<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1997 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 0-14050
-------------------------------------------------------
THE SANDS REGENT
- --------------------------------------------------------------------------------
(exact name of registrant as specified in charter)
Nevada 88-0201135
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
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
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
At February 12, 1998, the registrant had outstanding 4,498,722 shares of its
common stock, $.05 par value.
<PAGE> 2
THE SANDS REGENT AND SUBSIDIARY
FORM 10-Q
TABLE OF CONTENTS
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial statements. 1 - 7
Consolidated Statements of Operations 1
Consolidated Balance Sheets 2 - 3
Consolidated Statements of Cash Flows 4 - 5
Notes to Interim Consolidated Financial
Statements 6 - 7
Item 2. Managements` Discussion and Analysis
of Financial Condition and Results of
Operations. 8 - 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings. 14
Item 2. Changes in Securities. 14
Item 3. Defaults Upon Senior Securities. 14
Item 4. Submission of Matters to a Vote of
Security Holders. 14
Item 5. Other Information. 14
Item 6. Exhibits and Reports on Form 8-K. 14
SIGNATURES 15
<PAGE> 3
PART I FINANCIAL INFORMATION~
Item 1. Financial Statements.
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Dollars in thousands, THREE MONTHS SIX MONTHS
except per share amounts) ENDED DECEMBER 31, ENDED DECEMBER 31,
----------------------------- -----------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Gaming $ 10,003 $ 10,014 $ 21,161 $ 20,458
Lodging 1,609 1,704 4,166 4,744
Food and beverage 1,883 1,941 3,968 4,164
Other 371 384 755 832
----------- ----------- ----------- -----------
13,866 14,043 30,050 30,198
Less complimentary lodging, food
and beverage included above 668 674 1,441 1,346
----------- ----------- ----------- -----------
13,198 13,369 28,609 28,852
----------- ----------- ----------- -----------
Operating costs and expenses:
Gaming 5,369 5,387 10,894 10,870
Lodging 1,223 1,232 2,578 2,519
Food and beverage 1,657 1,845 3,342 3,847
Other 155 146 332 322
Maintenance and utilities 1,379 1,451 2,881 3,237
General and administrative 3,798 3,732 7,187 6,987
Depreciation and amortization 940 1,013 1,880 2,027
----------- ----------- ----------- -----------
14,521 14,806 29,094 29,809
----------- ----------- ----------- -----------
Loss from operations (1,323) (1,437) (485) (957)
Other income (deductions):
Interest and other income 497 120 638 227
Interest and other expense (432) (567) (991) (1,125)
----------- ----------- ----------- -----------
65 (447) (353) (898)
----------- ----------- ----------- -----------
Loss before income taxes (1,258) (1,884) (838) (1,855)
Provision (benefit) for income taxes (449) (629) (333) (629)
----------- ----------- ----------- -----------
Net loss $ (809) $ (1,255) $ (505) $ (1,226)
=========== =========== =========== ===========
Net loss per share $ (.18) $ (.28) $ (.11) $ (.27)
=========== =========== =========== ===========
Weighted average shares
outstanding 4,498,722 4,498,722 4,498,722 4,498,722
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-1-
<PAGE> 4
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands) JUNE 30, DECEMBER 31,
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,644 $ 7,239
Short-term investments 250 250
Accounts receivable less allowance for
possible losses of $119 and $134 418 480
Inventories 640 660
Federal income tax refund receivable 1,063 1,616
Prepaid expenses and other assets 1,297 1,528
------------ ------------
Total current assets 11,312 11,773
PROPERTY AND EQUIPMENT:
Land 8,093 8,093
Buildings, ship and improvements 45,753 45,802
Equipment, furniture and fixtures 24,776 25,064
Construction in progress 172 209
------------ ------------
78,794 79,168
Less accumulated depreciation
and amortization 31,060 32,865
------------ ------------
47,734 46,303
OTHER ASSETS:
Deferred federal income tax asset 422 587
Note receivable 1,237 1,233
Other 347 307
------------ ------------
2,006 2,127
------------ ------------
Total assets $ 61,052 $ 60,203
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<PAGE> 5
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands) JUNE 30, DECEMBER
1997 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,712 $ 3,164
Accrued salaries, wages and benefits 1,816 1,503
Other accrued expenses 1,692 2,023
Deferred federal income tax liability 240 328
Current maturities of long-term debt 17,480 17,635
------------ ------------
Total current liabilities 23,940 24,653
LONG-TERM DEBT 4,658 4,322
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 345 345
Additional paid-in capital 13,074 13,074
Retained earnings 41,390 40,164
------------ ------------
54,809 53,583
Treasury stock, at cost, 2,400,000 shares (22,355) (22,355)
------------ ------------
Total stockholders' equity 32,454 31,228
------------ ------------
Total liabilities and stockholders'
equity $ 61,052 $ 60,203
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE> 6
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31,
----------------------
1996 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ($505) ($1,226)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 1,880 2,027
(Gain) on disposal of property
and equipment (340) (5)
(Increase) decrease in accounts
receivable 161 (62)
(Increase) decrease in inventories 29 (20)
(Increase) in prepaid expenses and
other current assets (600) (231)
Decrease in other assets 33 35
Increase in accounts payable 366 412
Increase in accrued expenses 343 18
Change in federal income taxes
payable/receivable (399) (553)
Change in deferred federal income taxes 65 (77)
(Decrease) in other liabilities (19) --
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,014 318
------- -------
INVESTING ACTIVITIES:
Purchase of short-term investments (50) --
Payments received on note receivable 3 4
Additions to property and equipment (1,390) (573)
Proceeds from sale of property and
equipment 457 27
------- -------
NET CASH USED IN INVESTING ACTIVITIES (980) (542)
------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE> 7
THE SANDS REGENT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31,
------------------------
1996 1997
-------- --------
<S> <C> <C>
FINANCING ACTIVITIES:
Issuance of long-term debt 728 256
Payments on long-term debt (4,782) (437)
Payment of dividend on common stock -- --
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (4,054) (181)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (4,020) (405)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 11,357 7,644
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,337 $ 7,239
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Property and equipment acquired by
long-term debt $ 400 $ --
======== ========
Property and equipment acquired by
accounts payable $ 217 $ 40
======== ========
Property and equipment acquired by
conversion of other assets $ 400 $ --
======== ========
Interest paid, net of amount capitalized $ 881 $ 903
======== ========
Federal income taxes paid $ -- $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated ========
financial statements.
