pledge, lien, hypothecation, charge (fixed or floating), security interest or
other encumbrance whatsoever on the Real Property or any of the Accounts, except
the encumbrances created by and permitted by the Deed of Trust and the Loan
Agreement; or
(b) Transfer of Property. Become a party to any transaction
whereby the Real Property, the Accounts or any portion thereof, or all or any
substantial part of the properties, assets or undertakings of Borrower (whether
legally
-40-
<PAGE> 41
or beneficially owned by Borrower), would become the property of any other
person, whether by way of transfer, sale, conveyance, lease, sale and leaseback,
or otherwise; provided, however, funds from the Accounts may be used in
compliance with the Business Plan Projections; or
(c) Transfer of Entity. Terminate, dissolve, permit or suffer any
transfer of any interest in Borrower or any other action which effects a change
in the ownership, structure, management, or control of Borrower, whether by way
of a change in the identity of any shareholder of Borrower or change in the
ownership or control of any shareholder of Borrower, by merger or otherwise; or
(d) Use. Change the use of the Real Property; or
(e) New Accounts. Establish any new accounts other than the
Accounts, and concurrently with properly establishing any new account, Borrower
shall provide a perfected first priority security interest to Lenders in a
manner acceptable to Lenders, in Lenders' sole and absolute discretion.
Section 5.32 Permits and Warranties. Promptly upon receipt of the same
by Borrower, Borrower shall furnish Lenders with true and complete copies of (a)
all licenses, Permits, approvals, exemptions and other authorizations required
in connection with the Real Property and (b) all warranties and guaranties
received from any party furnishing labor, materials, equipment, fixtures or
furnishings in connection with the Real Property.
Section 5.33 Preservation of Existence. Borrower shall preserve and
maintain its corporate existence, licenses, rights, franchises and privileges in
the jurisdiction of its incorporation and all authorizations, consents,
approvals, orders, licenses, permits or exemptions from, or registrations or
qualifications with, the State of Nevada and any governmental agency that are
necessary for the transaction of its business, and qualify and remain qualified
to do business in Nevada and each other jurisdiction in which such qualification
is necessary in view of its business or the ownership or leasing of its
properties.
Section 5.34 Year 2000 Compliant. Borrower shall perform all acts
reasonably necessary to ensure that (i) Borrower, (ii) any business in which
Borrower holds a substantial interest, (iii) all customers, suppliers and
vendors that are material to Borrower's business, and (iv) Guarantor become Year
2000 Compliant in a timely manner. Such acts shall include, without limitation,
performing a comprehensive review and assessment of all of Borrower's and
Guarantor's systems and adopting a detailed plan, with itemized budget, for the
remediation, monitoring and testing of such systems. Borrower shall, immediately
upon request, provide to Lenders such certifications or other evidence
-41-
<PAGE> 42
of Borrower's and Guarantor's compliance with the terms of this Section as
Lenders may from time to time require.
Section 5.35 Accounts. With respect to the Accounts, Borrower agrees to
the following:
(a) Additional Documents. Borrower shall execute and deliver such
documents as Lenders reasonably deem necessary to create, perfect and continue
the security interest in all Accounts.
(b) Change of Address. Borrower shall not change its chief place
of business or the place where Borrower keeps its records concerning the
Accounts without first giving Lenders written notice of the address to which
Borrower is moving same.
(c) Liens. Borrower agrees not to permit any lien on the Accounts
except in favor of Lenders.
(d) Transfer. Borrower agrees not to sell, hypothecate or
otherwise dispose of any of the Accounts, or any interest therein, without the
prior written consent of Lenders; provided, however, funds from the Accounts may
be used in compliance with the Business Plan Projections.
(e) Records. Borrower shall keep, in accordance with generally
accepted accounting principles, complete and accurate records regarding all
Accounts and shall permit Lenders to inspect the same and make copies thereof at
any reasonable time.
(f) Commingle. Borrower shall not commingle the Accounts with any
other property.
(g) Withdrawal. Upon the occurrence of an Event of Default,
Borrower shall have no rights whatsoever to withdraw any funds from any Account
except in accordance with the Loan Documents and Lenders shall have complete
dominion and control over such Accounts.
(h) Defenses. Borrower shall ensure and take all acts which are
necessary to keep the Accounts free and clear of all defenses, rights of offset
and counterclaims.
ARTICLE 6
---------
EVENTS OF DEFAULT
-----------------
Section 6.1 Events of Default. Any of the following events and the
passage of any applicable notice and cure periods shall constitute an Event of
Default hereunder:
(a) Any representation or warranty made by Borrower pursuant to
or in connection with this Loan Agreement, the Note, the Environmental
Certificate, the Deed of Trust, as amended by
-42-
<PAGE> 43
the First Amendment to Deed of Trust, the Additional Deed of Trust, the Second
Deed of Trust or any other Loan Document or in any report, certificate,
financial statement or other writing furnished by Borrower in connection
herewith, shall prove to be false, incorrect or misleading in any substantial
and material adverse aspect as of the date when made.
(b) Borrower shall have defaulted in the payment of any
installment of principal or interest on the Note or in the payment of any other
amounts due and owing under any Loan Documents, the Reimbursement Agreement or
the Interest Rate Swap Agreement, for a period of five (5) days after notice
thereof to Borrower from Agent Bank.
(c) Borrower shall have defaulted in the payment of any late
charge or any other amount owing under any Loan Document for a period of five
(5) days after notice thereof to Borrower from Agent Bank.
(d) Borrower or the Sands Regent shall fail to observe or perform
any term, covenant, condition or promise contained in this Loan Agreement, the
Note, the Deed of Trust, as amended by the First Amendment to Deed of Trust, the
Additional Deed of Trust, the Second Deed of Trust, the Reimbursement Agreement,
the Interest Rate Swap Agreement or any other Loan Document or the Environmental
Certificate, and such failure continues for a period of more than thirty (30)
days (or such shorter or longer period as may be set out in the Loan Documents,
with respect to such provision) after notice by Agent Bank of such failure.
(e) Borrower or the Sands Regent shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief with
respect to either of them or their respective debts under the Bankruptcy Code or
any bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official, for any substantial part of either of their property, or shall
consent to any such relief or to the appointment or taking possession by any
such official in any involuntary case or other proceeding against either of
them.
(f) An involuntary case or other proceeding shall be commenced
against Borrower or the Sands Regent seeking liquidation, reorganization or
other relief with respect to either of them or their debts under the Bankruptcy
Code or any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official, for any substantial part of either of their property,
and such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of sixty (60) days.
-43-
<PAGE> 44
(g) Borrower or the Sands Regent make an assignment for the
benefit of their respective creditors, or either of them admits in writing its
inability to pay its respective debts as they become due.
(h) Borrower shall fail to pay when due in accordance with its
terms and provisions any other Indebtedness of Borrower which failure materially
impairs the security interests of Lenders and continues beyond the period of
grace, if any, therefor.
(i) The occurrence of an event of default or an event which with
the lapse of time or notice or both would become an event of default under or in
respect of any agreement by which Borrower is bound or which causes or permits
acceleration of any obligation of Borrower under or in respect of any such
agreement which occurrence materially impairs Borrower's ability to repay the
Loan.
(j) The occurrence of any Reportable Event as defined under
ERISA, should occur and should continue for thirty (30) days after written
notice of such determination shall have been given to Borrower by Lenders.
(k) Entry of a judgment or injunctive order against Borrower any
time after the execution of this Loan Agreement, which is not stayed, bonded,
dismissed, terminated or disposed of to Lenders' satisfaction within sixty (60)
days after its entry and which materially adversely affects: (i) the priority of
the encumbrance and security interest granted Lenders in the Real Property; or
(ii) Borrower's right to use the Premises as a first-class hotel/casino
facility.
(l) The loss or suspension, of Borrower's unrestricted gaming
license or the failure of Borrower to maintain gaming activities in the
Hotel/Casino Operation other than on account of force majeure at least to the
same general extent as is presently conducted thereon for a period in excess of
thirty (30) consecutive days.
(m) Any of the Loan Documents or the Environmental Certificate,
for any reason other than: (i) the agreement of Lenders; (ii) the payment in
full of all sums secured by the Deed of Trust, including, without limitation,
the Loan; or (iii) in accordance with the terms thereof, shall cease to provide
for any material rights or remedies which are contemplated thereby (such
materiality to be determined, by Lenders in good faith, with reference to the
aggregate rights and remedies provided by the Loan Documents, the Environmental
Certificate and applicable law).
(n) The Board of Directors of Sands Regent shall fail to include
at least one member of the Cladianos Family.
-44-
<PAGE> 45
(o) The Cladianos Family shall fail to have or retain beneficial
ownership (within the meaning of Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended) of at least ten percent (10%) of the outstanding voting
stock of Sands Regent.
(p) Any person or group of person (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended), other than the
Cladianos Family, or a member of the Cladianos Family, shall acquire or retain
beneficial ownership (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) of twenty percent (20%) or more of the
outstanding voting stock of Sands Regent.
(q) Borrower ceases to be a wholly owned subsidiary of Sands
Regent.
Section 6.2 Default Remedies. Upon the occurrence of any Event of
Default, Lenders may, at their option, without any further notice or demand,
declare the unpaid balance of the Note, together with interest thereon and all
other amounts owing under the Loan Documents, to be fully due and payable, and
the obligation to lend will automatically terminate, and may, at their option,
exercise any or all of the following remedies:
(a) Lenders may declare all outstanding unpaid Indebtedness
hereunder and under the Note and other Loan Documents together with all accrued
interest thereon immediately due and payable without presentation, demand,
protest or notice of any kind.
(b) In addition to all rights of setoff or lien against any
monies, securities or other property of Borrower given to Lenders by law,
Lenders will have a right of setoff against all monies, securities and other
property of Borrower now or hereafter in the possession of or on deposit with
Lenders whether held in a general or special account or deposit or for
safekeeping or otherwise; and every such right of setoff may be exercised
without demand upon or notice to Borrower. No right of setoff shall be deemed to
have been waived by any act or conduct on the part of Lenders, or by any neglect
to exercise such right of setoff, or by any delay in doing so; and every right
of setoff shall continue in full force and effect until specifically waived or
released by an instrument in writing executed by Lenders.
(c) Any and all remedies available to Lenders under the Loan
Documents.
(d) Any other remedies available to Lenders at law or in equity,
including requesting the appointment of a receiver to perform any acts required
of Borrower under this Loan Agreement.
For the purpose of carrying out this Section and exercising these
rights, powers and privileges, provided that there is an Event of Default then
existing, Borrower hereby irrevocably
-45-
<PAGE> 46
constitutes and appoints Lenders as its true and lawful attorneys-in-fact to
execute, acknowledge and deliver any instruments and do and perform any acts
such as are referred to in this Section in the name and on behalf of Borrower.
Section 6.3 Application of Proceeds. All payments and proceeds received
and all amounts held or realized from the sale or other disposition of the
Collateral at a foreclosure sale or other foreclosure proceeding shall be
applied in the following order of priority:
(a) First, to the payment of all fees, costs and expenses
(including reasonable attorney's fees and expenses) incurred by Lenders, their
agents or representatives in connection with the realization upon any of the
Collateral.
(b) Next, to the payment in full of any other amounts then due
under this Loan Agreement, the Deed of Trust, or any other Loan Documents (other
than the Note).
(c) Next, to the balance of interest remaining unpaid on the
Note.
(d) Next, to the balance of principal remaining unpaid on the
Note.
(e) Next, the balance, if any, of such payments or proceeds to
whomever may be legally entitled thereto.
Section 6.4 Notices. In order to entitle Lenders to exercise any remedy
available hereunder, it shall not be necessary for Lenders to give any notice,
other than such notice as may be required expressly herein.
Section 6.5 Agreement to Pay Attorney's Fees and Expenses. Upon the
occurrence of an Event of Default, as a result of which Lenders shall require
and employ attorneys or incur other expenses for the collection of payments due
or to become due or the enforcement or performance or observance of any
obligation or agreement on the part of Borrower contained herein, Borrower
shall, on demand, pay to Lenders the reasonable fees of such attorneys and such
other expenses so incurred by Lenders.
Section 6.6 No Additional Waiver Implied by One Waiver. In the event any
agreement contained in this Loan Agreement should be breached by either party
and thereafter waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder.
Section 6.7 Licensing of Lenders. Upon the occurrence and during the
continuance of an Event of Default hereunder or under any of the Loan Documents,
if it shall become necessary, or in the opinion of Lenders reasonably advisable,
for an agent,
-46-
<PAGE> 47
receiver or other representative of Lenders to become licensed under the
provisions of the laws of the State of Nevada, or rules and regulations adopted
pursuant thereto, as a condition to receiving the benefit of any Collateral
encumbered by the Deed of Trust or other Loan Documents for the benefit of
Lenders or otherwise to enforce their rights hereunder, Borrower does hereby
give its consent to the granting of such license or licenses and agrees to
execute such further documents as may be required in connection with the
evidencing of such consent.
Section 6.8 Exercise of Rights Subject to Applicable Law. All rights,
remedies and powers provided by this Article 6 may be exercised only to the
extent that the exercise thereof does not violate any applicable provision of
the laws of any Governmental Authority and all of the provisions of this Article
6 are intended to be subject to all applicable mandatory provisions of law that
may be controlling and to be limited to the extent necessary so that they will
not render this Loan Agreement invalid, unenforceable or not entitled to be
recorded or filed under the provisions of any applicable law.
ARTICLE 7
---------
DAMAGE, DESTRUCTION AND CONDEMNATION
------------------------------------
Section 7.1 No Abatement of Payments. If all or any part of the
Collateral shall be materially damaged or destroyed, or if title to or the
temporary use of the whole or any part of any of the Collateral shall be taken
or condemned by a competent authority for any public use or purpose, there shall
be no abatement or reduction in the amounts payable by Borrower hereunder or
under the Note, and Borrower shall continue to be obligated to make such
payments.
Section 7.2 Distribution of Capital Proceeds Upon Occurrence of Fire,
Casualty or Condemnation. All monies received from fire, flood and hazard
extended insurance policies covering any of the Collateral or from condemnation
or similar actions in regard to said Collateral, shall be paid directly to Agent
Bank. In the event the amount paid to Agent Bank is equal to or less than One
Million Dollars ($l,000,000), such amount shall be paid to Borrower, unless an
Event of Default shall have occurred hereunder and is continuing, for the
purpose of repairing, replacing or reimbursing of Borrower for the cost of
repairing or replacing the property destroyed or condemned. In the event the
amount paid to Agent Bank exceeds Eight Million Dollars ($8,000,000), then such
amount may be applied by Lenders to reduce the outstanding balance of the Loan
in such order as Lenders may determine, or at the option of Lenders, the entire
amount so collected, or any part thereof, may be released to Borrower for repair
or replacement of the property destroyed or condemned or to reimburse Borrower
for the costs of such repair or replacement incurred prior to the date of such
release. In
-47-
<PAGE> 48
the event the amount paid to Agent Bank is greater than One Million Dollars
($1,000,000), but not more than Eight Million Dollars ($8,000,000) then, at the
option of Borrower, unless an Event of Default has occurred hereunder and is
continuing, in which case at the option of Lenders, such amount may be applied
by Lenders to reduce the outstanding balance of the Loan in such order as
Lenders may determine, or the entire amount so collected, or any part thereof,
may be released to Borrower for repair, replacement or reimbursement of Borrower
for the property destroyed or condemned or to reimburse Borrower for the costs
of such repair or replacement incurred prior to the date of such release. In the
event Lenders elect to, or are required to, release all or a portion of the
collected funds to Borrower for such repair or replacement of the property
destroyed or condemned, such release of funds shall be made in accordance with
the following terms and conditions:
(a) The repairs, replacements and rebuilding shall be made in
accordance with plans and specifications to be reasonably approved by Lenders
and in accordance with all applicable laws, ordinances, rules, regulations and
requirements of Governmental Authorities.
(b) Borrower shall provide Lenders with a detailed estimate of
the costs of such repairs or restorations.
(c) Borrower must satisfy Lenders that after the repair,
replacement or rebuilding is completed, the value of the substituted Collateral,
as determined by Lenders in their reasonable discretion, will not be materially
less than the most recent value of the Collateral prior to the occurrence of the
event occasioning the repair, replacement or rebuilding as determined by Lenders
pursuant to the Loan Agreement.
(d) In Lenders' sole reasonable opinion, any such funds will be
sufficient to pay all costs of repair or replacement of the property destroyed
or condemned; or if such funds will not be sufficient, Borrower must deposit
additional funds with the Agent Bank, sufficient to pay such additional costs of
repairing or replacing the property destroyed or condemned.
(e) Borrower must first deliver to Lenders a construction
contract for the work of repair or replacement in form and content reasonably
acceptable to Lenders with a contractor reasonably acceptable to Lenders.
(f) Lenders in their reasonable discretion must have determined
that after the repair or replacement is completed, the Hotel/Casino Operation
will produce income sufficient to pay all costs of operations and maintenance of
the Real Property with a reasonable reserve for repairs, and service all debts
secured by the Real Property.
-48-
<PAGE> 49
(g) No Event of Default shall have occurred and be continuing
hereunder and no event shall have occurred and be continuing which with notice
and/or lapse of time would constitute an Event of Default hereunder.
(h) Before commencing any such work, Borrower shall, at its own
cost and expense, have furnished Lenders with appropriate endorsements, if
needed, to the fire insurance policy which Borrower is then presently
maintaining to cover all of the risks reasonably expected to occur and commonly
insured against under similar circumstances during the course of such work.
(i) Such repair or replacement shall have been commenced by
Borrower within one hundred twenty (120) days after: (i) settlement shall have
been made with the insurance companies; (ii) all the necessary governmental
approvals shall have been obtained; and (iii) the approvals of Lenders which are
required under this Section. Such repair and replacement shall be completed
within a reasonable time, free and clear of all liens and encumbrances (except
Permitted Encumbrances) so as not to interfere with the lien of the Deed of
Trust.
ARTICLE 8
---------
GENERAL CONDITIONS
------------------
The following conditions shall be applicable throughout the term of this
Loan Agreement:
Section 8.1 Failure to Exercise Rights. Nothing herein contained shall
impose upon Lenders or Borrower any obligation to enforce any terms, covenants
or conditions contained herein. Failure of Lenders or Borrower, in any one or
more instances, to insist upon strict performance by Borrower or Lenders of any
terms, covenants or conditions of this Loan Agreement or the other Loan
Documents shall not be considered or taken as a waiver or relinquishment by
Lenders or Borrower of their right to insist upon and to enforce in the future,
by injunction or other appropriate legal or equitable remedy, strict compliance
by Borrower or Lenders with all the terms, covenants and conditions of this Loan
Agreement and the other Loan Documents. The consent of Lenders or Borrower to
any act or omission by Borrower or Lenders shall not be construed to be a
consent to any other or subsequent act or omission or to waive the requirement
for Lenders' or Borrower's consent to be obtained in any future or other
instance.
Section 8.2 Successors and Assigns. All of the terms, covenants,
warranties and conditions contained in this Loan Agreement shall be binding upon
and inure to the parties hereto and their respective successors and assigns.
-49-
<PAGE> 50
Section 8.3 Notices. Unless otherwise indicated differently, all
notices, payments, requests, reports, information or demand which any party
hereto may desire or may be required to give to any other party hereunder shall
be in writing and shall be personally delivered or sent by telegram, telex,
telecopier or first-class certified or registered United States mail, postage
prepaid, return receipt requested, and sent to the party at its address
appearing below or such other address as any party shall hereafter inform the
other party hereto by written notice given as aforesaid; provided, however,
notices to Lenders requesting disbursements of the Loan proceeds need not be
sent by registered or certified United States mail:
If to Borrower: Zante, Inc.
345 N. Arlington Ave.
Reno, Nevada 89501
Attn: Mr. Dave Wood
Facsimile: (702) 348-6241
with a copy to: Kolesar & Leatham, CHTD.
Norwest Bank Center
3320 West Sahara Avenue, Suite 380
Las Vegas, NV 89102
Attn: Nile Leatham, Esq.
Facsimile: (702) 392-9472
If to Lenders,
c/o Agent Bank: Wells Fargo Bank, National
Association
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Mr. Art Brokx
Facsimile: (213) 253-5913
With a copy to: Pillsbury Madison & Sutro LLP
725 South Figueroa Street
Suite 1200
Los Angeles, CA 90017
Attn: Robert L. Morrison, Esq.
Facsimile: (213) 629-1033
All notices, payments, requests, reports, information or demands so given shall
be deemed effective when sent, or, if mailed, upon receipt or the expiration of
the fifth (5th) day following the date of mailing, whichever occurs first,
except that: (a) any notice of change of address shall be effective only upon
receipt by the party to whom said notice is addressed; and (b) notices sent to
the Agent Bank by Borrower pursuant to Article 2 which shall be deemed effective
upon actual receipt (regardless of how such notice is sent).
Section 8.4 Modification in Writing. This Loan Agreement is the entire
agreement between the parties and supersedes all prior agreements whether
written or oral with respect to the
-50-
<PAGE> 51
subject matter hereof, including, but not limited to, the Commitment Letter and
any term sheets furnished by Lenders to Borrower. Neither this Loan Agreement
nor any provision herein may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by each of the Lenders, the
Agent Bank and Borrower, except as provided by Section 8.11.
Section 8.5 Incorporation of Terms. Borrower agrees that the Note shall
be made subject to all the terms, covenants, conditions, obligations,
stipulations and agreements contained in this Loan Agreement to the same extent
and effect as if fully set forth in and made a part of the Note, and Borrower
and Lenders agree that this Loan Agreement is made subject to all the terms,
covenants, conditions, obligations, stipulations and agreements contained in the
Note to the same extent and effect as if fully set forth herein and made a part
of this Loan Agreement, until this Loan Agreement is terminated by the repayment
to Lenders of all principal, interest and other sums and expenses due and owing
on the Note. If any provisions in this Loan Agreement are inconsistent with the
provisions of any of the other Loan Documents, this Loan Agreement shall
control.
Section 8.6 Other Agreements. If the terms of any documents,
certificates or agreements delivered in connection with this Loan Agreement are
inconsistent with the terms of the Loan Documents, Borrower shall use its best
efforts to amend such document, certificate or agreement to the satisfaction of
Lenders to remove such inconsistency.
Section 8.7 Counterparts. This Loan Agreement may be executed by the
parties hereto in any number of separate counterparts with the same effect as if
the signatures hereto and hereby were upon the same instrument. All such
counterparts shall together constitute but one and the same document.
Section 8.8 Rights, Powers and Remedies are Cumulative. None of the
rights, powers and remedies conferred upon or reserved to Lenders or Borrower in
this Loan Agreement are intended to be exclusive of any other available right,
power or remedy, but each and every such right, power and remedy shall be
cumulative and not alternative, and shall be in addition to every right, power
and remedy herein specifically given or now or hereafter existing at law, in
equity or by statute. Any forbearance, delay or omission by Lenders or Borrower
in the exercise of any right, power or remedy shall not impair any such right,
power or remedy or be considered or taken as a waiver or relinquishment of the
right to insist upon and to enforce in the future, by injunction or other
appropriate legal or equitable remedy, any of said rights, powers and remedies
given to Lenders or Borrower herein. The exercise of any right or partial
exercise thereof by Lenders or Borrower shall not preclude the further exercise
thereof and the same shall continue in full force and effect until specifically
waived by an instrument in writing executed by Lenders, as the case may be.
-51-
<PAGE> 52
Section 8.9 Continuing Representations. All agreements, representations
and warranties made herein shall survive the execution and delivery of this Loan
Agreement, the making of the Loan hereunder and the execution and delivery of
the Note.
Section 8.10 Assignment of Loan Documents by Borrower. Borrower may not
assign any of its right, title or interest in the Loan Documents and the Loan,
nor may Borrower delegate any of its obligations and duties under the Loan
Documents and the Loan, except as expressly provided herein. Any attempted
assignment or delegation in contravention of the foregoing shall be null and
void.
Section 8.11 Action by Lenders. Whenever Lenders shall have the right to
make an election, or to exercise any right, or their consent shall be required
for any action under this Loan Agreement or the Loan Documents, then such
election, exercise or consent shall be given or made for all Lenders by Wells
Fargo Bank, National Association, acting as Agent Bank. Notices, reports and
other documents required to be given by Borrower to Lenders hereunder may be
given by Borrower to Agent Bank on behalf of Lenders and the delivery to Agent
Bank shall constitute delivery to Lenders. In the event any payment or payments
are received by a Lender other than Agent Bank, Borrower consents to such
payments being shared and distributed pursuant to Section 10.04 of the Agency
Agreement, which reads, in its entirety, as follows:
"10.04. Co-Lenders agree not to accept any
payments, proceeds and/or collections directly from
Borrower in connection with the Loan Documents (or any third
party except from Agent Bank) including an exercise of the right
of setoff (with the amount which is so accepted or received by
set off being hereinafter referred to as the "COLLECTED AMOUNT")
unless such receiving Co-Lender immediately forwards such
Collected Amount to Agent Bank for application and distribution
in accordance with the terms of this Agency Agreement or, if such
Collected Amount cannot be forwarded to Agent Bank, such sharing
Co-Lender shall purchase such portion of the interests of other
Lenders as may be necessary to achieve a pro rata sharing with
each of the Lenders in the Loan so that each Lender's
proportionate interest shall remain the same as they were prior
to the receipt of such Collected Amount. It is provided, however,
that if any Lender which has forwarded such Collected Amount to
Agent Bank or which has purchased such portion of the
Participation Interests (the "COLLECTING LENDER") is subsequently
required to return the Collected Amount to Borrower or to the
third party from whom it was received, then, in that event, each
of the Lenders which have received a share of the Collected
Amount (or which have had a portion of their Participation
Interest purchased)
-52-
<PAGE> 53
shall reimburse the Collecting Lender for their proportionate
share of the amount which the Collecting Lender is required to
return (and be deemed to repurchase any corresponding
participation purchased from them by the Collecting Lender),
together with their respective pro rata shares of interest
thereon if the Collecting Lender also is required to pay interest
on the amount so returned. Any losses on the Loan shall be shared
by Lenders in accordance with their Participation Interests."
Section 8.12 Time of Essence. Time shall be of the essence of this Loan
Agreement.
Section 8.13 Governing Law. This agreement is in all respects to be
governed by the laws of the State of Nevada and if any action is taken to
enforce the terms of this Loan Agreement such action shall be commenced and
maintained within the State of Nevada.
Section 8.14 No Joint Venture. In no event shall Lenders be deemed or
construed to be joint venturers or partners of Borrower.
Section 8.15 Severability of Provisions. In the event any one or more of
the provisions contained in this Loan Agreement shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
Section 8.16 Cumulative Nature of Covenants. All covenants contained
herein are cumulative and not exclusive of each other covenant. Any action
allowed by any covenant shall be allowed only if such action is not prohibited
by any other covenant.
