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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
- ----- Act of 1934 for the fiscal year ended September 30, 1995 or
_____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 1-9481
SAHARA GAMING CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its Charter)
Nevada 88-0304348
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4949 N. RANCHO DR., LAS VEGAS, NEVADA 89130
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(Address of principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (702) 658-4300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
- -------------------- -----------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE AMERICAN STOCK EXCHANGE
EXCHANGEABLE REDEEMABLE PREFERRED STOCK AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
----
(Title of Class)
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
filing requirements for the past 90 days. YES X No _____
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. _______
The number of shares of common stock outstanding as of December 27, 1995,
was 6,195,356. The market value of the common stock held by nonaffiliates of the
Registrant as of December 27, 1995, was approximately $6,359,677. The market
value was computed by reference to the closing sales price of $2.1875 per share
of common stock on the American Stock Exchange as of December 27, 1995.
DOCUMENTS INCORPORATED BY REFERENCE:
PART III HEREOF INCORPORATES BY REFERENCE PORTIONS OF THE PROXY STATEMENT FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 20, 1996 (TO BE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS AFTER SEPTEMBER 30,
1995).
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SAHARA GAMING CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 1995
TABLE OF CONTENTS
PART I
Page
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Item 1. Business........................................ 3
General..................................... 3
Hotel and Casino Operations................. 3
Development Opportunities................... 7
Nevada Regulations and Licensing............ 9
Item 2. Properties...................................... 13
Item 3. Legal Proceedings............................... 15
Item 4. Submission of Matters to a Vote of
Security Holders............................... 17
PART II
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters............ 17
Item 6. Selected Financial Data......................... 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 19
Item 8. Financial Statements and Supplementary Data..... 32
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... 57
PART III
Item 10. Directors and Executive Officers of
the Registrant................................. 57
Item 11. Executive Compensation.......................... 57
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................... 57
Item 13. Certain Relationships and Related Transactions.. 58
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................ 58
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PART I
Item 1. Business
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GENERAL
Sahara Gaming Corporation (the "Company"), a Nevada corporation, is the
successor to a combination, effective September 30, 1993 (the "Reorganization")
of two affiliates, Sahara Resorts, a Nevada corporation, and Sahara Casino
Partners, L.P., a Delaware limited partnership (the "Partnership"). Mr. Paul W.
Lowden, Chairman of the Board and Chief Executive Officer of the Company, owns
approximately 52% of the Company's common stock (the "Common Stock").
The Company's primary business operations are currently conducted through
two wholly owned subsidiary corporations, Santa Fe Hotel Inc. ("Santa Fe Inc."),
and Pioneer Hotel Inc. ("Pioneer Inc."), each a Nevada corporation. The
subsidiaries in turn own the Santa Fe Hotel and Casino (the "Santa Fe"), located
in Las Vegas, Nevada, and the Pioneer Hotel & Gambling Hall (the "Pioneer")
located in Laughlin, Nevada.
On August 31, 1995, the Company completed the sale of the Hacienda Resort
Hotel and Casino (the "Hacienda"), previously owned and operated by the
Company's wholly-owned subsidiary Hacienda Hotel Inc. ("Hacienda Inc."), for
consideration of $80 million in cash. On October 2, 1995, the Company completed
the sale of the Sahara Hotel and Casino (the "Sahara"), previously owned and
operated by the Company's wholly owned subsidiary Sahara Nevada Corp. ("Sahara
Nevada"), for $128 million in cash and a 27 acre parcel of real property located
on the Las Vegas Strip valued for purposes of the transaction at approximately
$22 million. In addition, the Company holds other real estate parcels for
possible development within or in the area surrounding Las Vegas, Nevada.
The principal executive office of the Company is located at 4949 N. Rancho
Dr., Las Vegas, Nevada 89130 and the telephone number is (702) 658-4300.
HOTEL AND CASINO OPERATIONS
The Company's primary business operations are in the gaming industry and are
conducted at the Santa Fe property in Las Vegas, Nevada and the Pioneer property
in Laughlin, Nevada.
Description of the Hotel-Casinos
The Santa Fe is located on a 40-acre site (including 4 acres acquired in May
1994) in the northwest part of Las Vegas, approximately nine miles from the
north end of the Las Vegas Strip. The target clientele are residents of
northwest Las Vegas and, to a lesser extent, residents of the entire Las Vegas
Valley. The Company also owns a 22-acre tract of property located adjacent to
the Santa Fe, which may be used for future development opportunities.
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The Santa Fe features 200 standard hotel rooms, a 65,000 square foot casino,
an ice skating arena, 60-lane bowling center, three themed restaurants, a
dedicated bingo room, a race book and other public areas. Additionally, the
Santa Fe includes a coffee shop, buffet, five full service bars and a lounge
area that features live entertainment.
The Pioneer is located on approximately 12 acres of land, with Colorado
River frontage of approximately 770 feet, and is situated near the center of
Laughlin's Casino Drive. Approximately 6-1/2 acres of the 12 acres are subject
to a 99-year ground lease which, by its terms, is scheduled to terminate in
December 2078. One of the three motel buildings together with a portion of both
the Pioneer's casino building and a second motel building, are located on land
subject to the ground lease. The leased land lies between and separates the two
parcels of land that are held in fee.
The Pioneer hotel-casino complex was built in 1982 in a classical western
architectural style. The Pioneer is comprised of four buildings. The casino is
located in the main building, totaling approximately 50,000 square feet of which
approximately 21,500 square feet house the casino. An aggregate of 417 motel
rooms are housed in the three remaining buildings. The complex amenities
include a special events area, coffee shop/buffet, bar, snack bar, and gift
shop. A partial second floor in the main building houses a gourmet restaurant,
administrative offices and banquet rooms.
Revenues
The primary source of revenues to the Company's hotel-casinos is gaming,
which represented 61.2% in 1995, 61.2% in 1994, and 61.9% in 1993 of total
revenues in the respective fiscal years. The following table sets forth
information regarding the approximate number of licensed games and gaming
devices of the Santa Fe and the Pioneer as of September 30, 1995:
<TABLE>
<CAPTION>
Santa Fe Pioneer Total
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<S> <C> <C> <C>
Slot Machines 1874 976 2850
Blackjack ("21") 16 10 26
Craps 2 2 4
Roulette 2 2 4
Poker and Pan 6 0 6
Race/Sports Book 1 0 1
Keno 1 0 1
Bingo 1 0 1
Other 6 2 8
</TABLE>
The Santa Fe's market is primarily the residents of northwest Las Vegas,
visitors to the local area, local businesses, and hockey and bowling leagues.
The Santa Fe emphasizes its convenient location, the southwestern theme and
its broad range of amenities, including a 60 lane bowling center and an ice
skating arena. The Santa Fe has
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increased occupied room nights in each fiscal year since opening in February
1991 until fiscal 1994, when it reached near capacity. The occupancy rate for
the last three fiscal years was 91.6% in fiscal 1993, 96.9% in fiscal 1994 and
96.0% in fiscal 1995. At the present time, the Santa Fe is at or near capacity,
and no substantial increase in occupied room nights is expected.
The Santa Fe is implementing an automated player tracking system which it
expects to be operational in fiscal 1996. The "Desert Fortune Player Club" is
being established to encourage repeat business from frequent and active slot and
bingo customers. The players club will offer members points for slot machine and
bingo play. The points can then be redeemed for cash as well as food, beverage,
and rooms at the Santa Fe. Prior to implementing the players club the Santa Fe
utilized a manual system to identify and reward frequent slot players. The new
system will allow the Santa Fe to more precisely track play and more efficiently
reward frequent players. It will also enhance management's ability to market
directly to different segments of the Santa Fe customer base.
The Pioneer has two predominant market segments. A majority of Pioneer
players come from the local area around Laughlin. The Pioneer also attracts a
drive in market of gamblers from Southern California and Arizona. The Pioneer's
focus is on a direct marketing strategy emphasizing the property's unique
atmosphere and attractive prices. The Pioneer has experienced a decrease in
occupied room nights in each of the last three fiscal years with an occupancy
rate of 91.4%, 88.8% and 86.3%, respectively, in fiscal years 1993, 1994 and
1995. Management believes that the decrease is the result primarily of increased
availability in room nights and the continued intense competition in the
Laughlin market.
The Pioneer has an automated slot player tracking system. The "Round-Up
Club" at the Pioneer was established to encourage repeat business from frequent
and active slot customers. The Round-Up Club offers members points for slot
machine play that can be redeemed for cash, as well as gifts, rooms, and food
and beverages at the Pioneer.
Hacienda Inc. continues to provide members, based on availability, space in
the recreational vehicle facility known as "Camperland" located on approximately
14 acres of the Hacienda property. Pursuant to the terms of the agreement under
which the Hacienda was sold, the Company is required to relocate the Camperland
recreational vehicle facility before February 1997. Prior to that time, the
Company is leasing the 14 acre parcel pursuant to an operating lease agreement
with the purchaser of the Hacienda. In October 1995, the Company entered into an
agreement to transfer its rights and obligations under contracts with members of
Camperland to the developer of a recreational vehicle park currently under
construction. Pursuant to the agreement, the Company will pay $4 million to the
developer and the developer will assume all obligations relating to Camperland
contracts. The Company will remain contingently liable for such obligations. The
agreement is subject to, among other things, a due diligence review by the
developer. If that agreement is not consummated, the Company will be obligated
to transfer the Camperland operations to another location on or before February
1997 and continue to service existing contracts. The Company has acquired a 40
acre parcel of property for such purposes.
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Management and Personnel
At September 30, 1995, the Company employed 32 administrative personnel, and
the Santa Fe and the Pioneer employed 1,153, and 821 persons, respectively.
Pursuant to representation petitions filed with the National Labor
Relations Board ("NLRB") by the Teamsters, Operating Engineers, Culinary and
Bartenders unions, an election was held at the Santa Fe on September 30 and
October 1, 1993. The unions received 300 of the votes cast, 241 employees voted
against representations by the unions, and 31 ballots were challenged. On
October 8 and October 29, 1993, the Santa Fe filed objections and an unfair
labor practice charge alleging misconduct and unlawful interference by Culinary,
Local 226 with employees' federally protected rights in respect to the question
of union representations. A hearing was conducted before an administrative law
judge of the NLRB early in 1994. In July 1995, the administrative law judge
ruled in favor of the unions and recommended the unions be certified by the NLRB
as the bargaining agent for a unit of Santa Fe employees. On August 28, 1995,
the NLRB adopted the recommendation of the administrative law judge and
certified the unions. The Santa Fe believes the certification was issued in
error and has refused to bargain with the unions. In response, the unions filed
an unfair labor practice charge alleging refusal to bargain, and on November 30,
1995, the NLRB issued a bargaining order. The Santa Fe has appealed the
bargaining order to the U.S. Court of Appeals for the District of Columbia. That
appeal is pending. While the appeal is pending, the unions have no legally
enforceable right to represent the Santa Fe employees and the Santa Fe has no
legally enforceable obligation to recognize or bargain with the unions.
From August 1994 to October 1995, complaints alleging unlawful interference
by the Company with employee and union rights under the Nations Labor Relations
Act were filed with the NLRB by several unions relating to the Sahara,
Hacienda, Santa Fe and Pioneer Hotels, including allegations of unilateral
changes in terms and conditions of employment at the Santa Fe. Hearings before
administrative law judges of the NLRB are scheduled for January 29 and February
13, 1996, with respect to these complaints.
Management believes the allegations are without merit and intends to defend
the allegations vigorously. However, it were ultimately determined the Company
improperly made changes in employment terms and conditions at the Santa Fe, the
Company would be required to pay compensation due as a result of the changes.
Both the Santa Fe and the Pioneer are targets of a union boycott in which
the unions ask that the public not patronize the hotel-casino. Management is
unable to determine the impact, if any, of the union boycott.
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If the Company loses its appeal to the U.S. Court of Appeals or if the
unions are successful in organizing at the Pioneer, operating expenses may
increase. Furthermore, should the unions attempt to call a strike at any
facility, operating revenues would be reduced, which in turn could have a
material adverse effect on the Company and on its financial condition and
results of operations.
Competition
In Las Vegas, Nevada, hotels and gambling casinos compete primarily in three
areas: on or near the Las Vegas Strip; within downtown Las Vegas, and in the
locals market. The Strip and downtown properties have a predominant target
market of out of town visitors, while local properties generally target
residents of the Las Vegas Valley. The Santa Fe targets and competes for the
residents of northwest Las Vegas, a growing residential community, and, to a
lesser extent, the residents of the entire Las Vegas Valley, emphasizing its
convenient location, the southwestern theme and its broad range of amenities.
There has been significant growth in the number of facilities in Las Vegas
catering to the local population, including new facilities and upgraded or
enlarged facilities surrounding the Las Vegas Valley resulting in increased
competition among the locals facilities. In December 1994, and in July 1995, two
new facilities which compete with the Santa Fe opened within five miles of the
Santa Fe in North Las Vegas.
In Laughlin, Nevada, located approximately 90 miles south of Las Vegas, the
gaming market win from October 1994 through September 1995 has decreased
approximately 3.0% compared with the same period in the prior year, according to
the Nevada Gaming Control Board. A number of Las Vegas-based entities have
properties in the Laughlin gaming market, making hotel-casino competition in the
area intense. In fiscal 1995, the Pioneer experienced a 6.6% decrease in
revenues. Management believes that the decrease is attributable primarily to
increased competition both within the Laughlin market and, from the development
of legalized casinos on reservations in Arizona and Southern California.
Management plans to utilize the Pioneer's extensive player data base to attract
visitors by emphasizing the Pioneer's unique atmosphere, attractive prices and
good location, in an effort to maintain and expand its existing customer base.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations for further discussion of competition.
DEVELOPMENT OPPORTUNITIES
Henderson, Nevada
The Company owns a 39 acre parcel of real property in Henderson, Nevada,
located in the
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southeast Las Vegas Valley. The Company is evaluating the development of a
casino entertainment complex on this property. As of September 30, 1995, the
Company had incurred approximately $19.7 million in development of the project,
representing the land acquisition costs and preliminary engineering and
development costs. The Company has no agreements, arrangements or
understandings with respect to financing the development of the Henderson
property, although it is exploring possible financing arrangements. Any future
development would be subject to, among other things , the Company's ability to
obtain necessary financing. No assurance can be given that the Company will
obtain development financing or develop successfully the Henderson property.
Las Vegas, Nevada
In connection with the sale of the Sahara, the Company acquired an
approximately 27-acre parcel of real property on the Las Vegas Strip. The
Company expects to hold this property for possible future development. The
property is subject to a ground lease, which may be terminated by the Company at
any time after December 1996. The Company has guaranteed payments by the tenant
of a loan to the prior owner of the property ("tenant loan") and has agreed to
pay the loan in full in certain situations, including in the event the lease is
terminated for any reason prior to its scheduled termination date of 2004. The
tenant loan, which is amortized through monthly principal and interest payments
through December 2004, had an outstanding balance of $6.2 million as of
September 30, 1995. Under the terms of the lease, as amended, the water-theme
park remits a base rent of approximately $16,000 monthly plus an annual rent
payment based on gross receipts.
The Company also owns a 40 acre parcel of the real property located
approximately eight miles south of the Las Vegas Strip on Las Vegas Boulevard,
which was acquired for $2.4 million in September 1995. If the Company does not
transfer the Camperland operations as described under "Business-Description of
Hotel Casino-Revenues," the Company expects to make improvements to this
property and relocate the Camperland operations to this site.
Parkville, Missouri
Sahara Parkville, Inc., ("Parkville Inc.") a Missouri corporation and a
wholly owned subsidiary of Santa Fe Inc., was formed in 1993 in connection with
the potential development and operation of a dockside casino in the City of
Parkville, Missouri. As a result of legislative and other setbacks, the Company
ceased the active pursuit of developing the casino and recorded a $14.9 million
charge against income in the quarter ended June 30, 1995 in connection with its
development of the proposed project. In October 1995, the Company sold for $3.3
million in cash the barge vessel acquired in connection with the proposed
project.
Parkville Inc. remains a party to a lease agreement with the City of
Parkville for the site of the proposed development, which is located
approximately ten miles from Kansas City, Kansas and Kansas City, Missouri.
Pursuant to the terms of the lease agreement, the Company may terminate the
lease upon 90 days written notice.
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Biloxi, Mississippi - Treasure Bay
In April 1994, Santa Fe Inc. purchased from Treasure Bay Gaming & Resorts
Inc. ("Treasure Bay") for $10.0 million approximately 20% of Treasure Bay's
common stock and 33-1/3% of Treasure Bay's preferred stock. The Company also
unconditionally guaranteed the payment of $4.5 million of the indebtedness of
Treasure Bay incurred to finance working capital in connection with the opening
of Treasure Bay's casinos in Biloxi, Mississippi in April 1994 and in Tunica,
Mississippi in May 1994, which indebtedness the Company acquired in December
1994. In connection with its stock purchase, Santa Fe Inc. entered into an
agreement with Treasure Bay to manage both properties. However, in December
1994, Treasure Bay notified the Company that Treasure Bay was assuming
management control of Treasure Bay's properties and alleged that the Company was
in default under the management agreement and had mismanaged the Treasure Bay
properties.
On January 10, 1995, Treasure Bay and its operating subsidiary, Treasure Bay
Corp., filed for Chapter 11 relief in the United States Bankruptcy Court for the
Southern District of Mississippi. Pending resolution of the Treasure Bay
bankruptcy proceedings, Santa Fe Inc. does not expect to receive payments under
the management agreement or with respect to the acquired indebtedness and no
assurance can be given that any amounts will ultimately be repaid.
The operations of Treasure Bay currently consist solely of a riverboat
casino in Biloxi, Mississippi. Since August 1995, Treasure Bay's management, the
Company and an ad hoc committee of Treasure Bay bondholders have each filed
plans of reorganization with the bankruptcy court. The Company believes that
confirmation hearings with respect to the plans will be held sometime in 1996.