-5-
<PAGE> 8
THE SANDS REGENT AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
NOTE 1 - BASIS OF PREPARATION
These statements should be read in connection with the 1997 Annual Report
heretofore filed with the Securities and Exchange Commission as Exhibit 13 to
the Registrant's Form 10-K for the year ended June 30, 1997. The accounting
policies utilized in the preparation of the financial information herein are the
same as set forth in such annual report except as modified for interim
accounting policies which are within the guidelines set forth in Accounting
Principles Board Opinion No. 28.
The Consolidated Balance Sheet at June 30, 1997 has been taken from the
audited financial statements at that date. The interim consolidated financial
information is unaudited. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
financial condition as of December 31, 1997 and the results of operations and
cash flows for the three and six months ended December 31, 1997 and 1996 have
been included. Interim results of operations are not necessarily indicative of
the results of operations for the full year.
The accompanying Consolidated Financial Statements include the accounts of
the Company and its wholly owned subsidiaries Zante, Inc. ("Zante"), Patrician,
Inc. ("Patrician"), Gulfside Casino, Inc. ("GCI"), Artemis, Inc. ("Artemis") and
Gulfside Casino Partnership ("GCP") (together the "Company"). Patrician, GCI and
Artemis are the sole partners in GCP. Zante, Inc. owns and operates the Sands
Regency hotel/casino in Reno, Nevada and GCP owns and operates the Copa Casino
in Gulfport, Mississippi.
NOTE 2 - EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 123-
"Earnings Per Share" during the three months ended December 31, 1997. This
statement establishes standards for computing and presenting earnings per share
and requires restatement of all prior-period earnings per share data presented.
During the six month periods ended December 31, 1996 and 1997, there were
no outstanding convertible securities that would result in dilutive potential
common shares and, as such, dilutive earnings per share are not applicable.
Options to purchase 354,000 shares of common stock at $1.81 and 16,000 shares at
$3.50 were outstanding at December 31, 1997. Such options are not included in
the computation of diluted Earnings Per Share because the options' exercise
prices were greater than the average market price of common stock for the
period. Likewise, the exercise prices for options held during the six months
ended December 31, 1996 were greater than the average market price of common
stock and are therefore not included in the calculation of diluted Earnings Per
Share.
-6-
<PAGE> 9
THE SANDS REGENT AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
NOTE 3 - RECLASSIFICATIONS
Certain reclassifications have been made to the results of operations for
the three and six months ended December 31, 1996 to conform to the presentation
for the three and six months ended December 31, 1997.
NOTE 4 - SUBSEQUENT EVENTS
In January 1998, the Company entered into a nonbinding Letter Agreement
with the Company's banks regarding the long-term debt loan agreement for the
Sands Regency facility. Subject to a definitive agreement, such Letter Agreement
provides for the restructuring of the Company's bank debt on its Reno facility
which will include the modification of certain financial covenants and a revised
repayment schedule.
On January 9, 1998, a judgement was issued by the Chancery Court in
Harrison County, Mississippi on the lawsuit between Gulfside Casino Partnership
and the Mississippi State Port Authority at Gulfport and the Mississippi
Department of Economic and Community Development. The judgement declared that
the Port's attempt to cancel the Copa's lease was improper and was not
justified. The judgement further stated that the Port has no obligation to
approve a hotel or the substitution of a gaming vessel at the Copa's lease site
which generally eliminates the Copa's damage claims against the Port.
On February 6, 1998, Gulfside Casino Partnership filed a Notice of Appeal
in Chancery Court of Harrison County, Mississippi with respect to the above
January 9, 1998 judgement. The appeal will ask the Mississippi Supreme Court to
reinstate the Copa's damage claims against the Port including those related to
the Port's refusal to allow the construction of a hotel and the substitution of
a gaming vessel.
-7-
<PAGE> 10
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Results of operations - Three months ended December 31, 1997 compared to three
months ended December 31, 1996
In the three month period ended December 31, 1997, compared to the same
three month period in fiscal 1997, revenues increased slightly to $13.4 million
from $13.2 million as a result of an increase in revenues at the Sands Regency
of $670,000, to $7.7 million. Such increase was partially offset by a decrease
in revenues at the Copa Casino of approximately $499,000 to $5.7 million. For
the same comparable periods, the loss from operations increased from $1.3
million to $1.4 million. Such increase consists of a decrease in income from
operations at the Copa Casino of approximately $794,000, resulting in a loss
from operations at the Copa Casino of $499,000. This was offset by an
improvement in the loss from operations at the Sands Regency of $679,000 to a
loss from operations of $938,000 in the December 1997 quarter.
The Company had a net loss of $1.3 million, or loss per share of $.28, in
the quarter ended December 31, 1997 compared to a net loss of $809,000, or loss
per share of $.18, in the quarter ended December 31, 1996. The Sands Regency's
portion of the net loss was $810,000 as compared to a net loss of $895,000 in
the December 31, 1996 quarter. Such improvement from the Sands Regency was
offset by a decline at the Copa Casino. For the current year second quarter, the
Copa Casino incurred a net loss of approximately $445,000 as compared to net
income in the prior year second quarter of $86,000. The declines in revenues,
income (loss) from operations and net income (loss) at the Copa Casino are due
to a decline in customers and increased costs, primarilly legal and professional
fees. Customer counts have declined as a result of construction on Highway 90
which has significantly impaired access to the Copa Casino. The increase in
legal and professional fees is directly related to the litigation between the
Copa and the Port. The increases at the Sands Regency are due to an increase in
revenue per occupied room and decreased costs and expenses.
The increase in lodging revenue of $95,000, in the second quarter of
fiscal 1998 compared to the same quarter in the prior year, is due to an
increase in the Sands Regency's average daily room rate from approximately $24
to $26, an increase of over 7%. For the same comparable periods, hotel occupancy
decreased slightly from approximately 78.5% to 77.1%.
The slight increase in gaming revenue of $11,000, in the December 1997
quarter versus the December 1996 quarter, is a result of an increase in gaming
revenue from the Sands Regency of approximately $445,000 and a decrease in
gaming revenue from the Copa Casino of approximately $434,000. The increase in
gaming revenue in Reno is primarily due to an increase in gaming revenue from
hotel guests. Gaming revenue per occupied room increased by over 13% from
approximately $61 in the three months ended December 31, 1996 to $69 in the
three months ended December 31, 1997. The decrease 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.
Such construction is scheduled for completion in the spring of 1998.