Section 8.17 Costs to Prevailing Party. If any action or proceeding is
brought by any party against any other party under this Loan Agreement or any of
the Loan Documents, the prevailing party shall be entitled to recover such costs
and attorney's fees as the court in such action or proceeding may adjudge
reasonable.
Section 8.18 Loan Documents. The Loan Documents may be held in the name
of Wells Fargo Bank, National Association, its successors and assigns, as the
agent of all Lenders hereunder pursuant to the terms of the Agency Agreement.
Section 8.19 Assignment and Participations. Each Lender shall have the
right to enter into participation agreements with any Person with respect to the
Participation Interest held by it, and/or sell or grant participations in such
Participation Interest to other Persons, but such participations, sales or
grants shall not affect the rights and duties of Lenders hereunder vis-a-vis
Borrower. Upon any sale or assignment of a
-53-
<PAGE> 54
direct interest in the Loan and the Note (rather than merely a participation) to
any other Person, such Person shall be, and be deemed to be, a Lender for all
purposes of the Loan Documents, and each such Lender hereby agrees to be bound
by the Loan Documents, without the necessity of executing any amendment or
modification of this Loan Agreement or any other Loan Document; provided,
however, Borrower agrees to execute any documentation deemed necessary or
convenient by Agent Bank relating to any such sale or assignment, including,
without limitation amendments to the Loan Documents. No such sale or assignment
of a direct interest in the Loan and the Note may be made without the consent of
Agent, which consent shall not be unreasonably withheld. Without notice to
Borrower, Lenders may disclose to any prospective purchaser of the Loan, and of
any securities issued or to be issued by Lenders and to any prospective or
actual pur chaser of any participation or other interest in the Loan or any
other loans made by Lenders to Borrower (whether under this Loan Agreement or
otherwise) any financial or other information, data or material in Lenders'
possession relating to Borrower, the Loan or the Real Property.
Section 8.20 Exhibits Attached. Exhibits are attached
hereto and incorporated herein and made a part hereof as follows:
Exhibit A - Lenders' Proportions in Loan
Exhibit B - Note
Exhibit C - Real Property
Exhibit D - Equipment Leases and Contracts
Exhibit E - Compliance Certificate
Exhibit F - Tenant Leases
Exhibit G - Business Plan Projections
Exhibit H - Accounts
Section 8.21 No Partnership; Indemnity. Lenders shall not be deemed to
be a partner, joint venturer, alter-ego, manager, controlling person or other
business associate or participant of any kind of Borrower in connection with the
Loan or any action taken under this Loan Agreement. Lenders' activities in
connection with the Loan shall not be "outside the scope of the activities of a
lender of money", and Lenders do not intend to ever assume any responsibility to
any person for the quality or safety of the Real Property. Lenders shall not be
deemed responsible for or a participant in any acts, omissions or decisions of
Borrower. Borrower shall indemnify, hold Lenders harmless and defend Lender from
and against any and all loss, cost, damage, expense or liability, including
reasonable attorneys' fees, arising out of or resulting from such a
-54-
<PAGE> 55
construction of the parties and their relationship or resulting from any actual
or alleged defect in the construction of the Real Property. The provisions of
this Section shall survive payment of the Loan.
Section 8.22 Confirmation of Obligations. As of the date hereof and
subject to the terms of this Loan Agreement, Borrower confirms, ratifies and
restates all its obligations, representations and warranties under the Loan
Documents, and agrees to pay the indebtedness evidenced by the Loan Documents
according to the terms and provisions thereof. Subject to the terms of this Loan
Agreement, all of the terms, covenants and provisions of the Loan Documents
shall remain in full force and effect. Without limiting the generality of the
foregoing, Borrower hereby expressly acknowledges and agrees that Borrower does
not have any offsets, claims or defenses whatsoever against any of its
obligations under the Loan Documents. Any references to any of the Loan
Documents contained in the Loan Documents shall mean and include the Loan
Documents, as modified by this Loan Agreement. To the extent any of the
provisions set forth in this Loan Agreement are inconsistent with any of the
provisions of the Loan Documents, the provisions of this Loan Agreement shall
control.
Section 8.23 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS LOAN
AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THE LOAN DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, ANY PRESENT OR FUTURE MODIFICATION THEREOF OR (b)
IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THE LOAN DOCUMENTS (AS NOW OR
HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR HERETO,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS LOAN AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
Section 8.24 Setoff. In addition to any rights and remedies of the Agent
Bank provided by law, if any Event of Default exists, Agent Bank is authorized
at any time and from time to time, without prior notice to Borrower, any such
notice being waived by Borrower to the fullest extent permitted by law, to
set-off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held by Agent Bank or any of the Lenders to or
for the credit or the account of Borrower including specifically, without
limitation, those certain accounts listed in Exhibit "H" attached hereto (the
"ACCOUNTS"), against any and all obligations of Borrower under
-55-
<PAGE> 56
the Loan, now or hereafter existing, irrespective of whether or not the Agent
Bank shall have made demand under this Loan Agreement or any Loan Document and
although such amounts owed may be contingent or unmatured. Agent Bank agrees
promptly to notify the Borrower (and Agent Bank shall promptly notify each
Lender) after any such setoff and application made by Agent Bank; provided,
however, that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of Agent Bank under this Section 8.24
are in addition to the other rights and remedies which Agent Bank and Lenders
may have.
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be executed as of the day and year first above written.
BORROWER:
ZANTE, INC., a Nevada corporation
By: /s/ DAVID R. WOOD
-----------------------------
Name: David R. Wood
--------------------------
Title: Exec. V.P. and CFO
--------------------------
By:
-----------------------------
Name:
--------------------------
Title:
--------------------------
LENDERS:
WELLS FARGO BANK, THE SUMITOMO BANK, LIMITED
NATIONAL ASSOCIATION
By: /s/ ART BROKY By: /s/ H.W. REDDING
---------------------------- --------------------------
Name: Art Broky Name: H.W. Redding
------------------------ -----------------------
Title: VP Title: V.P. & Mgr.
------------------------ ----------------------
By: By: [SIG]
---------------------------- --------------------------
Name: Name: [Sig]
------------------------ -----------------------
Title: Title: [Title]
------------------------ ----------------------
-56-
<PAGE> 57
The undersigned is executing this Loan Agreement as of the 31st day of
January, 1998 with respect to the covenants set forth in Sections 5.14 and 5.15
hereof.
THE SANDS REGENT,
a Nevada corporation
By: /s/ DAVID R. WOOD
------------------------
Name: David R. Wood
----------------------
Title: Exec. V.P. & CFO
---------------------
By:
------------------------
Name:
----------------------
Title:
---------------------
-57-
<PAGE> 58
EXHIBIT A
---------
LOAN PARTICIPATIONS
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF LOAN
NAME OF LENDER PARTICIPATION TO BORROWER
==============================================================================================
<S> <C> <C>
Wells Fargo Bank, $ 4,696,694.18 42.79448%
National Association
The Sumitomo Bank, Limited $ 6,278,305.82 57.20552%
-------------- ---------
TOTAL: $10,975,000.00 100.00000%
</TABLE>
A-1
<PAGE> 59
EXHIBIT B
---------
FORM OF PROMISSORY NOTE
B-1
<PAGE> 60
EXHIBIT C-1
-----------
LEGAL DESCRIPTION OF HOTEL/CASINO PROPERTY
C-1
<PAGE> 61
EXHIBIT C-2
-----------
LEGAL DESCRIPTION OF PARKING LOTS
C-2
<PAGE> 62
EXHIBIT C-3
-----------
LEGAL DESCRIPTION OF AUSTIN ARMS APARTMENT BUILDING
C-3
<PAGE> 63
EXHIBIT C-4
-----------
LEGAL DESCRIPTION OF PERSONNEL BUILDING
C-4
<PAGE> 64
EXHIBIT C-5
-----------
LEGAL DESCRIPTION OF RESIDENCE
C-5
<PAGE> 65
EXHIBIT D
---------
EQUIPMENT LEASES AND CONTRACTS
D-1
<PAGE> 66
EXHIBIT E
---------
FORM OF COMPLIANCE CERTIFICATE
TO: Wells Fargo Bank, National Association
333 South Grand Avenue
Los Angeles, CA 90071
ATT'N: Mr. Art Brokx, Vice President Loan No. 9938418084
COMPLIANCE CERTIFICATE
----------------------
A. Non-Exempt Encumbrances (Section 5.8): Describe each mortgage,
deed of trust, pledge, lien, security interest, encumbrance,
attachment, levy, distraint or other judicial process, if any,
other than Permitted Encumbrances to which the Collateral has
been subject (other than taxes being disputed in good faith in
accordance with Sections 4.7 and 5.7).
B. Financial Covenants (Section 5.14): Attach on a separate sheet
each financial covenant calculation required under Section 5.14
and state whether or not Borrower is in compliance with each
covenant therein set forth and if not, the basis of such
non-compliance.
C. Additional Properties (Section 5.17): State whether or not any of
the additional properties described in Section 5.17 are being
used in any manner in connection with the Hotel/Casino Operation
and, if so, describe in detail the manner in which such
additional properties are so used.
D. Control of Sands Regent and of Borrower (Section 6.1):
State whether there is at least one member of the
Cladianos Family on the Board of Directors of Sand
Regent and then name the member of the Cladianos Family
which holds such position. State the percentage of the
outstanding voting stock of Sands Regent in which the
Cladianos Family retains beneficial ownership (within
the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended). State whether any
person or group of persons (within the meaning of
Section 13(d)(3) of the Securities Exchange Act of
1934, as amended) hold beneficial ownership of 20% or
more of the outstanding voting stock of Sands Regent,
to the knowledge of Borrower. Also, state whether any
shares of the Capital Stock of Borrower are owned by
any person or entity other than Sands Regent.
The undersigned, being the Chief Financial Officer of ZANTE, INC., a
Nevada corporation, hereby certifies to WELLS
E-1
<PAGE> 67
FARGO BANK, NATIONAL ASSOCIATION, and THE SUMITOMO BANK, LIMITED ("LENDERS")
that the information and calculations set forth above are true and correct and
that as of the ____ day of ____________, 199_, Zante, Inc., a Nevada
corporation, (is) (is not) in full compliance with the terms, covenants and
provisions contained in that certain Loan Agreement dated the ____ day of
__________, 1998, executed by and among the Lenders above-named and Zante, Inc.,
a Nevada corporation.
The defaults or non-compliance, if any, consist of the following:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DATED this _____ day of ______________, 19__.
-----------------------
Chief Financial Officer
E-2
<PAGE> 68
EXHIBIT F
---------
TENANT LEASES
F-1
<PAGE> 69
EXHIBIT G
---------
BUSINESS PLAN PROJECTIONS
G-1
<PAGE> 70
EXHIBIT H
---------
ACCOUNTS
H-1
<PAGE> 71
AMENDED AND RESTATED TERM PROMISSORY NOTE
-----------------------------------------
$10,975,000.00 January 31, 1998
THIS AMENDED AND RESTATED TERM PROMISSORY NOTE ("NOTE") is dated as of
January 31, 1998 and is entered into by ZANTE, INC., a Nevada corporation
("MAKER") in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION and THE SUMITOMO
BANK, LIMITED (collectively "LENDERS") and WELLS FARGO BANK, NATIONAL
ASSOCIATION, as administrative and collateral agent for Lenders ("AGENT BANK")
and amends and restates that certain Term and Revolving Credit Promissory Note
dated March 31, 1993 as such note may have been amended from time to time. All
undefined but capitalized terms used herein shall have the same meaning as set
forth in that certain Amended and Restated Loan Agreement ("LOAN AGREEMENT")
dated of even date herewith and entered into by and among Maker, The Sands
Regent, a Nevada corporation ("GUARANTOR") and Lenders.
FOR VALUE RECEIVED, Maker promises to pay to the order of Lenders by
wire transfer of immediately available funds to the main offices of Agent Bank
pursuant to the following wiring instructions:
Wells Fargo Bank, N.A.
201 3rd Street, 8th Floor
San Francisco, CA 94103
ABA 121-000-248
Acct. 4584702047
Ref: WFBCORP/SYDIC/ZANTE, INC.
in lawful money of the United States of America, the original principal sum not
to exceed TWENTY-THREE MILLION SIX HUNDRED NINE THOUSAND FIVE HUNDRED SIXTEEN
AND 00/100 DOLLARS ($23,609,516.00), having an outstanding principal balance as
of February 1, 1998 of $10,975,000, together with interest on the outstanding
and unpaid balance of said principal sum, which interest shall accrue at an
annual rate, or rates, hereinafter collectively referred to as the "NOTE RATE".
The Note Rate shall be determined as more particularly set forth below. Interest
shall commence accruing at the Note Rate on February 1, 1998 and shall continue
to accrue at the rates provided for herein until the entire principal balance
under this Note has been fully paid.
Payment under the Loan shall be paid in the following manner ("FIXED
MONTHLY PAYMENT AMOUNT"):
(1) For the period beginning February 1, 1998 through January 31, 1999,
on the first day of each and every month, Maker shall make equal monthly
payments in the amount of One Hundred Twelve Thousand Dollars ($112,000) per
month.
<PAGE> 72
(2) For the period beginning February 1, 1999 through and including the
Maturity Date, on the first day of each and every month, Maker shall make
payments in the amount equal to the greater of (a) all accrued and unpaid
interest on the outstanding principal balance of the Loan (other than the
Differential Amount (as defined below) unless required hereunder) or (b) One
Hundred Twenty Thousand Dollars ($120,000) per month.
Interest shall accrue on the outstanding principal balance of the Loan
as follows ("INTEREST AMOUNT"):
(1) For the period beginning February 1, 1998 through January 31, 1999,
the unpaid but outstanding principal balance of the Loan shall accrue interest
at the per annum rate equal to the Reference Rate plus one and one-half percent
(1.5%) per annum; provided, however, the interest rate shall not exceed under
any circumstances eleven percent (11%) per annum.
(2) For the period beginning February 1, 1999 through and including the
Maturity Date, the unpaid but outstanding principal balance of the Loan shall
accrue interest at the per annum rate equal to the Reference Rate plus two and
one-half percent (2.5%) per annum; provided, however, the interest rate shall
not exceed under any circumstances fourteen percent (14%) per annum.
The difference between the Fixed Monthly Payment Amount and the Interest
Amount, if any, shall be applied against the outstanding principal balance of
the Loan and shall serve to reduce the outstanding principal balance of the
Loan. In the event that a shortfall exists between the Fixed Monthly Payment
Amount and the Interest Amount, such shortfall shall be paid immediately upon
demand by Maker to Lenders in accordance with the terms of this Note and the
Loan Agreement.
In addition to the Fixed Monthly Payment Amount, Maker shall pay to
Lenders ("SEMI-ANNUAL PRINCIPAL REDUCTION") semi-annually on June 30 and
December 31 of each calendar year ("SEMI-ANNUAL PAYMENT DATE") of the term of
the Loan, one hundred percent (100%) of available cash and cash equivalents
accumulated or held by Maker in excess of Five Million Five Hundred Thousand
Dollars ($5,500,000). In determining the amounts accumulated or held by Maker in
excess of Five Million Five Hundred Thousand Dollars ($5,500,000), such
calculation shall be based on the average for the thirty (30) days prior to each
such Semi-Annual Payment Date, with such Semi-Annual Principal Reduction made by
Maker to Lenders hereunder to be applied by Lenders to the outstanding unpaid
principal balance of the Loan and shall serve to reduce the principal balance of
the Loan.
Maker and Lenders acknowledge and agree that for the period of July 1,
1997 through and including January 30, 1998, interest
-2-
<PAGE> 73
accrued at the rate equal to the Reference Rate plus three percent (3%) per
annum (the "ACCRUAL RATE") while the Maker was only required to pay interest at
the rate equal to the Reference Rate plus three-fourths percent (.75%) per annum
(the "PAY RATE"). The existing interest differential between the Pay Rate and
the Accrual Rate shall be deemed added to the outstanding principal balance of
the Loan and shall be required to be repaid by Maker to Lenders on or prior to
the Maturity Date; provided, however, in the event Maker performs all of its
obligations under the Loan Documents and timely repays all amounts due and owing
to Lenders under the Loan Documents, on or prior to the Maturity Date, such
differential amount (the "DIFFERENTIAL AMOUNT") shall be forgiven by Lenders and
Maker shall not be required to pay such differential amount.
The outstanding principal amount due hereunder, together with all
accrued and unpaid interest thereon, and all other costs, sums and expenses due
hereunder, shall be immediately due and payable on the Maturity Date.
A. GENERAL PROVISIONS.
1. Borrowings. All borrowings hereunder shall be made in
accordance with the terms, provisions and procedures set forth
in the Loan Agreement.
2. Setting and Notice of Rates. The applicable Reference Rate shall be
determined by Agent Bank, and notice thereof shall be given promptly to Maker
upon calculation. Each determination of the applicable Reference Rate shall be
conclusive and binding upon the parties hereto, in the absence of demonstrable
error.
3. Interest Computation. Interest shall be computed for the actual
number of days elapsed, during a period for which interest is calculated, on the
basis of a 360-day year.
4. Security. This Note is secured by, among other things, the Deed of
Trust, as amended by the First Amendment to Deed of Trust, the Additional Deed
of Trust, the Second Deed of Trust and other Collateral as more fully described
in the Loan Agreement.
5. Acceleration. Maker promises and agrees that if any Event of Default
shall occur and be continuing, the whole sum of principal and interest on this
Note which shall then remain unpaid shall, at the option of Lenders, become
forthwith due and payable, although the time of maturity as expressed herein
shall not have arrived. In the event of the occurrence of an Event of Default,
all sums thereafter received shall be applied (i) first, to the payment of all
fees, costs, expenses and advances made by Lenders towards satisfaction of
Maker's obligations under the Loan Documents (including reasonable attorney's
fees and expenses) incurred by Lenders, their agents or representatives in
connection with the collection of all sums
-3-
<PAGE> 74
due under the terms of this Note and/or the realization upon any Collateral
securing repayment hereof, (ii) secondly, to the payment of interest then due,
and (iii) thirdly, to the reduction of the principal sum, and (iv) fourthly, to
Maker.
6. Default Rate. If any payment due hereunder is not paid within ten
(10) days following the date it becomes due, the total of the unpaid balance of
principal and the then accrued unpaid interest shall, at the option of Lenders,
collectively and immediately without further notice to Maker commence accruing
interest at an annual rate equal to the Reference Rate plus three percent (3%)
per annum added to such Reference Rate until such time as all payments and
additional interest are paid, together with the curing of any other Event of
Default which may have occurred, at which time the interest rate shall revert to
the Note Rate.
7. Costs and Fees. In the event of the occurrence of an Event of
Default, the undersigned agrees to pay all costs of collection, including
reasonable attorney's fees incurred by Lenders in connection therewith, in
addition to and at the time of such sum of money and/or the performance of such
acts as may be required to cure such Event of Default. In the event legal action
is commenced for the collection of any sums owing hereunder, the undersigned
agrees that any judgment issued as a consequence of such action against the
Maker hereof shall bear interest at an annual rate equal to the Reference Rate
plus three percent (3%) per annum added to such Reference Rate until fully paid.
8. Late Charges. If any payment due hereunder is not paid within ten
(10) days following the date it becomes due, Maker promises to pay a late charge
or collection charge in the amount of one percent (1%) of the amount of the
payment not so paid.
9. Loan Agreement. This Note is issued under and subject to the terms,
covenants and conditions of the Loan Agreement, which is by this reference
incorporated herein and made a part hereof.
10. Prepayments. The prepayment provisions of the Loan Agreement are
incorporated herein by this reference.
11. Increased Costs. If after the date hereof the adoption of, or any
change in, any applicable law, rule or regulation (including without limitation
Regulation D of the Board of Governors of the Federal Reserve System and any
successor thereto), or any change in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
with any request or directive (whether or not having the force of law) of
-4-
<PAGE> 75
any such Governmental Authority, central bank or comparable agency:
A. Shall impose, modify or deem applicable any reserve imposed by
the Board of Governors of the Federal Reserve System, special deposit,
capitalization or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Lender; or
B. Shall impose on any Lender any other condition affecting the
loan evidenced hereby, this Note or such Lender's obligation to make the loan
evidenced hereby;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D or reserve requirements referred to above or a successor
thereto, to impose a cost on) such Lender of making or maintaining the loan
evidenced hereby or to reduce the rate of return on the loan evidenced hereby or
the amount of any sum received or receivable by such Lender under this Note,
then within ten (10) days after demand by such Lender (which demand shall be
accompanied by a certificate setting forth in reasonable detail the basis of
such demand), the Maker shall pay directly to such Lender such additional amount
or amounts as will compensate such Lender for such increased cost (or in the
case of Regulation D or reserve requirements referred to above or a successor
thereto, such costs which may be imposed upon such Lender) or such reduction in
the rate of return or of any sum received or receivable under this Note. Each
Lender agrees to use its best efforts to minimize such increased or imposed
costs or such reduction.
B. DEFINITIONS. When used herein the following terms shall have the
following meaning:
Additional Deed of Trust shall mean the "Additional Deed of Trust" as
that term is defined in the Loan Agreement.
Collateral shall mean the "Collateral" as that term is defined in the
Loan Agreement.
Deed of Trust shall mean the "Deed of Trust" as that term is defined in
the Loan Agreement.
Event of Default shall mean any "Event of Default" as that phrase is
defined in the Loan Agreement.
First Amendment to Deed of Trust shall mean the "First Amendment to Deed
of Trust" as that term is defined in the Loan Agreement.
Loan Documents shall mean the "Loan Documents" as that term is defined
in the Loan Agreement.
Maturity Date shall mean January 15, 2000.
-5-
<PAGE> 76
Note shall mean this Amended and Restated Term Promissory
Note.
Reference Rate shall mean the rate of interest which Wells Fargo Bank,
National Association, or its successor or assigns, from time to time
identifies and publicly announces as its prime rate and is not
necessarily, for example, the lowest rate of interest which Wells Fargo
Bank, National Association, collects from any borrower or group of
borrowers.
Second Deed of Trust shall mean the "Second Deed of Trust" as that term
is defined in the Loan Agreement.
C. MISCELLANEOUS PROVISIONS.
1. Default. Upon any Event of Default, at the option of Lenders, all
amounts due and owing hereunder or under the Loan Agreement or Loan Documents
together with unpaid interest accrued thereon shall at once become due and
payable.
2. Waiver. Maker, and any and all endorsers, guarantors and sureties of
this Note, and all other persons liable or to become liable on this Note,
severally waive presentment for payment, demand, notice of demand and of
dishonor and nonpayment of this Note, notice of intention to accelerate the
maturity of this Note, protest and notice of protest, diligence in collecting,
and the bringing of suit against any other party, and agree to all renewals,
extensions, modifications, partial payments, releases or substitutions of
security, in whole or in part, with or without notice, before or after maturity.
The pleading of any statute of limitations as a defense to any demand against
the makers, endorsers, guarantors and sureties hereof is expressly waived by
each and all such parties to the extent permitted by law.
3. Interest Rate Limitation. Notwithstanding any provision herein or in
any document or instrument now or hereafter securing this Note, the total
liability for payments in the nature of interest shall not exceed the limits now
or hereafter imposed by the applicable laws of the State of Nevada or the United
States of America.
4. Governing Law. This Note has been delivered in Reno, Nevada, and
shall be governed by and construed in accordance with the laws of the State of
Nevada.
5. Partial Invalidity. If any provision of this Note shall be prohibited
by or invalid under any applicable law, such provision shall be ineffective only
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or any other provision of this Note.
-6-
<PAGE> 77
6. No Deductions. All payments of principal of and interest on the Loan
shall be made without the right of set-off and without deduction of any present
and future taxes, levies, duties, imposts, deductions, charges or withholdings
imposed by any existing or future law, rule, regulation, treaty, directive or
requirement, whether or not having the force of law, which amounts shall be paid
by Maker. Maker will pay the amounts necessary such that the gross amount of the
principal and interest received by Lender is not less than that required by this
Note and the Loan Agreement. All stamp and documentary taxes shall be paid by
Maker. If, notwithstanding the foregoing, Lender pays such taxes, Maker will
reimburse Lender for the amount paid, as additional interest, within five (5)
days of Lender's demand for payment. Maker will furnish Lender official tax
receipts or other evidence of payment of all such amounts.
7. Restrictions upon Transfer. The Deed of Trust, the Additional Deed of
Trust and the Second Deed of Trust provide in part:
"The Beneficiary may without notice to or consent of Trustor
extend the time of the payment of any indebtedness secured hereby to any
successor in interest of the Trustor without discharging the Trustor
from liability thereon. Except as otherwise permitted in this Section
12, if the Trustor shall sell or convey or create or permit to exist any
mortgage, pledge, security interest or other encumbrance or in any other
manner alienate any Property hereby encumbered or any part thereof, or
shall enter into any agreement for the same, or any interest therein, or
shall be divested of his title in any manner or way, whether voluntary
or involuntary or by merger without the written consent of Beneficiary
being first had and obtained, any indebtedness or obligation secured
hereby, irrespective of the maturity dates expressed in any notes
evidencing the same, at the option of Beneficiary, and upon the giving
of any notice which may be required under the Loan Agreement and the
expiration of any applicable cure period, shall immediately become due
and payable. In the event that Beneficiary does not elect to declare the
Note immediately due and payable, then, unless indicated otherwise in
writing by Beneficiary, Trustor shall nevertheless remain primarily
liable for the obligations under this Deed of Trust and secured by this
Deed of Trust, including without limitation, under the Note and any
other instrument securing the Note. This provision shall apply to each
and every sale, transfer, encumbrance or conveyance, regardless whether
or not Beneficiary has consented to, or waived, Beneficiary's rights
hereunder, whether by action or non-action in connection with any
previous sale, transfer or conveyance. For the purposes hereof, any
change in the identity, structure or control of Trustor, whether by way
of a change in the identity of any
-7-
<PAGE> 78
shareholder of Trustor or a change in the ownership or control of
Trustor or any shareholder of Trustor, by merger or otherwise, shall be
deemed a sale hereunder."
IN WITNESS WHEREOF, this Note has been executed as of the day and year
first hereinabove written.