The Company's plan of reorganization for Treasure Bay contemplates that, subject
to various conditions, the various classes of secured and unsecured creditors of
the debtor agree to accept modifications to, and reductions in outstanding
amounts of, Treasure Bay's outstanding obligations and the Company would make a
cash equity contribution to acquire 100% of the equity interests in Treasure
Bay. Any plan must be approved by the bankruptcy court, and no assurance can be
given that the Company's plan of reorganization will be approved, that the
various classes of creditors would agree to the plan or that the Company would
elect to proceed with the plan. Additionally, any plan of reorganization may be
amended, resulting in changes to the amount and terms of debt of the reorganized
debtor and equity ownership acquired.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Santa Fe -- Treasure Bay". See "Legal Proceedings" for
information regarding litigation between the Company and certain of its officers
and certain current and former officers of Treasure Bay.
NEVADA REGULATIONS AND LICENSING
The Company, Pioneer Inc., and Santa Fe Inc., (collectively, the "Sahara
Group") are subject to extensive state and local regulation by the Nevada Gaming
Commission, Nevada Gaming Control Board and in the case of Santa Fe Hotel, Inc.,
the Clark County Liquor and Gaming Licensing Board (collectively the "Nevada
Gaming Authorities").
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The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities seek (i) to prevent unsavory or unsuitable persons from having any
direct or indirect involvement with gaming at any time or in any capacity, (ii)
to establish and maintain responsible accounting practices and procedures, (iii)
to maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable record-keeping, and
making periodic reports to the Nevada Gaming Authorities, (iv) to prevent
cheating and fraudulent practices, and (v) to 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 any or all of the
members of the Sahara Group.
Licensing and Registration. Pioneer Inc. and Santa Fe Inc. hold Nevada
--------------------------
State gaming licenses to operate the Pioneer and the Santa Fe, respectively
(collectively the "Operating Companies"). The Company has been approved by the
Nevada Gaming Authorities to own, directly or indirectly, a beneficial interest
in the Operating Companies.
The licenses held by members of the Sahara Group are not transferable. Each
issuing agency may at any time revoke, suspend, condition, limit or restrict
licenses or approvals to own a beneficial interest in an Operating Company for
any cause deemed reasonable by such agency. Any failure to retain a valid
license or approval would have a material adverse effect on all members of the
Sahara Group.
If it is determined that the Operating Companies or, when applicable, new
members of the Sahara Group, have violated the Nevada laws or regulations
relating to gaming, the Operating Companies or, when applicable, new members of
the Sahara Group, could, under certain circumstances, be fined and the licenses
of the Operating Companies or, when applicable, new members of the Sahara Group,
could also be limited, conditioned, revoked or suspended. A violation under any
of the licenses held by the Company, or any of the Operating Companies or, when
applicable, new members of the Sahara Group, may be deemed a violation of all
the other licenses held by the Company and each of the Operating Companies or,
when applicable, new members of the Sahara Group. If the Nevada Gaming
Commission does petition for a supervisor to manage the affected casino and
hotel facilities, the suspended or former licensees shall not receive any
earnings of the gaming establishment until approved by the court, and after
deductions for the costs of the supervisor's operation and expenses and amounts
necessary to establish a reserve fund to facilitate continued operation in light
of any pending litigation, disputed claims, taxes, fees, and other contingencies
known to the supervisor which may require payment. The supervisor is authorized
to offer the gaming establishment for sale if requested by the suspended or
former licensee, or without such a request after six months after the date the
license was suspended, revoked, or not renewed.
Individual Licensing. Stockholders, directors, officers and certain key
--------------------
employees of corporate licensees must be licensed by the Nevada Gaming
Authorities. An application for licensing of an individual may be denied for
any cause deemed reasonable by the issuing agency. Changes in licensed
positions must be reported to Nevada Gaming Authorities. In addition to its
authority to deny an application for an individual license, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in corporate position. If
the Nevada Gaming Authorities were to find any such
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person unsuitable for licensing or unsuitable to continue having a relationship
with a corporate licensee, such licensee would have to suspend, dismiss and
sever all relationships with such person. Such corporate licensee would have
similar obligations with regard to any person who refuses to file appropriate
applications, who is denied licensing following the filing of an application or
whose license is revoked. Each gaming employee must obtain a work permit which
may be revoked upon the occurrence of certain specified events.
Any individual who is found to have a material relationship or a material
involvement with a gaming licensee may be required to be investigated in order
to be found suitable or to be licensed. The finding of suitability is comparable
to licensing and requires submission of detailed financial information and a
full investigation. Key employees, controlling persons or others who exercise
significant influence upon the management or affairs of a gaming licensee may be
deemed to have such a relationship or involvement.
Beneficial owners of more than 10% of the voting securities of a corporation
or partner interests of a partnership registered with the Nevada Gaming
Authorities that is "publicly traded" (a "Registered Entity") must be found
suitable by the Nevada Gaming Authorities, and any person who acquires more than
5% of the voting securities or partner interests, as the case may be, of a
Registered Entity must report the acquisition to the Nevada Gaming Authorities
in a filing similar to the beneficial ownership filings required by the Federal
securities laws. Under certain circumstances an institutional investor, as such
term is defined in the regulations of the Nevada Gaming Commission and Nevada
Gaming Board ("Nevada Gaming Regulations"), that acquires more than 10% of the
Company's voting securities may apply to the Nevada Gaming Commission for a
waiver of such finding of suitability requirement. If the stockholder 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.
Any beneficial owner of equity or debt securities of a Registered Entity
(whether or not a controlling stockholder) may be required to be found suitable
if the relevant Nevada Gaming Authorities have reason to believe that such
ownership would be inconsistent with the declared policy of the State of Nevada.
If the beneficial owner who must be found suitable is a corporation, partnership
or trust, it must submit detailed business and financial information, including
a list of its securities. In addition, the Clark County Liquor and Gaming
Licensing Board has taken the position that it has the authority to approve all
persons owning or controlling more than 2% of the stock or partner interests of
a Registered Entity, including a gaming licensee or otherwise, or of any
corporation, partnership or person controlling such an entity. The applicant is
required to pay all costs of investigation.
Any stockholder found unsuitable and who beneficially owns, directly or
indirectly, any securities or partner interests of a Registered Entity beyond
such period of time as may be prescribed by the Nevada Gaming Authorities may be
guilty of a gross misdemeanor. Any person who fails or refuses to apply for a
finding of suitability or a license within 30 days after being ordered to do so
may be found unsuitable. A Registered Entity is subject to disciplinary action
if, after it receives notice that a person is unsuitable to be a securityholder
or partner, as the case may be, or to have any other relationship with it, such
Registered Entity (a) pays the unsuitable
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person any dividends or property upon any voting securities or partner interests
or makes any payments or distributions of any kind whatsoever to such person,
(b) recognizes the exercise, directly or indirectly, of any voting rights in its
securities or partner interests by the unsuitable person, (c) pays the
unsuitable person any remuneration in any form for services rendered or
otherwise, except in certain and specific circumstances or (d) fails to pursue
all lawful efforts to require the unsuitable person to divest himself of his
voting securities, including, if necessary, the immediate purchase of the voting
securities for cash at fair market value.
Registered Entities are required to maintain current stock ledgers, as the
case may be, in the State of Nevada that may be examined by the Nevada Gaming
Authorities at any time. If any securities or partner interests 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 owner
unsuitable. Record owners are required to conform to all applicable rules and
regulations of the Nevada Gaming Authorities. Licensees also are required to
render maximum assistance in determining the identity of a beneficial owner.
The Nevada Gaming Authorities have the power to require that certificates
representing voting securities of a corporate licensee bear a legend to the
general effect that such voting securities or partner interests are subject to
the Nevada Gaming Control Act and the regulations thereunder. The Nevada Gaming
Authorities, through the power to regulate licensees, have the power to impose
additional restrictions on the holders of such voting securities at any time.
Financial Responsibility. Each of the Company and the Operating Companies
------------------------
is required to submit detailed financial and operating reports to the Nevada
Gaming Authorities. Substantially all loans, leases, sales of securities and
other financial transactions entered into by the Company or the Operating
Companies must be reported to and, in some cases, approved by the Nevada Gaming
Authorities.
Certain Transactions. None of the Sahara Group may make a public offering
--------------------
of its securities without the approval of the Nevada Gaming Commission if the
proceeds therefrom are intended to be used to construct, acquire or finance
gaming facilities in Nevada, or retire or extend obligations incurred for such
purposes. Such approval, if given, will not constitute a recommendation or
approval of the investment merits of the securities offered. The Offering
requires the approval of the Nevada Gaming Commission.
Changes in control of the Company through merger, consolidation, acquisition
of assets, management or consulting agreements or any form of takeover cannot
occur without the prior investigation of the Nevada Gaming Control Board and
approval of the Nevada Gaming Commission. The Nevada Gaming Commission may
require controlling stockholders, partners, officers, directors and other
persons having a material relationship or involvement, to be licensed.
The Nevada 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 Nevada, and corporations whose
securities are publicly traded that are affiliated with those operations, may be
injurious to stable and productive corporate gaming.
12
<PAGE>
The Nevada Gaming 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 or partnership 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 or
partnership affairs. Approvals are, in certain circumstances, required from the
Nevada Gaming Commission before the Company can make exceptional repurchases of
voting securities above the current market price thereof (commonly referred to
as "greenmail") and before an acquisition opposed by management can be
consummated. Nevada's gaming regulations also require prior approval by the
Nevada Gaming 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 the stockholders for the purpose of acquiring control of the
Company.
Miscellaneous. Pursuant to recent changes in Nevada law, the Company, and
-------------
its affiliates, including subsidiaries may engage in gaming activities outside
the State of Nevada without seeking the approval of the Nevada Gaming
Authorities provided that such activities are lawful in the jurisdiction where
they are to be conducted and that certain information regarding the foreign
operation is provided to the Nevada Gaming Board on a periodic basis. The
Company and its Nevada-based affiliates may be disciplined by the Nevada Gaming
Commission if any of them 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 had been denied a license or finding of suitability in
Nevada on the ground of personal unsuitability.
License fees and taxes, computed in various ways depending on the type of
gaming involved, are payable to the State of Nevada and to the counties and
cities in which the Company and the Operating Companies' 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 gaming revenues received by the casino
operation; (ii) the number of slot machines operated by the casino; or (iii) the
number of table games operated by the casino. A casino entertainment tax is
also paid by the licensee where entertainment is furnished in connection with
the selling of food or refreshments.
Finally, the Nevada Gaming Authorities may require that lenders to
licensees, including each holder of Notes, be investigated to determine if they
are suitable and, if found unsuitable, may require that they dispose of their
loans (including the Notes).
Item 2. Properties
----------
The Santa Fe was constructed on a 36-acre site in the northwest part of Las
Vegas, approximately nine miles from the north-end of the Las Vegas Strip. The
Santa Fe property is subject to a first priority deed of trust securing 11%
First Mortgage Notes due December 2000 ("11% Notes"). As of September 30, 1995,
$105 million principal amount of 11% Notes was outstanding. In November 1993,
Santa Fe Inc. acquired an
13
<PAGE>
approximately 22-acre parcel of property across the street from the Santa Fe
Inc. for a purchase price of approximately $1.6 million. Santa Fe Inc. paid
approximately $750,000 of the purchase price in cash and assumed an $850,000
note, secured by a first deed of trust on the parcel, which note bears interest
at 12% per annum and matures in November 1996. In addition, in May 1994, the
Santa Fe acquired a four-acre parcel for $980,000 which has been improved to
provide additional parking. See "Business-- Description of the Hotel-Casinos"
for more detailed information regarding the Santa Fe.
The Pioneer is located on approximately 12 acres of land, with Colorado
River frontage of approximately 770 feet, and is situated near the center of
Laughlin's Casino Drive. Approximately 6.5 acres of the 12-acre Pioneer site is
leased from an unaffiliated third party pursuant to a lease expiring in 2078.
One of the Pioneer's three motel buildings, a portion of a second motel building
and a portion of the casino building are located on the leased property. The
Pioneer property is subject to a first deed of trust securing 13-1/2% First
Mortgage Notes due December 1, 1998 ("13 1/2% Notes"). As of September 30, 1995,
$82.75 million principal amount of the 13 1/2% Notes was outstanding. See
"Business--Description of the Hotel-Casinos" for more detailed information
regarding the Pioneer.
On March 31, 1994, a wholly-owned subsidiary of the Company purchased 39
acres of real property in Henderson, Nevada, located in southeast Las Vegas
Valley where the Company is evaluating the potential development of a casino
entertainment complex. In connection with the sale of the Hacienda, indebtedness
secured by a first priority deed of trust on this property was repaid in full.
See "Business - Development Opportunities for more information regarding the
real property.
In October 1995, in connection with the Sahara sale, the Company acquired 27
acres of real property located on the Las Vegas Strip, just south of the
Sahara Hotel & Casino. The property was acquired in connection with the sale of
Sahara by the Company. Pursuant to an agreement with holders of 13 1/2% Notes,
in which holders consented to the sale of the Hacienda and Sahara, the Company
agreed to grant a security interest in the property for the benefit of the
holders of the 13 1/2% Notes to secure a contingent $10 million obligation. See
"Business-Development Opportunities" for more information regarding the real
property.
The Company operates a recreational vehicle facility known as "Camperland"
on approximately 14 acres of the Hacienda property. In connection with the sale
of the Hacienda, the Company agreed to relocate the Camperland facility on or
before February 1997. Prior to that time, the Company is leasing the 14 acre
parcel pursuant to an operating lease agreement with the purchaser of the
Hacienda. (See "Business-Hotel & Casino Operations" for more detailed
discussion).
In September 1995, the Company acquired 40 acres of undeveloped real
property located approximately eight miles south of the Las Vegas Strip. The
Company acquired the property with the intention of developing a RV park to
relocate the operations of the Camperland facility, if necessary. (See
"Business-Hotel & Casino Operations" for more detailed discussion).
In May 1993, Parkville Inc. entered into an agreement with the City of
Parkville, Missouri, for
14
<PAGE>
a site lease allowing the Company to operate a casino subject to approval by the
Missouri Gaming Commission. The lease agreement, as amended, allows the Company
to terminate the agreement upon 90 days written notice. See "Business-
Development Opportunities" for more detailed information.
Item 3. Legal Proceedings
-----------------
Poulos v. Caesar's World, Inc., et al. and Ahern v. Caesar's World, Inc., et al.
The Company and its predecessor, Sahara Casino Partners, L.P. are defendants
in two class action lawsuits filed in the United States District Court of
Florida, Orlando Division, entitled Poulos v. Caesar's World, Inc., et al. and
Ahern v. Caesar's World, Inc., et al. which have been consolidated in a single
action and a third class action lawsuit filed in the United States District
Court of Nevada, entitled Schrier v. Caesar's World, Inc., et al. Also named as
defendants in these actions are many, if not most, of the largest gaming
companies in the United States and certain gaming equipment manufacturers. Each
complaint is identical in its material allegations. The actions allege that the
defendants have engaged in fraudulent and misleading conduct by inducing people
to play video poker machines and electronic slot machines based on false beliefs
concerning how the machines operate and the extent to which there is actually an
opportunity to win on a given play. The complaints allege that the defendants'
acts constitute violations of the Racketeer Influenced and Corrupt Organizations
Act ("RICO") and also give rise to claims for common law fraud and unjust
enrichment, and it seeks compensatory, special consequential, incidental and
punitive damages of several billion dollars.
In response to the complaints, all of the defendants, including the Company
and the Partnership, filed motions attacking the pleadings for failure to state
a claim, seeking to dismiss the complaints for lack of personal jurisdiction and
venue, and, in the case of the consolidated case, seeking to transfer venue of
the actions to Las Vegas. The Court granted the defendants' motion to transfer
venue of the Poulos action to Las Vegas. Plaintiffs have responded to all
motions and have also propounded discovery with respect to each defendant on
jurisdiction, venue and class issues. The Company expects that there will be
further briefing on the motions, and the Court has not indicated when it will
rule on these motions. Plaintiffs have also filed their motion to certify the
class. A representative group of the defendants took the deposition of each
plaintiff and also obtained documents from the plaintiffs. It is not known when
the Court will rule on the class certification motions.
Hyland v. Griffin Investigations et al.
The Company, its predecessor, Sahara Casino Partners, L.P. and Pioneer Inc.
are defendants in a class-action lawsuit filed in the Unites States District
Court of New Jersey, Camden Division, entitled Hyland v. Griffin Investigations
et al. Also named as defendants in this action are many, if not most, of the
largest gaming companies in the United States. The action alleges violations of
Federal anti-trust law, the Fair Credit Reporting Act and state trespass
statutes stemming from plaintiffs' exclusion from various casinos on the basis
that plaintiffs are card counters. The complaint seeks compensatory as well as
punitive damages. Pioneer Inc. has already been dismissed, and the Company has
filed a motion to dismiss for lack of personal jurisdiction and failure to state
a claim upon which relief may be granted. This motion is presently pending
before the Court.
15
<PAGE>
Treasure Bay Litigation
On December 12, 1994, the Company and Santa Fe Inc. filed a lawsuit in the
United States District Court, District of Nevada, naming Treasure Bay officers
A. Clay Rankin III, Joe N. Hendrix and Bernie Burkholder, and former officer
Francis L. Miller as defendants in matters involving violations of Section 10(b)
and Rule 10(b)-5 of the Securities Exchange Act, violation of Nevada state
securities laws, fraud and negligent misrepresentation in connection with the
Company's investment of $10 million in exchange for a 20% interest in Treasure
Bay, and the Company's guarantee of $4.5 million of Treasure Bay's indebtedness.
The defendants have filed answers to the complaint and discovery is continuing.
On December 15, 1994, Francis L. Miller filed a lawsuit in the Mississippi
Circuit Court, Second Judicial District, against the Company and Santa Fe Inc.
as well as Paul W. Lowden and Suzanne Lowden, alleging, among other things, that
the Company made certain misrepresentations which induced Francis Miller to
entrust the management of his investments in Treasure Bay's two Mississippi
casinos to the Company and Santa Fe and to sell the Company and Santa Fe a 20%
ownership interest in Treasure Bay. The lawsuit was subsequently amended to
remove Suzanne Lowden as a defendant. The Company and Santa Fe filed a
successful motion to transfer this case to the United States District Court in
Nevada.