-8-
<PAGE> 11
Results of operations - Three months ended December 31, 1997 compared to three
months ended December 31, 1996 (continued)
The slight increase in gaming costs and expense of $18,000 in the quarter
ended December 31, 1997, compared to the quarter ended December 31, 1996, is
comprised of an increase from the Copa Casino of approximately $40,000 and a
decrease from the Sands Regency of approximately $22,000. The increase in Copa
Casino costs and expenses is primarily attributable to added costs and expenses
associated with the slot player's club, which commenced in April 1997, of
$174,000. This increase was partially offset by a reductions in gaming taxes of
$40,000, due to reduced gaming revenue, and in other cost and expense items.
The increase in food and beverage costs and expense of $188,000 in the
second quarter of fiscal 1998, compared to the second quarter of fiscal 1997, is
primarily attributable to the Copa Casino. Such increase includes $130,000 in
added food costs associated with the buffet restaurant, which has been operated
by the Copa Casino since May 1997, and increased other food operating costs and
expenses due to recent changes in products being offered and sold to the public.
The increase in maintenance and utilities costs and expenses of $72,000 is
primarily attributable to the Copa Casino and consists principally of costs
necessary to remove dredging spoils as a result of maintenance dredging
performed under and around the Copa Casino vessel.
The decrease in general and administrative costs and expenses of $66,000
consists principally of a decrease from the Sands Regency of approximately
$115,000 and an increase from the Copa Casino of approximately $28,000. The
decrease at the Sands Regency is primarily due to a decrease in advertising and
promotional costs and expenses. The increase from the Copa Casino is
attributable to an increase in legal and professional costs of $377,000 which
was offset by a decrease in advertising and promotional costs of approximately
$336,000. The increase in legal and professional costs is related to the legal
actions with the State Port of Mississippi at Gulfport. The decrease in
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 decrease in interest and other income of approximately $377,000 is
primarily due to the non-recurrence of a gain on the sale of a non-casino
property in Reno in the prior year quarter ended December 31, 1996. The increase
in interest and other expense of $135,000 is due to an increase in the interest
rate, to prime plus three percent, on the Sands Regency's long-term debt
obligation due its banks. Such represents a default rate in accordance with the
Company's loan agreement.
Results of operations - First six months of fiscal 1998 compared to 1997
In the six months ended December 31, 1997, compared to the same six months
in fiscal 1997, revenues increased slightly from $28.6 million to $28.9 million
as a result of an increase at the Sands Regency of $1.3 million to $17.3 million
and a decrease at the Copa Casino of $1.0 million
-9-
<PAGE> 12
Results of operations - First six months of fiscal 1998 compared to 1997
(continued)
to $11.6 million. For the same comparable periods, the loss from operations
increased from $485,000 to $957,000. Such increase in loss from operations
consists of an increase in loss from operations at the Copa Casino of $2.1
million to a loss from operations of $899,000 which was offset by an improvement
at the Sands Regency of approximately $1.7 million to a loss from operations of
$58,000.
For the same comparable six month periods, the Company had a net loss of
$1.2 million, or loss per share of $.27, compared to a net loss of $505,000, or
loss per share of $.11, in the first six months of fiscal 1998. The Sands
Regency's portion of the net loss was $410,000 as compared to a net loss of $1.1
million in the December 31, 1996 six months. Such improvement from the Sands
Regency was offset by a decline at the Copa Casino. For the first half of the
current year, the Copa Casino incurred a net loss of approximately $816,000 as
compared to net income in the prior year first half of $587,000. The declines in
revenues, income (loss) from operations and net income (loss) at the Copa Casino
are due to a decline in customers counts and an increase in legal and
professional fees. The decline in customers is due, in part, to the construction
on Highway 90 which has significantly impaired access to the Copa Casino. The
increase in legal and professional fees is related to the Port litigation. The
increases at the Sands Regency are due to an increase in revenue per occupied
room and decreased costs and expenses.
The increase in lodging revenue of $578,000 in the first half of fiscal
1998 compared to the same period in the prior year, is primarily due to an
increase in the average daily rate from approximately $29 in the six months
ended December 31, 1996 to $33 in the six months ended December 31, 1997, an
increase of over 14%. For the same comparable periods, hotel occupancy was
constant at approximately 83%.
The decrease in gaming revenue of $703,000 is a result of a decrease in
gaming revenue from the Copa Casino of $1.1 million which was partially offset
by an increase in gaming revenue from the Sands Regency of approximately
$419,000. The decrease 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. This construction is scheduled
for completion in the spring of 1998. The increase in gaming revenue in Reno is
primarily due to an increase in gaming revenue from hotel guests. Gaming revenue
per occupied room increased by over 6% from approximately $62 in the six months
ended December 31, 1996 to $66 in the six months ended December 31, 1997.
The increase in food and beverage revenue of $196,000, in the first half
of fiscal 1998 compared to the same period in fiscal 1997, is principally
attributable to restaurant revenue at the Sands Regency. Food revenue per
occupied room increased from approximately $17 in the first half of fiscal 1997
to $19 in the first half of fiscal 1998. For the same comparable periods,
restaurant revenue at the Copa Casino increased by approximately $109,000 which
was significantly offset by a decrease in Copa Casino beverage revenue. The
increase in the Copa Casino's food revenue is
-10-
<PAGE> 13
Results of operations - First six months of fiscal 1998 compared to 1997
(continued)
due to the Copa's operation of a buffet restaurant which was previously operated
by a third party through May 1997. The increase in other revenue of $77,000 is
in ancillary revenue from the Sands Regency.
The decrease in complimentary lodging, food and beverage, deducted from
revenue, of $95,000 consists primarilly of a decrease in complimentary food
provided at the Sands Regency.
The slight decrease in gaming costs and expense of $24,000 in the six
months ended December 31, 1997, compared to the six months ended December 31,
1996, is comprised of an increase from the Copa Casino of approximately $136,000
and a decrease from the Sands Regency of $160,000. 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
$339,000. This increase was partially offset by a reduction in gaming taxes due
to reduced gaming revenue. The decrease at the Sands Regency is due to an
overall decrease in various cost and expense items.
The increase in food and beverage costs and expense of $505,000 in the
first six months of fiscal 1998, compared to the first six months of fiscal
1997, consists of increases at the Copa Casino and Sands Regency, respectively,
of $426,000 and $79,000. The increase at the Copa Casino includes $249,000 in
added food costs associated with the buffet restaurant, which has been operated
by the Copa Casino since May 1997, and increased other food operating costs and
expenses due to recent changes in products being offered and sold to the public.