MAKER:
ZANTE, INC.,
a Nevada corporation
By: /s/ DAVID R. WOOD
--------------------------
Name: David R. Wood
-----------------------
Title: Exec. VP and CFO
-----------------------
By:
--------------------------
Name:
-----------------------
Title:
-----------------------
-8-
<PAGE> 79
AMENDED AND RESTATED GUARANTY OF LOAN
-------------------------------------
THIS AMENDED AND RESTATED GUARANTY OF LOAN ("GUARANTY") is dated as of
January 31, 1998 and is entered into by THE SANDS REGENT, a Nevada corporation
("GUARANTOR") and amends and restates that certain Guaranty of Loan dated March
31, 1993 as such guaranty may have been amended from time to time. All undefined
but capitalized terms used herein shall have the same meaning as set forth in
that certain Amended and Restated Loan Agreement dated of even date herewith
("LOAN AGREEMENT") and entered into by and among Guarantor, ZANTE, INC., a
Nevada corporation (hereinafter referred to as "BORROWER"), and Lenders.
Guarantor is executing this Guaranty in connection with that term loan
to Borrower in an original principal amount not to exceed Twenty-Three Million
Six Hundred Nine Thousand Five Hundred Sixteen Dollars ($23,609,516.00), as more
particularly described in the Loan Agreement, with an outstanding unpaid
principal balance of $10,975,000 as of February 1, 1998, with reference to the
following facts:
A. The Recitals set forth in the Loan Agreement are hereby incorporated
herein by this reference as though fully set forth verbatim.
B. For the purpose of this Guaranty, all capitalized terms not otherwise
specifically defined herein shall have the same meaning given them in Section
1.1 of the Loan Agreement as though fully restated verbatim.
C. As an inducement to Lenders to enter into the Loan Agreement with
Borrower, Lenders have required that Guarantor enter into and execute this
Guaranty unconditionally guaranteeing to Lenders all sums owing under the Loan.
D. Guarantor is willing to guarantee fully and unconditionally all sums
owing from time to time under the Loan.
NOW, THEREFORE, in consideration of the Loan made to Borrower and with
the knowledge that Lenders would not enter into the Loan Agreement but for the
promise of Guarantor hereunder, Guarantor hereby represents, warrants, promises
and covenants as follows:
1. Loan Guaranty. Guarantor unconditionally and irrevocably guarantees
Lenders the full and prompt payment and performance of all of Borrower's present
and future indebtedness and monetary and non-monetary obligations under the
Loan, the Note, the Loan Documents, and under all modifications, renewals and
extensions of such instruments collectively, the "GUARANTEED OBLIGATIONS"). All
such indebtedness and obligations shall be payable by Guarantor to Lenders
immediately upon demand. The
<PAGE> 80
obligation of Guarantor hereunder shall be an unconditional obligation to make
prompt payment to Lenders irrespective of the genuineness, validity, regularity
or enforceability of any of the Guaranteed Obligations or of any other
circumstance which might otherwise under the laws of any jurisdiction constitute
a legal or equitable discharge of a surety or a guarantor or a bar (in the
nature of a moratorium or otherwise) to the enforcement of Lenders' rights
either: (i) against Borrower in respect of the Guaranteed Obligations; or (ii)
under this Guaranty. The obligations under this Guaranty shall be absolute,
independent and unconditional under any and all circumstances.
2. Expenses. Guarantor agrees to pay all costs and expenses, including
reasonable attorneys' fees, which may be incurred by Lenders in any effort to
collect the Loan or enforce any of the Loan Documents or the obligations of
Guarantor hereunder, whether or not any lawsuit is filed, including, without
limitation, all costs and attorneys' fees incurred by Lenders in any insolvency
proceeding (including, without limitation, any action for relief from the
automatic stay of any bankruptcy proceeding) and in any judicial or nonjudicial
foreclosure action. Such amounts shall bear interest until paid at a rate equal
to the Default Rate.
3. Rights of Lenders. Guarantor authorizes Lenders at any time in their
discretion to renew, compromise, extend, accelerate or otherwise alter any of
the terms of all or any portion of the Loan, or the Loan Documents, to take and
hold any security for all or any portion of the Guaranteed Obligations, and to
accept additional or substituted security, to subordinate, compromise, enforce,
exchange, waive or release any security, to apply such security and direct the
order or manner of sale thereof, to release Borrower from its liability for all
or any portion of the Guaranteed Obligations, to release, substitute, or add any
one or more guarantors or endorsers, to take any other action which might
otherwise release, discharge or make a defense available to Guarantor, and to
assign this Guaranty in whole or in part. Lenders may take any of the foregoing
actions upon any terms and conditions as Lenders may elect, without giving
notice to Guarantor or obtaining the consent of Guarantor and without affecting
the liability of Guarantor to Lenders.
4. Independent Actions - One-Action Waiver. Guarantor's obligations
under this Guaranty are independent of those of Borrower and every other
guarantor of all or any portion of the Guaranteed Obligations. To the fullest
extent permitted by law, Guarantor hereby waives the provisions of NRS 40.430
and authorizes and agrees that Lenders may bring a separate action against
Guarantor without first proceeding against Borrower or any other guarantor or
any other person or any security held by
-2-
<PAGE> 81
Lenders and without pursuing any other remedy. Lenders' rights under this
Guaranty will not be exhausted by any action by Lenders or by any payment made
by Borrower as to the Guaranteed Obligations.
5. Waivers of Defenses. Guarantor waives: (a) all statutes of
limitations as a defense to any action brought against Guarantor by Lenders, to
the fullest extent permitted by law; (b) any defense based upon any legal
disability of Borrower or any discharge or limitation of the liability of
Borrower to Lenders, whether consensual or arising by operation of law or any
bankruptcy, insolvency, or debtor-relief proceeding, or any other cause; (c)
acceptance, notice of acceptance, presentment, demand, protest and notice of any
kind; (d) any other defense which would otherwise be available to a surety; and
(e) all rights of subrogation, all rights to enforce any remedy that Lenders may
have against Borrower, and all rights to participate in any security held by
Lenders for all or any portion of the Guaranteed Obligations.
6. Borrower's Financial Condition. Guarantor assumes full responsibility
for keeping fully informed of the financial condition of Borrower and all other
circumstances affecting Borrower's ability to perform its obligations to Lenders
and agrees that Lenders will have no duty to report to Guarantor any informal on
which Lenders receive about Borrower's financial condition or any circumstances
bearing on Borrower's ability to perform.
7. Right of Setoff. In addition to all rights of setoff or lien against
any monies, securities or other property of Guarantor given to Lenders by law,
Lenders will have a right of setoff against all monies, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lenders whether held in a general or special account or deposit or for
safekeeping or otherwise; and every such right of setoff may be exercised
without demand upon or notice to Guarantor. No right of setoff shall be deemed
to have been waived by any act or conduct on the part of Lenders, or by any
neglect to exercise such right of setoff, or by any delay in doing so; and every
right of setoff shall continue in full force and effect until specifically
waived or released by an instrument in writing executed by Lenders.
8. Impairment of Subrogation Rights. Upon a default of Borrower, Lenders
may elect to non-judicially or judicially foreclose against any Collateral it
holds for all or any portion of the Guaranteed Obligations or other indebtedness
or any part thereof, or exercise any other remedy against Borrower or any
security. No such action by Lenders will release or limit the liability of
Guarantor to Lenders, even if the effect of that action is to deprive Guarantor
of the right to collect reimbursement from Borrower for any sums paid to
Lenders.
9. Subordination. Any indebtedness of Borrower now or hereafter held by
Guarantor is hereby subordinated to the
-3-
<PAGE> 82
indebtedness of Borrower to Lenders; and from and after the occurrence of an
Event of Default under the Loan Agreement and for so long as such Event of
Default shall continue such indebtedness of Borrower to Guarantor, if Lenders so
request, shall be collected, enforced and received by Guarantor as trustee for
Borrower and paid over to Lenders on account of the Guaranteed Obligations to
Lenders but without reducing or affecting in any manner the liability of
Guarantor under the other provisions of this Guaranty.
10. Default. Lenders may declare Guarantor in default under this
Guaranty if Guarantor fails to perform any of its obligations under this
Guaranty or breaches any representation, warranty or covenant made hereunder and
such default or breach shall have remained uncured for a period of ten (10) days
after written notice by Lenders of such default or breach or becomes the subject
of any bankruptcy, insolvency, arrangement, organization or other debtor-relief
proceeding under any federal or state law whether now existing or hereafter
enacted which shall remain undismissed for a period of ninety (90) days.
11. Delay; Cumulative Remedies. No delay or failure by Lenders to
exercise any right or remedy against Borrower or any guarantor will be construed
as a waiver of that right or remedy. All remedies of Lenders against Borrower,
any other guarantor and Guarantor are cumulative.
12. Continuing Guaranty. This is a guaranty of payment and not of
collection, it is intended to be and shall be construed as a continuing guaranty
and shall remain in full force and effect so long as any Guaranteed Obligation
remains outstanding or Lenders remain obligated to advance funds pursuant to
Loan Agreement. If any payment or a part thereof by or for the account of
Borrower to Lenders is rescinded or must otherwise be returned by any of
Lenders, this Guaranty shall continue to be effective, or be reinstated, as to
said payment or a part thereof as if such payment or part thereof had never been
made to Lenders.
13. Payments. Guarantor understands that the obligations of Borrower to
Lenders may at any time and from time to time exceed the aggregate liability of
Guarantor hereunder without impairing this Guaranty. Guarantor shall not be
credited for payment of any of the Guaranteed Obligations unless such payment is
received by Lenders in immediately available funds and is made by Guarantor
after a demand made by Lenders pursuant to this Guaranty. Guarantor agrees that
whenever Guarantor shall make any payment to Lenders hereunder on account of the
liability hereunder, Guarantor will deliver such payment to
-4-
<PAGE> 83
Lenders by wire transfer of immediately available funds pursuant to the
following wire instructions:
Wells Fargo Bank, N.A.
201 3rd Street, 8th Floor
San Francisco, CA 94103
ABA 121-000-248
Acct. 4584702047
Ref: WFBCORP/SYDIC/ZANTE, INC.
and notify Lenders in writing that such payment is made under this Guaranty for
such purpose. Lenders, without impairing this Guaranty, may apply payments from
Borrower to the Guaranteed Obligations, or to such other obligations owed by
Borrower to Lenders, in such amounts and in such order as Lenders in their
complete discretion determine. No payment made hereunder by Guarantor to Lenders
shall cause Guarantor to be or become a creditor of Lenders.
14. WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS GUARANTY HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (a) ARISING UNDER THE LOAN DOCUMENTS, INCLUDING, WITHOUT
LIMITATION, ANY PRESENT OR FUTURE MODIFICATION THEREOF OR (b) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
ANY OF THEM WITH RESPECT TO THE LOAN DOCUMENTS (AS NOW OR HEREAFTER MODIFIED) OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR HERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT ANY PARTY TO THIS GUARANTY MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
15. Notices. All notices, demands and other communications between
Lenders and Guarantor pursuant to this Guaranty shall be in writing, shall be
addressed to the appropriate address set forth in this Section, or at such other
place as Lenders or Guarantor, as the case may be, may from time to time
designate in writing by ten (10) days prior written notice thereof, and shall
be: (a) hand-delivered, effective upon receipt; or (b) sent by United States
Express Mail or by private overnight courier, effective upon receipt; or (c)
sent by certified mail, return receipt requested, shall be deposited in the
United States mail, with postage thereon fully prepaid and shall be deemed
effective on the day of actual delivery as shown by the addressee's return
receipt or the expiration of three (3) business days after the date of mailing,
whichever is
-5-
<PAGE> 84
the earlier in time. The addresses of the parties are as follows:
To Guarantor: The Sands Regent
c/o Zante, Inc.
345 N. Arlington Ave.
Reno, Nevada 89501
Attn: Mr. Dave Wood
Facsimile: (702) 348-6241
with a copy to: Kolesar & Leatham, CHTD.
Norwest Bank Center
3320 West Sahara Avenue, Suite 380
Las Vegas, NV 89102
Attn: Nile Leatham, Esq.
Facsimile: (702) 392-9472
To Lenders,
c/o Agent Bank: Wells Fargo Bank, National Association
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Mr. Art Brokx
Facsimile: (213) 253-5913
with a copy to: Pillsbury Madison & Sutro LLP
725 South Figueroa Street, Suite 1200
Los Angeles, CA 90017
Attn: Robert L. Morrison, Esq.
Facsimile: (213) 629-1033
16. Advice of Counsel. Guarantor has consulted with its attorneys
regarding the terms and conditions and waivers set forth in this Guaranty.
Guarantor's attorneys have advised Guarantor of the true legal consequences of
each waiver set forth in this Guaranty, including the rights Guarantor would
have in the absence of such waivers.
17. Financial or other Benefit or Advantage. Guarantor hereby
acknowledges and warrants that Guarantor has derived or expects to derive a
financial or other benefit or advantage from the Loan and from each and every
renewal, extension, release of collateral or other relinquishment of legal
rights made or granted or to be made or granted by Lenders to Borrower in
connection with the Loan. Guarantor acknowledges that Borrower is not merely the
agent, instrumentality or alter ego of Guarantor, and that Borrower is an
independent and separate business entity, fully and adequately capitalized for
its own business purposes.
18. Miscellaneous. The invalidity or unenforceability of any one or more
provisions of this Guaranty will not affect any other provision. This Guaranty
will be governed by and construed in accordance with the laws of the State of
Nevada and may be amended only by a written instrument executed by
-6-
<PAGE> 85
Guarantor and Lenders. Guarantor further agrees that the full and exclusive
forum and venue for the determination of any action relating to this Guaranty
shall be either an appropriate Court of the State of Nevada or the United States
District Court for the District of Nevada. The provisions of this Guaranty will
bind and benefit the heirs, executors, administrators, legal representatives,
successors and assigns of Guarantor and Lenders. Whenever the context requires,
all terms used in the singular will be construed in the plural and vice versa,
and each gender will include each other gender. Nothing herein contained shall
be deemed or construed to limit, modify or otherwise affect any other guaranty
by Guarantor to Lenders which is not related to the Guaranteed Obligations.
19. Captions. The Section headings contained herein are solely for
convenience of reference and shall not constitute a part of this Guaranty nor
shall they affect the meaning, construction or effect of this Guaranty.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
first set forth above.
Guarantor:
THE SANDS REGENT,
a Nevada corporation
By: /s/ DAVID R. WOOD
----------------------------
Name: David R. Wood
------------------------
Title: Exec. V.P. and CFO
------------------------
By:
----------------------------
Name:
------------------------
Title:
------------------------
-7-
<PAGE> 86
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE )
On June 1, 1998, before me, TERI J. WALLACE, a Notary Public in and for
the State of NEVADA, personally appeared DAVID R. WOOD, personally known to me
to be the person whose name is subscribed to the within instrument, and
acknowledged to me that he executed the same in his authorized capacity and
that, by his signature on the instrument, the person or the entity upon behalf
of which he acted, executed the instrument.
WITNESS my hand and official seal.
/s/ TERI J. WALLACE
-----------------------------------
Notary Public in and for said State
(Notarial Seal)
<PAGE> 87
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
Pillsbury Madison & Sutro LLP
725 South Figueroa Street, Suite 1200
Los Angeles, CA 90017
Attention: James M. Rishwain, Jr., Esq.
FIRST AMENDMENT TO DEED OF TRUST, FIXTURE FILING
AND SECURITY AGREEMENT WITH ASSIGNMENT OF RENTS
-----------------------------------------------
THIS FIRST AMENDMENT TO DEED OF TRUST, FIXTURE FILING AND SECURITY
AGREEMENT WITH ASSIGNMENT OF RENTS ("FIRST AMENDMENT"), is made as of this 31st
day of January, 1998, by and between ZANTE, INC., a Nevada corporation, Debtor
and Trustor, (hereinafter referred to as "TRUSTOR") and WESTERN TITLE COMPANY, a
Nevada corporation, Trustee, (hereinafter referred to as "TRUSTEE"), and WELLS
FARGO BANK, NATIONAL ASSOCIATION, and THE SUMITOMO BANK, LIMITED, Secured
Parties and Beneficiaries (hereinafter collectively referred to as
"BENEFICIARY") and WELLS FARGO BANK, NATIONAL ASSOCIATION, its successors and
assigns, as Agent Bank for Beneficiary ("AGENT BANK"), with reference to the
following facts:
A. Trustor has executed that certain Deed of Trust, Fixture Filing and
Security Agreement with Assignment of Rents dated March 31, 1993 in favor of
First Interstate Bank of Nevada, National Association, First Interstate Bank of
California, and The Daiwa Bank, Limited and recorded on April 5, 1993 as
Instrument No. 1661414 in the Official Records of Washoe County, Nevada ("DEED
OF TRUST") covering that certain property more particularly described therein.
B. Wells Fargo Bank, National Association, is successor-in-interest to
First Interstate Bank of Nevada, National Association, and First Interstate Bank
of California and The Sumitomo Bank, Limited, is successor-in-interest to The
Daiwa Bank, Limited.
C. All capitalized but undefined terms used herein shall have the same
meaning as set forth in the Deed of Trust.
D. Concurrently herewith, Trustor, The Sands Regent, a Nevada
corporation, and Beneficiary have entered into that certain Amended and Restated
Loan Agreement of even date herewith and that certain Amended and Restated Term
Promissory Note of even date herewith evidencing that certain Loan in the
<PAGE> 88
original principal amount of not to exceed Twenty-Three Million Six Hundred Nine
Thousand Five Hundred Sixteen ($23,609,516.00) with an outstanding principal
balance of $10,975,000 as of February 1, 1998.
NOW, THEREFORE, Trustor and Beneficiary hereby desire to amend the Deed
of Trust as set forth herein.
1. All references to "Real Property" in the first three paragraphs under
the heading "DESCRIPTION OF COLLATERAL" shall be deemed revised to refer to
"Land".
2. The legal description of the Land set forth in Exhibit "A" attached
to the Deed of Trust shall be deemed amended by adding additional real property
collateral such that a new legal description shall be deemed added as set forth
on Exhibit A affixed hereto and by this reference incorporated into the Deed of
Trust and herein and made a part thereof and hereof.
3. All of the language after the third full paragraph until the phrase
"SUBJECT, HOWEVER, to the following" under the heading "DESCRIPTION OF
COLLATERAL" shall be deemed deleted and replaced with the following:
"All present and future chattels, furniture, furnishings,
equipment, fixtures, building materials, building contents and building
components, all of every kind and nature, and other tangible personal
property: (i) which is used in connection with, situate in or on,
affixed to, or incorporated into: (aa) any portion of the real property
which is particularly described by 'Exhibit A' hereto (the 'Land'); (bb)
all real property which is adjacent to, or used in connection with, the
Land and in which Trustor now owns or hereafter acquires an interest
(the 'Adjacent Property'); and/or (cc) all tenements, hereditaments and
appurtenances to the Land or the Adjacent Property (the 'Appurtenances'
and, together with the Land and the Adjacent Property, the 'Real
Property'); (ii) which is used in connection with, situate in or on,
affixed to, or incorporated into, any building, structure or other
improvement that is now or that may be hereafter constructed on or under
the Real Property; and/or (iii) in which Trustor otherwise has or
acquires an interest; all including, without limitation: (aa) all
lumber, bricks, cement, masonry, steel, doors, windows, fasteners,
nails, bolts, scaffolding, tools, construction supplies, construction
tools and equipment and all other building materials, supplies and
equipment of any kind or nature; (bb) all air conditioning, heating,
electrical, lighting, fire fighting and fire prevention, plumbing, food
and beverage preparation, laundry, security, sound, signaling,
telephone, television, entertainment stage, window washing, irrigation,
storage, shop, landscaping, signage and other equipment and fixtures, of
whatever kind
-2-
<PAGE> 89
or nature, consisting of, without limitation, air conditioners,
compressors, fans, duct work, thermostats, furnaces, boilers, radiators,
burners, wiring, conduits, cables, generators, transformers, switching
gear, lighting fixtures, sprinkler systems and other fire extinguishing
equipment, fire alarms and other fire detection equipment, piping,
pumps, valves, sinks, toilets, tubs, motors, carts, elevators and other
lifts, ovens, refrigerators, dishwashers and dishwashing equipment,
fabric washing and drying equipment, lock and key systems, surveillance
and entry detection systems, speakers, intercoms and public address
systems, hardware, shelving, maintenance and repair equipment and all
other similar items; (cc) all furniture, furnishings, wall coverings,
floor coverings, window coverings, artwork and decorative items
including, without limitation, casino, guest room, bathroom, lobby, bar,
restaurant, storage, retail, meeting, convention, leisure, recreation,
office, administrative and other furniture, furnishings, wall coverings,
floor coverings, window coverings, artwork and decorative items; (dd)
all hotel equipment and supplies, including without limitation,
televisions, radios, telephones, linen, bedding, amenities, carts,
recreational equipment, leisure equipment and all other equipment and
supplies utilized in the occupation or renting of hotel guest rooms and
public areas; (ee) all bar and restaurant equipment and supplies,
including, without limitation, kitchen and bar appliances, pots, pans,
plates, dishes, cups, glasses, serving utensils, cooking utensils and
all other equipment and supplies used in the operation of bars and/or
restaurants; (ff) all casino equipment and supplies including, without
limitation, slot machines, gaming tables, cards, dice, gaming chips,
tokens, player tracking systems, Gaming Devices and Related Equipment as
defined in Nevada Revised Statutes Chapter 463 and all other equipment
and supplies utilized in operation of a casino; (gg) all cabaret, stage
and entertainment equipment and supplies including, without limitation,
stage equipment, sets, spotlights, sound equipment, musical instruments
and other equipment and supplies utilized in the operation of stage and
cabaret shows and other entertainment productions; (hh) all office and
administrative equipment and supplies including, without limitation,
office appliances, filing cabinets, computers, peripheral computer
equipment and other data processing and storage equipment, stationery
and other office supply items, and other office and administrative
equipment and supplies; (ii) all indoor and outdoor pool and
recreational equipment and supplies; (jj) all tools and other
maintenance and repair equipment; (kk) all landscaping equipment and
supplies; and (ll) all equipment and supplies utilized in connection
with any other activity engaged in by Trustor;
-3-
<PAGE> 90
All present and future supplies, inventory and merchandise which
is used in connection with, or in the conduct of, the business of
Trustor or in which Trustor has or acquires an interest, including,
without limitation: (i) all present and future goods held for sale or
lease or to be furnished under a contract of service, all raw materials,
work in process and finished goods, all packing materials, supplies and
containers relating to or used in connection with any of the foregoing,
and all bills of lading, warehouse receipts or documents of title
relating to any of the foregoing; (ii) all food stuffs, beverages,
prepared food and other similar items; and (iii) all hotel amenities,
cleaning supplies, office supplies, consumables and similar items;
All present and future goods, which are not otherwise set forth
herein, and which are used in connection with, or in the conduct of, the
business of Trustor or in which Trustor has or acquires an interest;
All present and future accounts, accounts receivable, rentals,
deposits, rights to payment, instruments, documents, chattel paper,
security agreements, guaranties, undertakings, surety bonds, insurance
policies and notes and drafts which are owned, or used in connection
with, or in the conduct of, the business of Trustor, or in which Trustor
has or acquires an interest, however created or arising;
All present and future contracts, or agreements and all other
present and future general intangibles which are owned, or used in
connection with, or in the conduct of, the business of Trustor, or in
which Trustor has or acquires an interest, including, without
limitation: (aa) all leases and purchase contracts for equipment,
furniture and/or fixtures of any kind and character (to the extent that
they may be characterized as personal property rather than real
property) relating to the Real Property and the businesses conducted
thereon; and (bb) all goodwill, choses in action, trade secrets,
customer lists, trademarks, trade names and service marks, patents,
copyrights, technology, processes, and proprietary information which are
owned, or used in connection with, or in the conduct of, the business of
Trustor, or in which Trustor has or acquires an interest (including,
without limitation, the trade names of 'Sands', 'Sands Regency', 'Sands
Regency Hotel and Casino' and/or any derivation thereof including any
and all state and federal registrations thereof);
All present and future deposit, securities, commodities or other
accounts which are owned, or used in connection with, or in the conduct
of, the business of Trustor, or in which Trustor has or acquires an
interest,
-4-
<PAGE> 91
including, without limitation, that certain Account No. ORV-952251-28
with Prudential Securities Incorporated held at its Reno, Nevada branch
located at 200 South Virginia Street, Suite 300, Reno, Nevada 89501, and
any demand, time, savings, passbook, securities, commodity or like
account maintained with any bank, savings and loan association, credit
union, securities firm or like organization, and all money, cash and
cash equivalents of Trustor, whether or not deposited in any such
account;
To the extent permitted by law, all present and future revenues,
gaming revenues, receipts, payments and income of any other nature,
whatsoever, regardless of whether such items are derived from or
received with respect to hotel rooms, banquet facilities, convention
facilities, retail premises, bars, restaurants, casinos or any other
facilities on the Real Property and regardless of whether such items are
derived from any other source;
All present and future books and records which are owned, or used
in connection with, or in the conduct of, the business of Trustor, or in
which Trustor, has or acquires an interest including, without
limitation, books of account and ledgers of every kind and nature, all
electronically recorded data relating to the business of Trustor, all
receptacles and containers for such records, and all files and
correspondence;
All present and future stocks, bonds, debentures, securities,
subscription rights, options, warrants, puts, calls, certificates,
partnership interests, joint venture interests, investments and/or
brokerage accounts which are owned, or used in connection with, or in
the conduct of, the business of Trustor, or in which Trustor has or
acquires an interest and all rights, preferences, privileges, dividends,
distributions, redemption payments, or liquidation payments with respect
thereto;
All right, title and interest of Trustor in and to all leases,
licenses, concessions, or similar agreements whether or not specifically
herein described (to the extent that they may be characterized as
personal property rather than real property) which now or may hereafter
pertain to the Real Property and all amendments to the same, including,
but not limited to the following: (aa) all payments due and to become
due under such agreements, whether as rent, damages, insurance payments,
condemnation awards, or otherwise; (bb) all claims, rights, powers,
privileges and remedies under such agreements; and (cc) all rights of
the Trustor under such leases to exercise any election or option, or to
give or receive any notice, consent, waiver or approval, or to accept
any surrender of the premises or any part thereof, together with full
power and authority in the name of Trustor or otherwise, to
-5-
<PAGE> 92
demand and receive, enforce, collect, or receipt for any or all of the
foregoing, to endorse or execute any checks or any instruments or
orders, to file any claims or to take any action which Beneficiary may
deem necessary or advisable in connection therewith;
All plans, specifications, soil reports, engineering reports,
land planning maps, surveys, and any other reports, exhibits or plans
used or to be used in connection with the construction, planning,
operation or maintenance of the Real Property, together with all
amendments and modifications thereof;
All water rights and conditional water rights that are now, or
may hereafter be, appurtenant to, used in connection with or intended
for use in connection with the Real Property, including, without
limitation: (i) ditch, well, pipeline, spring and reservoir rights,
whether or not adjudicated or evidenced by any well or other permit;
(ii) all rights with respect to groundwater underlying the Real
Property; (iii) any permit to construct any water well, water from which
is intended to be used in connection with the Real Property; and (iv)
all of Trustor's right, title and interest under any decreed or pending
plan of augmentation or water exchange plan;
All present and future accessions, appurtenances, components,
repairs, repair parts, spare parts, replacements, substitutions,
additions, issue and/or improvements to or of or with respect to any of
the foregoing;
All rights, remedies, powers and/or privileges of Trustor with
respect to any of the foregoing; and
Any and all proceeds and products of any of the foregoing,
including, without limitation, all money, accounts, general intangibles,
deposit accounts, documents, instruments, chattel paper, goods,
insurance proceeds, and any other tangible or intangible property
received upon the sale or disposition of any of the foregoing.