On March 31, 1995, Treasure Bay Corp. commenced an adversary proceeding in
its bankruptcy case by filing a complaint for a preliminary and permanent
injunction pursuant to 11 U.S.C. Sec. 105 and Sec. 362 against the Company and
Santa Fe Inc. The Complaint alleges that the filing of the action on December
12, 1994 against Bernie Burkholder, an officer of Treasure Bay Corp., in Nevada
federal court violated the automatic stay imposed by 11 U.S.C. Sec. 362, or
alternatively, that the Bankruptcy Court should issue an injunction pursuant to
11 U.S.C. Sec. 105 preventing Sahara from proceeding with its action as against
Burkholder. In addition to an injunction, the complaint seeks actual and
punitive damages and attorneys' fees. In a hearing on this complaint, Treasure
Bay abandoned its claims for damages and violation of the stay. However, the
bankruptcy court granted Treasure Bay's request for a stay of discovery against
Bernie Burkholder that will expire after the confirmation hearing on Treasure
Bay's bankruptcy plan.
Treasure Bay-Bankruptcy
On or about January 17, 1995, the Company and Santa Fe Inc. commenced an
adversary proceeding in Treasure Bay's bankruptcy case in the United States
bankruptcy court for the Southern District of Mississippi. The adversary
proceeding seeks the return of bankroll or cage cash at Treasure Bay's casinos
on the grounds that such funds are held by Treasure Bay in constructive trust
for the Company and Santa Fe Hotel Inc. The complaint alleges that Treasure Bay
fraudulently induced the Company to execute the guarantees of the loans by which
Treasure Bay obtained the bankroll or cage cash. The complaint also seeks an
injunction from the bankruptcy court requiring the bankroll or cage cash to be
held intact pending the litigation. Treasure Bay filed an answer to the
complaint denying Sahara's claim. On March 18, 1995, the U.S. bankruptcy court
granted the Company's request for a preliminary injunction prohibiting Treasure
Bay from using the bankroll or cage cash except in the ordinary course of
business until further order of the Court.
16
<PAGE>
Subsequent to the bankruptcy court's entry of an injunction to preserve
the bankroll proceeds pending the constructive trust litigation, Treasure Bay
successfully urged the Court to lift the injunction for the limited purpose of
allowing the bankroll proceeds to be used as collateral for specific interim
financing by Treasure Bay. However, the Court conditioned the use of the
bankroll as collateral upon approval of the Mississippi Gaming Commission of the
proposed interim financing. Upon review, Treasure Bay's interim financing plan
was not approved by the Mississippi Gaming Commission and Treasure Bay
subsequently announced that it was withdrawing its plans for interim financing.
The Company is vigorously pursuing its claims and defenses in all
proceedings involving its current and prior relationship with Treasure Bay.
See "Business-Hotel-Casino Operations - Management and Personnel" for
discussion of several proceedings relating to labor matters.
In addition, the Company is subject to various lawsuits relating to routine
matters incidental to its business. The Company does not believe that the
outcome of such litigation, in the aggregate, will have a material adverse
effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1995.
PART II
Item 5. Market for Registrant's Stock and Related Security Holders Matters
-------------------------------------------------------------------
Since October 1, 1993, the Company's Common Stock has traded on the American
Stock Exchange ("AMEX") under the symbol "SGM". The closing sales price of the
Common Stock on December 26, 1995, as reported by the American Stock Exchange
was $2.13 per share. The tables below set forth the high and low closing sales
prices by quarter for the fiscal years ended September 30, 1995 and 1994 for the
Common Stock, as reported by the AMEX.
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal 1995 Quarter Quarter Quarter Quarter
- --------------------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
High $6 3/8 $5 7/8 $7 7/8 $5 1/2
Low $3 1/16 $3 1/2 $4 $3 3/8
<CAPTION>
First Second Third Fourth
Fiscal 1994 Quarter Quarter Quarter Quarter
- --------------------------- -------- -------- ------- -------
<S> <C> <C> <C> <C>
High $23 1/2 $12 3/8 $10 7/8 $7
Low $ 9 1/2 $ 9 3/4 $ 5 $5
</TABLE>
The Company has never paid cash dividends on its Common Stock, nor does it
anticipate paying such dividends in the foreseeable future. On January 25,
1994, the Company announced
17
<PAGE>
a 25% stock dividend on the Common Stock payable on February 25, 1994, to
stockholders of record on February 4, 1994. The accompanying financial
statements have been adjusted to give effect to this stock dividend as if it has
occurred as of the earliest period presented.
There were approximately 8,300 stockholders as of December 29, 1995. The
number of stockholders was computed by including those stockholders whose stock
is beneficially held for them by participants in a clearing agency as of that
date.
Item 6. Selected Financial Data
-----------------------
The table below sets forth a summary of selected financial data of the
Company for the years ended September 30 (dollars in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total Revenues/(1)/ $251,109 $253,718 $244,765 $219,519 $179,505
Net Loss/(2)/ $(22,041) $(15,739) $ (1,090) $ (6,476) $ (9,069)
Net Loss
Per Common
Share/(3)/ $(3.77) $(2.74) $(0.25) $ (1.52) $ (2.12)
Cash Dividends
Per Common
Share --- --- --- --- ---
Total Assets $366,638 $478,555 $395,089 $359,624 $377,830
Long-Term
Debt $198,655 $379,093 $301,780 $286,764 $309,733
Redeemable
Preferred
Stock/(4)/ $ 17,521 $ 16,202 $ 14,980 --- ---
- -------------------------------------------------------------------------------
</TABLE>
(1) Fiscal 1995 includes a $8.9 million gain relating to the sale of
substantially all the assets of Hacienda Inc.
(2) Fiscal 1995 and 1994 amounts presented exclude dividends on preferred
shares. Fiscal Year 1995 includes a $14.9 million charge to reduce the
carrying value of the Company's investment in Parkville, Missouri. Fiscal
Year 1994 includes $12.6 million charge to reduce the carrying value of the
Company's investment in Treasure Bay.
(3) Per common share amounts have been restated to reflect common stock
dividends paid in February 1994. Fiscal 1995 and 1994 per common share
amounts include dividends on preferred shares.
(4) The Company has declared and issued paid-in-kind dividends on its
Exchangeable, Redeemable 8% Preferred Stock during fiscal years 1995 and
1994.
18
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations of the Company
------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
FISCAL 1995 COMPARED TO FISCAL 1994
The Company's revenues decreased $2.6 million, or 1.0%, to $251.1 million in
fiscal 1995 as compared to $253.7 million in the previous fiscal year. The
decrease in revenues is the result of decreases in casino, food and beverage and
other revenues in fiscal 1995 resulting primarily from the agreement to sell
the Hacienda and Sahara, partially offset by a gain of $8.9 million recorded on
the sale of the Hacienda. Operating expenses increased $19.8 million, or 8.9%,
primarily due to a write-down of development costs of $14.9 million and also
increased payroll, advertising and promotional costs, professional fees, as well
as increased depreciation associated with the expansion of two of the Company's
properties. Accordingly, operating income decreased $22.4 million or 67.8% to
$10.6 million in 1995 from $33.0 million in 1994. The Company's interest expense
increased by $1.8 million to $45.0 million in fiscal 1995 primarily as a result
of the issuance of $115.0 million principal amount of 11% Notes in December
1993.
The Company recorded an extraordinary gain of $1.1 million after tax on
early extinguishment of debt in fiscal 1995. In June 1995, the Company recorded
an after-tax charge of $1.7 million in connection with the repurchase of $21.5
million principal amount 11% Notes. In September 1995, the Company recorded a
$2.8 million after-tax gain from the repurchase of $20 million principal amount
of 13 1/2% Notes.
The Company reported a net loss applicable to common shares of $23.4 million
or $3.77 per common share in fiscal 1995 compared to a loss of $17.0 million or
$2.74 per common share in fiscal 1994. For additional information regarding
Results of Operations see discussion below, by property.
SANTA FE
Revenues at the Santa Fe increased 1.5%, or $1.0 million in fiscal 1995 to
$64.8 million as compared to $63.8 million in fiscal 1994. Casino revenues
increased 1.3%, or $600,000, to $49.1 million from $48.5 million. Management
believes that the increase in casino revenues at the Santa Fe is primarily due
to the addition of a race book in December 1994. Other casino revenues reported
were flat when compared to the same twelve month period of 1994, which
management believes is due primarily to the opening of two competing facilities
within five miles of the Santa Fe in December 1994 and July 1995 and the opening
and expansion of other casinos targeting the local population in the Las Vegas
Valley. In addition, management believes that Santa Fe casino revenues were
impacted during construction of the Santa Fe expansion completed during December
1994 and, to a lesser extent, by restricted access to the property from February
1995 to April 1995 during construction on an interchange next to the facility.
The food and beverage departments posted an increase in revenues of $1.2 million
or 17.9% over the same period in the prior year. This increase is believed to be
primarily due to the opening of additional food and beverage facilities in
December 1994. Other revenues for the current period declined $900,000 or 15.2%
to $5.0 million, due to approximately $700,000 recorded in the prior year from a
management agreement for which revenues were not recorded in the current year.
The $1.0 million increase in revenues was offset by a 14.7%, or $7.2
million, increase in operating expenses. Casino expenses increased by 18.1%, or
$3.2 million, primarily due to
19
<PAGE>
increased payroll and other costs associated with operating an additional 15,000
square feet of casino space, which includes a new race book, and increased
promotional costs incurred to compete with the expanding competition in the
area. Food and beverage expenses had volume related increases of 21.8%, or $1.8
million over the prior year period, the results of the opening of additional
food and beverage facilities in December 1994. Selling, general and
administrative expenses increased 4.7%, or $400,000, primarily related to
increased advertising and promotional costs. Increases in utilities and
property expenses of 9.3% or $400,000, and depreciation and amortization
expenses of 20.2% or $1.5 million, were related to the expansion project.
Excluding a write-down of development costs of $14.9 million discussed below,
operating income decreased by 42.6%, or $6.3 million, to $8.4 million from $14.7
million.
In the third quarter of 1995, the Company recorded a $14.9 million charge
against income to write-down development costs related to a proposed project in
Parkville, Missouri, by a wholly-owned subsidiary of the Santa Fe.
In the fourth quarter of 1995, revenues decreased $1.6 million or 9.9% to
$14.7 million and operating expenses increased $1.3 million or 9.7% to $14.4
million compared to the same period in the prior year. Accordingly, operating
income decreased $2.9 million to $350,000 or 89% compared to the same period in
the prior year. Additionally, operating income before depreciation and
amortization decreased $2.6 million, or 49.8%, to $2.6 million, compared to the
same period in the prior year. Management believes operations in the fourth
quarter were impacted primarily by the opening in July 1995 of a competing
facility within five miles of the Santa Fe.
Interest expense increased $2.6 million, or 22.7%, in fiscal 1995 compared
to fiscal 1994, primarily due to the 11% Notes issued in December 1993, which
were outstanding for the entire year in fiscal 1995. In addition, as a result
of the repurchase offer described below, interest costs which were previously
capitalized in connection with the development of the proposed Parkville project
were expensed during the fourth quarter of fiscal 1995.
In August 1995, in accordance with the indenture governing the 11% Notes,
Santa Fe Inc. completed an offer to repurchase $21.5 million principal amount of
11% Notes, representing that principal amount that could be purchased with funds
remaining in the Parkville collateral account dedicated for use in the
development of a proposed dockside riverboat casino and received upon
liquidation of the Parkville assets. In satisfaction of the obligation to
liquidate the Parkville assets, Santa Fe Inc. sold the Parkville assets to an
affiliate of the Company, for $2.99 million, which the Company and Santa Fe Inc.
believed to be the fair market value of such assets. The repurchase offer was
required because the proposed casino in Parkville, Missouri that
Santa Fe Inc. intended to develop was not operating by June 30, 1995.
Pursuant to the offer to repurchase, Santa Fe Inc. purchased for cash $21.5
million principal amount of the 11% Notes, at a price of $1,010 per $1,000
principal amount, plus accrued interest. As a result of the commencement of the
repurchase offer, $11.5 million in principal amount of 11% Notes were issued
upon exercise of outstanding warrants. The Company recorded a extraordinary
charge to earnings in the amount of approximately $2.6 million, less income tax
benefit of $890,000, related to debt premium payments, debt issue costs and debt
discount in connection with the repurchase offer.
20
<PAGE>
PIONEER
Revenues at the Pioneer decreased 6.6%, or $3.2 million, to $46.0 million
from $49.3 million in fiscal 1994. Casino revenues were $40.5 million in fiscal
1995, representing a decrease of 6.2%, or $2.7 million, comprised mostly of a
decrease in slot revenue of 6.3%, or $2.4 million. The decrease in fiscal 1995
is believed to be primarily due to the competitive gaming market environment in
and around Laughlin, including Indian gaming facilities opened in Arizona and
southern California, coupled with disruption of operations related to the
construction of the expansion which was completed in December 1994.
Operating expenses increased $700,000 or 1.7% to 40.5 million. Casino
expenses decreased only .5%, or $100,000, as volume related decreases in
expenses were offset by increased promotional expenses. Hotel expenses had a
volume related decrease of $100,000, or 19.0%%. Utilities and property expenses
increased 19.9%, or $800,000, primarily due to a $500,000 loss on sale of gaming
equipment, incurred in connection with the expansion of casino space.
Accordingly, operating income decreased by 41.6%, or $3.9 million, to $5.4
million in fiscal 1995 from $9.4 million in fiscal 1994.
In the fourth quarter of 1995, revenues decreased $300,000, or 3.1%, to
$10.8 million and operating income decreased by $500,000 or 44.3% to $600,000,
compared to the same period in the prior year. Additionally, operating income
before depreciation and amortization decreased $300,000 to $2.0 million or 14.3%
compared to the same period in the last fiscal year. Management believes the
decrease in revenues and operating results in the fourth quarter of fiscal 1995
compared to the fourth quarter of fiscal 1994 are the result of increased
competition in and around the Laughlin market.
In September 1995, with proceeds of the sale of Hacienda, the Company
acquired and retired $20 million principal amount of 13-1/2% Notes for $15.5
million. The Company recorded a non-recurring gain of $4.3 million, less income
tax provision of $1.5 million, in connection with the acquisition.
HACIENDA
The Company sold the Hacienda on August 31, 1995. The results for the
Hacienda include eleven months in fiscal 1995 as opposed to twelve months in
fiscal 1994. Accordingly, revenues at the Hacienda, excluding a gain on the sale
of $8.9 million, decreased 6.7%, or $3.6 million, to $50.3 million from $53.8
million in fiscal 1994. Casino revenues decreased 6.0%, or $1.6 million, to
$24.6 million from $26.2 million in the prior year. Food and beverage revenues
decreased 12.9%, or $1.1 million.
The Company recorded a gain of $8.9 million from the sale of substantially
all the assets of the Hacienda. The gain includes the $80 million in cash
consideration less the carrying value of assets sold ($67.1 million), and an
allowance to relocate the Camperland facility ($4.0 million).
21
<PAGE>
Operating expenses decreased $2.0 million, or 4.0% to $49.2 million when
comparing the 11 months of fiscal 1995 to the full fiscal year of 1994.
Accordingly, operating income excluding the gain on sale decreased 58.4%, or
$1.5 million, to $1.1 million from $2.6 million.
SAHARA
Revenues at the Sahara for fiscal 1995 decreased 6.7%, or $5.8 million, to
$81.0 million from $86.8 million in fiscal 1994. This decrease in revenues is
primarily attributable to decreased casino revenues. Casino revenues decreased
$3.1 million, or 8.3%, to $34.5 million from $37.6 million in the prior year,
with decreases in slot revenue of $2.0 million, or 9.7%, and in table games of
$1.1 million, or 8.1%. Food and beverage revenues decreased 11.6%, or $1.6
million.
The decrease in revenues was partially offset by a decrease in operating
expenses of $2.2 million, or 2.8%. Operating income decreased by 50.7%, or $3.7
million, to $3.6 million in fiscal 1995.
The agreement to sell the Sahara was executed in June 1995 and closed in
October 1995. Management believes that while the agreement to sell assets of the
Sahara was in escrow, general business conditions were impacted, negatively
affecting operating results. In the fourth quarter, operating income before
deprecation and amortization decreased by 69% or $2.7 million to $1.2 million
compared to fiscal 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
The Company's revenues increased $9.0 million, or 3.7%, to $253.7 million in
fiscal 1994 as compared to $244.8 million in the previous fiscal year. The
increase in revenues is the result of increased casino and hotel revenues in
fiscal 1994. Operating expenses increased $12.6 million, or 6.6%, primarily
due to increased payroll, advertising and promotional costs, professional fees
and increased depreciation associated with the step-up in basis of the
depreciable assets that resulted from the Reorganization and volume related
increases in the casino department. Operating income, accordingly, decreased
$3.7 million or 10% to $33.0 million in 1994 from $36.6 million in 1993. The
Company's interest expense increased by $5.4 million to $43.2 million in fiscal
1994 primarily as a result of the issuance of $115.0 million principal amount of
11% Notes in December 1993. See "Santa Fe" below. The Company charged $12.6
million against income in 1994 in connection with its investment in Treasure
Bay. See "Santa Fe - Treasure Bay" below.
As a result of the above, the Company had a net loss before federal income
tax benefit of $22.8 million, an increase of $21.6 million over the net loss of
$1.2 million in 1993. Excluding the charge relating to Treasure Bay, the net
loss before federal income tax benefit would have been $10.2 million, an
increase of $9.0 from a $1.2 million loss in 1993.