The increase at the Sands Regency is primarily due to a decrease in the
allocation of complimentary food and beverage costs as gaming costs and
expenses.
The increase in maintenance and utilities costs and expenses of $356,000
is primarily attributable to the Copa Casino and includes an increase in
hurricane evacuation expenses of $199,000 as a result of preparedness actions
necessary during Hurricane Danny in July 1997. The remaining increase consists
principally of costs necessary to remove dredging spoils as a result of
maintenance dredging performed under and around the ship.
The decrease in general and administrative costs and expenses of $200,000
consists principally of a decrease from the Sands Regency of approximately
$282,000 and an increase from the Copa Casino of approximately $86,000. The
decrease at the Sands Regency is primarily due to a decrease in advertising and
promotional costs and expenses. The increase from the Copa Casino is
attributable to an increase in legal and professional costs of $717,000 which
was partially offset by a decrease in advertising and promotional costs of
approximately $595,000. The increase in legal and professional costs is related
to the legal actions with the State Port of Mississippi at Gulfport. The
decrease in 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.
-11-
<PAGE> 14
Results of operations - First six months of fiscal 1998 compared to 1997
(continued)
The decrease in interest and other income of approximately $411,000 is
primarily due to the non-recurrence of a gain on the sale of a non-casino
property in Reno in the six months ended December 31, 1996. The increase in
interest and other expense of $134,000 is due to an increase in the interest
rate, to prime plus three percent, on the Sands Regency's long-term debt
obligation due its banks. Such represents a default rate in accordance with the
Company's loan agreement.
Capital resources and liquidity
In January 1998, the Company entered into a nonbinding Letter Agreement
with the Company's banks regarding the Company's noncompliance with certain
financial convenants and restructuring the bank debt relative to the Reno
operating facilities. Such Letter Agreement is subject to a definitive agreement
and is revocable until a definitive agreement is executed. In the event that a
definitive agreement is not entered into and the banks accelerate the principal
balance, aggregating $11 million, the Company would not be in the financial
position to repay the debt in full or on an accelerated basis.
In Mississippi, Patrician, Inc., the managing partner and owner of a 98.7%
interest in Gulfside Casino Partnership, filed for bankruptcy protection under
Chapter 11 of the United States Bankruptcy Code in November 1997. Joining
Gulfside Casino, Inc., Patrician's Chapter 11 filing occured as a result of the
U. S. Bankruptcy Court ruling in October 1997 that Gulfside Casino, Inc.'s
ownership interest in Gulfside Casino Partnership is .006% which allows the two
former GCI shareholders to pursue further legal actions against Patrician in the
Chancery Court. Although the previous rulings of the Chancery Court have been
appealed to the Mississippi Supreme Court, these two former GCI shareholders had
requested, prior to the Chapter 11 filing, that the Chancery Court take certain
actions including the appoinment of a receiver.
In addition to the above, a judgement was issued by the Chancery Court in
Harrison County, Mississippi on January 9, 1998 in the lawsuit between Gulfside
Casino Partnership and the Mississippi State Port Authority at Gulfport and
Mississippi Department of Economic and Community Development. Such judgement
declared that the Port's attempt to cancel the Copa's lease was improper and was
not justified. The judgement further declared that the port has no obligation to
approve a hotel or the substitution of a gaming vessel at the Copa's lease site
which generally eliminates the Copa's damage claims against the Port.
On February 6, 1998, Gulfside Casino Partnership filed a Notice of Appeal
in Chancery Court of Harrison County, Mississippi. The appeal will request the
Mississippi Supreme Court to reinstate the Copa's damage claims against the Port
including those related to the Port's refusal to allow the construction of a
hotel and the substitution of a gaming vessel.
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<PAGE> 15
Capital resources and liquidity (continued)
The outcome of these actions continue to not be subject to reasonable
estimation. At December 31, 1997, the book value of the Company's net investment
in and advances to (including accrued interest) the Mississippi gaming operation
was approximately $1.4 million.
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 similiar 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.
-13-
<PAGE> 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
NONE
Item 2. Changes in Securities.
NONE
Item 3. Defaults Upon Senior Securities.
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders was held on November 3, 1997 for the
following purposes:
1. Proposal One - The election of the following members of the Board of
Directors:
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Jon N. Bengtson 3,312,167 930,897
David R. Wood 3,972,245 270,819
</TABLE>
The remaining continuing Directors are Katherene Latham, Pete Cladianos,
Jr., Joseph G. Fanelli, Weldon C. Upton and Pete Cladianos III.
2. Proposal Two - To approve an amendment to the Company's Amended and
Restated Stock Option Plan for Executive and Key Employees of The Sands Regent:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
2,583,311 327,241 18,255
</TABLE>
Item 5. Other information.
NONE
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10(a) Amendment to the Amended and Restated Stock Option Plan
for Executive and Key Employees of The Sands Regent, dated
November 4, 1997
10(b) Amendment to the Amended and Restated Stock Option Plan
for Executive and Key Employees of The Sands Regent, dated
December 12, 1997
10(c) (Employment) Agreement, dated December 12, 1997, by and
between Ferenc B. Szony (as President and Chief Executive
Officer) and The Sands Regent
27 Financial Data Schedule.
(b) Reports on Form 8-K:
NONE
-14-
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SANDS REGENT
(Registrant)
Date: February 12, 1998 By /S/David R. Wood
-----------------------------------------------
David R. Wood, Executive Vice President
Principal Accounting and Financial Officer
-15-
<PAGE> 18
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Page
- ------- ------------
10(a) Amendment to the Amended and Restated Stock Option
Plan for Executive and Key Employees of The Sands
Regent, dated November 4, 1997........................
10(b) Amendment to the Amended and Restated Stock Option
Plan for Executive and Key Employees of The Sands
Regent, dated December 12, 1997.......................
10(c) (Employment) Agreement, dated December 12, 1997, by
and between Ferenc B. Szony (as President and Chief
Executive Officer) and The Sands Regent...............
27 Financial Data Schedule...............................
<PAGE> 1
EXHIBIT 10(a)
AMENDMENT TO THE
AMENDED AND RESTATED STOCK OPTION
PLAN FOR EXECUTIVE AND KEY EMPLOYEES
OF
THE SANDS REGENT
This Amendment to the Amended and Restated Stock Option Plan for
Executive and Key Employees of The Sands Regent (the "Amendment") is adopted by
The Sands Regent, a Nevada corporation (the "Company"), effective as of November
3, 1997; subject to receipt of required shareholder approval.