The Real Property, Personal Property and other Collateral (now
owned or hereafter acquired and wherever located), hereby encumbered
shall hereinafter collectively be referred to as the 'Property'."
4. The paragraph labeled "First" under the heading "For The Purpose of
Securing" in the Deed of Trust shall be deemed deleted in its entirety and
replaced as follows:
"First: Payment of a principal sum in the current outstanding
principal balance of $10,975,000, together with interest thereon,
according to the terms of that certain
-6-
<PAGE> 93
Amended and Restated Term Promissory Note of even date herewith made by
Trustor, payable to the order of Beneficiary, according to the term and
effect of said promissory note, and all renewals, substitutions,
extensions and modifications of said promissory note (hereinafter the
'Note')."
5. The paragraph labeled "Fifth" under the heading "For The Purpose of
Securing" in the Deed of Trust shall be deemed deleted in its entirety and
replaced as follows:
"Fifth: Performance of every obligation, warranty,
representation, covenant, agreement and promise of Trustor contained in
that certain Amended and Restated Loan Agreement dated as of January 31,
1998, by and among Trustor, The Sands Regent, a Nevada corporation, and
Beneficiary, as the same may be hereafter modified or amended
(hereinafter referred to as 'Loan Agreement')."
6. The references to "5.06" and "7.02" in Section 3 of the Deed of Trust
shall be revised to read "5.6" and "7.2", respectively.
7. The following shall be deemed added at the end of Section 12 of the
Deed of Trust as follows:
"In the event that Beneficiary does not elect to declare the Note
immediately due and payable, then, unless indicated otherwise in writing
by Beneficiary, Trustor shall nevertheless remain primarily liable for
the obligations under this Deed of Trust and secured by this Deed of
Trust, including without limitation, under the Note and any other
instrument securing the Note. This provision shall apply to each and
every sale, transfer, encumbrance or conveyance, regardless whether or
not Beneficiary has consented to, or waived, Beneficiary's rights
hereunder, whether by action or non-action in connection with any
previous sale, transfer or conveyance. For the purposes hereof, a change
in Trustor in violation of the Loan Agreement shall be deemed a sale
hereunder and any change in the identity, structure or control of
Trustor, whether by way of a change in the identity of any shareholder
of Trustor or a change in the ownership or control of Trustor or any
shareholder of Trustor, by merger or otherwise, shall be deemed a sale
hereunder."
8. Section 14 of the Deed of Trust is deemed deleted in its entirety and
restated as follows:
"Upon the occurrence of any Event of Default as defined in the
Loan Agreement, all sums secured hereby, at the option of Lenders,
without further notice or demand, shall immediately become due and
payable."
-7-
<PAGE> 94
9. The first two lines of Section 24 of the Deed of Trust are deleted in
their entirety and replaced as follows:
"Upon the occurrence of an Event of Default as defined
in the Loan Agreement, Trustor shall".
10. The address of the Beneficiary as set forth in Section 26 of the
Deed of Trust shall be deemed amended to read as follows:
"Beneficiary,
c/o Agent Bank: Wells Fargo Bank, National Association
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Mr. Art Brokx
with a copy to: Pillsbury Madison & Sutro LLP
725 South Figueroa Street, Suite 1200
Los Angeles, CA 90017
Attn: Robert L. Morrison, Esq.
11. Except as specifically set forth in this First Amendment, the Deed
of Trust shall remain unchanged and of full force and effect.
12. This First Amendment may be executed in any number of separate
counterparts with the same effect as if the signature pages hereto and hereby
were upon the same instrument. All such
-8-
<PAGE> 95
counterparts shall together constitute but one and the same
document.
IN WITNESS WHEREOF, Trustor and Beneficiary have executed this First
Amendment as of the date first set forth above.
DEBTOR and TRUSTOR: BENEFICIARY:
ZANTE, INC., WELLS FARGO BANK, NATIONAL
a Nevada corporation ASSOCIATION
By: /s/ DAVID R. WOOD By: /s/ ART BROKY
---------------------------- --------------------------
Name: David R. Wood Name: Art Broky
------------------------ -----------------------
Title: Exec. V.P. Title: V.P.
------------------------ -----------------------
By: By:
---------------------------- --------------------------
Name: Name:
------------------------ -----------------------
Title: Title:
------------------------ -----------------------
THE SUMITOMO BANK, LIMITED
By: /s/ H.W. REDDING
--------------------------
Name: H.W. Redding
-----------------------
Title: V.P. & Mgr.
-----------------------
By: /s/ S. MARCINIAK
--------------------------
Name: S. Marciniak
-----------------------
Title: V.P. & Mgr.
-----------------------
-9-
<PAGE> 96
EXHIBIT A
---------
LEGAL DESCRIPTION OF PROPERTIES
<PAGE> 97
DESCRIPTION
All that real property situate in the City of Reno, County of Washoe, State of
Nevada, described as follows:
PARCEL 1:
The South 200 feet of Lots 1, 2 and 3 and all of Lots 4, 5, 6 and 7 in Block 3
of WESTERN ADDITION TO RENO, according to the map thereof, filed in the office
of the County Recorder of Washoe County, State of Nevada, on May 2, 1876.
PARCEL 2:
Lots 8, 9 and 10, Block 3, of WESTERN ADDITION TO RENO, according to the map
thereof, filed in the office of the County Recorder of Washoe County, State of
Nevada, on May 2, 1876.
EXCEPT THEREFROM the Northerly 100 feet of Lot 8 and the Northerly 100 feet of
the East 25 feet of Lot 9, Block 3 of WESTERN ADDITION TO RENO, according to
the map thereof, filed in the office of the County Recorder of Washoe County,
State of Nevada, on May 2, 1876.
ALSO EXCEPTING THEREFROM that portion of Lot 10 dedicated to the City of Reno
by document recorded March 14, 1990, as Document No. 1386041.
PARCEL 3:
Lot 12 and the Northerly 140 feet of Lots 13 and 14, Block 3 of WESTERN
ADDITION TO RENO, according to the map thereof, filed in the office of the
County Recorder of Washoe County, State of Nevada, on May 2, 1876.
EXCEPTING THEREFROM that portion dedicated to the City of Reno, by document
recorded May 24, 1988, as Document No. 1248314 and document recorded March 14,
1990, as Document No. 1386041.
PARCEL 4:
That certain parcel of land situate in the West 1/2 of Section 11, Township 19
North, Range 19 East, M.D.B.&M., described as follows:
BEGINNING at the point of intersection of the Northerly line of lands (300.00
feet wide) of Southern Pacific Transportation Company with the center line of
Ralston Street (80.00 feet wide), said point bears South 76 degrees 10 minutes
00 seconds West, 40.00 feet from the Southwesterly corner of Lot No. 1, Block
No. 3, WESTERN ADDITION TO THE TOWN (now City) of Reno, according to the map
thereof, filed in the office of the County Recorder of said County; thence South
13 degrees 50 minutes 00 seconds East along the center line of said Ralston
Street, 66.00 feet to a line parallel with and 20.00 feet Northerly of (measured
at right angles) the located center line of said Company's Eastbound main track
(Sacramento to Ogden); thence North 76 degrees 10 minutes 00 seconds East,
along said parallel line, 760.00 feet to the center line of North Arlington
Street (80.00 feet wide); thence North 13 degrees 50 minutes 00 seconds West
along said center line, 66.00 feet to the Northerly line of land of said
Company; thence South 76 degrees 10 minutes 00 seconds West, 760.00 feet to the
point of beginning.
(Continued)
HOTEL PROPERTY
Page 1 of 3
<PAGE> 98
LEGAL DESCRIPTION (continued)
EXCEPTING THEREFROM all minerals and mineral rights, interests, and royalties,
including without limiting the generality thereof, oil, gas, and other
hydrocarbon substances, as well as metallic or other solid minerals located
below 500 feet or more below surface; however, Grantor or its successors and
assigns, shall not have the right for any purpose whatsoever to enter upon,
into or through the surface of said property in connection therewith.
PARCEL 5:
That certain parcel of land situate in the West 1/2 of Section 11, Township 19
North, Range 19 East, M.D.B.&M., described as follows:
BEGINNING at the point of intersection of the Southerly line of land (300.0 feet
wide) of Southern Pacific Transportation Company with the center line of Ralston
Street (80.0 feet wide), said point bears South 06 degrees 14 minutes 19 seconds
East, 302.65 feet from the Southwesterly corner of Lot No. 1, Block No. 3, of
said WESTERN ADDITION; thence North 13 degrees 50 minutes 00 seconds West, along
said center line 180.00 feet to a line parallel with and 20.00 feet Southerly of
(measured at right angles) the located center line of said Company's Westbound
main track (Ogden to Sacramento); thence North 76 degrees 10 minutes 00 seconds
East, along said parallel line, 760.00 feet to the center line of North
Arlington Street (80.00 feet wide); thence South 13 degrees 50 minutes 00
seconds East along said center line, 80.00 feet to the Easterly prolongation of
the Northerly line of that parcel of land as described in Deed dated June 12,
1933, between Central Pacific Railway Company (now Southern Pacific
Transportation Company) and D. Zolezzi, recorded July 12, 1933, in Deed Book 93,
Page 422, as Instrument No. 62975, Records of said County, said line also being
parallel with and 100.00 feet Southerly of (measured at right angles) said
Company's Westbound main track; thence South 76 degrees 10 minutes 00 seconds
West, along said line 209.88 feet to the Northwesterly corner of said property,
as described in said Deed dated June 12, 1933; thence South 13 degrees 50
minutes 00 seconds East along the Westerly line of said described property,
100.00 feet to the Southerly line of lands of said Company; thence South 76
degrees 10 minutes 00 seconds West along said Southerly line 550.12 feet to the
point of beginning.
EXCEPTING THEREFROM all minerals and mineral rights, interests, and royalties,
including without limiting the generality thereof, oil, gas and other
hydrocarbon substances, as well as metallic or other solid minerals located
below 500 feet or more below surface; however, Grantor or its successors and
assigns, shall not have the right for any purpose whatsoever to enter upon,
into or through the surface of said property in connection therewith.
PARCEL 6: (Airspace)
That certain parcel of land situate in the West 1/2 of Section 11, Township 19
North, Range 19 East, M.D.B.&M., described as follows:
All rights in and to the airspace lying above a horizontal plane having an
elevation of 27.00 feet higher than the elevation of the highest point on the
top of the rails of Southern pacific Transportation Company's existing main line
(Continued)
HOTEL PROPERTY
Page 2 of 3
<PAGE> 99
LEGAL DESCRIPTION (continued)
tracks as they are established as of the date hereof, above the following
described real property:
That certain strip of land, 54.00 feet wide, described as being bounded on the
West by the center line of Ralston Street (80.00 feet wide), on the East by the
center line of North Arlington Street (80 feet wide), on the North by the
Southerly line of Parcel 1 as herein above described, and on the South by the
Northerly line of Parcel No. 5 as herein above described.
HOTEL PROPERTY
Page 3 of 3
<PAGE> 100
DESCRIPTION
All that real property situate in the City of Reno, County of Washoe, State of
Nevada, described as follows:
Lot 11 in Block 3 of the WESTERN ADDITION TO THE CITY OF RENO, Washoe County,
Nevada, according to the official plat thereof, filed in the office of the
County Recorder of Washoe County, State of Nevada, on March 20, 1876; together
with that portion of the Northerly 10 feet of that certain alley known as
Austin Lane lying between the southerly extensions of the Westerly and Easterly
lines of said Lot 11 as abandoned by the City of Reno, in that certain Order of
Abandonment, recorded June 20, 1988, Document No. 1254549, in Book 2754, Page
836, Washoe County, Nevada, Official Records.
EXCEPTION THEREFROM that portion dedicated and conveyed to the City of Reno, in
Deed recorded March 14, 1990, in Book 3047, Page 385, as Document No. 1386041,
Official Records.
PARKING LOT PROPERTY #1
Page 1 of 1
<PAGE> 101
DESCRIPTION
All that real property situate in the City of Reno, County of Washoe, State of
Nevada, described as follows:
The North 100 feet of Lot 8 and the North 100 feet of the East 25 feet of Lot
9 in Block 3 of WESTERN ADDITION, RENO, according to the map thereof, filed in
the office of the County Recorder of Washoe County, State of Nevada, on May 2,
1876.
EXCEPTING THEREFROM the following described parcel as was conveyed by Suzanne
T. Austin, a single woman, to the City of Reno, Nevada, a municipal
corporation, by Deed of Dedication, dated July 30, 1966, recorded August 1,
1966, in Book 195, Page 759, File No. 67029, Official Records, as follows,
to-wit:
BEGINNING at the Northeast corner of Lot 8 in Block 3 of WESTERN ADDITION,
RENO, according to the map thereof, filed in the office of the County Recorder
of Washoe County, State of Nevada, on May 2, 1876; thence Westerly along the
Northern line of said Lot 8 a distance of 15.02 feet; thence Easterly,
Southeasterly and Southerly along the arc of a curve to the right with a radius
of 15.00 feet, a central angle of 90 degrees 04 minutes and an arc length of
23.58 feet; thence Northerly along the Eastern line of said Lot 8 a distance of
15.02 feet to the point of beginning.
PARKING LOT PROPERTY #2
Page 1 of 1
<PAGE> 102
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
On 6-9, 1998, before me, JUANITA WRONKIEWICZ, a Notary Public in and for
the State of ILLINOIS, personally appeared H.W. REDDING, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument, and acknowledged to me that he or
she executed the same in his or her authorized capacity and that, by his or her
signature on the instrument, the person or the entity upon behalf of which he or
she acted, executed the instrument.
WITNESS my hand and official seal.
/s/ JUANITA WRONKIEWICZ
-----------------------------------
Notary Public in and for said State
(Notarial Seal)
<PAGE> 103
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
On 6-9, 1998, before me, JUANITA WRONKIEWICZ, a Notary Public in and for
the State of ILLINOIS, personally appeared STANLEY MARCINIAK, personally known
to me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument, and acknowledged to me that
he or she executed the same in his or her authorized capacity and that, by his
or her signature on the instrument, the person or the entity upon behalf of
which he or she acted, executed the instrument.
WITNESS my hand and official seal.
/s/ JUANITA WRONKIEWICZ
-----------------------------------
Notary Public in and for said State
(Notarial Seal)
<PAGE> 104
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On June 12, 1998, before me, SUNNY DISANTE, a Notary Public in and for
the State of CALIFORNIA, personally appeared ART BROKY, personally known to me
to be the person whose name is subscribed to the within instrument, and
acknowledged to me that he executed the same in his authorized capacity and
that, by his signature on the instrument, the person or the entity upon behalf
of which he acted, executed the instrument.
WITNESS my hand and official seal.
/s/ SUNNY DISANTE
-----------------------------------
Notary Public in and for said State
(Notarial Seal)
<PAGE> 105
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE )
On June 19, 1998, before me, TERI J. WALLACE, a Notary Public in and for
the State of NEVADA, personally appeared DAVID R. WOOD, personally known to me
to be the person whose name is subscribed to the within instrument, and
acknowledged to me that he or she executed the same in his or her authorized
capacity and that, by his or her signature on the instrument, the person or the
entity upon behalf of which he or she acted, executed the instrument.
WITNESS my hand and official seal.
/s/ TERI J. WALLACE
-----------------------------------
Notary Public in and for said State
(Notarial Seal)
<PAGE> 106
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
Pillsbury Madison & Sutro LLP
725 South Figueroa Street, Suite 1200
Los Angeles, CA 90017
Attention: James M. Rishwain, Jr., Esq.
DEED OF TRUST, FIXTURE FILING
AND SECURITY AGREEMENT WITH ASSIGNMENT OF RENTS
-----------------------------------------------
THIS DEED OF TRUST, FIXTURE FILING AND SECURITY AGREEMENT WITH
ASSIGNMENT OF RENTS, hereinafter referred to as "DEED OF TRUST", made as of this
31st day of January, 1998, by and between ZANTE, INC., a Nevada corporation,
Debtor and Trustor, (hereinafter referred to as "TRUSTOR") and WESTERN TITLE
COMPANY, a Nevada corporation, Trustee, (hereinafter referred to as "TRUSTEE"),
and WELLS FARGO BANK, NATIONAL ASSOCIATION, and THE SUMITOMO BANK, LIMITED,
Secured Parties and Beneficiaries (hereinafter collectively referred to as
"BENEFICIARY") and WELLS FARGO BANK, NATIONAL ASSOCIATION, its successors and
assigns, as Agent Bank for Beneficiary ("AGENT BANK").
W I T N E S S E T H:
THAT TRUSTOR:
(i) Grants the following described real property, fixtures and
collateral to Trustee, in trust, with power of sale, to have and to hold the
same unto Trustee and its successors in interest upon the trusts, covenants and
agreements herein expressed; and (ii) Grants a security interest in all of
Trustor's right, title and interest in the following described collateral which
the Trustor now has or may hereafter acquire to Beneficiary pursuant to the
Nevada Uniform Commercial Code--Secured Transactions. Said Real Property
collateral and personal property collateral are described as follows:
DESCRIPTION OF COLLATERAL
All that certain real property, and the interests therein, situated in
the County of Washoe, State of Nevada, that is more particularly described on
that certain exhibit marked Exhibit "A", affixed hereto and by this reference
incorporated herein and made a part hereof, together with all buildings,
structures and all other improvements and fixtures that are, or that may be
hereafter, erected or placed thereon or therein, and
<PAGE> 107
all and singular the tenements, hereditaments and appurtenances thereunto
belonging, or in any wise appertaining, and the rents, issues and profits
thereof, and all the estate, right, title, property, possession, interest or
other claim or demand, in law or in equity which Trustor now has or may
hereafter acquire, in or to the said property, or any part thereof, with
appurtenances (hereinafter the "LAND");
Together with any and all other rights pertaining to or appurtenant to
the said Real Property, and the interests of Trustor therein;
Together with all water rights and rights to the use of water that are
now or that may be hereinafter used in connection with the said Real Property,
or any part thereof, or any improvements or appurtenances thereto; and
All present and future chattels, furniture, furnishings, equipment,
fixtures, building materials, building contents and building components, all of
every kind and nature, and other tangible personal property: (i) which is used
in connection with, situate in or on, affixed to, or incorporated into: (aa) any
portion of the Land; (bb) all real property which is adjacent to, or used in
connection with, the Land and in which Trustor now owns or hereafter acquires an
interest (the "ADJACENT PROPERTY"); and/or (cc) all tenements, hereditaments and
appurtenances to the Land or the Adjacent Property (the "APPURTENANCES" and,
together with the Land and the Adjacent Property, the "REAL PROPERTY"); (ii)
which is used in connection with, situate in or on, affixed to, or incorporated
into, any building, structure or other improvement that is now or that may be
hereafter constructed on or under the Real Property; and/or (iii) in which
Trustor otherwise has or acquires an interest; all including, without
limitation: (aa) all lumber, bricks, cement, masonry, steel, doors, windows,
fasteners, nails, bolts, scaffolding, tools, construction supplies, construction
tools and equipment and all other building materials, supplies and equipment of
any kind or nature; (bb) all air conditioning, heating, electrical, lighting,
fire fighting and fire prevention, plumbing, food and beverage preparation,
laundry, security, sound, signaling, telephone, television, entertainment stage,
window washing, irrigation, storage, shop, landscaping, signage and other
equipment and fixtures, of whatever kind or nature, consisting of, without
limitation, air conditioners, compressors, fans, duct work, thermostats,
furnaces, boilers, radiators, burners, wiring, conduits, cables, generators,
transformers, switching gear, lighting fixtures, sprinkler systems and other
fire extinguishing equipment, fire alarms and other fire detection equipment,
piping, pumps, valves, sinks, toilets, tubs, motors, carts, elevators and other
lifts, ovens, refrigerators, dishwashers and dishwashing equipment, fabric
washing and drying equipment, lock and key systems, surveillance and entry
detection systems, speakers, intercoms and public
-2-
<PAGE> 108
address systems, hardware, shelving, maintenance and repair equipment and all
other similar items; (cc) all furniture, furnishings, wall coverings, floor
coverings, window coverings, artwork and decorative items including, without
limitation, casino, guest room, bathroom, lobby, bar, restaurant, storage,
retail, meeting, convention, leisure, recreation, office, administrative and
other furniture, furnishings, wall coverings, floor coverings, window coverings,
artwork and decorative items; (dd) all hotel equipment and supplies, including
without limitation, televisions, radios, telephones, linen, bedding, amenities,
carts, recreational equipment, leisure equipment and all other equipment and
supplies utilized in the occupation or renting of hotel guest rooms and public
areas; (ee) all bar and restaurant equipment and supplies, including, without
limitation, kitchen and bar appliances, pots, pans, plates, dishes, cups,
glasses, serving utensils, cooking utensils and all other equipment and supplies
used in the operation of bars and/or restaurants; (ff) all casino equipment and
supplies including, without limitation, slot machines, gaming tables, cards,
dice, gaming chips, tokens, player tracking systems, Gaming Devices and Related
Equipment as defined in Nevada Revised Statutes Chapter 463 and all other
equipment and supplies utilized in operation of a casino; (gg) all cabaret,
stage and entertainment equipment and supplies including, without limitation,
stage equipment, sets, spotlights, sound equipment, musical instruments and
other equipment and supplies utilized in the operation of stage and cabaret
shows and other entertainment productions; (hh) all office and administrative
equipment and supplies including, without limitation, office appliances, filing
cabinets, computers, peripheral computer equipment and other data processing and
storage equipment, stationery and other office supply items, and other office
and administrative equipment and supplies; (ii) all indoor and outdoor pool and
recreational equipment and supplies; (jj) all tools and other maintenance and
repair equipment; (kk) all landscaping equipment and supplies; and (ll) all
equipment and supplies utilized in connection with any other activity engaged in
by Trustor;
All present and future supplies, inventory and merchandise which is used
in connection with, or in the conduct of, the business of Trustor or in which
Trustor has or acquires an interest, including, without limitation: (i) all
present and future goods held for sale or lease or to be furnished under a
contract of service, all raw materials, work in process and finished goods, all
packing materials, supplies and containers relating to or used in connection
with any of the foregoing, and all bills of lading, warehouse receipts or
documents of title relating to any of the foregoing; (ii) all food stuffs,
beverages, prepared food and other similar items; and (iii) all hotel amenities,
cleaning supplies, office supplies, consumables and similar items;
-3-
<PAGE> 109
All present and future goods, which are not otherwise set forth herein,
and which are used in connection with, or in the conduct of, the business of
Trustor or in which Trustor has or acquires an interest;
All present and future accounts, accounts receivable, rentals, deposits,
rights to payment, instruments, documents, chattel paper, security agreements,
guaranties, undertakings, surety bonds, insurance policies and notes and drafts
which are owned, or used in connection with, or in the conduct of, the business
of Trustor, or in which Trustor has or acquires an interest, however created or
arising;
All present and future contracts, or agreements and all other present
and future general intangibles which are owned, or used in connection with, or
in the conduct of, the business of Trustor, or in which Trustor has or acquires
an interest, including, without limitation: (aa) all leases and purchase
contracts for equipment, furniture and/or fixtures of any kind and character (to
the extent that they may be characterized as personal property rather than real
property) relating to the Real Property and the businesses conducted thereon;
and (bb) all goodwill, choses in action, trade secrets, customer lists,
trademarks, trade names and service marks, patents, copyrights, technology,
processes, and proprietary information which are owned, or used in connection
with, or in the conduct of, the business of Trustor, or in which Trustor has or
acquires an interest (including, without limitation, the trade names of "Sands",
"Sands Regency", "Sands Hotel and Casino" and/or any derivation thereof
including any and all state and federal registrations thereof);
All present and future deposit, securities, commodities or other
accounts which are owned, or used in connection with, or in the conduct of, the
business of Trustor, or in which Trustor has or acquires an interest, including,
without limitation, that certain Account No. ORV-952251-28 with Prudential
Securities Incorporated held at its Reno, Nevada branch located at 200 South
Virginia Street, Suite 300, Reno, Nevada 89501, and any demand, time, savings,
passbook, securities, commodity or like account maintained with any bank,
savings and loan association, credit union, securities firm or like
organization, and all money, cash and cash equivalents of Trustor, whether or
not deposited in any such account;
To the extent permitted by law, all present and future revenues, gaming
revenues, receipts, payments and income of any other nature, whatsoever,
regardless of whether such items are derived from or received with respect to
hotel rooms, banquet facilities, convention facilities, retail premises, bars,
restaurants, casinos or any other facilities on the Real Property and regardless
of whether such items are derived from any other source;
-4-
<PAGE> 110
All present and future books and records which are owned, or used in
connection with, or in the conduct of, the business of Trustor, or in which
Trustor, has or acquires an interest including, without limitation, books of
account and ledgers of every kind and nature, all electronically recorded data
relating to the business of Trustor, all receptacles and containers for such
records, and all files and correspondence;
All present and future stocks, bonds, debentures, securities,
subscription rights, options, warrants, puts, calls, certificates, partnership
interests, joint venture interests, investments and/or brokerage accounts which
are owned, or used in connection with, or in the conduct of, the business of
Trustor, or in which Trustor has or acquires an interest and all rights,
preferences, privileges, dividends, distributions, redemption payments, or
liquidation payments with respect thereto;
All right, title and interest of Trustor in and to all leases, licenses,
concessions, or similar agreements whether or not specifically herein described
(to the extent that they may be characterized as personal property rather than
real property) which now or may hereafter pertain to the Real Property and all
amendments to the same, including, but not limited to the following: (aa) all
payments due and to become due under such agreements, whether as rent, damages,
insurance payments, condemnation awards, or otherwise; (bb) all claims, rights,
powers, privileges and remedies under such agreements; and (cc) all rights of
the Trustor under such leases to exercise any election or option, or to give or
receive any notice, consent, waiver or approval, or to accept any surrender of
the premises or any part thereof, together with full power and authority in the
name of Trustor or otherwise, to demand and receive, enforce, collect, or
receipt for any or all of the foregoing, to endorse or execute any checks or any
instruments or orders, to file any claims or to take any action which
Beneficiary may deem necessary or advisable in connection therewith;
All plans, specifications, soil reports, engineering reports, land
planning maps, surveys, and any other reports, exhibits or plans used or to be
used in connection with the construction, planning, operation or maintenance of
the Real Property, together with all amendments and modifications thereof;
All water rights and conditional water rights that are now, or may
hereafter be, appurtenant to, used in connection with or intended for use in
connection with the Real Property, including, without limitation: (i) ditch,
well, pipeline, spring and reservoir rights, whether or not adjudicated or
evidenced by any well or other permit; (ii) all rights with respect to
groundwater underlying the Real Property; (iii) any permit to construct any
water well, water from which is intended to be
-5-
<PAGE> 111
used in connection with the Real Property; and (iv) all of Trustor's right,
title and interest under any decreed or pending plan of augmentation or water
exchange plan;
All present and future accessions, appurtenances, components, repairs,
repair parts, spare parts, replacements, substitutions, additions, issue and/or
improvements to or of or with respect to any of the foregoing;
All rights, remedies, powers and/or privileges of Trustor
with respect to any of the foregoing; and
Any and all proceeds and products of any of the foregoing, including,
without limitation, all money, accounts, general intangibles, deposit accounts,
documents, instruments, chattel paper, goods, insurance proceeds, and any other
tangible or intangible property received upon the sale or disposition of any of
the foregoing.