22
<PAGE>
SANTA FE
Santa Fe Hotel and Casino
Revenues at the Santa Fe showed continued growth in fiscal 1994, increasing
19.6%, or $10.4 million, to $63.8 million as compared to $53.4 million in fiscal
1993. Casino revenues increased 21.3%, or $8.5 million, to $48.5 million from
$40.0 million, with increases in all gaming areas. Management believes that
ongoing marketing to the expanding population of northwest Las Vegas is
responsible for these results. The hotel rooms and food and beverage
departments posted modest increases. The Santa Fe's expansion, which was
completed and opened in December 1994, increases its food and beverage capacity,
as well as the casino area, and was constructed to meet the growing demand and
to better position the Santa Fe to compete with the expanding competition in the
area.
Operating income increased by 28.9%, or $3.3 million, to $14.7 million from
$11.4 million. The $10.4 million increase in revenues was offset by a 17.0%, or
$7.1 million, increase in operating expenses. In addition to volume related
increases in expenses in the revenue-generating departments, expenses increased
in selling, general and administrative, utilities and property and depreciation
by 35.3%, or $2.0 million, 11.9%, or $500,000, and 21.8%, or $1.2 million,
respectively. Interest expense increased $7.0 million, or 131.1%, due to the
issuance of the 11% Notes.
In the fourth quarter of 1994, revenues increased $1.9 million to $16.3
million or 13% compared to the same period in the 1993 fiscal year. This
increase is less than the 22.8% increase in revenues achieved during the first
nine months of the fiscal year. Additionally, operating income before
depreciation and amortization increased $200,000 to $5.2 million, or 4%,
compared to the same period in the prior year. Management believes operations
in the fourth quarter were impacted by the construction of the expansion and, to
a lesser extent, by the opening of a new locals facility and expansion of
another locals facility, both in the southeast section of the Las Vegas valley.
In the fourth quarter, the Santa Fe recorded a provision to reduce the
carrying value of its investment in Treasure Bay by $12.6 million. The
provision includes the equity interest in the net loss of Treasure Bay through
September 30, 1994, a charge against the Company's investment in Treasure Bay
and a provision for the $3.3 million guarantee of outstanding debt obligations
of Treasure Bay, on which Treasure Bay has defaulted.
As a result of the charges associated with Treasure Bay, the Santa Fe
reported a net loss before federal income tax of $9.3 million for fiscal 1994
compared to net income before federal income tax of $6.1 million in the prior
year. Excluding the charge relating to Treasure Bay, the net income before
federal income tax would have been $3.3 million, a decrease of $2.8 million from
$6.1 million reported in 1993. The net income before federal income tax
decreased primarily due to increased depreciation and amortization resulting
from the Reorganization and increased interest expense associated with the 11%
Notes.
23
<PAGE>
PIONEER
Revenues at the Pioneer decreased 8.9%, or $4.8 million, to $49.3 million
from $54.1 million in fiscal 1993. Casino revenues decreased 9.3%, or $4.4
million, comprised mostly of a decrease in slot revenue of 9.3%, or $3.8
million. Hotel revenues decreased 17.6%, or $300,000 with 3,821 fewer occupied
rooms. Food and beverage revenues decreased 11.6%, or $400,000. These
decreases in fiscal 1994 are believed to be primarily due to relatively constant
gaming revenues in 1994 versus 1993 in the Laughlin, Nevada gaming market,
coupled with continued aggressive competition. Additionally, construction of
the Pioneer expansion is believed to have had a negative impact on revenues
during the fourth quarter of fiscal 1994.
Operating income decreased by 32.3%, or $4.5 million, to $9.4 million from
$13.9 million. The $4.8 million decrease in revenues was not offset with a
comparable decrease in operating expenses. Casino expenses decreased only 0.3%,
or $60,000, as volume related decreases in expenses were offset by increased
promotional expenses. Hotel and food and beverage had volume related decreases
in expenses of $90,000, or 14.3%, and $770,000, or 13.1%, respectively. Selling,
general and administrative expenses increased 10.0%, or $400,000, primarily due
to increased payroll and advertising costs. Utilities and property expenses
increased 8.3%, or $300,000, primarily due to increased rent expense associated
with land leases and operating costs of the boats to ferry passengers to the
Arizona parking lot.
In the fourth quarter of 1994, revenues decreased $1.8 million to $11.1
million compared to the same period in the 1993 fiscal year. This decrease is
greater than the 7.3% decrease in revenues experienced during the first nine
months of the current year. Additionally, operating income before depreciation
and amortization decreased $1.4 million to $2.4 million or 38% compared to the
same period in the last fiscal year. Management believes the decrease in
revenues and operating results in the fourth quarter compared to the first three
quarters of fiscal 1994 and the fourth quarter of fiscal 1993 are the result of
both the decrease in size of the Laughlin market during the 1994 fourth quarter
compared to the fourth quarter of the 1993 fiscal year, together with a negative
impact on operations from the construction of the expansion during this period.
In December 1994, an expansion of the facility was completed, which
increased the slot capacity by approximately 20%, provided a special events
area, and increased administrative and support areas. Additionally, management
has increased marketing and promotional efforts in an effort to increase
revenues and improve the Pioneer's operating results. Expense reduction
measures are also being evaluated and where possible, implemented.
HACIENDA
Revenues at the Hacienda decreased 0.1%, or $100,000, to $53.8 million from
$53.9 million in fiscal 1993. The opening of two major casinos in close
proximity to the Hacienda in December 1993 has impacted casino revenues
negatively but has had positive results on hotel, food and beverage and
entertainment revenues as tourist volume has increased at the south end of the
Las Vegas Strip. Casino revenues decreased 6.9%, or $2.0 million, to $26.2
million from $28.1 million in the prior year, which was comprised of decreases
in table games of 13.9%, or $900,000, in poker and keno of 17.9%, or $300,000,
and in slots of 3.9%, or $800,000. The impact of competition on
24
<PAGE>
slot revenue, was in part offset by the addition of new up-to-date slot machines
and the continued marketing of the Hacienda slot club. Hotel revenues
increased 13.4%, or $1.3 million, due to an increase of 2,502 occupied room
nights and sales efforts which resulted in an increase in the average room rate.
Due to the increase in occupied room nights, food and beverage revenues
increased 7.1%, or $600,000, and entertainment revenues increased 12.7%, or
$300,000 over revenues reported in the prior year.
Operating income decreased 48.3%, or $2.4 million, to $2.6 million from $5.0
million, due to the decrease in revenues combined with an increase in operating
expenses of $2.3 million, or 4.8%. Selling, general and administrative expenses
increased 12.3%, or $700,000, primarily due to increased advertising and
promotional costs and professional fees. Entertainment expenses increased
54.6%, or $1.0 million, primarily as a result of a new contract with the
production show. The production show is provided through an affiliate of the
Company, LICO.
SAHARA
Revenues at the Sahara for fiscal 1994 increased 4.3%, or $3.6 million, to
$86.8 million from $83.2 million in fiscal 1993. This increase in revenues is
primarily attributable to increased casino revenues. Casino revenues increased
$1.8 million, or 5.1%, to $37.6 million from $35.7 million in the prior year.
An increase in slot revenue of $2.3 million, or 12.8%, to $20.5 million from
$18.2 million was attributable to an increase of 45,067 occupied room nights and
the ongoing addition of new up-to-date slot machines. The increase in slot
revenue was partially offset by a decrease in table game revenues.
Operating income increased by 2.7%, or $200,000, to $7.2 million from $7.0
million. The $3.6 million increase in revenues was offset by an increase in
operating expenses of $3.4 million, or 4.4%. Selling, general and
administrative expenses increased 13.9%, or $1.5 million, primarily due to
increased payroll costs and promotional expenses.
LIQUIDITY AND CAPITAL RESOURCES; TRENDS AND FACTORS RELEVANT TO FUTURE
OPERATIONS
The Company sold substantially all of the assets of the Hacienda for $80
million and the Sahara for $150 million, in August 1995 and in October 1995,
respectively. The transactions resulted in aggregate cash proceeds to the
Company of $208 million and receipt by the Company of a parcel of real property
valued for purposes of the transaction at approximately $22 million. The
Company utilized approximately $170 million of the cash proceeds to retire
approximately $174 million principal amount of indebtedness. Additionally, the
Comapny contributed $15 million of the aggregate cash proceeds to Pioneer Inc.
and used $8 million to pay costs to close the transaction. (See Liquidity -
Pioneer for further discussion of restricted uses). The balance of cash proceeds
of approximately $15 million was added to general working capital.
The Company's earnings before interest, taxes, depreciation and amortization
("EBITDA") were $38.8 million for the year ended September 30, 1995, including a
$8.9 million gain from the sale of the Hacienda and a $14.9 million charge
against earnings due to the write down of development costs related to
Parkville. Excluding the gain and write down, EBITDA was $44.8
25
<PAGE>
million for the twelve month period, as compared to $59.7 million for the prior
year period. The Company expects EBITDA in future periods to be reduced due to
the sale of the Hacienda and Sahara, which contributed $17.9 million in the
aggregate to fiscal 1995 EBITDA, exclusive of the gain on sale of Hacienda.
EBITDA is presented to enhance the understanding of the financial performance of
the Company and its ability to service its indebtedness, but should not be
construed as an alternative to operating income (as determined in accordance
with generally accepted accounting principles) as an indicator of the Company's
operating performance, or to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) as a measure of
liquidity.
The Company historically generated sufficient cash liquidity from operations
to finance operations, meet existing debt service obligations, complete capital
improvements, maintain existing facilities, and provide working capital to the
Company. However, indenture restrictions on Santa Fe Inc. and Pioneer Inc.
restrict the distribution of cash to the Company, and cash flow of these
subsidiaries is not currently, and is not expected in the foreseeable future to
be, available for distribution to the Company. Therefore, the Company and its
subsidiaries other than Pioneer Inc. and Santa Fe Inc. (collectively
"Corporate") must rely on existing cash resources to provide liquidity to fund
cash requirements of the parent company.
Liquidity - Corporate - Excluding assets under agreement for sale,
---------------------
approximately $39.7 million of the Company's current assets at September 30,
1995, including approximately $30.4 million of cash and short-term investments,
was held by Corporate. Excluding the assets and the debt due upon sale, both
classified as current as of September 30, 1995, Corporate had working capital of
approximately $29.7 million at September 30, 1995.
Corporate's principal uses of cash are to satisfy the debt service payments
on the 10-1/4% Subordinated Debentures due 1998 and on a note payable to Sierra
Construction due 1998. In addition, Corporate expects to incur costs in
connection with evaluation and development of proposed projects and for
professional services rendered to the parent company. The Company has in the
past and expects in fiscal 1996 to satisfy the semi-annual dividend payments on
its preferred stock through the issuance of paid-in-kind dividends. Commencing
in fiscal 1997, dividends paid on the preferred stock, to the extent declared,
must be paid in cash. In the event not declared, dividends would accrue on the
preferred stock. The Company is party to indentures and other financing
arrangements that restrict the Company's ability to declare and pay dividends or
make distributions with respect to the Company's capital stock which would
prohibit the payment of cash dividends on the preferred stock.
On October 2, 1995, the Company sold substantially all the assets of the
Sahara for $128 million in cash and exchanged 22 acres of land, a portion of
which was utilized by the Sahara as a parking lot, for 27 acres of land just
south of the Sahara on Las Vegas Boulevard, on which a water theme park
currently operates. The Company utilized approximately $122 million in proceeds
to repurchase and to retire and defease indebtedness of approximately $115
million secured by the Sahara assets and to pay costs to close the transaction,
including approximately $6 million incurred to defease the 12 1/8% First
Mortgage Notes due August 1996. The net proceeds of $6 million was added to
general working capital. The Company expects to record a pre-tax gain of
approximately $40 million on the sale of substantially all of the assets of
Sahara in the first quarter of fiscal 1996.
26
<PAGE>
In connection with the acquisition of the 27 Acre Parcel, the Company
assumed the operating lease under which a water theme park operates. The lease
may be terminated by the Company at any time after December 1996. The Company
has guaranteed payments by the tenant of a loan to the prior owner of the
property ("tenant loan") and has agreed to pay the loan in full in certain
situations, including in the event the lease is terminated for any reason prior
to its scheduled termination date of 2004. The tenant loan, which is amortized
through monthly principal and interest payments through December 2004, had an
outstanding balance of $6.2 million as of September 30, 1995. Under the terms of
the lease, as amended, the water-theme park remits a base rent of approximately
$16,000 monthly plus an annual rent payment based on gross receipts.
The Company has agreed to grant a security interest in the 27 Acre Parcel
for the benefit of the holders of the 13-1/2% Notes to secure a contingent
obligation of the Company to contribute or loan $10 million to Pioneer Inc. The
security interest will be released in the event of such a contribution or loan.
In November 1995, the Company sold the Spirit of America barge vessel
("Spirit") for $3.3 million in cash. The Spirit was acquired in connection with
the Company's proposed development of a casino entertainment complex in
Parkville, Missouri. Net proceeds of $3.2 million from this sale were added to
general working capital.
In November 1995, the Company contributed $15 million in cash to the
Pioneer, pursuant to an agreement reached with holders of 13-1/2% Notes, in
which the holders of 13-1/2% Notes consented to the sale of the Hacienda and
Sahara.
In December 1995, the Company acquired in the market $2.3 million principal
amount of 11% First Mortgage Notes due 2000 ("11% Notes") and $2.6 million
principal amount of 10-1/4% Subordinated Debentures. The Company expects to
record an after-tax extraordinary gain of approximately $435,000 from the
retirement of 11% Notes in the first quarter of fiscal 1996.
In November 1995, the Company filed an amended plan of reorganization (the
"Plan") for Treasure Bay Gaming and Resorts ("Debtor") in United States
bankruptcy court ("Court") in the Southern District of Mississippi. The
Company's plan of reorganization for Treasure Bay contemplates that, subject to
various conditions, the various classes of secured and unsecured creditors of
the debtor agree to accept modifications to, and reductions in outstanding
amounts of, Treasure Bay's outstanding obligations and the Company would make a
cash equity contribution to acquire 100% of the equity interests in Treasure
Bay. Any plan must be approved by the bankruptcy court, and no assurance can be
given that the Company's plan of reorganization will be approved, that the
various classes of creditors would agree to the plan or that the Company would
elect to proceed with the plan. Additionally, any plan of reorganization may be
amended, resulting in changes to the amount and terms of debt of the reorganized
debtor and equity ownership acquired. The Company is incurring and expects to
continue to incur professional expenses and other expenses associated with legal
proceedings involving Treasure Bay and the Company's investment in Treasure Bay.
In the event that cash resources at the Santa Fe or Pioneer are insufficient
to meet operating or debt service requirements, Corporate may be required to
make contributions or loans to either the Santa Fe or Pioneer to prevent an
event of default under debt instruments to which Santa Fe Inc. or Pioneer Inc.
is a party. Additionally, the Company may purchase 11% Notes, 13-1/2% Notes
27
<PAGE>
and 10-1/4% Subordinated Debentures from time to time in the market and in
privately negotiated transactions or refinance existing indebtedness in order to
reduce outstanding indebtedness and debt service obligations.
Liquidity - Santa Fe - The indenture under which the 11% First Mortgage Notes
--------------------
due 2000 ("11% Notes") were issued contains restrictions on payments to and
investments in affiliates by Santa Fe Inc., including the Company. As a result
of these restrictions, all of the cash flow generated from operations by Santa
Fe Inc. is not currently, and is not expected in the foreseeable future to be,
available for distribution to the Company. Approximately $11.6 million of the
Company's current assets, including approximately $9.3 million of cash and short
term investments, was held by Santa Fe Inc. at September 30, 1995.
Results of operations at the Santa Fe for the twelve months ended September
30, 1995, excluding the $14.9 million charge against earnings to write down
development costs regarding Parkville, generated EBITDA of $17.5 million,
approximately 1.25 times interest expense during the same period compared to
$22.3 million of EBITDA in 1994 or approximately 1.95 times interest expenses.
During the three-month period ended September 30, 1995, the Santa Fe reported
EBITDA of $2.6 million compared to $5.2 million in the same period last year.
Santa Fe Inc.'s principal uses of funds generated from operations are for
interest payments on indebtedness and capital expenditures to maintain the
facility. Interest expense for the years ended September 30, 1995 and 1994 was
$14.0 million and $11.4 million, respectively. Interest expense attributable to
the 11% Notes is expected to increase in fiscal 1996 as a result of the
repurchase offer completed in August 1995 in which Santa Fe Inc. repurchased
$21.5 million principal amount of 11% Notes. Interest cost which were previously
capitalized in connection with the development of the proposed project in
Parkville, Missouri will be expensed in the future. (See Results of Operations -
Revenues; Operating Expenses) Capital expenditures for the years ended September
30, 1995 and 1994 were $15.8 million and $5.5 million, respectively. Management
believes capital expenditures to maintain the facility will be less than that
expended in the year ended September 30, 1995, in which expansion projects were
undertaken. (See Capital Expenditures below)
Management believes that, based on current operations and available
resources, barring unforeseen circumstances, Santa Fe Inc. will have sufficient
cash resources to meet its operating requirements and debt service requirements
through the twelve month period ending September 30, 1996, although no assurance
can be given to that effect. However, in the event Santa Fe Inc. is unable to
meet debt service payments through current operations and available resources,
Santa Fe will explore financing alternatives, including but not limited to
refinancing or modification of existing indebtedness, and the incurrence of
additional permitted indebtedness.
Liquidity - Pioneer - The indenture under which the 13-1/2% Notes were issued
-------------------
contain restrictions on payments to and investments in affiliates by Pioneer
Inc., including to the Company. As a result of these restrictions, all of the
cash flow generated by Pioneer Inc. is not currently, and is not expected in the
foreseeable future to be, available for distribution to the Company.
Approximately $5.6 million of the Company's current assets, including
approximately $3.0 million of cash and short term investments, was held by
Pioneer Inc. at September 30, 1995.