RECITALS
--------
A. The Amended and Restated Stock Option Stock Plan for Executive and
Key Employees of The Sands Regent (the "Restated Plan") was adopted by the Board
of Directors of the Company (the "Board") on September 16, 1992 and approved by
the shareholders of the Company on November 2, 1992.
B. On February 26, 1993, the Company effected a 100% stock dividend
which, pursuant to the terms of the Restated Plan, resulted in an increase in
the number of shares of the Company's Common Stock reserved for issuance under
the Restated Plan from 250,000 shares to 500,000 shares.
C. On August 4, 1997, the Restated Plan was amended by the Board,
subject to shareholder approval, to (i) increase the number of shares of the
Company's common stock reserved for issuance under the Restated Plan from
500,000 shares to 800,000 shares, (ii) extend the expiration of the period
during which options to purchase Common Stock may be granted under the Restated
Plan from September 16, 2002 to August 4, 2007 and (iii) delete all reference to
"Special Committee" and instead provide that all Option
<PAGE> 2
grants to Officers be in compliance with Rule 16b-3 and related rules, as
amended from time to time, promulgated under the Securities Exchange Act of
1934, as amended.
AMENDMENTS
----------
The Restated Plan is hereby amended as follows:
1. Section 1.13 of the Restated Plan is hereby amended to read in its
entirety as follows:
Section 1.13 - Plan
The "Plan" shall mean this Amended and Restated Stock Option
Plan for Executive and Key Employees of The Sands Regent, as amended
from time to time.
2. Section 1.16 of the Restated Plan entitled "Special Committee" is
hereby deleted in its entirety.
3. Section 2.1 of the Restated Plan is hereby amended to read in its
entirety as follows:
Section 2.1 - Shares Subject to Plan
The shares of stock subject to Options shall be shares of the
Company's common stock, par value $.05 per share (the "Common Stock").
The aggregate number of shares of Common Stock which have been or may
be issued upon exercise of Options shall not exceed 800,000.
4. Section 3.3(c) of the Restated Plan is hereby amended to read in its
entirety as follows:
Notwithstanding the foregoing, Options may not be granted to
executive or Key Employees who are then Officers unless such grants
comply with the
2
<PAGE> 3
applicable requirements of Rule 16b-3 and related applicable rules, as
amended from time to time, promulgated under Section 16 of the
Securities Exchange Act of 1934, as amended from time to time.
5. The first sentence of Section 6.1 of the Restated Plan is hereby
amended to read in its entirety as follows:
The Stock Option Committee (or another committee or a
subcommittee of the Board assuming the functions of the Committee under
this Plan) shall consist solely of two (2) or more Directors, appointed
by and holding office at the pleasure of the Board.
6. Section 6.4 of the Restated Plan entitled "Special Committee" is
hereby deleted in its entirety.
7. The last sentence of Section 7.2 of the Restated Plan is hereby
amended to read in its entirety as follows:
No Option may be granted during any period of suspension nor
after termination of the Plan, and in no event may any Option be
granted under this Plan after August 4, 2007.
3
<PAGE> 4
I hereby certify that the foregoing Amendment to the Amended and
Restated Stock Option Plan for Executive and Key Employees of The Sands Regent
was duly adopted by the Board of Directors of the Company as of August 4, 1997.
Executed this 4th day of November 1997.
/s/ PETE CLADIANOS III
--------------------------------------
Pete Cladianos III
Executive Vice President and Secretary
Corporate Seal
I hereby certify that the foregoing Amendment to the Amended and
Restated Stock Option Plan for Executive and Key Employees of The Sands Regent
was duly adopted by the Board of Directors of the Company on November 3, 1997.
Executed this 4th day of November 1997.
/s/ PETE CLADIANOS III
--------------------------------------
Pete Cladianos III
Executive Vice President and Secretary
4
<PAGE> 1
EXHIBIT 10(b)
AMENDMENT TO THE
AMENDED AND RESTATED STOCK OPTION
PLAN FOR EXECUTIVE AND KEY EMPLOYEES
OF
THE SANDS REGENT
This Amendment to the Amended and Restated Stock Option Plan for
Executive and Key Employees of The Sands Regent (the "Amendment") is adopted by
The Sands Regent, a Nevada corporation (the "Company"), effective as of December
12, 1997.
RECITALS
--------
A. The Amended and Restated Stock Option Stock Plan for Executive and
Key Employees of The Sands Regent (the "Restated Plan") was adopted by the Board
of Directors of the Company (the "Board") on September 16, 1992 and approved by
the shareholders of the Company on November 2, 1992.
B. On December 12, 1997, the Restated Plan was amended by the Board, to
provide that the Stock Option Committee's right to condition a grant of an
Option to an executive or Employee on the surrender by such executive or
Employee some or all of the unexercised Options previously granted by the
Committee shall apply to both unexercised Incentive Stock Options and
Non-Qualified Options.
AMENDMENT
---------
The Restated Plan is hereby amended as follows:
1. Section 3.3(b) of the Restated Plan is hereby amended to read in its
entirety as follows:
<PAGE> 2
Section 3.3(b)
--------------
Upon the selection of an executive or key Employee to be
granted an Option, the Committee shall instruct the Secretary to issue
such Option and may impose such conditions on the grant of such Option
as it deems appropriate. Without limiting the generality of the
preceding sentence, the Committee may, in its discretion and on such
terms as it deems appropriate, require as a condition on the grant of
an Option to an Employee that the Employee surrender for cancellation
some or all of the unexercised Options which have been previously
granted to him. A Option the grant of which is conditioned upon such
surrender may have an option price lower (or higher) than the option
price of the surrendered Option, may cover the same (or lesser or
greater) number of shares as the surrendered Option, may contain such
other terms as the Committee deems appropriate and shall be exercisable
in accordance with its terms, without regard to the number of shares,
price, option period or any other term or condition of the surrendered
Option.
2
<PAGE> 3
I hereby certify that the foregoing Amendment to the Amended and
Restated Stock Option Plan for Executive and Key Employees of The Sands Regent
was duly adopted by the Board of Directors of the Company as of December 12,
1997.
Executed this 12th day of December 1997.
/s/ PETE CLADIANOS III
--------------------------------------
Pete Cladianos III
Executive Vice President and Secretary
Corporate Seal
3
<PAGE> 1
EXHIBIT 10(c)
AGREEMENT
This Agreement is entered into as of December 12, 1997 by and
between FERENC B. SZONY (hereinafter referred to as the "Executive") and THE
SANDS REGENT, a Nevada corporation (the "Company").