The Real Property, Personal Property and other Collateral (wherever
located) hereby encumbered shall hereinafter collectively be referred to as the
"PROPERTY".
SUBJECT, HOWEVER, to the following:
(i) The right of Trustor to sell or otherwise dispose of or repair or
replace any Personal Property in the ordinary course of business, free and clear
of the lien hereof;
(ii) The leases and/or purchase money security interests pursuant to
which Trustor has acquired an interest in the fixtures or personally covered
hereby; and
(iii) Any restriction on assignment which may be contained in any
document, instrument or agreement purported to be encumbered hereby.
FOR THE PURPOSE OF SECURING:
First: Payment of a principal sum in the current outstanding principal
balance of $10,975,000.00, together with interest thereon, according to the
terms of that certain Amended and Restated Term Promissory Note of even date
herewith made by Trustor, payable to the order of Beneficiary, according to the
tenor and effect of said promissory note, and all renewals, substitutions,
extensions and modifications of said promissory note (hereinafter the "NOTE").
Second: Payment and performance of every obligation, covenant, promise
and agreement of Trustor herein contained or incorporated herein by reference,
including any sums paid or advanced by Beneficiary pursuant to the terms hereof.
-6-
<PAGE> 112
Third: The expenses and costs incurred or paid by Beneficiary in the
preservation and enforcement of the rights and remedies of Beneficiary and the
duties and liabilities of Trustor hereunder, including, but not by way of
limitation, attorney's fees, court costs, witness fees, expert witness fees,
collection costs, and costs and expenses paid by Beneficiary in performing for
Trustor's account any obligation of said Trustor.
Fourth: Payment of additional sum and interest thereon which may
hereafter be loaned to Trustor when evidenced by a promissory note or notes
which recite that this Deed of Trust is security therefor.
Fifth: Performance of every obligation, warranty, representation,
covenant, agreement and promise of Trustor contained in that certain Amended and
Restated Loan Agreement dated as of January 31, 1998 by and among Trustor, The
Sands Regent, a Nevada corporation, and Beneficiary (hereinafter referred to as
the "LOAN AGREEMENT").
Sixth: Performance of every obligation, warranty, representation,
covenant, agreement and promise of Trustor contained in the Assignment of
Equipment Leases, Contracts and Subleases, the Assignment of Permits, Licenses
and Contracts and the Assignment of Leases, Rents and Revenues as those terms
are defined by the Loan Agreement.
AND THIS INDENTURE FURTHER WITNESSETH:
1. Trustor agrees to properly care for and keep said Property in good
condition and repair; not to remove or demolish any building thereon; to
complete in a good and workmanlike manner any building which may be constructed
thereon, and to pay when due all claims for labor performed and materials
furnished therefor; to comply with all laws, ordinances and regulations relating
to any alterations or improvements made thereon; not to commit or permit any
waste thereof; not to commit, suffer or permit any act to be done in or upon
said Property in violation of any law, covenant, condition or restriction
affecting said Property; to cultivate, irrigate, fertilize, fumigate, prune
and/or do any other act or acts, all in a timely and proper manner, which, from
the character or use of said Property, may be reasonably necessary to keep the
Property in good condition, ordinary wear and tear excepted, the specific
enumerations herein not excluding the general.
2. Trustor agrees to pay and discharge all costs, fees and expenses of
this trust incurred in connection with any default by Trustor.
3. During the continuance of this trust, Trustor shall obtain, or cause
to be obtained, and shall maintain or cause to be maintained, at all times
throughout the term of the Loan, at
-7-
<PAGE> 113
its own cost and expense, and shall deposit with Beneficiary, policies or
certified copies of policies of insurance in accordance with Section 5.6 of the
Loan Agreement. All monies received from fire and hazard extended insurance
policies shall be paid directly to Beneficiary and retained by Beneficiary or
released to Trustor in accordance with Section 7.2 of the Loan Agreement.
4. Trustor agrees to pay before default or delinquency, all taxes and
assessments affecting said Property, or any part thereof, and all other charges
and encumbrances which now are or shall hereafter be or appear to be a lien
prior to the lien of this Deed of Trust, provided, however, (i) that Trustor may
contest in good faith the validity or amount of any such tax, assessment, or
charge by appropriate proceedings provided by law, including payment thereof
under protest, if required under applicable law, and (ii) that upon final
determination with respect to any such contested tax, assessment or governmental
charge, Trustor will promptly pay any sums found to be due thereon.
5. As additional security, Trustor assigns to Beneficiary its respective
interests as lessor in any and all leases of said Property, or any portion
thereof, now or hereafter entered into by Trustor and gives to and confers upon
Beneficiary the right, power and authority during the continuation of this
trust, to collect the rents, issues and profits of said Property and any
business activity conducted thereon, reserving unto Trustor the right at all
times other than during the continuance of any Event of Default as defined in
the Loan Agreement, to collect and retain such rents, issues and profits as they
may become due and payable. Upon the occurrence and during the continuance of
any Event of Default as defined in the Loan Agreement, Beneficiary may at any
time by a receiver to be appointed by a court, enter upon and take possession of
said Property, or any part thereof, sue for or otherwise collect such rents,
issues and profits, including those past due or unpaid, and apply the same, less
costs and expenses of operation and collection, including reasonable attorney's
fees, upon any indebtedness and/or obligations secured hereby, and in such order
as is required under the Loan Agreement. The entering upon and taking possession
of said Property, or any part thereof, the collection of such rents, issues and
profits or the application thereof as aforesaid, shall not cure or constitute a
waiver of any default or notice of default hereunder or invalidate any act done
pursuant to such notice. The assignment set forth by this Section 5 is a present
assignment, for security purposes only.
6. Trustor hereby represents that, to the best of its knowledge, and to
the extent of its interest therein, it is the beneficial owner of the Property,
and there is no assignment or pledge of any leases of, or rentals or income
from, said Property now in effect, except Permitted Encumbrances as defined
-8-
<PAGE> 114
in the Loan Agreement, and covenants that, until said indebtedness is fully
paid, it will not make any such assignment or pledge to anyone other than
Beneficiary and the Permitted Encumbrances as defined in the Loan Agreement.
7. Should the Trustor fail to make any payment or perform any act which
it is obligated to make or perform hereby, then the Trustee, or Beneficiary, at
the election of either of them, after the giving of reasonable notice to the
Trustor, or any successor in interest of the Trustor, and without releasing
Trustor from any obligation hereunder, may make such payment or perform such act
and incur any liability, or expend whatever amounts, in its reasonable
discretion, it may deem necessary therefor. All sums incurred or expended by the
Trustee, or Beneficiary, under the terms hereof, shall become due and payable by
the Trustor to the Beneficiary, on the next interest or installment payment date
(which occurs after Borrower's receipt of notice of such amounts) under the
promissory note secured hereby and shall bear interest until paid at an annual
percentage rate equal to the default rate expressed on the Note secured hereby.
In no event shall payment by Trustee or Beneficiary be construed as a waiver of
the default occasioned by Trustor's failure to make such payment or payments.
8. Trustor promises and agrees that if, during the existence of this
trust, there be commenced or pending any suit or action affecting said Property,
or any part thereof, or the title thereto, or if any adverse claim for or
against said Property, or any part thereof, be made or asserted, it will appear
in and defend any such matter purporting to affect the security and will pay all
costs and damages arising because of such action.
9. Any award of damages in connection with any condemnation for public
use of, or injury to said Property, or any part thereof, shall be paid directly
to Beneficiary and shall be retained by Beneficiary or released to Trustor in
accordance with Article VII of the Loan Agreement.
10. By accepting payment of any sum secured hereby after its due date,
Beneficiary does not waive its right either to require prompt payment, when due,
of all other sums so secured or to declare default, as herein provided, for
failure to so pay.
11. At any time, and from time to time, without liability therefor and
without notice to Trustor, upon written request of Beneficiary and presentation
of this Deed of Trust and the Note secured hereby for endorsement, and without
affecting the effect of this Deed of Trust upon the remainder of said Property,
Trustee may: reconvey to Trustor any part of said Property; consent in writing
to the making of any map or plat thereof;
-9-
<PAGE> 115
join in granting any easement thereon, or join in any extension agreement or
subordination agreement in connection herewith.
12. The Beneficiary may without notice to or consent of Trustor extend
the time of the payment of any indebtedness secured hereby to any successor in
interest of the Trustor without discharging the Trustor from liability thereon.
Except as otherwise permitted in the Loan Agreement, or this Section 12, if the
Trustor shall sell or convey or create or permit to exist any mortgage, pledge,
security interest or other encumbrance or in any other manner alienate any
Property hereby encumbered or any part thereof, or shall enter into any
agreement for the same, or any interest therein, or shall be divested of his
title in any manner or way, whether voluntary or involuntary or by merger
without the written consent of Beneficiary being first had and obtained, any
indebtedness or obligation secured hereby, irrespective of the maturity dates
expressed in any notes evidencing the same, at the option of Beneficiary, and
upon the giving of any notice which may be required under the Loan Agreement and
the expiration of any applicable cure period, shall immediately become due and
payable. In the event that Beneficiary does not elect to declare the Note
immediately due and payable, then, unless indicated otherwise in writing by
Beneficiary, Trustor shall nevertheless remain primarily liable for the
obligations under this Deed of Trust and secured by this Deed of Trust,
including without limitation, under the Note and any other instrument securing
the Note. This provision shall apply to each and every sale, transfer,
encumbrance or conveyance, regardless whether or not Beneficiary has consented
to, or waived, Beneficiary's rights hereunder, whether by action or non-action
in connection with any previous sale, transfer or conveyance. For the purposes
hereof, a change in Trustor in violation of the Loan Agreement shall be deemed a
sale hereunder and any change in the identity, structure or control of Trustor,
whether by way of a change in the identity of any shareholder of Trustor or a
change in the ownership or control of Trustor or any shareholder of Trustor, by
merger or otherwise, shall be deemed a sale hereunder.
13. Upon receipt of written request from Beneficiary reciting that all
obligations under the Note and any other notes secured hereby, and all other
sums then due and owing and secured hereby, have been paid and upon surrender of
this Deed of Trust and the Note secured hereby to Trustee for cancellation and
retention, or such other disposition as Trustee, in its sole discretion, may
choose, and upon payment of its fees, the Trustee shall reconvey, without
warranty or recourse and at the expense of Trustor, the Property then held
hereunder, and the assignment set forth by Section 5 above shall be of no
further force or effect. he recitals in such reconveyance of any matters of fact
shall be conclusive proof of the truth thereof. The
-10-
<PAGE> 116
Grantee in such reconveyance may be described in general terms as "the person or
persons legally entitled thereto".
14. Upon the occurrence of any Event of Default as defined in the Loan
Agreement, all sums secured hereby, at the option of Lenders, without further
notice or demand, shall immediately become due and payable.
15. If any mechanic's lien or materialman's lien shall be recorded,
filed or suffered to exist against the premises or any interest therein by
reason of any work, labor, services or materials supplied, furnished or claimed
to have been supplied and furnished in connection with any work of improvement
upon the Property, said lien or claim shall be paid, released and discharged of
record within sixty (60) days after the filing or recording thereof, or Trustor
shall have caused said mechanic's lien or materialman's lien to be released of
record pursuant to the provisions set forth in the Nevada Revised Statutes
108.2413, et. seq., within one-hundred fifty (150) days of the date of the
recordation of the mechanic's lien or materialman's lien in the office of the
County Recorder of Washoe County, Nevada.
16. That if, during the existence of the trust, there be commenced or
pending any suit or action which would, if adversely determined, have a material
adverse affect on the Property, or any part thereof, or the title thereto, or if
any material adverse claim for or against the Property, or any part thereof, be
made or asserted, the Trustee or Beneficiary, unless such suit or action is
being contested in good faith by Trustor and Trustor shall have established and
maintained adequate reserves in accordance with Generally Accepted Accounting
Principles for the full payment and satisfaction of such suit or action if
determined adversely to Trustor, may appear or intervene in the suit or action
and retain counsel therein and defend same, or otherwise take such action
therein as they may be advised, and may settle or compromise same or the adverse
claim; and in that behalf and for any of the purposes may pay and expend such
sums of money as the Trustee or Beneficiary may reasonably deem to be necessary
and such sums shall be obligations of Trustor and shall be secured by this Deed
of Trust.
17. Upon the occurrence of any Event of Default as defined in the Loan
Agreement, and if the notice of breach and election to sell, required by Chapter
107 of the Nevada Revised Statutes, be first recorded, then Trustee, its
successors or assigns, on demand by Beneficiary, shall sell the above-granted
premises, in order to accomplish the objects of these trusts, in the manner
following, namely:
The Trustee shall first give notice of the time and place of such sale,
in the manner provided by the laws of this State
-11-
<PAGE> 117
for the sale of real property under execution, and may from time to time
postpone such sale by such advertisement as it may deem reasonable, or without
further advertisement, by proclamation made to the persons assembled at the time
and place previously appointed and advertised for such sale, and on the day of
sale so advertised, or to which such sale may have been postponed, the Trustee
may sell the property so advertised, at public auction, at the time and place
specified in the notice, either in the county in which the property, or any part
thereof, to be sold, is situated, or at the principal office of the Trustee
located in Washoe County, in its discretion, to the highest cash bidder. The
Beneficiary, obligee, creditor, or the holder or holders of the Note secured
hereby may bid (including by credit bid) and purchase at such sale. The
Beneficiary may, after recording the notice of breach and election, waive or
withdraw the same or any proceedings thereunder, and shall thereupon be restored
to their former position and have and enjoy the same rights as though such
notice had not been recorded.
18. That the Trustee, upon such sale, shall make (without warranty),
execute and, after due payment made, deliver to purchaser or purchasers, his or
their heirs or assigns, a deed or deeds of the premises so sold which shall
convey to the purchaser all the title of the Trustor in the trust premises, and
shall apply the proceeds of the sale thereof in accordance with the terms and
conditions of the Loan Agreement.
19. That in the event of a sale of the Property conveyed or transferred
in trust, or any part thereof, and the execution of a deed or deeds therefor
under such trust, the recital therein of default, and of recording notice of
breach and election of sale, and of the elapsing of the 3-month period, and of
the giving of notice of sale, and of a demand by Beneficiary that such sale
should be made, shall be conclusive proof of such default, recording, election,
elapsing of time, and of the due giving of such notice, and that the sale was
regularly and validly made on due and proper demand by Beneficiary; and any such
deed or deeds with such recitals therein shall, absent manifest error, be
effectual and conclusive against Trustor, its successors and assigns, and all
other persons; and the receipt for the purchase money recited or contained in
any deed executed to the purchaser as aforesaid shall be sufficient discharge to
such purchaser from all obligation to see to the proper application of the
purchase money, according to the trusts aforesaid.
20. That the Beneficiary or assigns may, from time to time, appoint
another trustee, or trustees, to execute the trust created by this Deed of Trust
or other conveyance in trust.
Upon the recording of such certified copy or executed and acknowledged
instrument, the new trustee or trustees shall be vested with all the title,
interest, powers, duties and trusts
-12-
<PAGE> 118
in the premises vested in or conferred upon the original trustee. If there be
more than one trustee, either may act alone and execute the trusts upon the
request of the Beneficiary, and all his acts thereunder shall be deemed to be
the acts of all trustees, and the recital in any conveyance executed by such
sole trustee of such request shall be conclusive evidence thereof, and of the
authority of such sole trustee to act.
21. This Deed of Trust applies to, inures to the benefit of, and binds
all parties hereto, their heirs, legatees, devisees, administrators, executors,
successors, and assigns. It is expressly agreed that the Trust created hereby is
irrevocable by Trustor.
22. Trustee accepts this trust when this Deed of Trust, duly executed
and acknowledged, is made a public record as provided by law, reserving,
however, unto the Trustee, the right to resign from the duties and obligations
imposed herein whenever Trustee, in its sole discretion, deems such resignation
to be in the best interest of the Trustee. Written notice of such resignation
shall be given to Trustor and Beneficiary.
23. The rights and remedies of Beneficiary upon the Occurrence of one or
more Events of Default as defined in the Loan Agreement (whether such rights and
remedies are conferred by statute, by rule of law, by this Deed of Trust, or
otherwise) may be exercised by Beneficiary, in the sole discretion of
Beneficiary, either alternatively, concurrently, or consecutively in any order.
The exercise by Beneficiary or Trustee at the express direction of Beneficiary,
of any one or more of such rights and remedies shall not be construed to be an
election of remedies nor a waiver of any other rights and remedies Beneficiary
might have unless, and limited to the extent that, Beneficiary shall so elect or
so waive by an instrument in writing delivered to Trustee. Without limiting the
generality of the foregoing, to the extent that this Deed of Trust covers both
Real Property and Personal Property, Beneficiary may, in the sole discretion of
Beneficiary, either alternatively, concurrently, or consecutively in any order:
(a) Proceed as to both the Real Property and Personal Property in
accordance with Beneficiary's rights and remedies in respect of the Real
Property; or
(b) Proceed as to the Real Property in accordance with
Beneficiary's rights and remedies in respect of the Real Property and proceed as
to the Personal Property in accordance with Beneficiary's rights and remedies in
respect of the Personal Property.
Beneficiary may, in the sole discretion of Beneficiary, appoint Trustee
as the agent of Beneficiary for the purpose of
-13-
<PAGE> 119
disposition of the Personal Property in accordance with the Nevada Uniform
Commercial Code--Secured Transactions.
If Beneficiary should elect to proceed as to both the Real Property and
Personal Property collateral in accordance with Beneficiary's rights and
remedies in respect to the Real Property:
(a) All the Real Property and all the Personal Property may be
sold, in the manner and at the time and place provided in this Deed of Trust, in
one lot, or in separate lots consisting of any combination or combinations of
Real Property and Personal Property, as the Beneficiary may elect, in the sole
discretion of Beneficiary.
(b) Trustor acknowledges and agrees that a disposition of the
Personal Property collateral in accordance with Beneficiary's rights and
remedies in respect of Real Property, as hereinabove provided, is a commercially
reasonable disposition of the collateral.
If Beneficiary should elect to proceed as to the Personal Property
collateral in accordance with Beneficiary's rights and remedies in respect of
Personal Property, Beneficiary shall have all the rights and remedies conferred
on a secured party by NRS 104.9501 to NRS 104.9507, both inclusive.
24. Upon the occurrence of an Event of Default as defined in the Loan
Agreement, Trustor shall be deemed to have appointed and does hereby appoint
Beneficiary the attorney-in-fact of Trustor to prepare, sign, file and record
one or more financing statements; any documents of title or registration, or
like papers, and to take any other action deemed necessary, useful or desirable
by Beneficiary to perfect and preserve Beneficiary's security interest against
the rights or interests of third persons.
25. Trustor acknowledges and agrees that this Deed of Trust shall be
governed by and construed in accordance with the laws of the State of Nevada.
26. This Deed of Trust is intended to be a fixture filing under NRS
104.9402. The address of Beneficiary from which information may be obtained
concerning the security interest granted hereunder and the mailing address of
Trustor are as follows:
Beneficiary,
c/o Agent Bank: Wells Fargo Bank, National Association
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Mr. Art Brokx
-14-
<PAGE> 120
with a copy to: Pillsbury Madison & Sutro LLP
725 South Figueroa Street, Suite 1200
Los Angeles, CA 90017
Attn: Robert L. Morrison, Esq.
Trustor: ZANTE, INC.,
345 North Arlington Avenue
Reno, Nevada 89501
Attn: Dave Wood
27. This Deed of Trust has been executed pursuant to and is subject to
the terms of the Loan Agreement executed concurrently herewith and Trustor
agrees to observe and perform all provisions contained therein.
IN WITNESS WHEREOF, Trustor has executed this instrument the day and
year first above written.
DEBTOR and TRUSTOR:
ZANTE, INC.,
a Nevada corporation
By: /s/ DAVID R. WOOD
----------------------------
Name: David R. Wood
------------------------
Title: Exec. V.P. and CFO
------------------------
By:
----------------------------
Name:
------------------------
Title:
------------------------
-15-
<PAGE> 121
EXHIBIT A
---------
LEGAL DESCRIPTION OF PROPERTIES
<PAGE> 122
DESCRIPTION
All that real property situate in the City of Reno, County of Washoe, State of
Nevada, described as follows:
All that portion of Lots 13 and 14, in Block 3 of WESTERN ADDITION, Reno,
according to the map thereof, filed in the office of the County Recorder of
Washoe County, State of Nevada, on May 2, 1876, described as follows:
BEGINNING at a point on the East line of Ralston Street, 140 feet Southerly
from the Northeast corner of said Lot 14; thence Southerly along the East line
of Ralston Street 60 feet; thence at right angles Easterly 103 feet; thence at
right angles Northerly 60 feet; thence at right angles Westerly 103 feet to the
point of beginning.
APARTMENT BUILDING
Page 1 of 1
<PAGE> 123
DESCRIPTION
All that real property situate in the City of Reno, County of Washoe, State of
Nevada, described as follows:
The East 70 feet of the South 100 feet of Lot 7 in Block 2 of WESTERN ADDITION,
RENO, according to the map thereof, filed in the office of the County Recorder
of Washoe County, State of Nevada, on May 2, 1876, and being more particularly
described as follows:
BEGINNING at the Southeast corner of said Lot 7 in Block 2; thence Westerly
along the Southerly line of said Lot 7, a distance of 70 feet; thence Northerly,
parallel to the Easterly line of said Lot 7, a distance of 100 feet; thence
Easterly and parallel to the Southerly line of said Lot 7, a distance of 70 feet
to the Easterly line of said Lot 7; thence Southerly along the Easterly line of
said Lot 7, a distance of 100 feet to the point of beginning.
RESIDENCE
Page 1 of 1
<PAGE> 124
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE )
On June 1, 1998, before me, TERI J. WALLACE, a Notary Public in and for
the State of NEVADA, personally appeared DAVID R. WOOD, personally known to me
to be the person whose name is subscribed to the within instrument, and
acknowledged to me that he executed the same in his authorized capacity and
that, by his signature on the instrument, the person or the entity upon behalf
of which he acted, executed the instrument.
WITNESS my hand and official seal.
/s/ TERI J. WALLACE
-----------------------------------
Notary Public in and for said State
(Notarial Seal)
<PAGE> 125
Loan No.
------
PLEDGE AND ASSIGNMENT
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION
THE SUMITOMO BANK, LIMITED
PLEDGE AND ASSIGNMENT. For valuable consideration and as further security for
the payment of the Indebtedness (as defined below), the undersigned,
ZANTE, INC., a Nevada corporation ("DEBTOR"), hereby grants, assigns,
pledges and transfers to WELLS FARGO BANK, NATIONAL ASSOCIATION and THE
SUMITOMO BANK, LIMITED (collectively, "LENDERS") and WELLS FARGO BANK,
NATIONAL ASSOCIATION, as administrative and collateral agent for Lenders
(herein referred to as the "AGENT BANK" and together with the Lenders,
collectively, the "BANKS"), all present and future "deposit accounts"
which are owned, or used in connection with, or in the conduct of, the
business of Debtor, including, without limitation, the following accounts
(collectively called "COLLATERAL"):
Those certain accounts described in Exhibit "A" attached hereto located at Agent
Bank and any interest accruing thereon and all renewals and replacements
thereof, and any demand, time, savings, passbook, securities, commodities or
like account maintained with any bank, savings and loan association, credit
union, securities firm or like organization.
OBLIGATIONS SECURED. The obligations secured hereby are the payment and
performance of: (a) all obligations under that certain Amended and
Restated Term Loan Agreement, dated as of January 31, 1998, by and between
Lenders and Debtor, in connection with a loan in the original principal
amount of $23,609,516.00 having an outstanding principal balance as of
February 1, 1998 of $10,975,000, and any other documents executed in
connection therewith, as all such documents have been amended from time to
time (collectively, the "LOAN DOCUMENTS"), (b) all present and future
Indebtedness of Debtor to Lenders; (c) all obligations of Debtor and
rights of Lenders under this Agreement; and (d) all present and future
obligations of Debtor to Lenders of other kinds. The word "INDEBTEDNESS"
is used herein in its most comprehensive sense and includes any and all
advances, debts, obligations and liabilities of Debtor, or any of them,
heretofore, now or hereafter made, incurred or created, whether voluntary
or involuntary and however arising, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and
whether Debtor may be liable individually or jointly, or whether recovery
upon such Indebtedness may be or hereafter become unenforceable.
TERMINATION. The Agreement will terminate upon the performance of all
obligations of Debtor to Lenders, including without limitation, the
payment of all Indebtedness of Debtor to Lenders.
OBLIGATIONS OF LENDERS. While Debtor is not in default, Lenders will release all
Collateral for use by Debtor for the purpose of allowing Debtor to conduct
its business consistent with the "Business Plan Projections," as defined
in the Loan Documents.
REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Lenders that:
(a) Debtor is the owner and has possession or control of the Collateral;
(b) all Collateral is genuine, free from liens, adverse claims, setoffs,
default, prepayment, defenses and conditions precedent of any kind or
character, except as heretofore disclosed to Lenders in writing; (c) all
statements contained herein and, where applicable, in the Collateral are
true and complete; and (d) no financing statement covering any of the
Collateral, and naming any secured party other than Lenders, is on file in
any public office.
Page 1 of 4
<PAGE> 126
Loan No.
------
COVENANTS OF DEBTOR.