28
<PAGE>
In November 1995, the Company made an equity contribution of $15 million in
cash to Pioneer Inc., in accordance with terms of an agreement reached with
holders of the 13-1/2% Notes pursuant to which the holders of the 13-1/2%
Notes consented to the sale of the Hacienda and Sahara. Such funds are
restricted in use for debt service on the 13-1/2% Notes, repurchase of 13-1/2%
Notes, capital expenditures at the Pioneer, and, with respect to $10 million,
contribution to capital to a wholly-owned subsidiary of Pioneer Inc. that owns
the real property in Henderson, Nevada. In December 1995, the Pioneer used $3
million of such funds together with cash on hand to make the December 1, 1995
semi-annual interest payment of $5.6 million on the 13-1/2% Notes. The Company
has also agreed to contribute up to an additional $10 million to Pioneer Inc. in
the event that the 27 acre parcel on Las Vegas Boulevard is sold or Pioneer is
unable to make principal payments when due on the 13-1/2% Notes. Such
obligation will be reduced dollar for dollar to the extent the Company and its
affiliates loans or contributes up to $10 million to Pioneer Inc.
Results from operations at the Pioneer for the twelve months ended September
30, 1995 generated EBITDA of $10.7 million, approximately .78 times interest
expense during the same period, compared with $14.5 million of EBITDA in fiscal
1994 or approximately 1.04 times interest expense. During the three month period
ended September 30, 1995, EBITDA was $2.0 million, compared with $2.4 million of
EBITDA in the same period in fiscal 1994.
Pioneer Inc.'s principal uses of funds are for interest payments on
indebtedness and capital expenditures to maintain the facility. Interest
expense for the years ended September 30, 1995 and 1994 was $13.8 million and
$13.9 million, respectively. Interest expense attributable to the 13-1/2% Notes
is expected to decrease as a result of the retirement of $20 million principal
amount of 13-1/2% Notes in September 1995. (See Results of Operations-Pioneer).
Capital expenditures for the year ended September 30, 1995 and 1994 were $4.0
million and $1.7 million, respectively. Management believes capital expenditures
to maintain the facility will be less than that expended in the year ended
September 30, 1995, in which an expansion project was undertaken. (See Capital
Expenditures below).
Management believes that, based on current operations and available
resources, including the $15 million cash contribution discussed above and
taking into account the retirement of $20 million in principal amount of 13-1/2%
Notes in September 1995, barring unforeseen circumstances, the Pioneer will have
sufficient cash resources to meet its operating requirements and debt service
requirements through the 12 months ending September 30, 1996, although no
assurance can be given to that effect. In the event Pioneer Inc. is unable to
meet debt service payments through current operations and available resources,
Pioneer Inc. will explore financing alternatives, including but not limited to
refinancing or modification of existing indebtedness, and the incurrence of
additional permitted indebtedness.
Capital Expenditures - In December 1994, the Company completed construction of
--------------------
an expansion at the Santa Fe. The cost of construction and equipment was
approximately $14.4 million. During the year period ended September 30, 1995,
the Company recorded approximately $12.0 million in construction costs
associated with the expansion of the Santa Fe.
In December 1994, the Company completed construction of an expansion of the
Pioneer. The cost of construction and equipment was approximately $4.1 million.
During the year ended
29
<PAGE>
September 30, 1995, the Company recorded approximately $2.2 million in
construction costs associated with the expansion of the Pioneer.
In September 1995, the Company acquired 40 acres of undeveloped real
property located approximately eight miles south of the Hacienda for $2.4
million. If the Company does not consummate the sale of the Camperland assets
and liabilities, it expects to use the property to relocate the Camperland
operations.
Debt Obligations - In December 1995, the Company acquired $2.6 million
----------------
principal amount of 10-1/4% Subordinated Debentures due 1998 in full
satisfaction of the June 1996 sinking fund obligation and in partial
satisfaction of the June 1997 sinking fund obligation.
Excluding the 10-1/4% Subordinated Debenture 1996 and 1997 sinking fund
payments that have been satisfied above and the $115.0 million principal amount
of 12-1/8% Notes retired and defeased in October 1995 in connection with the
sale of the Sahara, during fiscal 1996 and 1997, scheduled maturities of long-
term debt (excluding capital leases) due to third parties are $3.5 million and
$4.3 million respectively, representing primarily principal amortization
payments under notes payable and capital leases. During fiscal 1996 and 1997,
$2.1 million and $1.7 million of the scheduled maturities are applicable to the
Santa Fe and $700,000 and $300,000 are applicable to the Pioneer Inc.,
respectively. In addition, the Santa Fe has an $8 million note payable to an
affiliate which matures in August 1996.
Additionally, approximately $29.1 million of long-term debt (excluding
capital leases) is scheduled to mature during fiscal 1998 representing primarily
$22.75 million sinking fund payment due on the 13-1/2% Notes in December 1997
and $5.5 million maturity in June 1998 of the 10-1/4% Subordinated Debentures.
Although management has in the past and is currently exploring refinancing
alternatives, as well as possible dispositions of certain assets, in order to
satisfy long-term debt obligations as they become due, no assurance can be given
that the Company will be able to refinance some or all of its indebtedness or
dispose of any assets. Any such refinancing would be subject to the Company's
future operations and the prevailing market conditions at the time of such
proposed refinancing and would require the approval of the Nevada Gaming
Authorities and potentially other state gaming authorities. If the Company is
ultimately unable to refinance such debt prior to maturity, and/or obtain
sufficient proceeds from asset dispositions to repay the debt, and if the
holders of the various debt instruments were to demand payment upon the maturity
dates, events of default would occur which would lead to cross-defaults in other
material agreements of the Company including, without limitations, agreements
relating to substantially all of the outstanding long-term debt of the Company
and its subsidiaries.
Related Parties LICO, a company wholly-owned by Mr. Lowden, Chairman of the
---------------
Board, Chief Executive Officers and 52% stockholder of the Company, borrowed
$476,000 from Hacienda Inc., pursuant to an unsecured demand loan which bears
interest at 2% over the prime rate. The
30
<PAGE>
outstanding balance of the loan including accrued interest was $545,000 as of
September 30, 1995.
As of September 30, 1993, Mr. Lowden had borrowed an aggregate of $1.9
million from the Company. The unsecured demand loans were evidenced by
promissory notes and accrued interest at a rate equal to 2% over the prime rate.
On January 4, 1994, Mr. Lowden repaid the loans from the Company in full,
together with accrued interest.
In November 1993, Mr. Lowden and Bank of America entered into a personal
loan agreement whereby the principal balance of the loan is amortized through
quarterly principal payments through April 1998, with any remaining principal
balance due July 31, 1998. In addition, in July 1995, Mr. Lowden prepaid $1
million principal amount of the loan. The loan principal balance was
approximately $3,177,417 as of November 30, 1995. The loan is secured by
substantially all of the common stock of the Company owned by Mr. Lowden (the
"Pledged Shares"). Mr. Lowden's loan agreement provides that in the event the
market value of the Pledged Shares is less than three times the outstanding loan
balance, the bank, at its sole option, may require either an immediate reduction
in the outstanding balance or the pledging of additional collateral acceptable
to the bank such that the value of the pledged collateral is at least three
times the outstanding loan balance. As of December 26, 1995, the market value
of the pledged shares was less than three times the outstanding loan balance.
Mr. Lowden and the bank are in discussions regarding the collateral supporting
the loan. In an event of default were to occur under Mr. Lowden's personal loan
with the bank, and if the bank acquired the Pledged Shares upon foreclosure, Mr.
Lowden's ownership of the Company's outstanding common stock would be reduced to
below 50%. If Mr. Lowden ceases to own more than 50% of the outstanding shares
of the Company's common stock, an event of default would result under certain
of the Company's long-term indebtedness, which could result in cross-defaults
under substantially all of the Company's other long-term indebtedness.
Effects of Inflation
- --------------------
The Company has been generally successful in recovering costs associated
with inflation through price adjustments in its hotel and contract sales
operations. Any such increases in costs associated with casino operations and
maintenance of properties may not be completely recovered by the Company.
31
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
For the Years Ended September 30, 1995, 1994, and 1993
Page
----
<TABLE>
<S> <C>
Independent Auditors' Report......................................... 33
Consolidated Balance Sheets as of
September 30, 1995 and 1994..................................... 34
Consolidated Statements of Operations for the Years Ended
September 30, 1995, 1994, and 1993.............................. 35
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1995, 1994, and 1993.................. 36
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1995, 1994, and 1993........................ 37
Notes to Consolidated Financial Statement............................ 38
Quarterly Results of Operations (Unaudited).......................... 57
</TABLE>
Financial Statement Schedules are omitted because of the absence of conditions
under which they are required or because the information is included in the
financial statements or the notes thereto.
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
Sahara Gaming Corporation:
We have audited the accompanying consolidated balance sheets of Sahara Gaming
Corporation and subsidiaries (the "Corporation") as of September 30, 1995 and
1994, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 1995. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on the
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 Sahara Gaming Corporation and
subsidiaries as of September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
December 15, 1995
33
<PAGE>
SAHARA GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
September 30, September 30,
ASSETS Notes 1995 1994
- ------------------------------------------ ------- ------------ -------------
<S> <C> <C> <C>
Current assets:
Cash and short-term investments 2,3 $ 42,749,932 $ 55,582,503
Accounts receivable, net 5 6,189,109 7,907,050
Accounts receivable, officer 6 545,042 500,525
Inventories 2 1,776,427 2,787,397
Prepaid expenses & other 5,758,808 7,323,786
Assets under agreement for sale 7,21 98,712,541 0
------------ -------------
Total current assets 155,731,859 74,101,261
Restricted cash--less current portion 4 0 23,079,791
Property and equipment: 2,8,11,12,21,22
Land held for development 19,114,486 16,689,665
Land used in operations 29,343,886 63,442,656
Buildings and improvements 86,139,487 236,862,331
Machinery and equipment 48,166,197 103,425,500
Construction in progress 7,566,453 19,325,747
Accumulated depreciation (44,904,176) (125,275,533)
------------ -------------
Property and equipment, net 145,426,333 314,470,366
Goodwill 2,9 47,506,348 48,835,414
Deferred income taxes 2,15 5,663,665 0
Other assets 12,309,796 18,068,605
------------ -------------
Total assets $366,638,001 $ 478,555,437
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------
Current liabilities:
Current portion of long-term debt 11,12,18,21,22 $ 6,234,550 $ 23,238,239
Accounts payable 7,024,980 6,790,785
Interest payable 9,516,776 11,589,574
Accrued and other liabilities 15,709,850 15,970,810
Debt due upon sale of assets 10,21 114,612,680 0
------------ -------------
Total current liabilities 153,098,836 57,589,408
Deferred income taxes 2,15 0 4,945,335
Long-term debt--less current portion 11,12,18,21,22 198,655,174 379,092,885
Commitments 12,18,21,22
Stockholder's Equity: 1,13,14
Common Stock, $.01 par value; authorized--
100,000,000 shares; issued and outstanding--
6,195,356 shares 61,944 61,944
Preferred stock, exchangeable, redeemable
8% cumulative, stated at $2.14 liquidation
value, authorized--10,000,000 shares; issued
and outstanding--8,187,563 shares at
September 30, 1995 and 7,570,895 at
September 30, 1994 17,521,385 16,201,715
Additional paid-in capital 51,513,504 51,513,504
Accumulated deficit (54,125,068) (30,761,580)
------------ -------------
Total 14,971,765 37,015,583
Less treasury stock--4,875 shares, at cost (87,774) (87,774)
------------ -------------
Total stockholders' equity 14,883,991 36,927,809
------------ -------------
Total liabilities and stockholders' equity $366,638,001 $ 478,555,437
============ =============
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
34
<PAGE>
SAHARA GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Notes 1995 1994 1993
----- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues: 2
Casino $148,740,793 $155,452,433 $151,445,265
Hotel 39,721,946 39,299,449 37,477,688
Food and beverage 30,755,268 32,240,923 31,565,670
Other 23,028,262 26,724,784 24,276,219
Gain on sale of assets 8,863,049
------------ ------------ ------------
Total revenues 251,109,318 253,717,589 244,764,842
------------ ------------ ------------
Operating expenses: 2
Casino 70,578,873 68,873,260 66,158,899
Hotel 17,316,036 18,011,909 17,720,184
Food and beverage 39,639,544 38,990,583 38,369,853
Other 9,682,434 9,845,726 10,335,397
Other expense paid to affiliate 17 3,425,007 3,549,498 2,975,994
Selling, general & administrative 31,327,009 30,424,408 26,138,735
Utilities & property expenses 25,447,749 24,344,909 23,032,492
Depreciation & amortization 9,12 28,183,806 26,704,563 23,393,465
Write-down of development costs 14,898,317
------------ ------------ ------------
Total operating expenses 240,498,775 220,744,856 208,125,019
------------ ------------ ------------
Operating income 10,610,543 32,972,733 36,639,823
Interest expense 11,12 45,017,461 43,191,261 37,832,723
Provision to reduce carrying value of
investment in Treasure Bay 18 12,579,482
------------ ------------ ------------
Net loss before income tax benefit
and extraordinary item (34,406,918) (22,798,010) (1,192,900)
Federal income tax benefit 2,15 (11,224,000) (7,059,000) (103,000)
------------ ------------ ------------
Net loss before extraordinary item (23,182,918) (15,739,010) (1,089,900)
Extraordinary item-gain on early
extinguishment of debt, net of tax
provision of $615,000 11 1,141,670
------------ ------------ ------------
Net loss (22,041,248) (15,739,010) (1,089,900)
Dividends on preferred shares 1,322,240 1,222,343
------------ ------------ ------------
Net loss applicable to common shares $(23,363,488) $(16,961,353) $ (1,089,900)
============ ============ ============
Average common shares outstanding 6,195,356 6,195,356 4,276,896
============ ============ ============
Loss per common share $ (3.77) $ (2.74) $ (0.25)
============ ============ ============
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
35
<PAGE>
SAHARA GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Additional
Common Preferred Paid-in Accumulated Treasury
Stock Stock Capital Deficit Stock Total
------- ----------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances,
September 30, 1992 $42,938 $ 0 $29,944,323 $(12,710,327) $(182,037) $ 17,094,897
Net loss (1,089,900) (1,089,900)
Treasury stock
transactions (38,575) 94,263 55,688
Purchase of minority
interest 19,006 14,980,000 21,607,771 36,606,777
------- ----------- ----------- ------------ --------- ------------
Balances,
September 30, 1993 61,944 14,980,000 51,513,519 (13,800,227) (87,774) 52,667,462
Net loss (15,739,010) (15,739,010)
Other (15) (15)
Preferred stock
dividends 1,221,715 (1,222,343) (628)
------- ----------- ----------- ------------ --------- ------------
Balances,
September 30, 1994 61,944 16,201,715 51,513,504 (30,761,580) (87,774) 36,927,809
Net loss (22,041,248) (22,041,248)
Preferred stock
dividends 1,319,670 (1,322,240) (2,570)
------- ----------- ----------- ------------ --------- ------------
Balances,
September 30, 1995 $61,944 $17,521,385 $51,513,504 $(54,125,068) $ (87,774) $ 14,883,991
======= =========== =========== ============ ========= ============
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
36
<PAGE>
SAHARA GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(22,041,248) $(15,739,010) $ (1,089,900)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 28,183,806 26,704,563 23,393,465
Gain on sale of subsidiary assets (8,863,049) 0 0
Write-off of development costs 14,898,317 0 0
Gain on early extinguishment of debt (1,141,670) 0 0
Provision to reduce carrying value of
investments in Treasure Bay 0 12,579,482 0
Debt discount amortization 1,978,747 1,668,603 999,695
Decrease (increase) in accounts receivable,
net 1,165,053 (271,124) 1,449,876
Decrease (increase) in due from officer (44,517) 1,965,007 (730,541)
Decrease (increase) in inventories 618,836 231,177 (90,900)
Decrease (increase) in prepaid expenses
& other 1,660,547 (251,508) (1,676,729)
Decrease in deferred income taxes (11,224,000) (7,059,000) (103,000)
Increase in other assets (868,292) (247,871) (3,257,424)
Increase (decrease) in accounts payable (57,643) (811,050) 1,881,397
Increase (decrease) in interest payable (2,072,798) 5,788,676 (264,714)
Increase (decrease) in other current liabilities (4,803,102) 2,461,480 (4,706,055)
------------ ------------ ------------
Net cash provided by (used in) operating activities (2,611,013) 27,019,425 15,805,170
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of subsidiary assets 80,000,000 0 0
Investment in Treasure Bay 0 (10,000,000) 0
Decrease (increase) in restricted cash 22,984,222 (23,079,791) 2,872,425
Capital expenditures (27,992,380) (40,080,972) (3,780,975)
------------ ------------ ------------
Net cash provided by (used in) investing activities 74,991,842 (73,160,763) (908,550)
------------ ------------ ------------
Cash flows from financing activities:
Cash proceeds of long-term debt 1,800,000 130,000,000 4,199,190
Cash paid on long-term debt (87,013,400) (51,726,226) (12,800,158)
Loan issue cost 0 (5,727,799) 0
------------ ------------ ------------
Net cash provided by (used in) financing
activities (85,213,400) 72,545,975 (8,600,968)
------------ ------------ ------------
Increase (decrease) in cash and short-term
investments (12,832,571) 26,404,637 6,295,652
Cash and short-term investments, beginning
of year 55,582,503 29,177,866 22,882,214
------------ ------------ ------------
Cash and short-term investments, end of
year $ 42,749,932 $ 55,582,503 $ 29,177,866
============ ============ ============
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
37
<PAGE>
SAHARA GAMING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1. BASIS OF PRESENTATION AND GENERAL INFORMATION
Sahara Gaming Corporation ("Sahara Gaming"), a publicly traded Nevada
corporation, is the successor corporation to a reorganization of Sahara Resorts
and Sahara Casino Partners, L.P., (the "Partnership") as more fully described
below (the "Reorganization"). During fiscal years 1995, 1994, and 1993, Sahara
Gaming's primary business operations were conducted through four wholly owned
subsidiary corporations, Sahara Nevada Corporation ("SNC"), Hacienda Hotel Inc.,
("HHI"), Santa Fe Hotel Inc., ("SFHI") and Pioneer Hotel Inc., ("PHI") (the
"Operating Companies"). The Operating Companies in turn own the Sahara Hotel
and Casino (the "Sahara"), the Hacienda Resort Hotel and Casino (the
"Hacienda"), and the Santa Fe Hotel and Casino (the "Santa Fe"), each located in
Las Vegas, Nevada, and the Pioneer Hotel & Gambling Hall (the "Pioneer") in
Laughlin, Nevada.