RECITAL
The Company desires to retain the experience, expertise and
services of Executive as Chief Executive Officer of the Company and Executive
desires to provide such services on the terms and conditions set forth
hereinafter.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recital and the
mutual covenants herein contained, the Company and the Executive agree as
follows:
ARTICLE I.
EMPLOYMENT
SECTION 1.1. EMPLOYMENT AND POSITION
The Company shall employ Executive as its President and Chief
Executive Officer and in such other capacity or capacities as the board of
directors of the Company may from time to time prescribe. During his employment
hereunder, Executive shall devote his full energies, experience, skills,
abilities, knowledge and productive time to the performance of this Agreement
and shall not, without the prior written consent of the board of directors of
the Company, render to others services of any kind for compensation or services
without compensation which would materially interfere with the performance of
his duties under this Agreement.
SECTION 1.2. RESPONSIBILITIES, DUTIES AND AUTHORITY
The responsibilities, duties and authority of Executive shall be as
designated from time to time by the board of directors of the Company. Those
responsibilities and duties will include, but shall not be limited to, the
formulation and implementation of short and long range plans, policies and
programs necessary and appropriate for the successful operation of the Company,
within a broad policy framework to be established by the board of directors of
the Company.
SECTION 1.3. TERM OF EMPLOYMENT
The term of this Agreement shall be for the period commencing on
December 12, 1997 and ending on December 11, 1999, unless earlier terminated as
provided herein.
<PAGE> 2
ARTICLE II.
TERMINATION OF EMPLOYMENT
SECTION 2.1. TERMINATION OF AGREEMENT BY THE COMPANY
(a) The Company may terminate this Agreement at any time without
advance notice in the event Executive commits any act of gross misconduct or
willfully neglects to fulfill his duties under this Agreement. If this Agreement
is terminated pursuant to this Section 2.1(a), Executive shall be entitled to
only his salary plus accrued vacation pay through the date of such termination,
and the Company shall have no further obligations to Executive.
(b) The Company may terminate this Agreement at any time; provided,
however, that if Executive's employment is terminated by the Company other than
pursuant to Section 2.1(a) or Article IV, Executive shall be entitled to payment
by the Company of (i) $100,000 in cash, (ii) a pro rata portion of the annual
bonus provided for in Section 3.2, and (iii) COBRA insurance benefits until the
earlier of (x) 18 months from the date of such termination or (y) such time as
Executive obtains health insurance benefits from another employer, and the
Company shall have no further obligations to Executive.
SECTION 2.2. TERMINATION OF AGREEMENT BY DISABILITY OR DEATH OF EXECUTIVE
If at any time the board of directors of the Company determines in
its sole but reasonable judgment that throughout the two prior months then
ending, or if on 50% or more of the normal working days throughout the four
prior months then ending, Executive has been unable to fully perform his duties
as President and Chief Executive Officer due to mental or physical illness or
injury, this Agreement shall be terminated. If Executive dies, this Agreement
shall be terminated on the last day of the month of his death. If this Agreement
is terminated pursuant to this Section 2.2, Executive shall be entitled to only
his salary plus accrued vacation pay through the date of such termination, and
the Company shall have no further obligations to Executive.
SECTION 2.3. TERMINATION OF AGREEMENT BY EXECUTIVE
Executive may terminate this Agreement at any time upon six months
prior written notice to the board of directors of the Company. If this Agreement
is terminated pursuant to this Section 2.3, Executive shall be entitled to only
his salary plus accrued vacation pay through the date of such termination, and
the Company shall have no further obligations to Executive.
ARTICLE III.
COMPENSATION
SECTION 3.1. BASIC SALARY
Executive's basic salary shall be payable in equal monthly
installments. For the first year of Executive's employment under this Agreement,
that basic salary shall be $225,000
2
<PAGE> 3
per annum. For any year thereafter, any increase in Executive's basic salary
shall be determined in the sole discretion of the board of directors of the
Company.
SECTION 3.2. BONUS
Executive shall be eligible to be paid a bonus each year of the
term of this Agreement promptly after the financial statements for the calendar
year ending December 31, 1998 and 1999, as applicable, are prepared of (a)
$112,500 if income from operations, after deducting all bonuses including all
executive bonuses (including Executive's targeted bonus), of Zante, Inc. d.b.a.
The Sands Regency (the "Bonus Measure") for the calendar year then ended is at
least $0 but less than or equal to $500,000, (b) $140,625 if the Bonus Measure
for the calendar year then ended is greater than $500,000 and less than or equal
to $1,000,000 or (c) $168,750 if the Bonus Measure for the calendar year then
ended is greater than $1,000,000.
SECTION 3.3. OPTIONS
The Company hereby grants to Executive as of December 12, 1997 an
option to purchase 100,000 shares of Common Stock of the Company at an exercise
price per share equal to the closing sales price of the Common Stock of the
Company on December 12, 1997. Options to purchase 50,000 of such shares shall
vest on December 12, 1998 and the remaining options shall vest on December 12,
1999. If Executive's employment is terminated pursuant to Section 2.1(b), a pro
rata portion (based on 24 equal monthly vesting increments) of the options shall
vest.
SECTION 3.4. OTHER BENEFITS
During the term of this Agreement, Executive shall be entitled to
receive all other benefits of employment generally available to other executive
and managerial employees of the Company, when and as he becomes eligible
therefor, including, but not limited to, group health and life insurance
benefits and an annual vacation of four weeks, accruing one week per quarter.
SECTION 3.5. EXPENSES
During the term of this Agreement, the Company shall reimburse
Executive for reasonable and properly documented out-of-pocket expenses incurred
in connection with the business of the Company, subject to such policies as the
Company may from time to time reasonably establish.
SECTION 3.6. DEDUCTIONS AND WITHHOLDINGS
All amounts payable or which become payable under any provision of
this Agreement shall be subject to any deductions authorized by Executive, any
set-off or reimbursement of the Company deemed appropriate by it and all
deductions and withholdings authorized by law.
3
<PAGE> 4
ARTICLE IV.
PAYMENT UPON CHANGE IN CONTROL
SECTION 4.1. DEFINITIONS
The following terms used in this Article IV, shall have the meaning
specified below:
(a) "Board of Directors" shall mean the board of directors of the
Company.
(b) "Cause" shall mean termination of employment with the Company
because of (i) the Executive's willful failure or refusal to satisfactorily
perform the duties of his position after notice by the Company; (ii) the
commission by the Executive of a felony or the willful perpetration by the
Executive of a dishonest act against or breach of fiduciary duty toward the
Company; or (iii) any other act or omission by the Executive which is injurious
in any material respect to the Company.