Debtor agrees in general: (i) to pay Indebtedness secured hereby when due; (ii)
to indemnify Lenders against all losses, claims, demands, liabilities and
expenses of every kind caused by property subject hereto; (iii) to pay all
costs and expenses, including reasonable attorneys' fees, incurred by
Lenders in the perfection, preservation, realization, enforcement and
exercise of its rights, powers and remedies hereunder; (iv) to permit
Lenders to exercise their powers; (v) to execute and deliver such
documents as Lenders deem necessary to create, perfect and continue the
pledge and assignment contemplated hereby; and (vi) not to change its
chief place of business or the place where Debtor keeps its records
concerning the Collateral without first giving Lenders written notice of
the address to which Debtor is moving same.
Debtor agrees with regard to the Collateral: (i) not to permit any lien on the
Collateral except in favor of Lenders; (ii) not to sell, hypothecate or
otherwise dispose of any of the Collateral, or any interest therein,
without the prior written consent of Lenders; (iii) to keep, in accordance
with generally accepted accounting principles, complete and accurate
records regarding all Collateral, and to permit Lenders to inspect the
same and make copies thereof at any reasonable time; (iv) not to commingle
Collateral with other property; (v) that upon the occurrence of an Event
of Default, Debtor shall have no rights whatsoever to withdraw any funds
from any deposit account pledged to Lenders hereunder except in accordance
herewith and that Lenders have complete dominion and control over all such
deposit accounts; (vi) to provide any service and do any other acts which
may be necessary to keep the Collateral free and clear of all defenses,
rights of offset and counterclaims; and (vii) not to establish any other
deposit accounts other than those deposit accounts described in the first
paragraph of this Agreement.
Debtor agrees not to establish any new accounts without the prior written
consent of Lenders and, concurrently with properly establishing such new
account, Debtor shall provide a pledge and assignment of such accounts to
Lenders in a manner acceptable to Lenders, in Lenders' sole and absolute
discretion.
EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an
"EVENT OF DEFAULT" under this Agreement: (a) any default in the payment or
performance of any obligation, or any defined event of default, under (i)
the Loan Documents or any contract or instrument evidencing any
Indebtedness, or (ii) any other loan agreement between Debtor and Lenders
relating to or executed in connection with any Indebtedness; (b) any
representation or warranty made by Debtor herein shall prove to be
incorrect in any material respect when made; (c) Debtor shall fail to
observe or perform any obligation or agreement contained herein; and (d)
any attachment or like levy on any material property of Debtor.
REMEDIES. Upon the occurrence of any Event of Default, Lenders shall have the
right to (i) declare immediately due and payable all or any Indebtedness
secured hereby and to terminate any commitments to make loans or otherwise
extend credit to Debtor, (ii) liquidate the Collateral and/or (ii) setoff
any and all sums held or deposited in the Collateral. All rights, powers,
privileges, and remedies of Lenders shall be cumulative. No delay, failure
or discontinuance of Lenders in exercising any right, power, privilege or
remedy hereunder shall affect or operate as a waiver of such right, power,
privilege or remedy; nor shall any single or partial exercise of any such
right, power, privilege or remedy preclude, waive or otherwise affect any
other or further exercise thereof or the exercise of any other right,
power, privilege or remedy. Any waiver, permit, consent or approval of any
kind by Lenders of any default hereunder, or any such waiver of any
provisions or conditions hereof, must be in writing and shall be effective
only to the extent set forth in writing.
Page 2 of 4
<PAGE> 127
Loan No.
------
DISPOSITION OF COLLATERAL. Upon the transfer of all or any part of the
Indebtedness, Lenders may transfer all or any part of the Collateral and
shall be fully discharged thereafter from all liability and responsibility
with respect to any of the foregoing so transferred, and the transferee
shall be vested with all rights and powers of Lenders hereunder with
respect to any of the foregoing so transferred; but with respect to any
Collateral not so transferred, Lenders shall retain all rights, powers,
privileges and remedies herein given. Any proceeds of any disposition of
the Collateral, or any part thereof, may be applied by Lenders to the
payment of expenses incurred by Lenders in connection with the foregoing,
including reasonable attorneys' fees, and the balance of such proceeds may
be applied by Lenders toward the payment of the Indebtedness in such order
of application as Lenders may from time to time elect.
COSTS, EXPENSES AND ATTORNEYS' FEES. Upon an Event of Default, Debtor shall pay
to Lenders immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys'
fees, to include outside counsel fees and all allocated costs of Lenders'
in-house counsel), incurred by Lenders in exercising any right, power,
privilege or remedy conferred by this Agreement or in the enforcement
thereof, including any of the foregoing incurred in connection with any
bankruptcy proceeding relating to Debtor or the valuation of the
Collateral, including without limitation, the seeking of relief from or
modification of the automatic stay or the negotiation and drafting of a
cash collateral order. All of the foregoing shall be paid to Lenders by
Debtor with interest at a rate per annum equal to Agent Bank's Prime Rate
plus three percent (3%) in effect from time to time. The "PRIME RATE" is a
base rate that Agent Bank from time to time establishes and which serves
as the basis upon which effective rates of interest are calculated for
those loans making reference thereto.
MISCELLANEOUS. Presentment, protest, notice of protest, notice of dishonor and
notice of nonpayment are waived; any right to direct the application of
payments of security for Indebtedness of Debtor hereunder, or indebtedness
of customers of Debtor, and any right to require proceedings against
others or to require exhaustion of security are waived; and consent to
extensions, forbearances or alterations of the terms of Indebtedness, the
release or substitution of security, and the release of guarantors is
given with respect to Collateral subject to this Agreement; provided
however, that in each instance, Lenders believe in good faith that the
action in question is commercially reasonable in that it does not
unreasonably increase the risk of nonpayment of the Indebtedness to which
the action applies. Until all Indebtedness shall have been paid in full,
Debtor shall have no right of subrogation or contribution, and Debtor
hereby waives any benefit of or any right to participate in any of the
Collateral or any other security now or hereafter held by Lenders.
NOTICES. All notices or demands of any kind which Lenders may be required or
desire to serve upon Debtor under the terms of this Agreement shall be
served upon Debtor by personal service or by mailing a copy thereof by
first class mail, postage prepaid, addressed to Debtor at the address set
forth below or at such other address as Debtor shall designate by written
notice to Lenders. Service by mail shall be determined to be complete at
the expiration of the second day after the date of mailing.
GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada, and shall be
binding upon and inure to the benefit of the heirs, executors,
administrators, legal representatives, successors and assigns of the
parties.
Page 3 of 4
<PAGE> 128
Loan No.
------
SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held to
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or any remaining provisions
of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed as of January 31,
1998.
ZANTE, INC.,
a Nevada corporation
By: /s/ DAVID R. WOOD
---------------------------
Name: David R. Wood
------------------------
Title: Exec. V.P. and CFO
------------------------
By:
----------------------------
Name:
------------------------
Title:
------------------------
Page 4 of 4
<PAGE> 129
Loan No.
--------
EXHIBIT A
---------
ACCOUNTS
<PAGE> 130
Bank Account Listing
- --------------------
GL # Description Wells Fargo
---- ----------- -----------
1210 Zante, Inc.- Operating 4159-571785
1212 Zante, Inc.- Travel Agent 4159-571744
1215 Zante, Inc.- Dental Plan 4159-571769
1220 Zante, Inc.- Payroll 4159-571777
1222 Zante, Inc.- EFT 4435-611777
1230-1233 Zante, Inc.- Mastercard/Visa 4159-571751
Security Account Listing
- ------------------------
Prudential Security Acct # Description
- -------------------------- -----------
ORV-952251-28 Zante, Inc. Security Account
<PAGE> 1
EXHIBIT 13
THE SANDS REGENT
SELECTED FINANCIAL DATA
................................................................................
FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- -------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues(1)..................... $59,211 $57,527 $59,072 $ 60,497 $51,446
Income (loss) from operations............. 233 245 4,192 (11,748)(2) 8,178
Net income (loss)......................... (1,219) (762) 2,042 (11,428)(2) 7,730
Net income (loss) per share:
Basic................................ $ (.27) $ (.17) $ .45 $ (2.54)(2) $ 1.76
Diluted.............................. $ (.27) $ (.17) $ .45 $ (2.54)(2) $ 1.73
Cash dividends per share.................. -- -- $ .15 $ .20 $ .20
OPERATING DATA:
Casino square footage(3).................. 51,000 51,000 51,000 51,000 51,000
Number of slot machines(3)................ 1,459 1,409 1,407 1,459 1,483
Number of hotel rooms(3).................. 938 938 938 938 938
Average hotel occupancy rate.............. 83.3% 84.3% 82.9% 87.1% 89.7%
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments(3)......................... $ 9,453 $ 7,894 $11,557 $ 12,214 $ 9,804
Total assets(3)................... 58,901 61,053 64,311 66,253 82,268
Long-term debt(3)......................... 14,643 4,658 14,816 17,808 27,559
Total stockholders' equity(3)..... 31,235 32,454 33,216 31,849 44,138
</TABLE>
- ---------------
(1) Revenues are net of complimentaries.
(2) Includes a write-off attributable to an impairment in long-lived assets of
GCP and GCI. The negative impact of such write-off on income (loss) from
operations, net income (loss) and net income (loss) per share was
approximately $17.4 million, $13.9 million and $3.08, respectively.
(3) Information presented as of the end of the period.
5
<PAGE> 2
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
................................................................................
RESULTS OF OPERATIONS
COMPARISON OF 1998 TO 1997
For the year ended June 30, 1998, revenues increased to $59.2 million from
$57.5 million in the prior year and income from operations decreased slightly
from $245,000 to $233,000. The increase in revenue is attributable to the Sands
Regency where revenue increased from $32.2 million in fiscal 1997 to $34.8
million in fiscal 1998, over an 8% increase. Such increase at the Sands Regency
was partially offset by a decrease in revenue at the Copa Casino of $1.0 million
to $24.4 million in fiscal 1998. The slight decrease in income from operations
consists of an increase in income from operations from the Sands Regency of $2.2
million to $304,000 which was offset by a decline in income from operations from
the Copa Casino of approximately $2.2 million to a loss from operations of
$71,000.
For the same comparable fiscal years, the Company had a net loss of $1.2
million, or loss per share of $.27, in fiscal 1998 compared to a net loss of
$762,000, or loss per share of $.17, in fiscal 1997. The Sands Regency had a net
loss of approximately $688,000 in fiscal 1998 which compared favorably to a net
loss in fiscal 1997 of $1.5 million. Such improvement from the Sands Regency was
offset by a decline at the Copa Casino. For the year ended June 30 1998, the
Copa Casino incurred a net loss of approximately $532,000 as compared to net
income in the prior year of approximately $741,000.
The increases at the Sands Regency are due to an increase in gaming,
lodging and food and beverage revenue per occupied room. The declines in
revenues, income (loss) from operations and net income (loss) at the Copa Casino
are due to a decline in customer counts and an increase in costs and expenses.
The decline in customers is due, in part, to the construction on Highway 90
which significantly impaired access to the Copa Casino for most of fiscal 1998.
The increase in lodging revenue of $416,000 in the year ended June 30,
1998, compared to the year ended June 30, 1997, is primarily due to an increase
in the average daily rate from approximately $29 in fiscal 1997 to $31 in fiscal
1998. For the same comparable periods, hotel occupancy declined slightly from
84.3% to 83.3%.
The increase in gaming revenue of $487,000 includes a 9% increase in gaming
revenue from the Sands Regency of $1.6 million. Such increase was offset by a
decline in gaming revenue from the Copa Casino of approximately $1.1 million.
The increase in gaming revenue in Reno is primarily due to an increase in gaming
revenue from hotel guests and an increase in local patrons. Gaming revenue per
occupied room increased from approximately $62 in the year ended June 30, 1997
to $69 in the year ended June 30, 1998. The decline in gaming revenue at the
Copa Casino is due to a reduction in the number of customers which the Company
attributes, in part, to the curtailment of access to the Copa because of
construction on Highway 90. Not until July 1998 had construction progressed to
the point where access to the Copa Casino had finally improved to any
significance.
The increase in food and beverage revenue of $638,000, in fiscal 1998
compared to fiscal 1997, includes an increase in restaurant revenue at the Sands
Regency of approximately $472,000 and an increase at the Copa Casino of
$174,000. At the Sands Regency, food revenue per occupied room increased from
approximately $17 in the fiscal 1997 to $19 in fiscal 1998. This increase is
partially
6
<PAGE> 3
................................................................................
attributable to improvements and upgrades to the Sands Regency's restaurant
facilities. The increase in restaurant revenue at the Copa Casino, partially
offset by a decrease in Copa Casino beverage revenue, is due to the Copa's
operation of a buffet restaurant in fiscal 1998. Previously operated by a third
party through May 1997, the buffet restaurant was subsequently eliminated in
July 1998 due to low customer counts and high operating costs.
The increase in other revenue of $142,000 is in ancillary revenue from the
Sands Regency.
The increase in gaming costs and expense of $247,000, in the year ended
June 30, 1998 compared to the year ended June 30, 1997, is comprised of an
increase from the Copa Casino of approximately $387,000 and a decrease from the
Sands Regency of approximately $140,000. The increase in Copa Casino costs and
expenses is primarily attributable to added costs and expenses associated with
the slot player's club, which was commenced in April 1997, of $555,000. This
increase was partially offset by a reduction in gaming taxes due to reduced
gaming revenue. The decrease at the Sands Regency is composed of increases in
gaming player's club costs and gaming taxes and licenses related to the
increased revenue, respectively, of $154,000 and $140,000 which were more than
offset by decreases in various other gaming cost and expense items due,
partially, to improved efficiency.
The increase in food and beverage costs and expense of $987,000 in the
fiscal 1998, compared to fiscal 1997, consists of increases at the Copa Casino
and Sands Regency, respectively, of $735,000 and $252,000. The increase at the
Copa Casino includes $404,000 in added food costs associated with the buffet
restaurant and increased other food operating costs and expenses in the Copa's
other food operation due to changes in products being offered to the public. The
Copa's buffet restaurant was operated by the Copa from May 1997 to July 1998
when it was closed due to low customer counts and high operating costs. The
increase at the Sands Regency consists primarily of promotional discounts
offered on certain restaurant food products of approximately $308,000 and a
decrease in various other food and beverage costs and expenses.
The increase in maintenance and utilities costs and expenses of $249,000 is
primarily attributable to the Copa Casino. It includes an increase in hurricane
evacuation expenses of $202,000 as a result of preparedness actions necessary
during Hurricane Danny in July 1997 and increases in other maintenance and
repair costs aggregating approximately $103,000. Such increases have been offset
by a decrease in costs and expenses associated with maintenance dredging
performed under and around the ship during the fourth quarter of fiscal 1997.
The increase in general and administrative costs and expenses of $77,000,
in the year ended June 30, 1998 compared to the year ended June 30, 1997,
consists principally of a decrease from the Copa Casino of approximately
$189,000 and an increase from the Sands Regency of approximately $266,000. The
decrease from the Copa Casino is attributable to a decrease in advertising and
promotional costs of approximately $412,000. This decrease was partially offset
by an increase in legal and professional costs of $183,000. The decrease in
direct advertising and promotional costs is due, in part, to the implementation
of the slot player's club which includes various promotional costs that
supercede some prior promotional programs. The increase in legal and
professional costs is related to
7
<PAGE> 4
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
................................................................................
the legal actions with the State Port of Mississippi at Gulfport which,
culminated in a trial in October 1997 (See Notes 8 and 9 to the Company's
consolidated financial statements).
The increase in general and administrative costs and expenses at the Sands
Regency includes an increase in performance based compensation for the facility
of approximately $287,000, increases due to the implementation of a casino
marketing department in mid-fiscal 1998 of approximately $153,000 and increases
in various other general and administrative costs and expenses aggregating
approximately $103,000. Such increases were offset by a decrease in various
promotional costs and expenses due to the refinement of promotional programs in
the gaming player's club included in gaming costs and expenses.
The increase in depreciation and amortization expense of $247,000 is
primarily due to additional depreciation taken on assets placed in service in
fiscal 1998 and 1997 at the Copa Casino. During such years, significant property
and equipment additions and replacements were undertaken including the
acquisition of a new slot player tracking/monitoring and accounting system.
The decrease in interest and other income of approximately $75,000, in
fiscal 1998 compared to fiscal 1997, includes a decrease from the Sands Regency
of approximately $365,000 and an increase from the Copa Casino of approximately
$290,000. The decrease from the Sands Regency is primarily due to the
non-recurrence of a gain on the sale of a non-casino property in Reno in fiscal
1997. The increase from the Copa Casino is due to the non-recurrence of a prior
year loss from the write-off of the undepreciated cost of the slot
monitoring/accounting system replaced in the fourth quarter of fiscal 1997 and
the write-off of certain capitalized costs for projects no longer deemed viable.
The increase in interest expense of $507,000 is primarily attributable to
the Sands Regency. It includes the write-off of unamortized loan fees of
approximately $138,000, due to the amendment of the Sands Regency's bank debt
effective January 31, 1998, and the non-recurrence of approximately $77,000 in
interest expense capitalized into property and equipment for projects undertaken
in fiscal 1997. It also includes an increase in interest expense due to an
increase in the interest rate to a default rate of interest of prime plus three
percent in the six months preceding the January 1998 amendment. The amended
loan agreement presently specifies an interest rate of prime plus one and
one-half percent.
As is true for other hotel/casinos in the Reno area, demand for the
Company's facilities declines in the winter. Due to lower room rates and a lower
level of gaming play per occupied room, operating margins and, to a lesser
extent, revenues are lower during the second and third fiscal quarters . The
Sands Regency has not historically been affected as severely as many other
hotel/casinos in the Reno area because the Company attracts high levels of group
business during that period. This group business and the Company's flexible
pricing strategy have historically enabled the Company to maintain relatively
high levels of hotel occupancy. Management anticipates that the trend of
experiencing lower operating margins in the second and third quarters of each
fiscal year will continue.
It appears that such seasonal trends are also applicable to gaming on the
Mississippi Gulfcoast. Specifically, revenues are lower in the December quarter
than during other times of the year. Such trends appear to also be applicable to
the Copa Casino. However, because of the limited amount of time that the
8
<PAGE> 5
................................................................................
Copa has been in operation and impact of other factors on the Copa's operations,
the nature, impact and extent of seasonal fluctuations on the Copa, if any, are
subject to change.
COMPARISON OF 1997 TO 1996
For the year ended June 30, 1997, revenues decreased to $57.5 million
compared to $59.1 million for the year ended June 30, 1996 and income from
operations decreased from $4.2 million to $245,000. For the same comparable
periods, net income decreased from $2 million, or $.45 per share, in fiscal
1996, to a net loss of $762,000, or a $.17 loss per share, in fiscal 1997. The
decrease in revenues is composed of an increase in revenues from the Copa Casino
of approximately $1.2 million which was offset by a decrease in revenues from
the Sands Regency of approximately $2.7 million. The decrease in income from
operations is composed of a decrease from the Copa Casino of approximately
$700,000 and a decrease from the Sands Regency of $3.2 million. The decrease in
Copa Casino income from operations is due to increased costs and expenses.
Whereas, the decrease in income from operations from the Sands Regency is due
primarily to a decrease in revenue.
The decreases in net income and net income per share, are also attributable
to both the Sands Regency and the Copa Casino operations. The Copa Casino
contributed approximately $741,000 to the consolidated net income in fiscal 1997
compared to $1.3 million in fiscal 1996. For the same comparable periods, the
Sands Regency incurred a net loss of approximately $1.5 million in fiscal 1997
compared to net income in fiscal 1996 of $705,000.
Such declines in revenues, income from operations, net income (loss) and
net income (loss) per share at the Sands Regency are primarily due to increased
competition from new and expanded Reno area hotel/casinos and from new Las Vegas
mega-resorts. Unusually poor weather conditions in Northern Nevada, Northern
California and the Pacific Northwest during the third quarter of fiscal 1997
also contributed to the decline in Sands Regency Revenues. The increase in Copa
Casino revenues is due to an increase in customer counts while the decrease in
profitability is due to increased costs and expenses.
The decrease in lodging revenue of $671,000 in the year ended June 30,
1997, compared to the prior year, is due to a decrease in the average daily room
rate at the Sands Regency. The average daily rate decreased from $32 in fiscal
1996 to approximately $29 in fiscal 1997. For the same periods, hotel occupancy
increased from 82.9% for the year ended June 30, 1996 to 84.3% in the year ended
June 30, 1997.
The decrease in gaming revenue of $656,000 is a result of a decrease in
gaming revenue from the Sands Regency of approximately $1.7 million. This
decrease was offset by an increase in gaming revenue from the Copa Casino of
$1.0 million. The decrease in gaming revenue in Reno consists of a decrease in
the Sands Regency casino gaming revenue of $2.2 million. This decrease was
offset by increased gaming revenue from the Company's slot route operation of
$477,000. The decrease in the Sands Regency gaming revenue primarily consists of
a decrease in slot revenue and is due to a decline in gaming revenue per
occupied room. Gaming revenue per occupied room decreased from $71 in the year
ended June 30, 1996 to approximately $62 in the year ended June 30, 1997. The
increase in slot route revenue is due to
9
<PAGE> 6
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
................................................................................
the Company's acquisition of a slot route business in June 1996 which operates
slot machines at various non-casino businesses (convenience stores and cocktail
lounges) in the Reno area.
The slight increase in food and beverage revenue of $28,000 in fiscal 1997,
compared to fiscal 1996, consists of an increase from the Copa Casino of
approximately $101,000 and a decrease from the Sands Regency of $73,000. The
increase at the Copa Casino is in beverage revenue. The decrease at the Sands
Regency is in restaurant revenue, resulting from a slight decrease per occupied
room.
The decrease in other revenue of $148,000 includes decreases from the Copa
Casino of approximately $51,000 and from the Sands Regency of approximately
$97,000 and consist of various ancillary revenue items.
The increase in complimentary lodging, food and beverage, deducted from
revenue, of $98,000 consists of an increase from the Sands Regency of $203,000
This increase was offset by a decrease from the Copa Casino of $105,000.The
increase at the Sands Regency is composed of an increase in complimentary hotel
accomodations of approximately $74,000 and an increase in complimentary food and
beverages of $129,000. The increase in complimentary lodging is partially a
result of changes in the Company's lodging programs and packages offered to
attract and retain guests.
The increase in gaming costs and expense of $1.3 million in the year ended
June 30, 1997, compared to the year ended June 30, 1996, is comprised of
increases from the Copa Casino of $647,000 and from the Sands Regency of
$614,000. The increase in Copa Casino costs and expenses is primarily
attributable to the increase in associated gaming revenue. The increase in Sands
Regency gaming costs and expenses include: increases in the cost of
complimentary goods and services provided of $297,000, costs and expenses
associated with the new slot route operation of $425,000, and costs of
approximately $338,000 associated with the preferred players club which was
implemented in December 1996. These increases at the Sands Regency have been
offset by a decrease in gaming taxes and licenses of $192,000 and a decrease in
various other costs and expenses of approximately $254,000. The decrease in
taxes and licenses is due to the decrease in associated gaming revenue.
The decrease in lodging costs and expenses of $240,000 includes an increase
in the allocation of costs and expenses to gaming relative to the provision of
complimentary lodging of $65,000 and a decrease in various other lodging costs
and expenses.
The slight increase in food and beverage costs and expenses of $68,000, in
fiscal 1997 compared to fiscal 1996, consists of a decrease from the Sands
Regency of approximately $222,000 and an increase from the Copa Casino of
$290,000. The increase from the Copa Casino is due to a decrease in the
allocation of costs and expenses to gaming relative to the provision of
complimentary food and beverage of $80,000 and an increase in the cost of
beverages provided. The decrease from the Sands Regency consists primarily of an
increase in the allocation of costs and expenses to gaming relative to the
provision of complimentary food and beverage.
The increase in maintenance and utilities costs and expenses of $195,000
includes an increase from the Copa Casino of $145,000 and an increase from the
Sands Regency of approximately $50,000. The increase from the Copa Casino is due
to maintenance dredging performed under and around the ship
10
<PAGE> 7
................................................................................
totaling approximately $316,000 through June 30, 1997. These costs were greater
than the prior year hurricane preparedness costs and expenses associated with
Hurricane Opal. The increase from the Sands Regency primarily consists of
painting costs of $162,000 which was offset by a decrease in other costs of
approximately $112,000. The increase in painting costs is due to the painting of
the exterior of the Company's Reno facilities and the interior of the five story
parking structure.
The increase in general and administrative costs and expenses of $934,000
consists principally of an increase from the Copa Casino of $628,000 and an
increase from the Sands Regency of $299,000. The increase from the Copa Casino
is attributable to increases in legal costs of $570,000 and in wages and
benefits of $238,000, which were offset by a decrease in advertising and
promotional costs of approximately $176,000. The increase in legal costs is
significantly related to the disputes and legal actions associated with the
State Port of Mississippi at Gulfport as further discussed in Notes 8 and 9 to
the Company's Consolidated Financial Statements.
The increase in general and administrative costs and expenses for the Sands
Regency consists primarily of an increase in advertising and promotional costs
of approximately $389,000 reduced by a decrease in property taxes of $185,000.
The increase in depreciation and amortization expense of $170,000 is
primarily attributable to the Sands Regency and is due to additional
depreciation taken on assets placed in service in fiscal 1997 and 1996. During
such years, significant property and equipment additions and replacements were
undertaken.
The decrease in interest and other income of approximately $654,000
consists primarily of a decrease from the Sands Regency of approximately
$307,000 and a decrease from the Copa Casino of $327,000. The decrease at the
Copa Casino is due to the write-off of the undepreciated cost of a slot
monitoring/accounting system which was replaced in fiscal 1997 and the write-off
of certain capitalized costs for projects no longer deemed viable. The decrease
at the Sands Regency is due to a reduction in gains recognized from the sale of
non-casino properties of approximately $178,000 and a reduction in interest
income. Interest income decreased as a result of a reduction in excess cash held
in investments.
The decrease in interest and other expense of $468,000, in fiscal 1997
compared to fiscal 1996, is primarily due to a principal reduction in an
interest bearing long-term debt obligation of the Sands Regency in October 1996.
As further indicated in the Company's Notes to the Consolidated Financial
Statements, the effective income tax rate differs from the statutory rate, in
the current fiscal year, as a result of one-time differences including tax-free
interest income and deductible tax credits.
CAPITAL RESOURCES AND LIQUIDITY
The Company's working capital improved from a deficit of $12.6 million at
June 30, 1997 to a deficit of $337,000 at June 30, 1998. The improvement is
primarily due to the reclassification of the Company's
11
<PAGE> 8
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
................................................................................
long-term debt, due to its bank, which was $10.6 million at June 30, 1998. This
debt was previously classified as current while it was in default and being
restructured. The remaining increase in working capital is significantly due to
cash generated from operating activities.