The Company sold substantially all the assets of the Hacienda for $80 million
in cash in August 1995 and the Sahara for $150 million in consideration,
including $128 million in cash and real property valued for purposes of the
transaction at approximately $22 million, in October 1995.
On September 30, 1993, the Partnership and Sahara Resorts consummated a
combination of the two entities through the merger of the Partnership with an
affiliate, Sahara Gaming, and the merger of Sahara Resorts with and into a
wholly-owned subsidiary of Sahara Gaming. The Sahara Resorts merger into a
wholly-owned subsidiary of Sahara Gaming was treated as a reorganization of
companies under common control and accounted for similar to a pooling of
interests, with the accompanying financial statements being adjusted to reflect
such transaction as of the earliest period presented, October 1, 1992. The
merger of the Partnership's minority interest was accounted for by the purchase
method. See Notes 8 and 13
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Sahara Gaming and its wholly owned subsidiaries, primarily SNC, HHI, SFHI and
PHI(collectively, the "Company"). Amounts representing the Company's percentage
interest in less than majority-owned companies in which a significant equity
ownership interest is held are accounted for on the equity method. All material
inter-company accounts and transactions have been eliminated in consolidation.
See Note 18
Cash and Short-Term Investments
Investments which mature within 90 days from the date of purchase are
38
<PAGE>
treated as cash equivalents and are included in cash and short-term
investments.
Inventories
Food, beverage, gift shop and other inventories are stated at first-in,
first-out cost, not in excess of market.
Property and Equipment
Property and equipment are stated at cost. Costs of maintenance and repairs
of property and equipment are expensed as incurred. Costs of major improvements
are capitalized; gains or losses on disposals are recognized.
Depreciation and amortization are computed by the straight-line method over
the shorter of the estimated useful lives or lease terms. The length of
depreciation and amortization periods are as follows:
Years
-----
Buildings and improvements 7-40
Machinery and equipment 3-15
Pre-Opening Expenses
All pre-opening expenses directly related to development of gaming operations
are capitalized as incurred and included in other assets and expensed within the
first year of operations.
Capitalization of Interest
Interest costs are capitalized on funds disbursed during the development
phase of projects and included in Property and Equipment and expensed within the
first year of operations.
Goodwill
The excess cost over the net assets of an acquired company is amortized
using the straight line method over a 40 year period. Management periodically
evaluates the realizability of goodwill as events and circumstances indicate a
possible inability to recover the carrying amount. See Note 9
Federal Income Taxes
Deferred income taxes are provided on timing differences between pretax
financial statement income and taxable income resulting from different methods
of depreciation and amortization.
The Company adopted SFAS No. 109, Accounting for Income Taxes, in the quarter
ended December 31, 1993. This Statement supersedes Accounting Principles Board
Opinion No. 11, Accounting for Income Taxes, previously used by the Company. The
cumulative effect of adopting the accounting change did not result in any
material operating adjustments. Certain purchase accounting adjustments were
recorded relative to deferred taxes and property as a result of adopting SFAS
No. 109. See Note 15
39
<PAGE>
Revenue Recognition
Casino revenue is recorded as gaming wins less losses. Operating revenues do
not include the retail amount of room, food, beverage and other services
provided gratuitously to customers. The estimated cost of providing these
services has been reported in the accompanying consolidated financial statements
as an expense of each department granting complimentary services. The casino
department has recorded 80%, 79%, and 81% of total promotional allowances in
fiscal years ended September 30, 1995, 1994 and 1993, respectively. The table
below summarizes the departments costs of such services. (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Food & Beverage $17,180 $16,125 $14,146
Hotel 3,673 3,933 3,523
Other 402 239 486
------- ------- -------
Total $21,255 $20,297 $18,155
======= ======= =======
</TABLE>
Indirect Expenses
Certain indirect expenses of operating departments such as utilities and
property expense and depreciation and amortization are shown separately in the
accompanying consolidated statements of operations and are not allocated to
departmental operating costs and expenses.
Reclassification
Certain balances in the 1994 and 1993 financial statements have been
reclassified to conform with current year classifications.
Earnings Per Share
Net income(loss) per common share is computed by dividing net income(loss)
less the amount applicable to preferred stock, by the weighted average common
shares outstanding during the year. Fully diluted earnings per common and
common equivalent share are not presented since dilution is less than 3%.
Financial Accounting Standard Board
In March 1995, the Financial Accounting Standard Board ("FASB") issued
Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of". The Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Statement No. 121 is effective for fiscal years
beginning after December 15, 1995. Management has not determined what effect, if
any, adoption of the Statement will have on the Company's future operations or
financial condition.
In October 1995, the FASB issued Statement No. 123 "Accounting for Stock-
Based Compensation" which establishes financial accounting and reporting
standards for stock-based employee compensation plans and for transactions in
which an entity issues its equity instruments to acquire goods or services from
nonemployees. Statement No. 123 is generally effective for fiscal years
beginning after December 15, 1995. Management has not determined what effect,
if any,
40
<PAGE>
adoption of the Statement will have on the Company's future operations or
financial condition.
Fair Value of Financial Instruments
The Company estimates the fair value of its Long Term Debt and Preferred
Stock to be $156 million and $5.6 million at September 30, 1995 based upon
available market prices. The Company estimates that all other financial
instruments have a fair value which approximates their recorded value.
3. CASH AND SHORT-TERM INVESTMENTS
At September 30, 1995, approximately $9.3 million of the Company's
consolidated cash and short term investments was held by SFHI and was subject to
certain restrictions and limitations on its use, including restrictions on its
availability for distribution to the Company, by the terms of an indenture
pursuant to which $115 million principal amount of 11% First Mortgage Notes due
2000 ("11% Notes") of SFHI were issued. In fiscal 1994, SFHI distributed
$700,000 to the Company. As of September 30, 1995, SFHI did not meet the
conditions precedent to making distribution to the Company.
At September 30, 1995, approximately $3.0 million of the Company's
consolidated cash and short-term investments was held by PHI and was subject to
certain restrictions, including restrictions on its availability for
distribution to the Company, by the terms of an indenture pursuant to which the
13-1/2% First Mortgage Notes due 1998 ("13-1/2% Notes")of Pioneer Finance Corp.
were issued, the proceeds of which were loaned to PHI. PHI distributed $2.6
million in fiscal 1993 to the Company and its subsidiaries and affiliates
pursuant to the terms of the indenture. As of September 30, 1995, PHI did not
meet the conditions precedent to making a distribution to the Company.
Pursuant to the Third Supplemental Indenture relating to the 13-1/2% Notes,
the Company, within 60 days of the sale of the Sahara is required to contribute
$15 million in cash to PHI. Such funds are restricted in use to repurchase of
13-1/2% Notes, debt service on 13-1/2% Notes, capital expenditures at the
Pioneer, and with respect to $10 million, contributions to capital to a wholly-
owned subsidiary of Pioneer Inc. which owns the real property in Henderson,
Nevada. See Notes 7, 10 and 21
In June 1995, SFHI repaid in full an $18 million affiliate note owed to SNC.
SNC then loaned $8 million to SFHI pursuant to a new affiliate note on
substantially the same terms and conditions as the original affiliate note. As
of September 30, 1995, approximately $10 million, reflecting the net balance of
the repayment of the original SFHI affiliate note, was held at SNC and was
restricted in use pursuant to an indenture to which $116.2 million
principal amount of 12-1/8% First Mortgage Notes due August 1996 ("12-1/8%
Notes") of Sahara Finance Corp. were issued. See Note 21
4. RESTRICTED CASH
Sahara Parkville, Inc., an indirect wholly-owned subsidiary of the Company
("Parkville Inc."), borrowed from SFHI $32.0 million of proceeds from the
offering by SFHI of the 11% Notes. The proceeds were placed in a collateral
account and restricted for use in connection with the development and
construction of a proposed dockside riverboat gaming facility in Parkville,
Missouri. In August 1995, in accordance with the indenture governing the 11%
Notes, SFHI consummated an offer to repurchase $21.5 million principal amount of
11% Notes, representing that principal amount of 11% Notes that were purchased
with funds remaining in the Parkville collateral account, and received upon
liquidation of the Parkville assets. In satisfaction of the obligation to
liquidate the Parkville assets, the Company acquired the Parkville assets from
SFHI for $2.99 million, which the Company and SFHI believe
41
<PAGE>
to be the fair market value of such assets. See Notes 8 and 11
Approximately $18.5 million remained in the collateral account from the $32.0
million dedicated to the Parkville development. Approximately $6.1 million had
been used in connection with the purchase of a riverboat for the site and
approximately $7.4 million had been spent in connection with other expenses
including interim interest.
5. ACCOUNTS RECEIVABLE, NET
Accounts receivable at September 30, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Casino and hotel $ 5,817,793 $ 8,502,265
Other 2,689,018 2,943,424
----------- -----------
Sub-total 8,506,811 11,445,689
Less allowance for
doubtful accounts 2,317,702 3,538,639
----------- -----------
Total $ 6,189,109 $ 7,907,050
=========== ===========
</TABLE>
Changes in the allowance for doubtful accounts for the years ended
September 30, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 3,538,639 $ 3,477,663 $ 5,175,229
Provision 634,938 348,534 645,095
Accounts written-off (1,855,875) (287,558) (2,342,661)
----------- ----------- -----------
Balance, end of year $ 2,317,702 $ 3,538,639 $ 3,477,663
=========== =========== ===========
</TABLE>
6. ACCOUNTS RECEIVABLE, OFFICER
As of September 30, 1995 and 1994, included in Accounts Receivable, Officer
is an unsecured demand loan in the principal amount of $476,000, which, together
with accrued interest, totaled $545,000 and $501,000, respectively, from HHI to
LICO, a company wholly-owned by Paul W. Lowden, Chairman of the Board, Chief
Executive Officer and 52% stockholder of the Company. The loan from HHI to LICO
bears interest at the rate equal to 2% over the prime rate. See Note 17
7. ASSETS UNDER AGREEMENT FOR SALE
In May 1995, the Company entered into an agreement to sell substantially all
of the assets of the Sahara for $128 million in cash and to exchange 22 acres of
land, a portion of which was utilized by the Sahara as a parking lot, for 27
acres of land just south of the Sahara on Las Vegas Boulevard, currently
occupied by a water theme park. At September 30, 1995, the properties, and
equipment relating to those assets subject to the agreement have been classified
as current assets on the consolidated balance sheet. On October 2, 1995, the
Company completed the sale. See Note 10 and 21
8. PROPERTY AND EQUIPMENT, NET
In August 1995, the Company sold substantially all of the assets of the
42
<PAGE>
Hacienda for $80 million in an all cash transaction. The Company recorded a
pre-tax gain from the sale of the Hacienda of $8.9 million. The gain represents
the $80 million sale price offset by the carrying value of the assets sold
($67.1 million), and an estimated cost to relocate the Camperland operation ($4
million). See Note 22
In September 1995, the Company acquired a 40 acre parcel of real estate
located approximately eight miles south of the Hacienda on Las Vegas Boulevard
for $2.4 million. It is the Company's intention to relocate Camperland
operations to this site, in the event an agreement to sell Camperland operations
is not consummated. See Note 22
In March 1994, the Company, through a wholly-owned subsidiary, purchased for
approximately $15.1 million a 39-acre parcel of land located in southeast Las
Vegas, for future development of a proposed casino hotel complex. The purchase
was financed with the proceeds from a private placement of $15 million principal
amount of 12% First Mortgage Notes due 1995 ("12% Notes"). In September 1995,
from proceeds of the sale of the Hacienda, the Company repaid the 12% Notes. As
of September 30, 1995, in addition to costs to acquire the property, the Company
had recorded approximately $1.8 million in preliminary engineering and
development costs and $2.8 million representing capitalized interest. See Note
11
In June 1995, the Company recorded a $14.9 million pre-tax charge against
income in connection with its development of a proposed dockside riverboat
gaming facility in Parkville, Missouri. As of June 30, 1995, the Company had
incurred $16.9 million in connection with the development of the proposed
Parkville project. Of this amount, approximately $8.0 million was used to
purchase a riverboat for the site, approximately $3.7 million represents
preliminary engineering and development expenses and approximately $5.2 million
represents capitalized interest costs. See Note 4 and 11
In December 1994, the Company completed construction of an expansion of the
Santa Fe, including the addition of three theme restaurants, approximately 300
new slot machines, a dedicated bingo room, race book, and other public areas.
The cost of construction and equipment was approximately $14.4 million. During
the year ended September 30, 1995, approximately $12.0 million in costs
associated with the expansion had been capitalized. The expansion was financed
through working capital and equipment financing.
In May 1994, the Company acquired an additional four-acre tract adjacent to
the Santa Fe. The entire purchase price of $980,000 was paid in cash. In
November 1993, the Company acquired a 22-acre tract of property located next to
the Santa Fe. The Company acquired this property for $1.6 million of which
amount $850,000 is payable pursuant to a note due November 1996. The balance of
the purchase price was paid in cash.
In December 1994, the Company completed construction of an expansion of the
Pioneer, including the addition of casino space, the addition of a special
events area and increased administrative and support areas. The cost of
construction and equipment was approximately $4.1 million. During the year
ended September 30, 1995, approximately $2.2 million in costs associated with
the expansion had been capitalized. The expansion was financed through working
capital and equipment financing.
43
<PAGE>
In the Reorganization, the acquisition through merger of the Partnership's
minority interest was accounted for by the purchase method. Accordingly, the
Company recorded a step-up in the basis of the Partnership assets of $38.5
million, Preferred Stock of $15.0 million, Common Stock of $15,217 and
Additional Paid-In Capital of $21.6 million. Costs of approximately $1.7
million associated with the transaction were offset against the increase in
Additional Paid-In Capital. The $38.5 million step-up in basis has been
allocated to land, machinery and equipment, and buildings and improvements
based on appraisals and managements' assessment of the fair values of the
Partnership's assets.
9. GOODWILL AND INTANGIBLE ASSETS
Goodwill is net of accumulated amortization of $9.1 million and $7.8 million
at September 30, 1995 and 1994, respectively. Amortization was $1.4 million in
1995, $1.5 million in 1994 and $1.4 million in 1993.
10. DEBT DUE UPON SALE OF ASSETS
In October 1995 the sale of substantially all of the assets of the Sahara was
consummated. Approximately $121 million cash proceeds from the sale were used to
fund the cost of the Company's retirement and defeasance of the 12-1/8% Notes.
See Note 21
The 12-1/8% First Mortgage Notes due August 1996 ("12-1/8 Notes") were issued
by Sahara Finance Corp., a wholly-owned subsidiary of the Company, were
guarantied by the Company, and were secured by a first deed of trust on the
Sahara Hotel and unsecured affiliates notes totaling $40 million. The 12-1/8%
Notes, effective rate of 12-1/4%, had monthly principal and interest payments of
$1,206,440 and matured on September 1, 1996. The 12-1/8% Notes did not have a
call provision prior to maturity. At September 30, 1995 the 12-1/8% Notes had an
outstanding balance of $114.6 million.
An affiliate note issued pursuant to the 12-1/8% Note indenture in the
principal amounts of $32 million by HHI in favor of SNC, matured upon the sale
of the Hacienda in August 1995. In September 1995, from the proceeds of the sale
of the Hacienda, HHI repaid SNC the $32 million affiliate note. SNC used all of
the $32 million received upon repayment of the Hacienda affiliate note to make a
loan on substantially the same terms and conditions to wholly-owned subsidiary
of the Company for the purpose of consummating the purchase of $20 million
principal amount of 13-1/2% Notes and repaying the $16.8 million principal
amount of 12% Notes. See Notes 11 and 21.
11. LONG-TERM DEBT
Long-term debt, net of unamortized discount, at September 30, 1995 and 1994
consisted of the following:
44
<PAGE>
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
11% First Mortgage Notes,
("11% Notes") due 2000
Effective Rate - 12.46% $ 97,840,906 $116,232,141
13-1/2% First Mortgage Notes,
("13-1/2% Notes") due 1998 82,750,000 102,750,000
10-1/4% Subordinated Sinking
Fund Debentures ("10-1/4%
Debentures"), due 1998
Effective Rate 16.9% 10,044,751 11,593,111
Note payable to Sierra Construct-
tion Corp., due 1998; interest
at prime plus 2% 6,020,117 6,070,277
Other notes payable, collater-
alized primarily by equipment 7,057,141 11,049,388
Obligations under capital leases 1,176,809 2,428,515
12-1/8% First Mortgage Notes,
("12-1/8% Notes") due 1996 0 114,974,276
11.875% Note payable to the
Public Employees' Retirement
System of Nevada ("PERS") due 1995 0 22,233,416
12% Convertible Mortgage Notes
("12% Notes") due September 1995 0 15,000,000
------------ ------------
Subtotal 204,889,724 402,331,124
Less current portion 6,234,550 23,238,239
------------ ------------
Total long-term Debt $198,655,174 $379,092,885
============ ============
</TABLE>
The scheduled maturities of long-term debt (excluding capital leases) for the
year ending September 30 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 5,748,711
1997 4,671,919
1998 29,091,570
1999 65,357,451
2000 450,288
Thereafter 98,392,976
------------
Total $203,712,915
============
</TABLE>
The 11% Notes are secured by, among other things, a first priority deed of
trust on the Santa Fe, pledge of the capital stock of Sahara Parkville, Inc.,
and pledge of SFHI's equity interest in Treasure Bay. The 11% Notes are
guarantied by the Company. Interest is payable semi-annually on June 15 and
December 15, at the rate of 11% per annum. On December 29, 1993, SFHI
consummated a public offering (the
45
<PAGE>
"Offering") of 11,500 units, with each unit consisting of $10,000 principal of
the 11% Notes and one warrant to acquire, for no additional consideration, an
additional $1,000 principal amount of the 11% Notes upon exercise no later than
December 15, 1996. Assuming all warrants were exercised on December 15, 1996,
the total principal amount of 11% Notes to be paid at maturity would have been
$126.5 million and the effective rate of interest per annum for the 11% Notes to
maturity would have been 12.46%. SFHI is subject to certain covenants under the
indenture in which the 11% Notes were issued including, among other things,
restrictions on the incurrence of additional debt and making any loan or any
distribution or dividends to any affiliate of the Company.