(c) A "Change in Control" shall be deemed to have occurred if (i) any
person or group of persons (as defined in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act") together with its
affiliates, excluding employee benefit plans of the Company is or becomes,
directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3
promulgated under the 1934 Act) of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding securities;
or (ii) as a result of a proxy contest, merger, consolidation, sale of assets,
tender offer or exchange offer or as a result of any combination of the
foregoing, Directors who were members of the Board of Directors two years prior
to such time and new Directors whose election or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
Directors still in office who were Directors two years prior to such time, cease
to constitute at least two-thirds of the members of the Board of Directors; or
(iii) the shareholders of the Company approve a merger or consolidation of the
Company with any other corporation or entity regardless of which entity is the
survivor, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or being converted into voting
securities of the surviving entity) at least 80% of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or (iv) the shareholders of the
Company approve a plan of complete liquidation or winding-up of the Company or
an agreement for the sale or disposition by the Company of all or substantially
all of the Company's assets.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Company" shall mean The Sands Regent, a Nevada corporation, its
subsidiaries and affiliates, and any successor to its business, whether direct
or indirect, by purchase of securities, merger, consolidation, purchase of all
or substantially all of the Company's assets or otherwise.
4
<PAGE> 5
(f) "Date of Termination" shall mean in the case of termination of the
Executive's employment by the Company for Cause or termination by the Executive
for Good Reason or termination for any other reason, the date specified in the
Notice of Termination, which date shall not be less than thirty days after the
date such Notice of Termination is given.
(g) "Disability" shall mean absence from performance of assigned duties
for the Company on a full-time basis for 12 consecutive calendar months as a
result of incapacity due to medically documented physical or mental illness;
provided that the Executive shall not have returned to the full-time performance
of the Executive's duties within 30 calendar days of actual receipt of written
Notice of Termination for the reason of Disability. Such Notice of Termination
may not be given prior to the expiration of the 12-month period of Disability.
(h) "Executive" shall have the meaning provided in the first paragraph
of this Agreement.
(i) "Good reason" shall mean the occurrence of any of the following
events without the Executive's express written consent:
(i) the assignment to the Executive of duties inconsistent with
the position and status of an executive of the Company, or a substantial
alteration in the nature, status or prestige of the Executive's responsibilities
as Chief Executive Officer of the Company from those in effect immediately prior
to a Change of Control;
(ii) a reduction by the Company in the Executive's base salary or
bonus opportunity as in effect immediately prior to the occurrence of a Change
of Control;
(iii) the reassignment of the Executive to a location which
increases the Executive's commute by more than 50 miles on a daily round trip
basis;
(iv) the Executive's assignment to a location other than the
principal executive offices of the Company;
(v) the Company's failure to continue, or a substantial change in,
the Executive's participation in any compensation or benefit plans;
(vi) the Company's failure to obtain the agreement of any
successor to assume the Agreement;
(vii) any other items which in the Company's judgment should give
the Executive the right to terminate his employment and receive severance
benefits; or
(viii) any purported termination of the employment of the
Executive by the Company which is not effected according to the requirements of
a Notice of Termination as defined in subsection (j) herein.
(j) "Notice of Termination" shall mean a notice, in writing, to the
Executive from the Company or to the Company from the Executive, which indicates
the specific termination
5
<PAGE> 6
provision enumerated in this Agreement relied upon, and which sets forth in
reasonable detail the facts and circumstances alleged to provide a basis for
termination of the Executive's employment by the Company or by the Executive.
Such notice must be communicated to the Executive in accordance with Section 4.3
herein.
(k) "Retirement" shall mean termination of the Executive's employment
on or after the date on which the Executive attains sixty-five years of age or
termination in accordance with any retirement agreement entered into between the
Executive and the Company.
SECTION 4.2. BENEFITS AND COMPENSATION
(a) When Benefits Payable.
No benefits shall be payable under this Article IV and the
provisions of this Article IV shall be of no force or effect unless there shall
have been a Change in Control, and the Executive's employment with the Company
shall have been terminated within three years after the Change in Control. If
such a Change in Control has occurred and the Executive's employment with the
Company is terminated within three years after the Change in Control, unless
such termination is (i) because of the death or Disability of the Executive, or
(ii) by the Executive other than for Good Reason, the Executive shall be
entitled to the benefits enumerated in this Article IV, under the conditions
imposed herein.
(b) Benefits Upon Termination for Cause.
In the event that the Executive's employment with the Company is
terminated for Cause within three years following such Change in Control, the
Executive shall receive the Executive's full base compensation (plus accrued but
unpaid vacation benefits) as earned through the Date of Termination at the rate
in effect at the time Notice of termination is given. Following payment of said
amount, the Company shall have no further obligations to the Executive under
this Agreement.
(c) Benefits Upon Retirement.
In the event that the Executive's employment with the Company is
terminated by reason of the Executive's Retirement within three years following
such Change in Control, the Executive shall be entitled to the benefits under
the Company's regular retirement program, or, if a separate retirement agreement
has been entered into between the Executive and the Company, benefits shall be
provided according to the terms of that agreement.
(d) Benefits Upon Termination Other Than For Cause, Retirement or
Disability; or Termination For Good Reason.
In the event that the employment of the Executive shall be
terminated (i) by the Company for any reason other than for Cause, Disability or
Retirement within three years after the occurrence of such Change in Control or
(ii) by the Executive for Good Reason within three years after the occurrence of
such Change in Control, then
6
<PAGE> 7
(i) the Executive shall be entitled to receive: (x) the Executive's
full base compensation (plus accrued but unpaid vacation benefits) as earned
through the Date of Termination at the rate in effect at the time Notice of
Termination is given; (y) for a 36-month period after such termination (or such
lesser number of months up to the date of the Executive's Retirement or until
the date the Executive obtains a new job of similar status), life, disability,
accident and health insurance coverage substantially the same as that which the
Executive received immediately prior to the Change of Control but increased to
the extent that such benefits were increased following the Change of Control;
and (z) a lump sum payment (the "Severance Payment") from the Company to the
Executive of a dollar amount equal to 300% of (a) the greater of (1) the annual
base compensation for the Executive for the twelve-month period immediately
preceding the Change of Control or (2) the annual base compensation of the
Executive in effect at the time the Notice of Termination is given and (b) any
bonus paid during the twelve-month period immediately preceding the time the
Notice of Termination is given.