Cash, cash equivalents and short-term investments increased from $7.9
million at June 30, 1997 to $9.5 million at June 30, 1998. Cash and cash
equivalents provided from operating activities for the years ended June 30,
1998, 1997 and 1996 was $3.0 million, $3.3 million and $5.1 million,
respectively. Although the Company's operations and capital expenditures are
financed primarily from funds generated from operations and borrowings, cash of
approximately $1.2 million was received in fiscal 1998 as a result of the early
repayment of a note receivable which was not otherwise due to be paid until
fiscal 1999. In fiscal 1997, cash was also generated through the issuance of
long-term debt of $498,000 and from the sale of non-hotel/casino properties
located in Reno, Nevada of $475,000. In fiscal 1996, cash was also generated
from the sale of non-hotel/casino properties located in Reno, Nevada of $735,000
and from the net disposal of short-term investments of $1.7 million. The
Company's short-term investments, which generally mature in one year or less,
represent temporarily invested cash funds which are generally readily
convertible to cash.
Uses of cash included the Company's payments of long-term debt of $731,000,
$4.9 million and $3.1 million in fiscal 1998, 1997 and 1996, respectively, and
the payment of dividends in the amount of $675,000 in fiscal 1996. Cash was also
utilized for the acquisition of property and equipment in the amounts of $2.0
million, $3.1 million and $2.6 million in the years ended June 30, 1998, 1997
and 1996, respectively. The property and equipment acquisition amounts, for the
years indicated, represent primarily furniture, fixtures and equipment
replacements and additions.
At June 30, 1998, the Company believes that its cash funds and cash
generated from operations will be sufficient to meet its needs for the next
fiscal year. The Company generally invests its excess cash in securities which
are readily marketable and that are not subject to significant market value
fluctuations.
Future expansion plans for the Reno and Gulfport facilities will be
considered based upon future market conditions, available financial resources
and the need to add hotel rooms and other major facilities. Expansion at the
Gulfport facility, Copa Casino, has also been denied by the Mississippi State
Port Authority at Gulfport and the Mississippi Department of Economic and
Community Development which disapproval is part of litigation as further
discussed below and in Note 9 to the Company's Notes to Consolidated Financial
Statements.
On January 8, 1998, a judgement was rendered in the Chancery Court of
Harrison County, Mississippi lawsuit between Gulfside Casino Partnership ("GCP")
and the Mississippi Department of Economic and Community Development ("MDECD")
and the Mississippi State Port Authority at Gulfport (the "Port"). The Chancery
Court ruled in favor of GCP in denying the Port's efforts to terminate the lease
at the end of the primary term in October 1999. The Court ruled adverse to GCP
in declaring that the Port was not obligated to approve the construction of a
hotel requested by GCP or approve GCP's request to substitute another gaming
vessel for the present gaming vessel. Damages sought by GCP in connection with
such refusals to approve a hotel or the substitution of a gaming vessel, and for
other claims, were also denied.
12
<PAGE> 9
................................................................................
GCP filed a Notice of Appeal with the Chancery Court to appeal the Chancery
Court's rulings adverse to GCP to the Mississippi Supreme Court. MDECD and the
Port have filed a Notice of Cross-Appeal, claiming that the Chancery Court's
ruling disallowing the termination of the lease was incorrect.
If GCP is unsuccessful and is required to vacate the current leased site in
October 1999, the Company's results of operations could be materially adversely
affected and the Company's investment in the Mississippi gaming operation may
not be recovered. At June 30, 1998, the book value of the Company's net
investment in and advances to (including accrued interest) the Mississippi
gaming operation was approximately $1.8 million.
A judgement has been entered against Gulfside Casino, Inc.("GCI"), as
further discussed in Note 9 to the Company's Notes to Consolidated Financial
Statements, requiring certain payments by GCP to two former shareholders of GCI.
Such payments are to be applied against promissory notes payable and related
accrued interest, aggregating approximately $7.5 million at June 30, 1998, until
such amounts are paid in full. At present, the circumstances requiring such
payments, including excess monies not designated for Gulfside Casino Partnership
operational purposes, have not been met. Further, as a result of filings for
protection under Chapter 11 of the United States Bankruptcy Code by both GCI and
Patrician, Inc. ("Patrician"), management believes that the automatic stay
provisions under the Bankruptcy Code restrict payments by, or for the benefit
of, GCI and Patrician.
Settlement discussions are presently underway between the two former GCI
shareholders, the Company, GCI, Patrician, Artemis, Inc. and GCP. As a result of
such discussions, all court actions have been stayed including in Chancery
Court, U. S. Bankruptcy Court and U. S. District Court. There are no assurances
that a settlement will be reached. In the event that a settlement does not
occur, all court actions will be resumed. The ultimate resolution of this matter
could include a dispossession of a 60% or greater right to receive GCP profits
and surplus.
Inflation has had only a slight impact on the Company's operating results.
Cost and expense increases have generally been passed on to the customers
through moderate price increases, higher table limits and upgraded slot machine
denominations.
YEAR 2000
The Year 2000 issue is the result of information technology ("IT") and
non-IT (embedded technology such as microcontrollers) hardware and software
systems and components utilizing two digits, rather than four digits, to define
the year. Date-sensitive hardware and software systems and components may
recognize a date using "00" as the year 1900 rather than the year 2000. This is
generally referred to as the "Year 2000 Problem" or the "Y2K Problem". This
could result in IT and non-IT hardware or software system and component ("Y2K
Systems and Components") failures or miscalculations causing disruptions of
operations and the ability to engage in normal business activities.
The Company has undertaken a study and assessment of its Y2K Systems and
Components in order to determine the impact of the Y2K Problem on such Y2K
Systems and Components. This study and evaluation includes specifically
identifying those Y2K Systems and Components utilized by the Company
13
<PAGE> 10
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
................................................................................
that may be non-Y2K compliant, evaluating necessary corrective actions and
implementing corrective actions, including appropriate testing, so as to
minimize the impact of the Y2K Problem on the Company. Corrective actions may
include software or hardware modifications or the replacement of Y2K Systems and
Components that are non-Y2K compliant. The Company's Y2K study and assessment
will also be utilized with respect to those Y2K Systems and Components that may
be subsequently acquired by the Company with greater reliance given to third
party representations.
The Company has generally completed the identification phase of its study
and evaluation with respect to those Y2K Systems and Components presently
utilized by the Company. The evaluation phase, which includes internal reviews
and testing as well as inquires to third parties supplying or maintaining Y2K
Systems, is also nearing completion. It is anticipated that the evaluation phase
will be finalized in the second quarter of fiscal 1999. The corrective actions
implementation phase is also in progress which is anticipated to be completed by
the fourth quarter of fiscal 1999.
The Company has also undertaken a more limited study and assessment of the
Y2K Problem with respect to third party vendors, suppliers, customers and other
business associates. Recently commenced, such study and assessment is directed
toward third parties that have a material relationship with the Company or may
materially affect the Company's operations such as major customers and
suppliers, financial institution and communications providers. The scope of such
limited study and assessment will generally be limited, by necessity, to
appropriate inquires of such third parties. The Company believes, based on the
wide attention that the Y2K Problem has received, the relative size and
prominence of certain third parties and the preliminary information received, to
date, from select third parties, that the impact of the Y2K Problem on such
third parties will not have a material affect on the Company's operations. The
Company anticipates that the Y2K Problem study and assessment, relative to its
material third party vendors, suppliers, customers and other business
associates, will be completed by the fourth quarter of fiscal 1999.
The Company will utilize both internal and external resources to achieve
Y2K compliance which will include modifying certain Y2K Systems and Components
and replacing others. The Company presently estimates that the remaining costs
to assure material Y2K compliance will be less than $100,000 to be incurred over
the next 18 months. Such estimate is based upon the Company's study and
assessment and is subject to modification as the study and assessment
progresses. There can be no guarantees that this estimate will be achieved and
actual results could materially differ from the estimate. Costs to date have
been immaterial.
The Company believes that the scope and time table of its study and
assessment of Y2K Systems and Components, to achieve Y2K compliance, is adequate
and realistic. Further, the Company believes that those Y2K Systems and
Components with a greater likelihood of adversely impacting the Company's
business and financial performance will be Y2K compliant in a timely manner.
Nevertheless, if one or more of the Company's Y2K Systems and Components fail to
achieve Y2K compliance, or are overlooked, there could be a material adverse
impact on the Company's business operations or financial performance.
Additionally, there can be no assurances that the Y2K Systems and Components of
third parties, which may materially affect the Company, will be timely converted
to assure Y2K compliance.
14
<PAGE> 11
................................................................................
The Company has not formulated a contingency plan in the event one or more
of the Company's, or third party's, Y2K Systems and Components fail to achieve
Y2K compliance. The Company will continue to review the necessity for a
contingency plan as its Y2K study and assessment progresses. The decision to
develop a contingency plan will be based upon an evaluation of potential future
unavoided or unavoidable risks of Y2K noncompliance and the adverse impact to
the Company.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains various "forward-looking statements" 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, which represent
the Company's expectations or beliefs concerning future events. Such statements
are identified by the words "anticipates", "believes", "expects", "intends",
"future", or words of similar import. Various important factors that could cause
actual results to differ materially from those in the forward-looking statements
include, without limitation, the following: increased competition in existing
markets or the opening of new gaming jurisdictions; a decline in the public
acceptance of gaming; the limitation, conditioning or suspension of any of the
Company's gaming licenses; adverse outcomes in any of the Company's various
material legal proceedings in Mississippi; increases in or new taxes imposed on
gaming revenues or gaming devices; a finding of unsuitability by regulatory
authorities with respect to the Company's officers, directors or key employees;
loss or retirement of key executives; significant increases in fuel or
transportation prices; adverse economic conditions in the Company's key markets;
severe and unusual weather in the Company's key markets and adverse results of
significant litigation matters.
15
<PAGE> 12
THE SANDS REGENT
CONSOLIDATED BALANCE SHEETS
................................................................................
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,203,443 $ 7,643,681
Short-term investments.................................... 250,000 250,000
Accounts receivable, less allowance for possible losses
of $72,000 and $119,000................................ 549,613 418,018
Inventories............................................... 624,849 640,023
Federal income tax refund receivable...................... 687,269 1,062,657
Prepaid expenses and other assets......................... 1,370,792 1,297,392
----------- -----------
Total current assets.............................. 12,685,966 11,311,771
----------- -----------
Property and equipment:
Land...................................................... 8,092,923 8,092,923
Buildings, ship and improvements.......................... 45,941,607 45,753,424
Equipment, furniture and fixtures......................... 25,654,167 24,775,831
Construction in progress.................................. 509,247 171,955
----------- -----------
80,197,944 78,794,133
Less accumulated depreciation and amortization............ 34,551,822 31,059,712
----------- -----------
Property and equipment, net.......................... 45,646,122 47,734,421
----------- -----------
Other assets:
Deferred federal income tax asset......................... 258,752 422,434
Note receivable........................................... -- 1,237,156
Other..................................................... 310,473 347,079
----------- -----------
Total other assets................................ 569,225 2,006,669
----------- -----------
$58,901,313 $61,052,861
=========== ===========
</TABLE>
- ---------------
See notes to consolidated financial statements.
16
<PAGE> 13
................................................................................
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,927,356 $ 2,712,531
Accrued salaries, wages and benefits...................... 2,006,096 1,815,841
Other accrued expenses.................................... 2,049,138 1,691,557
Deferred federal income tax liability..................... 275,541 239,683
Current maturities of long-term debt...................... 6,764,949 17,480,492
------------ ------------
Total current liabilities......................... 13,023,080 23,940,104
Long-term debt.............................................. 14,643,172 4,658,474
------------ ------------
Total liabilities................................. 27,666,252 28,598,578
------------ ------------
Commitments and contingencies............................... -- --
Stockholders' equity:
Preferred stock, $.10 par value, 5,000,000 shares
authorized, none issued................................ -- --
Common stock, $.05 par value, 20,000,000 shares
authorized, 6,898,722 shares issued.................... 344,936 344,936
Additional paid-in capital................................ 13,073,803 13,073,803
Retained earnings......................................... 40,171,157 41,390,379
------------ ------------
53,589,896 54,809,118
Treasury stock, at cost; 2,400,000 shares................. (22,354,835) (22,354,835)
------------ ------------
Total stockholders' equity........................ 31,235,061 32,454,283
------------ ------------
$ 58,901,313 $ 61,052,861
============ ============
</TABLE>
17
<PAGE> 14
THE SANDS REGENT
CONSOLIDATED STATEMENTS OF OPERATIONS
................................................................................
FOR THE YEARS ENDED JUNE 30, 1998, 1997, 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Gaming............................................. $42,971,378 $42,484,575 $43,141,044
Lodging............................................ 8,878,096 8,461,714 9,132,778
Food and beverage.................................. 8,547,651 7,910,110 7,882,377
Other.............................................. 1,687,505 1,545,345 1,692,853
----------- ----------- -----------
62,084,630 60,401,744 61,849,052
Less complimentary lodging, food and
beverage included above......................... 2,873,400 2,874,795 2,776,918
----------- ----------- -----------
59,211,230 57,526,949 59,072,134
----------- ----------- -----------
Operating costs and expenses:
Gaming............................................. 22,000,607 21,753,369 20,492,043
Lodging............................................ 4,851,303 4,918,433 5,158,603
Food and beverage.................................. 7,554,325 6,566,859 6,499,231
Other.............................................. 634,543 678,566 665,220
Maintenance and utilities.......................... 5,906,916 5,658,004 5,462,777
General and administrative......................... 13,977,577 13,901,048 12,967,352
Depreciation and amortization...................... 4,052,727 3,805,522 3,635,219
----------- ----------- -----------
58,977,998 57,281,801 54,880,445
----------- ----------- -----------
Income from operations............................... 233,232 245,148 4,191,689
----------- ----------- -----------
Other income (deductions):
Interest and other income.......................... 345,936 420,490 1,074,104
Interest expense................................... (2,433,271) (1,926,378) (2,394,743)
----------- ----------- -----------
(2,087,335) (1,505,888) (1,320,639)
----------- ----------- -----------
Income (loss) before income taxes.................... (1,854,103) (1,260,740) 2,871,050
Income tax (provision) benefit....................... 634,881 498,928 (828,688)
----------- ----------- -----------
Net income (loss).................................... $(1,219,222) $ (761,812) $ 2,042,362
=========== =========== ===========
Net income (loss) per share:
Basic........................................... $ (.27) $ (.17) $ 0.45
=========== =========== ===========
Diluted......................................... $ (.27) $ (.17) $ 0.45
=========== =========== ===========
Weighted average shares outstanding.................. 4,498,722 4,498,722 4,498,722
=========== =========== ===========
</TABLE>
- ---------------
See notes to consolidated financial statements.
18
<PAGE> 15
THE SANDS REGENT
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
................................................................................
FOR THE YEARS ENDED JUNE 30, 1998, 1997, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
-------------------- PAID-IN RETAINED ------------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
--------- -------- ----------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, July 1,
1995................. 6,898,722 $344,936 $13,073,803 $40,784,637 2,400,000 $(22,354,835) $31,848,541
Net income............. -- -- -- 2,042,362 -- -- 2,042,362
Cash dividends
$(.15 per share)..... -- -- -- (674,808) -- -- (674,808)
--------- -------- ----------- ----------- --------- ------------ -----------
Balances, June 30,
1996................. 6,898,722 344,936 13,073,803 42,152,191 2,400,000 (22,354,835) 33,216,095
Net loss............... -- -- -- (761,812) -- -- (761,812)
--------- -------- ----------- ----------- --------- ------------ -----------
Balances, June 30,
1997................. 6,898,722 344,936 13,073,803 41,390,379 2,400,000 (22,354,835) 32,454,283
Net loss............... -- -- -- (1,219,222) -- -- (1,219,222)
--------- -------- ----------- ----------- --------- ------------ -----------
BALANCES, JUNE 30,
1998................. 6,898,722 $344,936 $13,073,803 $40,171,157 2,400,000 $(22,354,835) $31,235,061
========= ======== =========== =========== ========= ============ ===========
</TABLE>
- ---------------
See notes to consolidated financial statements.
19
<PAGE> 16
THE SANDS REGENT
CONSOLIDATED STATEMENTS OF CASH FLOWS
................................................................................
FOR THE YEARS ENDED JUNE 30, 1998, 1997, 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Operating activities:
Net income (loss)....................................... $(1,219,222) $ (761,812) $2,042,362
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization...................... 4,052,727 3,805,522 3,635,219
(Gain) loss on disposal of property and
equipment....................................... 73,792 15,341 (482,978)
(Increase) decrease in accounts receivable......... (131,595) (18,000) 77,334
(Increase) decrease in inventories................. 15,174 149,176 (70,147)
(Increase) in prepaid expenses and other current
assets.......................................... (73,400) (317,837) (33,181)
(Increase) decrease in other assets................ 26,400 128,420 (494,904)
Increase (decrease) in accounts payable............ (862,089) 207,268 332,286
Increase (decrease) in accrued salaries, wages and
benefits........................................ 190,255 128,909 (200,032)
Increase in other accrued expenses................. 357,581 315,456 59,218
Change in federal income taxes
payable/receivable.............................. 375,388 (921,288) (525,579)
Change in deferred federal income taxes............ 199,540 590,688 768,693
Decrease in other liability........................ -- (18,723) (37,428)
----------- ----------- ----------
Net cash provided by operating activities................. 3,004,551 3,303,120 5,070,863
----------- ----------- ----------
Investing activities:
Purchase of short-term investments...................... -- (50,000) (583,257)
Sale and maturity of short-term investments............. -- -- 2,240,760
Payments received on note receivable.................... 1,237,156 7,107 6,635
Additions to property and equipment..................... (1,995,750) (3,105,448) (2,588,447)
Proceeds from sale of property, equipment and other
assets............................................... 44,650 501,490 735,320
----------- ----------- ----------
Net cash used in investing activities..................... (713,944) (2,646,851) (188,989)
----------- ----------- ----------
</TABLE>
- ---------------
See notes to consolidated financial statements.
20
<PAGE> 17
................................................................................
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Financing activities:
Payment of accounts payable for prior year purchases of
property and equipment............................... $ -- $ -- $ (97,893)
Issuance of long-term debt.............................. -- 497,940 --
Payments on long-term debt.............................. (730,845) (4,867,508) (3,108,343)
Payment of dividends on common stock.................... -- -- (674,808)
----------- ----------- ----------
Net cash used in financing activities..................... (730,845) (4,369,568) (3,881,044)
----------- ----------- ----------
Increase (decrease) in cash and cash equivalents.......... 1,559,762 (3,713,299) 1,000,830
Cash and cash equivalents, beginning of year.............. 7,643,681 11,356,980 10,356,150
----------- ----------- ----------
Cash and cash equivalents, end of year.................... $ 9,203,443 $ 7,643,681 $11,356,980
=========== =========== ==========
Supplemental cash flow information:
Property and equipment acquired by accounts payable..... $ 76,914 $ 223,977 $ --
=========== =========== ==========
Property and equipment acquired by long-term debt....... $ -- $ 903,227 $ --
=========== =========== ==========
Property and equipment acquired by conversion of other
assets............................................... $ -- $ 400,000 $ --
=========== =========== ==========
Interest paid, net of amount capitalized................ $ 2,026,378 $ 1,594,085 $2,022,546
=========== =========== ==========
Federal income taxes paid............................... $ -- $ -- $1,075,000
=========== =========== ==========
</TABLE>
21
<PAGE> 18
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
................................................................................
FOR THE YEARS ENDED JUNE 30, 1998, 1997, 1996
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation and basis of presentation
The consolidated financial statements include the accounts of The Sands
Regent and its wholly-owned subsidiaries Zante, Inc. ("Zante"), Patrician, Inc.
("Patrician"), Artemis, Inc. ("Artemis") and Gulfside Casino, Inc. ("GCI"), and
Gulfside Casino Partnership ("GCP") (together the "Company"). Patrician, GCI and
Artemis are the sole partners in GCP.
All significant intercompany balances and transactions have been eliminated
in consolidation.
(b) Nature of operations
The Company owns and operates The Sands Regency Hotel/Casino in Reno,
Nevada and the Copa Casino in Gulfport, Mississippi. The Company's operations
are conducted in the hotel-casino industry and include gaming activities, hotel,
restaurant and other related support facilities. Because of the integrated
nature of these operations, the Company is considered to be engaged in one
industry segment.
Casino operations are subject to extensive regulation in the States of
Nevada and Mississippi by the respective state Gaming Authorities. Management
believes that the Company's procedures for supervising casino operations and
recording casino and other revenues comply in all material respects with the
applicable regulations.
(c) Operating revenues
In accordance with industry practice, the Company recognizes as casino
revenue the net win from gaming activities, which is the difference between
gaming wins and losses.
Lodging, food and beverage furnished without charge to customers are
included in gross revenues at a value which approximates retail and then
deducted as complimentary services to arrive at net revenues. The cost of such
complimentary services is charged to gaming operating costs and expenses.
The estimated costs of providing the complimentary services are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Hotel............................................. $ 442,875 $ 445,572 $ 380,869
Food and beverage............................... 2,202,749 2,221,535 2,073,504
Other........................................... 55,192 51,843 39,112
---------- ---------- ----------
$2,700,816 $2,718,950 $2,493,485
========== ========== ==========
</TABLE>
Other operating revenue is comprised of hotel/casino ancillary services.
Related costs and expenses are included in other operating costs and expenses.
22
<PAGE> 19
................................................................................
(d) Cash and cash equivalents
Cash equivalents include all short-term investments with an original
maturity of three months or less. Such investments, carried at cost which
approximates market, are readily marketable with no significant investment in
any individual issuer.
(e) Short-term investments
The Company accounts for its short-term investments in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
115 -- "Accounting for Certain Investments in Debt and Equity Securities". This
statement requires that unrealized gains and losses on securities defined as
"available-for-sale" be excluded from income and be reported in a separate
component of stockholders' equity. Securities that the Company has the ability
and positive intent to hold to maturity are classified as "held-to-maturity" and
are reported at the lower of aggregate cost or market. As of June 30, 1998, the
Company's short-term investments were not subject to the provisions of SFAS No.
115.
(f) Inventories
Inventories consist primarily of food, beverage and operating supplies and
are stated at the lower of cost (determined on an average cost basis) or market.
(g) Property and equipment
Property and equipment are stated at cost, net of impairment write-downs to
estimated net realizable values. Depreciation and amortization is computed
primarily by the straight line method over the estimated useful lives of the
assets. These lives range between 5 to 35 years for buildings, ship and
improvements and 5 to 20 years for equipment, furniture and fixtures. Assets
sold or otherwise disposed of are removed from the property accounts and the
resulting gains or losses are included in income.
(h) Impairment of long-lived assets
The Company reviews the carrying values of its long-lived and identifiable
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable.
(i) Income taxes
Income taxes are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109 -- "Accounting for
Income Taxes". In accordance with SFAS No. 109, the asset and liability method
of accounting for income taxes is utilized whereby deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under
23
<PAGE> 20
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
................................................................................
SFAS No. 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
(j) Fair value of financial instruments
The Company calculates the fair value of financial instruments and includes
this additional information in the Company's Notes to Consolidated Financial
Statements when the fair value is different than the book value of those
financial instruments. When fair value is equal to book value, no additional
disclosure is made. Fair value is determined using quoted market prices whenever
available. When quoted market prices are not available, the Company uses
alternative valuation techniques such as calculating the present value of
estimated future cash flows utilizing discount rates commensurate with the risks
involved. It is estimated that the carrying amounts of the Company's financial
instruments approximate fair value at June 30, 1998.
(k) Concentrations of credit risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and short-term investments. The Company maintains cash in bank accounts with
balances, at times, in excess of of Federally insured limits. The Company has
not experienced any losses in such accounts.
(l) Recent Pronouncements of the Financial Accounting Standards Board
("FASB")
On June 30, 1997, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 130 entitled "Reporting Comprehensive Income". This
statement 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 section of a statement of financial position. Such
pronouncement is effective for financial statements issued for years beginning
after December 15, 1997. Management does not believe this new SFAS will have a
material impact on the financial statements of the Company.
On June 30, 1997, the FASB issued SFAS No. 131 entitled "Disclosures About
Segments of an Enterprise and Related Information". This statement redefines how
operating segments are determined and requires qualitative disclosure of certain
financial and descriptive information about a company's operating segments and
is effective for fiscal years beginning after December 15, 1997. Management does
not believe this new SFAS will have a material impact on the financial
statements of the Company.
On June 30, 1998, the FASB issued SFAS No. 133 entitled "Accounting for
Derivative Instruments and Hedging Activies". This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities and is effective for fiscal years beginning after June 15, 1999.
Management does not believe this new SFAS will have a material impact on the
financial statements of the Company.
24
<PAGE> 21
................................................................................
(m) 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.
(n) Reclassifications
Certain reclassifications have been made to the 1997 and 1996 consolidated
financial statements to conform to the 1998 presentation.
NOTE 2 -- SHORT-TERM INVESTMENTS
Short-term investments consist of certificates of deposit which are carried
at cost, which approximates market.
NOTE 3 -- OPERATION OF GULFSIDE CASINO PARTNERSHIP
On a stand alone basis, GCP dba Copa Casino incurred a net loss of $2.4
million in the year ended June 30, 1998 and a net loss of $281,000 in the year
ended June 30, 1997. As of June 30, 1998, GCP's total liabilities exceeded its
total assets by $15.4 million. Such excess of total liabilities over total
assets results from advances by the Company to GCP, aggregating approximately
$24.8 million including accrued interest, which are reflected as liabilities of
GCP.
The primary term of GCP's lease with the Mississippi State Port Authority
expires in October 1999. Based upon a January 1998 ruling in a lawsuit between
GCP and the Mississippi State Port Authority, the Port Authority's efforts to
cancel and terminate the lease at the end of such primary term was found not to
be justifiable. GCP has notified the Port Authority that it is exercising its
option to renew the lease upon the completion of the primary term. The Port
Authority, to date, has not accepted such notification of renewal. In the same
lawsuit, the court also ruled that the Port Authority does not have an
obligation to approve GCP's requests to substitute a barge for its present
gaming vessel and to construct land based facilities, including a hotel.
Management of GCP believes that in order to be ultimately successful, it must
have a stable, long-term lease arrangement and be allowed to develop its
leasehold site to provide adequate gaming, lodging and entertainment facilities.
As discussed in Notes 8 and 9, such issues are the subject of an appeal of the
court rulings in the aforementioned lawsuit between the GCP and the Mississippi
State Port Authority.
25
<PAGE> 22
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
................................................................................