In August 1995, in accordance with the indenture governing the 11% Notes,
SFHI completed an offer to repurchase for cash $21.5 million principal amount of
11% Notes at a price of $1.010 per 1,000 principal amount, plus accrued
interest, representing that principal amount that could be purchased with funds
remaining in the Parkville collateral account dedicated to use in the
development of a proposed dockside riverboat casino and received upon
liquidation of the Parkville assets. The repurchase offer was required to be
made because the proposed casino in Parkville, Missouri that SFHI intended to
develop was not operating by June 30, 1995. As a result of the commencement of
the Repurchase Offer, warrants to acquire $11.5 million principal amount 11%
Notes were exercised resulting in $126.5 million principal amount of
11% Notes outstanding prior to consummation of the Repurchase Offer. As of
September 30, 1995, $105.0 million principal amount of 11% Notes remain
outstanding, and are reported net of unamortized debt discount of $7.2 million
in the consolidated balance sheet. The Company recorded an extraordinary charge
to earnings in the amount of approximately $2.6 million, less income tax benefit
of $890,000, related to debt premium payments, debt issue costs and debt
discount in connection with the repurchase offer. See Notes 4 and 8
The 13-1/2% Notes are secured by a first deed of trust on the Pioneer and
were issued by Pioneer Finance Corp., a wholly-owned subsidiary of the Company.
The 13-1/2% Notes are guarantied by the Company. Interest is payable semi-
annually on June 1 and December 1 at a rate of 13-1/2% per annum. PHI is
subject to certain conditions under the indenture under which the 13-1/2% Notes
were issued, including, without limitation restrictions on the incurrence of
additional debt and the making of any loans or distributions or dividends to
affiliates of the Company.
In September 1995, from the proceeds of the sale of the Hacienda, the Company
acquired $20 million principal amount of 13-1/2% Notes. The Company recorded a
extraordinary gain of $4.3 million less income tax charge of $1.5 million. The
$20.0 million principal amount of the 13-1/2% Notes acquired were submitted to
the trustee for cancellation and in satisfaction in full of the Company's
remaining $12.75 million sinking fund payment due in December 1996 and reduced
the December 1997 sinking fund obligation to $22.75 million. The remaining
balance of the 13-1/2 Notes, $60 million principal amount, is due in December
1998.
The 10-1/4% Debentures have an effective interest rate of 16.9%, payable
semi-annually, and a principal balance of $11.4 million and $13.5 million less
unamortized discount of $1.3 million and $1.9 million on September 30, 1995 and
1994, respectively; the 10-1/4% Debentures have an annual sinking fund payment
obligation of $2.3 million. The 10-1/4% Debentures restrict the purchase of the
Company's capital stock and payment of cash dividends on any of the Company's
capital stock to the extent of the aggregate consolidated net income of the
Company from September 30, 1982 to the end of the most recent fiscal quarter
preceding the date of declaration of the dividend. As of September 30, 1995, the
Company had a cumulative consolidated net loss of $59.5 million since October 1,
1982. See Note 13
The note payable to Sierra Construction Corp. bears interest at prime plus
46
<PAGE>
2% (10.75% at September 30, 1995); payable in monthly installments of principal
and interest of $80,099 commencing December 1993. The balance is due in December
1998.
On December 7, 1994, SFHI borrowed $3.0 million pursuant to a working capital
loan agreement. The loan, which bears interest at an annual rate of 11%, is
guarantied by the Company. The loan is payable through principal and interest
payments on a monthly basis through December 1, 1996.
In August 1995, the sale of substantially all of the assets of the Hacienda
was consummated. Proceeds from the sale were used, in part, to repay a $22
million note secured by a first deed of trust ("PERS Note") on the Hacienda.
On March 31, 1994, a wholly-owned subsidiary of the Company issued $15.0
million principal amount 12% First Mortgage Notes guaranteed by the Company and
HHI ("12% Notes") and secured by, among other things, a first priority lien on a
39 acre parcel of real property located in Henderson, Nevada. The 12% Notes
were repaid from proceeds upon consummation of the sale of substantially all of
the assets of the Hacienda. See Notes 8 and 10
12. LEASES
All non-cancelable leases have been classified as capital or operating
leases. At September 30, 1995, the Company had leases for personal and real
property which expire in various years to 2078. Under most leasing
arrangements, the Company pays the taxes, insurance and the operating expenses
related to the leased property.
At September 30, 1995 and 1994 equipment leased under capital leases are
recorded in the Consolidated Balance Sheet as follows :
<TABLE>
<CAPTION>
September 30
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Equipment $5,463,000 $6,069,000
Less accumulated
amortization 4,154,000 3,132,000
---------- ----------
Total $1,309,000 $2,937,000
========== ==========
</TABLE>
Amortization of assets leased under capital leases is included in
depreciation and amortization expense in the Consolidated Statements of
Operations.
Future minimum lease payments as of September 30, 1995 are as follows:
<TABLE>
<CAPTION>
Capital Operating
---------- -----------
<S> <C> <C>
1996 $ 605,115 $ 673,940
1997 476,089 663,440
1998 293,257 663,440
1999 -0- 663,440
2000 -0- 663,440
Thereafter -0- 51,140,179
---------- -----------
1,374,461 $54,467,879
===========
Less amount representing
interest 197,652
----------
Present value of minimum
lease payments $1,176,809
==========
</TABLE>
47
<PAGE>
Included in future operating minimum lease payments are rental costs
associated with the real property under the lease at the Pioneer. Approximately
6-1/2 acres of the Pioneer property are subject to a 99 year ground lease,
expiring in December 2078. Under the ground lease the Company is subject to an
annual rental obligation of $663,000 per year, adjusted annually based on the
Consumer Price Index. Additionally, every ten years beginning January 1, 2004,
the annual rent will be adjusted to an amount equal to 10% of the fair market
value of the land subject to the ground lease, on an unimproved basis.
13. STOCKHOLDERS' EQUITY
In the Reorganization, each of the 3,435,000 outstanding shares of Sahara
Resorts was converted into one share of the Company's Common Stock, and each of
the 7,000,000 outstanding Units of the Partnership was converted into .2174 of a
share of the Company's Common Stock (a 4.6:1 exchange ratio) and one share of
the Company's Exchangeable Redeemable Preferred Stock, $2.14 liquidation
preference per share (the "Preferred Stock"). A subsidiary of Sahara Resorts
received .2174 of a share of the Company's Common Stock for each of its
11,300,000 limited partner interests in the Partnership and 81,189 shares of the
Company's Common Stock for its 2% general partner interest in the Partnership.
The shares of the Company's Common Stock received by the Subsidiary of Sahara
Resorts were ultimately transferred as a dividend to the Company and have been
accounted for as retired.
On January 25, 1994, the Company announced a 25% stock dividend on the Common
Stock payable on February 25, 1994 to stockholders of record on February 4,
1994. The accompanying financial statements have been adjusted to give effect
to this stock dividend as if it has occurred as of the earliest period
presented.
In March and September of fiscal years 1995 and 1994, the Company declared a
semi-annual dividend on its Preferred Stock pursuant to the terms of the
Certificate of Designation with respect to the Preferred Stock. Each semi-annual
dividend was paid in shares of Preferred Stock in an amount equal to .04 of a
share for each share of Preferred Stock. Cash was paid in lieu of fractional
shares. The Company may elect in fiscal 1996 to pay dividends declared on the
Preferred Stock in shares of the Preferred Stock. Thereafter, dividends, if
declared, must be paid in cash.
At the election of the Company, the Preferred Stock is redeemable, in whole
or in part, at any time and from time to time at a redemption price equal to the
per share liquidation preference of $2.14 plus (i) an amount equal to all
accrued but unpaid dividends, whether or not declared, plus (ii) under certain
circumstances relating to asset dispositions and mergers, an additional amount
determined in accordance with the Certificate of Determination of the Preferred
Stock (the "Liquidation Preference"). Additionally, at the election of the
Company, if any shares of Preferred Stock have not been redeemed on or prior to
the tenth dividend payment date from the issuance of the Preferred Stock, such
shares may be exchanged from time to time for Junior Subordinated Notes of the
Company. The principal amount of the Junior Subordinated Notes, if issued, will
be equal to the Liquidation Preference of the Preferred Stock for which such
notes are exchanged. The Junior Subordinated Notes will mature on September 30,
2008, and will bear interest at an annual rate of 11%, payable semi-annually.
14. STOCK OPTION PLAN
48
<PAGE>
The Company has a Key Employee Stock Option Plan (the "Stock Option Plan")
providing for the grant of up to 319,375 shares of its common stock to key
employees. As of September 30, 1995, there are 40,000 options outstanding under
the Stock Option Plan. The Stock Option Plan provides for both incentive stock
options and non-qualified stock options. Additionally, as of September 30, 1995
there were outstanding 36,000 options granted under the Sahara Resorts 1983 Key
Employee Stock Option Plan which were converted on a one-for-one basis into
options to purchase common stock of the Company in connection with the
Reorganization and assumed by the Company. The outstanding options have exercise
prices ranging from $22.60 to $3.30 per share.
15. FEDERAL INCOME TAXES
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109. In accordance with SFAS No. 109, deferred income
taxes reflect the net effects of (a) temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes, and (b) operating loss and tax credits
carryforwards. The cumulative effect on prior years of this change in
accounting principle was not material. Deferred income taxes of $11.0 million
were recorded as of October 1, 1993 as a result of the purchase accounting
associated with the incorporation of the Company's investment in a publicly
traded partnership. The Company has recognized approximately $29.3 million in
federal income tax benefit for financial reporting purposes based on book
losses.
The benefit for income taxes attributable to pre-tax income consisted of:
<TABLE>
<CAPTION>
Year Ended September 30 1995 1994 1993
- --------------------------- --------- -------- ------
<S> <C> <C> <C>
(Dollars in thousands)
Current --- --- ---
Deferred $(10,609) $(7,059) $(103)
-------- ------- -----
Total benefit $(10,609) $(7,059) $(103)
======== ======= =====
</TABLE>
The benefit for income taxes attributable to pre-tax income differs from the
amount computed at the federal income tax statutory rate as a result of the
following:
<TABLE>
<CAPTION>
Year Ended September 30 1995 1994 1993
- -------------------------------------- --------- --------- ------
<S> <C> <C> <C>
(Dollars in thousands)
Amount at statutory rate $(11,428) $ (7,979) $(410)
Goodwill 487 522 307
Lobbying costs 0 170
Other 332 228 ---
-------- -------- -----
$(10,609) $ (7,059) $(103)
======== ======== =====
</TABLE>
The components of the deferred tax liability consisted of the following:
<TABLE>
<CAPTION>
At September 30 1995 1994
- --------------------------------------------------- -------- --------
<S> <C> <C>
(Dollars in thousands)
DEFERRED TAX LIABILITIES
</TABLE>
49
<PAGE>
<TABLE>
<S> <C> <C>
Inventories and prepaid expenses $ 1,156 $ 2,036
Fixed asset cost, depreciation
and amortization, net 11,823 20,176
Capitalized Interest 953 1,514
Deferred Payroll 824 994
-------- --------
Gross deferred tax liabilities $ 14,756 $ 24,720
======== ========
DEFERRED TAX ASSETS
Net operating loss carryforward $ 15,647 $ 14,501
Reserves for accounts and
contracts receivable 1,173 1,674
Original issue discount 3,600 3,600
-------- --------
Gross deferred tax assets 20,420 19,775
-------- --------
Net deferred tax assets (liabilities) $ 5,664 ($4,945)
======== ========
</TABLE>
At September 30, 1995, the Company has a net operating loss carryforward for
regular income tax purposes of approximately $46 million, which expires by the
year 2010. The Company has not recorded a valuation allowance to reduce the
carrying value of the deferred tax assets since these assets arose principally
from temporary differences which will reverse within the prescribed carryforward
period or will be recognized in periods corresponding to the reversal of certain
of the deferred tax liabilities.
16. BENEFIT PLANS
The Company contributes to multi-employer pension plans under various union
agreements to which SNC and HHI are a party. Contributions, based on wages paid
to covered employees, were approximately $1.9 million, $1.9 million, and $1.7
million for the years ended September 30, 1995, 1994, and 1993, respectively.
The Company's share of any unfunded liability related to multi-employer plans,
if any, is not determinable.
The Company has a savings plan (the "Plan") qualified under Section 401(k) of
the Internal Revenue Code of 1986, as amended. The Plan covers substantially
all employees who are not covered by a collective bargaining unit. The Company's
matching contributions paid in 1995, 1994, and 1993, were $93,000, $89,000, and
$86,000, respectively.
17. RELATED PARTIES
LICO, a company wholly-owned by Mr. Lowden, Chairman of the Board, Chief
Executive Officer and 52% stockholder of the Company, had borrowed $476,000
from Hacienda Inc., pursuant to an unsecured demand loan. The outstanding
balance of the loan including accrued interest was $545,000 as of September 30,
1995. The demand loan to LICO bears interest at 2% over the prime rate.
LICO provides entertainment services to the Company. Entertainment expense
incurred for services provided by LICO was $3.4 million, $3.5 million, and $3.0
million for fiscal years 1995, 1994, and 1993, respectively.
As of September 30, 1993, Mr. Lowden had borrowed an aggregate of $1.9
million from the Company. The unsecured demand loans were evidenced by
promissory notes and accrued interest at a rate equal to 2% over the prime rate.
On January 4,
50
<PAGE>
1994, Mr. Lowden repaid the loans from the Company in full, together with
accrued interest.
In November 1993, Mr. Lowden and Bank of America entered into a personal loan
agreement whereby the principal balance of the loan is amortized through
quarterly principal payments through April 1998, with any remaining principal
balance due July 31, 1998. In July 1995, Mr. Lowden prepaid $1.0 million
principal amount of the loan balance. At November 30, 1995, the principal
balance of the loan was approximately $3,177,417. The loan is secured by
substantially all of the Company's common stock (the "Pledged Shares"), owned by
Mr. Lowden. Mr. Lowden's loan agreement provides that in the event the market
value of the Pledged Shares is less than three times the outstanding loan
balance, the bank, at its sole option, may require either an immediate reduction
in the outstanding balance or the pledging of additional collateral acceptable
to the bank such that the value of the pledged collateral is at least three
times the outstanding loan balance. As of September 30, 1995, the market value
of the Pledged Shares is less than three times the outstanding loan balance. Mr.
Lowden and the bank are in discussions regarding the collateral supporting the
loan. If an event of default were to occur under his personal loan with the
bank, and if the bank acquired the Pledged Shares upon foreclosure, Mr. Lowden's
ownership of Sahara Gaming's outstanding common stock would be reduced to below
50%. If Mr. Lowden ceases to own more than 50% of the outstanding shares of
Sahara Gaming's common stock, an event of default would be triggered under
certain of Sahara Gaming's long-term indebtedness, which would result in cross-
defaults under substantially all of Sahara Gaming's other long-term
indebtedness, including the 13-1/2% Notes and 11% Notes.
18. MINORITY INTEREST - TREASURE BAY
Biloxi, Mississippi - Treasure Bay
In April 1994, Santa Fe Inc. purchased from Treasure Bay Gaming & Resorts
Inc. ("Treasure Bay") for $10.0 million approximately 20% of Treasure Bay's
common stock and 33-1/3% of Treasure Bay's preferred stock. The Company also
unconditionally guaranteed the payment of $4.5 million of the indebtedness of
Treasure Bay incurred to finance working capital in connection with the opening
of Treasure Bay's casinos in Biloxi, Mississippi in April 1994 and in Tunica,
Mississippi in May 1994, which indebtedness the Company acquired in December
1994. In connection with its stock purchase, Santa Fe Inc. entered into an
agreement with Treasure Bay to manage both properties. However, in December
1994, Treasure Bay notified the Company that Treasure Bay was assuming
management control of Treasure Bay's properties and alleged that the Company was
in default under the management agreement and had mismanaged the Treasure Bay
properties.
On January 10, 1995, Treasure Bay and its operating subsidiary, Treasure Bay
Corp., filed for Chapter 11 relief in the United States Bankruptcy Court for the
Southern District of Mississippi. Pending resolution of the Treasure Bay
bankruptcy proceedings, Santa Fe Inc. does not expect to receive payments under
the management agreement or with respect to the acquired indebtedness and no
assurance can be given that any amounts will ultimately be repaid.
The operations of Treasure Bay currently consist solely of a riverboat
casino in Biloxi, Mississippi. Since August 1995, Treasure Bay's management, the
Company and an ad hoc committee of Treasure Bay bondholders have each filed
plans of reorganization with the bankruptcy court. The Company believes that
confirmation hearings with respect to the plans will be held sometime in 1996.
The Company's plan of reorganization for Treasure Bay contemplates that, subject
to various conditions, the various classes of secured and unsecured creditors of
the debtor agree to accept modifications to, and reductions in outstanding
amounts of, Treasure Bay's outstanding obligations and the Company would make a
cash equity contribution to acquire 100% of the equity interests in Treasure
Bay. Any plan must be approved by the bankruptcy court, and no assurance can be
given that the Company's plan of reorganization will be approved, that the
various classes of creditors would agree to the plan or that the Company would
elect to proceed with the plan. Additionally, any plan of reorganization may be
amended, resulting in changes to the amount and terms of debt of the reorganized
debtor and equity ownership acquired.