(ii) all options to purchase securities of the Company then held by
the Executive shall be immediately exercisable, without regard to whether such
options are exercisable at such time pursuant to the terms of the documents
under which such options were granted; provided that if such Change of Control
is to be accomplished through a tender offer or an exchange offer, such options
shall be exercisable at a time that shall permit the Executive to tender the
shares received upon the exercise of the options in such tender or exchange
offer; and
(iii) any securities of the Company then held by the Executive that
are subject to any restriction on transfer, other than restrictions imposed only
by federal or state securities laws, shall lapse and be of no further force and
effect with the result that the Executive shall be permitted to sell, transfer
or otherwise dispose of such securities without regard to any such restrictions.
(e) Tax Deductibility of Benefit Payments.
In the event that any payment or benefit received or to be received
by the Executive in connection with the termination of the Executive's
employment pursuant to the terms of this Article IV would not be deductible (in
whole or in part) by the Company as a result of the operation of Section 280G of
the Code, the amount of the Severance Payment shall be reduced (but not below
zero) until no portion of the Severance Payment is not deductible as a result of
Section 280G of the Code.
(f) Legal Fees and Expenses.
If, following termination of the employment of the Executive within
three years after a Change of Control, the Executive shall incur any legal fees
or expenses as a result of the termination of the Executive's employment
(including any such fees or expenses incurred in contesting or disputing any
such termination or in seeking to obtain or enforce any right or benefit
provided by this Article IV), the Company shall pay or reimburse the Executive
for all such fees or expenses; provided, however, that if the Executive is
terminated for "Cause," the losing party shall pay the attorneys fees and costs
of the prevailing party.
7
<PAGE> 8
(g) No Mitigation.
Except as provided in subsection (d)(i)(y) of this Article IV,
the Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Article IV be
reduced or offset by any compensation earned by the Executive as a result of
employment by another employer or by retirement benefits after the Date of
Termination or otherwise.
ARTICLE V.
MISCELLANEOUS
SECTION 5.1. SUCCESSORS; BINDING AGREEMENT
The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
The failure of the Company to obtain such assumption agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation form the Company in the same amount
and on the same terms as the Executive would be entitled to hereunder if the
Executive had terminated the Executive's employment for Good Reason, except that
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
SECTION 5.2. SUCCESSORS AND ASSIGNS
This Agreement shall inure to the benefit of, and be enforceable
by, the personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees of the Executive. If the
Executive should die within three years after a Change in Control and during the
term of this Agreement and while any amount would still be payable to the
Executive hereunder if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee or other designee or if there
is no such designee, to the Executive's estate.
SECTION 5.3. NOTICE
Notices and all communications provided for in this Agreement
shall be in writing and shall be deemed to have been received when delivered or
mailed by United States registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth at the end of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the Board of Directors with a copy to the Secretary of the Company,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
8
<PAGE> 9
SECTION 5.4. NO WAIVER
No provision of this Agreement may be modified, waived or
discharged unless in writing and signed by the Executive and such officer of the
Company as may be specifically designated or authorized by the Board of
Directors or by a Committee of the Board of Directors. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
SECTION 5.5. ENTIRE AGREEMENT
No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement and this Agreement
constitutes the entire agreement of the parties.
SECTION 5.6. CONTROLLING LAW
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Nevada.
SECTION 5.7. INVALID PROVISION
The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
SECTION 5.8. COUNTERPARTS
This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original, and all such counterparts together
shall constitute but one and the same instrument.
SECTION 5.9. THE EXECUTIVE'S EMPLOYMENT BY THE COMPANY
Nothing contained in this Agreement (i) obligates the Company or
any subsidiary of the Company to employ the Executive in any capacity
whatsoever, or (ii) prohibits or restricts the Company (or any such subsidiary)
from terminating the employment, if any, of the Executive at any time or for any
reason whatsoever, with or without cause.
SECTION 5.10. ARBITRATION
Except as provided in Section 5.11 hereof, any controversy or claim
arising out of or relating to this Agreement, or breach thereof, shall be
settled by arbitration in accordance with the Rules of the American Arbitration
Association, and judgment upon any proper award rendered by the Arbitrators may
be entered in any court having jurisdiction thereof. There shall be three
arbitrators, one to be chosen directly by each party at will, and the third
arbitrator to be
9
<PAGE> 10
selected by the two arbitrators so chosen. To the extent permitted by the Rules
of the American Arbitration Association and not limited by Section 5.11 hereof,
the selected arbitrators may grant equitable relief. Each party shall pay the
fees of the arbitrator selected by him and of his own attorneys, and the
expenses of his witnesses and all other expenses connected with the presentation
of his case. The costs of the arbitration including the cost of the record or
transcripts thereof, if any, administrative fees, and all other fees and costs
shall be borne equally by the parties.
SECTION 5.11. SPECIFIC PERFORMANCE
Executive is obligated under this Agreement to render services of a
special, unique, unusual, extraordinary and intellectual character, thereby
giving this Agreement peculiar value. Any loss resulting from a breach of
Executive's obligations to render services could not be reasonably or adequately
compensated in damages in an action of law. Therefore, in addition to other
remedies provided by law or this Agreement, the Company shall have the right to
obtain injunctive relief, in the appropriate court, against the performance
elsewhere by Executive of services in direct or indirect competition with the
Company.
SECTION 5.12. WAIVERS
The waiver in any particular instance or services of instances of
any term or condition of this Agreement or any breach hereof by either party
shall not constitute a waiver of such term or condition or of any breach thereof
in any other instance.
SECTION 5.13. AMENDMENT
This Agreement is subject to amendment only by subsequent written
agreement between, and executed by, the parties hereto. Commencement or
continuation of any custom, practice or usage by the Company shall not
constitute an amendment hereof or otherwise give rise to enforceable rights or
create obligations of the Company.
SECTION 5.14. DURATION OF RIGHTS
Rights and obligations created by or arising under this Agreement
shall terminate automatically upon termination of this Agreement except as
otherwise expressly provided herein.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement at
Reno, Nevada, effective as of the 12th day of December 1997.
"COMPANY"
THE SANDS REGENT, A NEVADA CORPORATION
By: [SIG]
------------------------------------
President
By: [SIG]
------------------------------------
Secretary
Address:
345 North Arlington Avenue
Reno, Nevada 89501
"EXECUTIVE"
/s/ FERENC B. SZONY
---------------------------------------
FERENC B. SZONY
Address:
1772 Belford Road
Reno, Nevada 89509
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