NOTE 4 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Bank term loan; interest at prime plus 1.5% through January
31, 1999, subject to a maximum of 11% per annum, and at
prime plus 2.5% from February 1, 1999 to maturity in
January 2000, subject to a maximum of 14% per annum; at
June 30, 1998, the interest rate was 10% per annum;
monthly principal and interest payments of $112,000
through January 31, 1999 and the greater of $120,000 or
the monthly accrued interest from February 1, 1999 to
maturity when the remaining balance is due in full;
semi-annual principal payments due in the amount of
average cash and cash equivalents in excess of $5.5
million for June and December of each year; secured by
deeds of trust on all real property and otherwise
collateralized by all furniture, fixtures, equipment and
all other properties of the Company....................... $10,849,143 $10,975,000
Capital lease obligation; imputed interest at 8.6%; payable
in monthly principal and interest payments in the amount
of $26,794 over 60 months at which time a one dollar
purchase option is exercisable; assets under the capital
lease, with an original cost of $1,481,000 and accumulated
depreciation of approximately $331,000 at June 30, 1998,
are included in property and equipment and are being
depreciated over their estimated useful lives............. 980,767 1,259,600
Contract payable to International Game Technology ("IGT");
principal and interest payments of $55,000, including
interest at 10% per annum, due monthly commencing
September 1, 1996 through August 1, 1999 at which time the
remaining unpaid principal balance of $3.2 million is due
in full; secured by certain gaming equipment.............. 3,537,143 3,831,186
Notes payable by GCI to former minority stockholders of GCI
as issued pursuant to a settlement agreement in August
1993; interest at 6% per annum and unpaid since May 1994;
secured by GCI's ownership interest in GCP which is .006%
at June 30, 1998; principal payments past due since 1994;
in accordance with a Chancery Court judgement, as further
discussed in Note 9, the entire principal balance, is due
in full and is included in current maturities at June 30,
1998 and 1997............................................. 6,000,000 6,000,000
Other....................................................... 41,068 73,180
----------- -----------
21,408,121 22,138,966
Less current maturities..................................... 6,764,949 17,480,492
----------- -----------
Long-term portion........................................... $14,643,172 $ 4,658,474
=========== ===========
</TABLE>
The bank term loan was restructured, effective January 31, 1998, to
eliminate prior events of default as a result of the Company's noncompliance
with certain financial covenants, which have since been modified or eliminated,
and the Company's past failure to make certain principal payments in accordance
with the prior loan agreement. The former bank term and revolving line of credit
loan provided for monthly
26
<PAGE> 23
................................................................................
interest payments and semi-annual principal payments. The Company had incurred a
default interest rate of prime plus 3%, effective July 1, 1997, on such former
loan obligation.
The restructured bank loan is covered under a loan agreement which requires
the Company to comply with certain financial covenants, restricts future
encumbrances and requires certain existing major shareholders of the Company to
continue to hold a significant ownership interest in the Company and to be
involved in the management of the Company. The financial covenants include
restrictions on investment activities and the sale or disposition of a
significant portion of the Company's assets and also require minimum capital
expenditures in each fiscal year, subject to a maximum per fiscal year. The
financial covenants additionally require that a minimum EBITDA (earnings before
interest expense, taxes, depreciation and amortization) be maintained and
restrict advances by Zante to the Company. The loan agreement also requires that
no shareholder, other than the existing major shareholders, may own 20% or more
of the issued and outstanding voting stock of the Company.
Long-term debt at June 30, 1998 is payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
----------- -----------
<S> <C>
1999...................................................... $ 6,764,949
2000...................................................... 14,152,102
2001...................................................... 285,346
2002...................................................... 205,724
-----------
$21,408,121
===========
</TABLE>
The Company entered into an interest rate swap agreement, effective April
1, 1994, to fix the variable interest rate due under the original,
pre-restructured, bank term and revolving line of credit loan. Under such
agreement, the Company pays the bank interest at a fixed rate of 6.25% per annum
on the notional amount and the bank pays the Company interest at a variable rate
(currently 5.75%) based on the London Interbank Offer Rate ("LIBOR") on the
notional amount. The notional amount of the swap coincides with the original
principal reduction schedule of the superceded bank term and revolving line of
credit loan (currently $7.3 million) which will be fully amortized in April
2000. The notional amount may be reduced by the Company, in whole or in part,
upon notice by the Company to the bank and a fair market settlement of such
reduction between the parties. The fair value of the interest rate swap
agreement is a liability of approximately $36,000 at June 30, 1998 which was
based on estimated termination values. The interest rate swap, which is also
secured by a deed of trust and all properties of the Company, is subject to
market risk as interest rates fluctuate.
Of the total interest expense of $2,433,000, $1,926,000 and $2,395,000 in
1998, 1997 and 1996, respectively, none, $97,000 and none has been capitalized
into construction costs.
27
<PAGE> 24
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
................................................................................
NOTE 5 -- STOCK OPTION AND STOCK INCENTIVE PLANS
The Company's amended and restated stock option plan provides for the
granting of incentive stock options as well as non-qualified stock options to
executives and key employees. The plan presently permits for the grant of
options covering a maximum of 800,000 shares of the Company's common stock. The
Company has reserved shares to cover these requirements. The plan will continue
until the year 2007, unless terminated earlier. Under the plan, the per share
exercise price of an option cannot be less than 100% of the fair market value of
the shares at date of grant or 110% of the fair market value in the case of
incentive stock options granted to stockholders owning more than 10% of the
outstanding common shares. The options generally vest 20% to 25% each year after
grant. In December 1997, The Board of Directors of the Company authorized the
repricing of certain incentive stock options. The effect of the repricing
resulted in the cancellation and reissuance of 318,000 options with a price
equal to the market value of the common stock at the date of repricing. The
options granted to replace the cancelled options that were previously vested
will vest on the first anniversary date of the repricing. The options granted to
replace the unvested cancelled options will vest 25% each year commencing on the
first anniversary date of the repricing.
The following table summarizes activity of the Company's stock option plan
which includes only incentive stock option grants:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Options Outstanding
Outstanding, July 1, 1996................................. 334,000 $ 4.71
-------- ------
Outstanding, June 30, 1997................................ 334,000 4.71
Options granted........................................ 394,000 1.83
Options cancelled...................................... (318,000) (4.77)
-------- ------
OUTSTANDING, JUNE 30, 1998................................ 410,000 $ 1.90
======== ======
Options Exercisable
At June 30, 1996.......................................... 60,000 $ 6.25
======== ======
At June 30, 1997.......................................... 122,000 $ 5.78
======== ======
AT JUNE 30, 1998.......................................... 16,000 $ 3.50
======== ======
</TABLE>
At June 30, 1998, options to purchase 235,864 shares were available for
grant under the stock option plan.
28
<PAGE> 25
................................................................................
The following table sets forth certain information with respect to
incentive stock option grants outstanding at June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.81 to $2.25...................... 394,000 9.5 years $1.83 -- $--
$3.50 to $3.50...................... 16,000 .5 years 3.50 16,000 3.50
------- ---------- ----- ------ -----
$1.81 to $3.50...................... 410,000 9.1 years $1.90 16,000 $3.50
======= ========== ===== ====== =====
</TABLE>
In fiscal 1998, the Board of Directors approved a non-qualified stock
option grant to a newly appointed outside Director to purchase 10,000 shares of
common stock. Granted at fair market value, the option vests one year from the
date of grant. Such grant was under a separate Non-Qualified Stock Option
Agreement since the Company's Stock Option Plan does not presently provide for
the granting of options to outside directors. As further discussed below, the
Board of Directors has approved an amendment to the Company's Stock Option Plan,
subject to shareholder approval, to provide for the granting of non-qualified
stock options to outside directors.
In fiscal 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123- "Accounting for Awards of
Stock-Based Compensation" which was issued by the Financial Accounting Standards
Board in October 1995 and is effective for years beginning after December 15,
1995. This statement establishes financial accounting and reporting standards
for stock-based employee compensation plans and for transactions where equity
securities are issued for goods and services. It defines a fair value based
method of accounting for an employee stock option, or similar equity instrument,
and encourages such method of accounting for all employee stock compensation
plans.
As provided by SFAS No. 123, the Company has elected to continue to follow
the provisions of APB Opinion No. 25- "Accounting for Stock Issued to Employees"
which measures compensation costs for employee stock compensation plans using
the intrinsic value based method of accounting. Accordingly, no compensation
cost has been recognized.
The following table indicates the Company's net income and net income per
share assuming that compensation costs for the Company's stock option plan
grants were determined using the fair value based method prescribed by SFAS 123.
The table also discloses the weighted average assumptions used in estimating the
fair value of each option grant on the date of the grant, using the
Black-Scholes option
29
<PAGE> 26
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
................................................................................
pricing model, and the estimated weighted average fair value of the options
granted. The model assumes no expected future dividend payments on the Company's
common stock for the options granted:
<TABLE>
<CAPTION>
June 30,
------------------------------------
1998 1997 1996
----------- --------- ----------
<S> <C> <C> <C>
Net income (loss):
As reported...................................... $(1,219,222) $(761,812) $2,042,362
Pro forma........................................ (1,322,397) (888,768) 2,017,065
Net income (loss) per share:
As reported, Basic and diluted................... $(0.27) $(0.17) $0.45
Pro forma, Basic and diluted..................... (0.29) (0.20) 0.45
Weighted average assumptions:
Expected stock price volatility.................. 100.0% -- 80.0%
Risk-free interest rate.......................... 6.3% -- 6.1%
Expected option lives............................ 2.3 YEARS -- 3.6 years
Estimated fair value of options granted.......... $1.06 -- $2.03
</TABLE>
Because the accounting method prescribed by SFAS 123 has not been applied
to options granted prior to July 1, 1995, the compensation costs reflected in
the above proforma amounts may not be representative of that to be expected in
future years.
The Company's Board of Directors, in order to attract and retain qualified
independent directors, has approved an amendment to the Company's Stock Option
Plan to provide for the grant of non-qualified stock options to independent,
non-employee, directors. Such amendment provides for the automatic grant of
options to purchase 7,500 shares to an independent director on each annual
meeting date that such director continues to service. Further, the Board of
Directors may grant an option to purchase up to 25,000 shares upon the
appointment of a new director. All options granted to independent directors have
an exercise price equal to fair market value of the common stock on the date of
grant, and vest in full in one year. The amendment also provides for additional
alternative methods of payment to the Company upon the exercise of stock options
by an employee or independent director as allowed under rules governing the
operation of stock option plans. Such amendment is subject to shareholder
approval which is being sought at the November 1998 annual meeting of
shareholders.
NOTE 6 -- FEDERAL INCOME TAXES
The Company's income tax (provision) benefit consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Current............................................ $ 834,421 $1,089,616 $ (59,995)
Deferred......................................... (199,540) (590,688) (768,693)
--------- ---------- ---------
$ 634,881 $ 498,928 $(828,688)
========= ========== =========
</TABLE>
30
<PAGE> 27
................................................................................
The Company's effective tax rate differs from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Federal statutory tax rate.................................. (35.0)% (35.0)% 35.0%
Surtax exemption.......................................... 1.0 1.0 (1.0)
Tax effect of tax-free interest income.................... (0.2) (3.0) (2.5)
General business credits.................................. (2.0) (2.3) (2.3)
Other..................................................... 2.0 (0.3) (0.3)
----- ----- -----
(34.2)% (39.6)% 28.9%
===== ===== =====
</TABLE>
The components of the Company's net deferred federal income tax asset
(liability) are as follows at June 30:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
License acquisition costs.............................. $ 1,419,009 $ 1,558,015
Pre-opening costs...................................... 43,046 301,330
Alternative minimum tax credit......................... 1,670,777 980,725
Accrued expenses....................................... 147,993 160,681
Other.................................................. 38,650 45,636
----------- -----------
3,319,475 3,046,387
----------- -----------
Deferred tax liabilities:
Property and equipment................................. (2,859,429) (2,404,650)
Prepaid expenses....................................... (455,725) (441,113)
Other.................................................. (21,110) (17,873)
----------- -----------
(3,336,264) (2,863,636)
----------- -----------
Net deferred federal income tax asset (liability).... $ (16,789) $ 182,751
=========== ===========
</TABLE>
The Company has a March 31 tax year-end.
NOTE 7 -- EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128 -- "Earnings Per Share" which
became effective for periods ending after December 15, 1997. SFAS 128 replaces
earnings per share as previously reported with "basic", or undiluted earnings
per share, and "diluted" earnings per share. Basic earnings per share is
computed by dividing net income by the weighted average number of shares
outstanding during the period, while diluted earnings per share reflects the
additional dilution for all potentially dilutive securities, such as stock
options.
31
<PAGE> 28
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
................................................................................
The Company adopted the provisions of SFAS 128 in its fiscal year ended
June 30, 1998 and the impact has been considered with respect to all previously
reported and presented earnings per share amounts. For each of the years ended
June 30, 1998, 1997 and 1996, there were no outstanding convertible securities
that would result in dilution of basic earnings per common share.
NOTE 8 -- LEASE COMMITMENTS
GCP leases its dockside facilities from the Mississippi Department of
Economic and Community Development ("MDECD") and the Mississippi State Port
Authority in Gulfport, Mississippi (the "Port"). The lease provides for an
initial lease term of seven years commencing in October 1992. The lease also
provides for three extension options of five years each and a final extension
option of ten years. The final ten year extension option may only be exercised
if the GCP constructs, within the city limits of Gulfport, Mississippi, a
minimum of 350 hotel/motel rooms during the first ten years of the lease
agreement.
The lease provides for a monthly base rent plus 5% of gross annual gaming
revenue in excess of $25 million. Additionally, the lease requires monthly
payments equal to 3% of non-gaming revenue. The base rent, which is presently
$42,542 per month, shall be adjusted, annually, in accordance with changes in
the consumer price index.
In January 1998, the Chancery Court in Harrison County Mississippi ruled,
in a lawsuit between the GCP and MDECD and the Port, that the Port's July 1996
efforts to terminate and cancel the lease at the end of the primary term in
October 1999 were inappropriate and void. The Court found that the Port did not
have sufficient and legitimate needs to accommodate a purported expansion of
Port facilities to warrant the cancelation of the lease as further discussed in
Note 9.
Total rental expense charged to operations was $530,000, $523,000 and
$538,000 for the years ended June 30, 1998, 1997 and 1996, respectively.
Future minimum payments under the remaining noncancellable term of the
operating lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
----------- --------
<S> <C>
1999...................................................... $510,501
2000...................................................... 127,625
--------
$638,126
========
</TABLE>
NOTE 9 -- CONTINGENCIES
GCI matter
In December 1994, a lawsuit was filed in Mississippi Chancery Court against
GCI because of GCI's failure to make payments on promissory note obligations of
GCI to two of its former shareholders. These note obligations, in the aggregate
amount of $6 million, plus interest of $1.5 million at June 30, 1998, were
secured by a pledge of GCI's partnership interest in GCP and are reflected, upon
consolidation, as
32
<PAGE> 29
................................................................................
current liabilities in the Company's Consolidated Balance Sheets at June 30,
1998 and 1997. These promissory notes were owed by GCI when The Sands Regent
purchased GCI in February 1994 and have not been assumed or guaranteed by The
Sands Regent.
In addition to demanding payment of the $6 million plus interest, for which
a partial summary judgement was entered, the lawsuit also demanded the
appointment of a receiver to take possession of and sell GCI's ownership
interest in GCP and sought attorney fees of $54,000 which were awarded in
January 1997. In May 1995, GCP and Patrician were joined as necessary parties to
the lawsuit.
In July 1996, following a court hearing, the Chancery Court rendered a
judgement that the reallocation of GCI's interest in the partnership may be
appropriate as to the GCP partners but had no effect on the lien position of the
two former GCI shareholders. This ruling related to the reduction in GCI's
ownership interest in GCP from an original 60% interest to a .006% interest as a
result of an amendment to the partnership agreement and a partner capital call.
The amendment to the GCP partnership agreement was entered in April 1994 whereby
the profit and loss allocation percentages were amended from 40% to 80% for
Patrician and from 60% to 20% for GCI. Such amendment was entered into to cure a
monetary partnership breach by GCI which occurred prior to the Company's
acquisition of GCI and to properly reflect the relative financial risks of
Patrician and GCI. The partner capital call occurred in January 1996 and was for
the purpose of improving the partnership capital structure. Patrician and
Artemis complied with the capital call; however, GCI failed to comply. As a
result, and in accordance with the partnership agreement, GCI's interest in GCP
was reduced from 20% to .006%.
The effect of the July 1996 judgement was that the two former shareholders
of GCI are secured by GCI's pre-amendment, pre-capital call 60% ownership
interest in GCP. The fact that the partnership amendments which provided or
allowed for the change in partner ownership interests were found to be valid in
a June 1996 arbitration award between Patrician and GCI was ruled as
inconsequential relative to the two former shareholders. GCI subsequently filed
a motion for reconsideration of the judgement with the Chancery Court, which was
unsuccessful.
In January 1997, the Chancery Court issued an amended judgement which
reaffirmed the prior judgements and reserved ruling on the necessity to appoint
a receiver. The ruling also charged GCP, under Mississippi law, with the
obligation to pay the GCI judgement amounts to the two former shareholders and
to pay the two former shareholders 60% of all monies not designated for normal
operational expenses on a monthly basis, commencing February 1, 1997, until the
judgements due the two former shareholders were satisfied. GCP was also
required to provide a monthly accounting of income and operating expenses to the
two former shareholders.
To date, the required monthly reports have been made and report that no
monies are available for distribution by GCP and that no monies have been
distributed by GCP. Such reports were discontinued, by agreement, in March 1998
in connection with the settlement negotiations discussed below.
GCI, GCP and Patrician, as joined parties to such lawsuit, have filed an
appeal with the Mississippi Supreme Court because it is the Company's belief
that the Chancery Court's rulings are incorrect and not supported by the facts
or the law. A hearing was scheduled for July 1998 and it was agreed, immediately
33
<PAGE> 30
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
................................................................................
before such hearing was to take place, that briefs are to be submitted in lieu
of a hearing because of ongoing settlement negotiations discussed below.
On January 31, 1997, GCI filed for bankruptcy protection under Chapter 11
of the United States Bankruptcy Code. A Disclosure Statement with related Plan
of Reorganization has been filed. A hearing for confirmation has not been
scheduled.
In February 1997, the two former GCI shareholders each filed separate
lawsuits in U. S. District Court for the Southern District of Mississippi,
Biloxi Division, against The Sands Regent and certain officers and directors of
The Sands Regent and GCI. Such lawsuits allege breach of various common law
duties and contractual interference by the defendants and seek compensatory and
punitive damages. Such actions are presently stayed pending settlement
negotiations described below. Nonetheless, management, and the individual
defendants, believe these legal actions to be without merit and will vigorously
defend them.
In October 1997, the U. S. Bankruptcy Court for the Southern District of
Mississippi ruled that GCI's ownership interest in GCP was .006% and that the
automatic stay provisions of the Bankruptcy Code only applied as to this .006%
interest. The Court further held that a May 1997 partnership amendment to
restore GCI's ownership interest in the Company to the original 60%, undertaken
in order to resolve the GCI ownership/security dilemma created by the Chancery
Court judgement and to facilitate a resolution of the Chancery Court proceeding
by and through the Chapter 11 reorganization of GCI, was ineffective and void.
In November 1997, as a result of this ruling, Patrician, holder of the
98.744% interest in GCP, also filed a petition under Chapter 11 of the
Bankruptcy Code. This action was deemed necessary in order to protect the
59.994% ownership interest in GCP which was initially owned by GCI and which is
now part of the interest held by Patrician. A Disclosure Statement and Plan of
Reorganization for Patrician have not yet been filed.
Settlement negotiations are presently underway between the two former
shareholders, the Company, GCI, Patrician, Artemis and GCP. As a result of such
discussions, all court actions have been stayed including in Chancery Court, U.
S. Bankruptcy Court and U. S. District Court. There are no assurances that a
settlement will be reached. In the event that a settlement does not occur, all
court actions will be resumed. The ultimate resolution of this matter could
include a dispossession of a 60% or greater right to receive GCP profits and
surplus.
Port matter
On January 8, 1998, a judgement was rendered in the Chancery Court of
Harrison County, Mississippi lawsuit between GCP and the MDECD and Port. The
Chancery Court ruled in favor of GCP in denying the Port's efforts to terminate
the lease at the end of the primary term in October 1999. The Court ruled
adverse to GCP in declaring that the Port was not obligated to approve the
construction of a hotel requested by GCP or approve GCP's request to substitute
another gaming vessel for the present gaming vessel. Damages sought by GCP in
connection with such refusals to approve a hotel or the substitution of a gaming
vessel, and for other claims, were also denied.
34
<PAGE> 31
................................................................................
On February 6, 1998, GCP filed a Notice of Appeal with the Chancery Court
to appeal to the Missisippi Supreme Court certain of the Court's rulings adverse
to GCP. Specifically, GCP's appeal included appealing the Court's rulings
denying the Port's obligations to reasonably approve a hotel and the
substitution of a gaming vessel and the Court's ruling denying damages. MDECD
and the Port have filed a Notice of Cross-Appeal, claiming that the Chancery
Court's ruling disallowing the termination of the lease was incorrect.
Appropriate appeal briefs are to be filed with the Mississippi Supreme Court in
accordance with a briefing schedule which has not been determined.
Management believes that the outcome of this appeal is not presently
predictable or subject to reasonable estimation. At June 30, 1998, the book
value of the Company's net investment in and advances to (including accrued
interest) the Mississippi gaming operation was approximately $1.8 million.
Other
GCP is a defendant in a wrongful termination action, seeking damages in the
amount of $650,000, which claims violation of the Family Medical Leave Act.
Management believes the lawsuit is without merit and will vigorously defend
against it. The likelihood of an unfavorable outcome is uncertain and a
potential range of losses is not subject to reasonable estimation. Therefore, no
provision for a liability has been made in the Company's consolidated financial
statements.
GCP has been notified by a governmental agency that it has failed to timely
file certain currency transaction reports required by the U.S. Bank Secrecy Act
for the period September 1993 to December 1994. Management believes that the
resolution of this matter will not have a material effect on the financial
position or results of operations of the Company. Accordingly, no provision for
a liability has been made in the Company's consolidated financial statements.
In addition to the above, the Company is party to other legal actions,
proceedings and pending claims arising in the normal conduct of business.
Management believes that the final outcomes of these matters will not have a
material adverse effect upon the Company's financial position and results of
operations.
35
<PAGE> 32
THE SANDS REGENT
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
................................................................................
NOTE 10 -- CONDENSED QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998
Operating revenues..................... $15,481,926 $13,369,598 $14,316,046 $16,043,660
Income (loss) from operations.......... 479,429 (1,436,957) (48,833) 1,239,593
Net income (loss)...................... 28,509 (1,254,550) (378,923) 385,742
Net income (loss) per share:
Basic............................... $0.01 $(0.28) $(0.08) $0.09
Diluted............................. $0.01 $(0.28) $(0.08) $0.09
1997
Operating revenues..................... $15,411,664 $13,198,041 $13,475,698 $15,441,546
Income (loss) from operations.......... 837,879 (1,322,500) (196,830) 926,599
Net income (loss)...................... 303,908 (808,794) (371,069) 114,143
Net income (loss) per share:
Basic............................... $0.07 $(0.18) $(0.08) $0.02
Diluted............................. $0.07 $(0.18) $(0.08) $0.02
</TABLE>
36
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
................................................................................
To the Board of Directors and
Shareholders of The Sands Regent:
We have audited the accompanying consolidated balance sheets of The Sands
Regent and subsidiaries as of June 30, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1998. 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 generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of The Sands Regent and
subsidiaries as of June 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1998 in conformity with generally accepted accounting principles.
As discussed in Note 9 to the consolidated financial statements, the
primary term of Gulfside Casino Partnership's site lease expires in October
1999. Gulfside Casino Partnership's rights to renew the lease and to develop the
leasehold site has been litigated and is presently under appeal. The Company
believes that in order for Gulfside Casino Partnership to be ultimately
successful, it must have a stable, long-term lease arrangement and be allowed to
develop its leasehold site to provide adequate gaming, lodging and entertainment
facilities. Also, as discussed in Note 9, settlement discussions are presently
underway between the Company's subsidiaries (Gulfside Casino, Inc., Gulfside
Casino Partnership, and Patrician, Inc.) and two former shareholders of Gulfside
Casino, Inc.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Reno, Nevada
September 2, 1998
37
<PAGE> 34
................................................................................
CORPORATE OFFICERS
Katherene Latham
Chairman of the Board
Pete Cladianos, Jr.
Vice Chairman of the Board
Ferenc B. Szony
President and Chief Executive Officer
David R. Wood
Executive Vice President,
Treasurer and Chief Financial Officer
Pete Cladianos III
Executive Vice President and Secretary
BOARD OF DIRECTORS
Katherene Latham
Chairman of the Board
Pete Cladianos, Jr.
Vice Chairman of the Board
Ferenc B. Szony(1)
President and Chief Executive Officer
David R. Wood
Executive Vice President,
Treasurer and Chief Financial Officer
Pete Cladianos III
Executive Vice President and Secretary
Jon N. Bengtson
Louis J. Phillips(1)
PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
Reno, Nevada
SECURITIES COUNSEL
Latham & Watkins
Costa Mesa, California
TRANSFER AGENT & REGISTRAR
U.S. Stock Transfer Corporation
Glendale, California
- ------------
(1) Standing for election to the Board of Directors at the November 2, 1998
Annual Meeting.
FORM 10-K REPORT
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K is available to shareholders without charge by writing
to The Sands Regent, Attention: David R. Wood, 345 North Arlington Avenue, Reno,
Nevada 89501.
38
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Sands Regent:
We consent to the incorporation by reference in Registration Statement No.
33-59574 of The Sands Regent on Form S-8 of our reports dated September 2, 1998,
appearing and incorporated by reference in the Annual Report on Form 10-K of The
Sands Regent for the year ended June 30, 1998.
Deloitte & Touche LLP
Reno, Nevada
September 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 9,203,443
<SECURITIES> 250,000
<RECEIVABLES> 621,613
<ALLOWANCES> 72,000
<INVENTORY> 624,849
<CURRENT-ASSETS> 12,685,966
<PP&E> 80,197,944
<DEPRECIATION> 34,551,822
<TOTAL-ASSETS> 58,901,313
<CURRENT-LIABILITIES> 13,023,080
<BONDS> 14,643,172
0
0
<COMMON> 344,936
<OTHER-SE> 30,890,125
<TOTAL-LIABILITY-AND-EQUITY> 58,901,313
<SALES> 8,547,651
<TOTAL-REVENUES> 59,211,230
<CGS> 7,554,325
<TOTAL-COSTS> 35,040,778
<OTHER-EXPENSES> 23,937,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,433,271
<INCOME-PRETAX> (1,854,103)
<INCOME-TAX> (634,881)
<INCOME-CONTINUING> (1,219,222)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,219,222)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