51
<PAGE>
In light of Treasure Bay's financial condition, Sahara Gaming recorded a
$12.6 million pre-tax charge against income in the fourth quarter of fiscal 1994
in connection with its investment in Treasure Bay, guarantee related to the
working capital loan and its management contract.
19. CONTINGENCIES
The Company and its predecessor, Sahara Casino Partners, L.P. are defendants
in two class action lawsuits filed in the United States District Court of
Florida, Orlando Division, entitled Poulos v. Caesar's World, Inc., et al. and
Ahern v. Caesar's World, Inc., et al. which have been consolidated in a single
action and a third class action lawsuit filed in the United States District
Court of Nevada, entitled Schrier v. Ceasar's World, Inc., et al. Also named as
defendants in these actions are many, if not most, of the largest gaming
companies in the United States and certain gaming equipment manufacturers. Each
complaint is identical in its material allegations. The actions allege that the
defendants have engaged in fraudulent and misleading conduct by inducing people
to play video poker machines and electronic slot machines based on false beliefs
concerning how the machines operate and the extent to which there is actually an
opportunity to win on a given play. The complaints allege that the defendants'
acts constitute violations of the Racketeer Influenced and Corrupt Organizations
Act ("RICO") and also give rise to claims for common law fraud and unjust
enrichment, and it seeks compensatory, special consequential, incidental and
punitive damages of several billion dollars.
In response to the complaints, all of the defendants, including the Company
and the Partnership, filed motions attacking the pleadings for failure to state
a claim, seeking to dismiss the complaints for lack of personal jurisdiction and
venue, and, in the case of the consolidated case, seeking to transfer venue of
the actions to Las Vegas. The Court granted the defendants' motion to transfer
venue of the Poulos action to Las Vegas. Plaintiffs have responded to all
motions and have also propounded discovery with respect to each defendant on
jurisdiction, venue and class issues. The Company expects that there will be
further briefing on the motions, and the Court has not indicated when it will
rule on these motions. Plaintiffs have also filed their motion to certify the
class. A representative group of the defendants took the deposition of each
plaintiff and also obtained documents from the plaintiffs. It is not known when
the Court will rule on the class certification motions.
The Company, its predecessor, Sahara Casino Partners, L.P. and Pioneer Inc.
are defendants in a class-action lawsuit filed in the Unites States District
Court of New Jersey, Camden Division, entitled Hyland v. Griffin Investigations
et al. Also named as defendants in this action are many, if not most, of the
largest gaming companies in the United States. The action alleges violations of
Federal anti-trust law, the Fair Credit Reporting Act and state trespass
statutes stemming from plaintiffs' exclusion from various casinos on the basis
that plaintiffs are card counters. The complaint seeks compensatory as well as
punitive damages. Pioneer Inc. has already been dismissed, and the Company has
filed a motion to dismiss for lack of personal jurisdiction and failure to state
a claim upon which relief may be granted. This motion is presently pending
before the Court.
On December 12, 1994, the Company and Santa Fe Inc. filed a lawsuit in the
United States District Court, District of Nevada, naming Treasure Bay officers
A. Clay Rankin III, Joe N. Hendrix and Bernie Burkholder, and former officer
Francis L. Miller as defendants in matters involving violations of Section 10(b)
and Rule 10(b)-5 of the Securities Exchange Act, violation of Nevada state
securities laws, fraud and negligent misrepresentation in connection with the
Company's investment of $10 million in exchange for a 20% interest in Treasure
Bay, and the Company's guarantee of $4.5 million of Treasure Bay's indebtedness.
The defendants have filed answers to
52
<PAGE>
the complaint and discovery is continuing.
On December 15, 1994, Francis L. Miller filed a lawsuit in the Mississippi
Circuit Court, Second Judicial District, against the Company and Santa Fe as
well as Paul W. Lowden and Suzanne Lowden, alleging, among other things, that
the Company made certain misrepresentations which induced Francis Miller to
entrust the management of his investments in Treasure Bay's two Mississippi
casinos to the Company and Santa Fe and to sell the Company and Santa Fe a 20%
ownership interest in Treasure Bay. The lawsuit was subsequently amended to
remove Suzanne Lowden as a defendant. The Company and Santa Fe filed a
successful motion to transfer this case to the United States District Court in
Nevada.
On March 31, 1995, Treasure Bay Corp. commenced an adversary proceeding in
its bankruptcy case by filing a complaint for a preliminary and permanent
injunction pursuant to 11 U.S.C. Sec. 105 and Sec. 362 against the Company and
Santa Fe. The Complaint alleges that the filing of the action against Bernie
Burkholder, an officer of Treasure Bay Corp., in Nevada federal court violated
the automatic stay imposed by 11 U.S.C. Sec. 362, or alternatively, that the
Bankruptcy Court should issue an injunction pursuant to 11 U.S.C. Sec. 105
preventing Sahara from proceeding with its action as against Burkholder. In
addition to an injunction, the complaint seeks actual and punitive damages and
attorneys' fees. In a hearing on this complaint, Treasure Bay abandoned its
claims for damages and violation of the stay. However, the bankruptcy court
granted Treasure Bay's request for a stay of discovery against Bernie Burkholder
that will expire after the confirmation hearing on Treasure Bay's bankruptcy
plan.
In addition, the Company is subject to various lawsuits relating to routine
matters incidental to its business. The Company does not believe that the
outcome of such litigation, in the aggregate, will have a material adverse
effect on the Company.
20. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information is presented below:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Operating activities:
Cash paid during the period
for interest, net of amount
capitalized of $4,693,714
for 1995 and $1,764,186
for 1994 $45,111,514 $38,610,465 $37,138,747
=========== =========== ===========
Investing and financing activities:
Capital lease obligations
incurred in connection with
the acquisition of machinery
and equipment $ 77,682 $ 66,983 $ 708,708
=========== =========== ===========
Long-term debt incurred in
connection with the
acquisition of machinery
and equipment $ 2,533,436 $ 4,019,070 $ 9,674,527
=========== =========== ===========
Preferred stock dividends
</TABLE>
53
<PAGE>
<TABLE>
<S> <C> <C> <C>
at liquidation value $ 1,319,670 $ 1,221,715
=========== ===========
Acquisition of minority
interest through the
issuance of common and
preferred stock resulting
in additions to property,
plant and equipment, and
goodwill $36,606,777
===========
Adjustment to property, plant
and equipment under
adoption of SFAS No. 109 $11,062,602
===========
</TABLE>
21. SUBSEQUENT EVENTS - ASSETS UNDER AGREEMENT FOR SALE
On October 2, 1995, the Company sold substantially all of the assets of the
Sahara for $128 million in cash and exchanged 22 acres of land, a portion of
which was utilized by the Sahara as a parking lot, for 27 acres of land just
south of the Sahara on Las Vegas Boulevard, on which a water theme park
currently operates. The Company utilized approximately $122 million in proceeds
to retire and defease indebtedness of approximately $115 million secured by the
Sahara assets and to pay costs to close the transaction, including approximately
$6 million of costs associated with the defeasance of the 12-1/8% Notes. The net
proceeds of approximately $6 million was added to working capital. The Company
expects to record a pre-tax gain of approximately $40 million (net of the
extinguishment of debt charge discussed below)on the sale of substantially all
of the assets of Sahara in the first quarter of fiscal 1996.
In connection the sale of the Sahara, in August 1995, the Company commenced
an offer to purchase for cash all outstanding 12-1/8% Notes, approximately
$114.6 million, at a price of $1,047 per $1,000 principal amount, plus accrued
interest. Upon consummation of the sale, the Company accepted $89.2 million
original principal amount of 12-1/8% Notes tendered in the offer and defeased
the remaining balance of 12-1/8% Notes, approximately $27 original principal
amount of 12-1/8% Notes. In November 1995, the Company acquired and retired the
remaining $27 million original principal amount of 12-1/8% Notes that were
defeased upon consummation of the sale. The Company expects to record an
approximate $6.0 million charge for extinguishment of debt against the gain on
the sale of the Sahara in the first quarter of fiscal 1996.
In connection with the acquisition of the 27 acre parcel, the Company
assumed the operating lease under which a water theme park operates. The lease
may be terminated by the Company at any time after December 1996. The Company
has guaranteed payments by the tenant of a loan to the prior owner of the
property ("tenant loan") and has agreed to pay the loan in full in certain
situations, including in the event the lease is terminated for any reason prior
to 2004. The tenant loan, which is amortized through monthly principal and
interest payments through December 2004, had an outstanding balance of $6.2
million as of September 30, 1995. Under the terms of the lease, as amended, the
water-theme park remits a base rent of approximately $16,000 monthly plus an
annual rent payment based on gross receipts.
22. SUBSEQUENT EVENTS - OTHER
In October 1995, upon consummation of the sale of the Sahara, SNC distributed
to the Company the $32 million affiliate note between SNC and an affiliate. The
Company satisfied in full a $15.2 million affiliate note issued
54
<PAGE>
between the Company and the same affiliate by offsetting it against the $32
million affiliate note. The Company then forgave, as a contribution to capital,
the balance of $16.8 million to the capital stock of a wholly-owned subsidiary
which owns 39 acres in Henderson, Nevada. Simultaneously, the Company
contributed the capital stock of the wholly-owned subsidiary to the Pioneer.
In addition, upon consummation of the sale of the Sahara and in substance
defeasement of the 12-1/8% Notes, the covenants restricting the use of the $10
million held by SNC, pursuant to the repayment of the original SFHI affiliate
note were extinguished. An $8 million affiliate note issued in June 1995
remains outstanding and matures in August 1996. See Note 3 and 10
The Company has agreed to grant a security interest in the 27 acre parcel
for the benefit of the holders of the 13-1/2% Notes to secure a contingent
obligation of the Company to contribute or loan $10 million to PHI. The
security interest will be released in the event of such a contribution or loan.
In November 1995, the Company contributed $15 million in cash to the Pioneer
Inc., pursuant to an agreement reached with holders of 13-1/2% Notes, in which
the holders of 13-1/2% Notes consented to the sale of the Hacienda and Sahara.
In November 1995, the Company sold the Spirit of America barge vessel
("Spirit") for $3.3 million in cash. The Spirit was acquired in connection with
the Company's proposed development of a casino entertainment complex in
Parkville, Missouri. Net proceeds of $3.2 million from the sale were added to
general working capital.
In December 1995, the Company acquired in the market $2.3 million principal
amount of 11% Notes and $2.6 million principal amount of 10-1/4% Subordinated
Debentures. The Company expects to record an after-tax extraordinary gain of
approximately $435,000 from the early retirement of 11% Notes.
In October 1995, the Company entered into an agreement to transfer its rights
and obligations under contracts with members of Camperland, to the developer of
a recreational vehicle park currently under construction. Pursuant to the
agreement, the Company will pay $4 million to the developer and the developer
will assume all obligations relating to Camperland contracts. The Company will
remain contingently liable for such obligations. The agreement is subject to,
among other things, a due diligence review by the developer. If that agreement
is not consummated, the Company will be obligated to transfer the Camperland
operations to another location on or before February 1997 and continue to
service existing contracts. The Company has acquired a 40 acre parcel of
property for such purposes.
55
<PAGE>
23. SUPPLEMENTAL STATEMENT OF SUBSIDIARY INFORMATION
The Company's primary operations are in the gaming industry and in
fiscal years 1995, 1994 and 1993 were conducted through SNC, HHI, PHI and SFHI.
the Company sold substantially all the assets of the Hacienda in August 1995 and
the Sahara in October 1995. "Other" below includes financial information for
SNC, HHI and the Company's other operations. In addition to the financial
information as set forth in the table below (dollars in thousands), see Notes 3,
8, 9, 11, 12 and 22 for additional discussion of subsidiary operations.
<TABLE>
<CAPTION>
YEAR PHI SFHI OTHER TOTAL
---- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES 1995 $ 46,034 $ 64,798 $140,277 $251,109
======== ======== ======== ========
1994 $ 49,270 $ 63,831 $140,617 $253,718
======== ======== ======== ========
1993 $ 53,823 $ 53,305 $137,637 $244,765
======== ======== ======== ========
OPERATING INCOME (LOSS) 1995 $ 5,500 $ (6,458) $ 11,569 $ 10,611
======== ======== ======== ========
1994 $ 9,424 $ 14,697 $ 8,852 $ 32,973
======== ======== ======== ========
1993 $ 13,917 $ 11,403 $ 11,320 $ 36,640
======== ======== ======== ========
INTEREST EXPENSE 1995 $ 13,765 $ 14,042 $ 17,210 $ 45,017
======== ======== ======== ========
1994 $ 13,877 $ 11,446 $ 17,868 $ 43,191
======== ======== ======== ========
1993 $ 13,875 $ 5,310 $ 18,648 $ 37,833
======== ======== ======== ========
DEPRECIATION AND AMORTIZATION 1995 $ 5,227 $ 9,104 $ 13,853 $ 28,184
======== ======== ======== ========
1994 $ 5,063 $ 7,574 $ 14,068 $ 26,705
======== ======== ======== ========
1993 $ 4,985 $ 5,542 $ 12,866 $ 23,393
======== ======== ======== ========
CAPITAL EXPENDITURES 1995 $ 5,998 $ 18,621 $ 5,984 $ 30,603
======== ======== ======== ========
1994 $ 1,741 $ 19,598 $ 22,828 $ 44,167
======== ======== ======== ========
1993 $ 1,782 $ 1,015 $ 11,367 $ 14,164
======== ======== ======== ========
IDENTIFIABLE ASSETS 1995 $ 97,782 $ 95,201 $173,655 $366,638
======== ======== ======== ========
1994 $105,971 $146,317 $226,267 $478,555
======== ======== ======== ========
1993 $109,884 $ 75,264 $209,941 $395,089
======== ======== ======== ========
</TABLE>
56
<PAGE>
SAHARA GAMING CORPORATION
QUARTERLY RESULTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the Year Ended September 30,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues
First Quarter $ 61,639,914 $ 61,130,877
Second Quarter 64,333,776 64,984,262
Third Quarter 63,540,828 64,268,323
Fourth Quarter 61,594,800 63,334,127
------------ ------------
$251,109,318 $253,717,589
============ ============
Operating Income
First Quarter $ 7,873,994 $ 7,875,637
Second Quarter 5,554,002 9,555,353
Third Quarter (10,386,802) 9,309,071
Fourth Quarter 7,569,349 6,232,672
------------ ------------
$ 10,610,543 $ 32,972,733
============ ============
Net Income (Loss)
First Quarter (2,268,474) $ (1,201,613)
Second Quarter (3,954,297) (1,411,786)
Third Quarter (16,073,886) (1,308,329)
Fourth Quarter 255,409 (11,817,282)
------------ ------------
$(22,041,248) $(15,739,010)
============ ============
Net Income (Loss)
per Common Share
First Quarter $ ( .42) $ (.24)
Second Quarter ( .69) (.28)
Third Quarter (2.65) (.26)
Fourth Quarter ( .01) (1.96)
------------ ------------
$ (3.77) $ (2.74)
============ ============
</TABLE>
Item 9. Changes in and Disagreements with Accountants on
------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The information regarding the directors and executive officers of the
Company to be included in the Company's Proxy Statement for the 1995 Annual
Meeting of Stockholders (the "Proxy Statement") is incorporated herein by
reference.
Item 11. Executive Compensation
----------------------
The information regarding Executive Compensation to be included in the
Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
57
<PAGE>
The information regarding Security Ownership to be included in the Proxy
Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information regarding Certain Relationships and Related Transactions to
be included in the Proxy Statement is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) 1. and 2. Financial Statements and Schedules
The financial statements and schedules filed as part of this report
are listed in the Index to Consolidated Financial Statements under
Item 8.
(b) Reports on Form 8-K filed during the last quarter of 1995.
The Registrant filed a Current Report on Form 8-K dated July 14,
1995 under Item 5. Other Events, reporting certain information
relating to the sale of assets of the Sahara Hotel and Casino.
The Registrant filed a Current Report on Form 8-K dated July 31,
1995 under Item 5. Other Events, reporting certain information
relating to the Santa Fe Hotel Inc. repurchase and consent
solicitation.
(c) Exhibits required by Securities and Exchange Commission Regulation
S-K:
3.1 Articles of Incorporation and Bylaws of the Company (Previously
filed with the Securities and Exchange Commission as an exhibit to
the Company's S-4 (No. 33-67864) Registration Statement on Form 10-K
dated June 15, 1982 and incorporated herein by reference.)
3.2 Certificate of Designation for Exchangeable Redeemable Preferred
Stock. (Previously filed with the Securities and Exchange Commission
as an exhibit to the Company's Registration Statement on Form S-4
(No. 33-67864) and incorporated herein by reference.)
4.1 Indenture dated as of June 15, 1983 between Hacienda Resorts, Inc.
and Valley Bank of Nevada, as Trustee, with respect to the Company's
10-1/4% Subordinated Sinking Fund Debentures due 1998. (Previously
filed with the Securities and Exchange Commission as an exhibit to
the Registration Statement of Hacienda Resorts, Inc. on Form S-1
(No. 2-82796) and incorporated herein by reference.)
10.1 Form of Indenture (the "Pioneer Indenture")between Pioneer Finance,
the Partnership and Security Pacific National Bank, as Trustee,
relating to the 13-1/2% First Mortgage Bonds Due 1998 of Pioneer
Finance (the "Bonds").(1)
10.2 Form of Bonds (included as an exhibit to the Pioneer Indenture).(1)
10.3 Form of Purchase Money Note relating to the acquisition of the
Pioneer Hotel and Gambling Hall (the "Pioneer Acquisition")
(included as an exhibit to the Pioneer Indenture).(1)
58
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
10.4 Form of Purchase Money Deed of Trust relating to the Bonds (included
as an exhibit to the Pioneer Indenture).(1)
10.5 Form of Guaranty of the Partnership relating to the Bonds (included
in the Pioneer Indenture).(1)
10.6 Form of Assignment Agreement from Pioneer Finance Corp. to the
Trustee relating to the Bonds (included as an exhibit to the Pioneer
Indenture).(1)
10.7 Form of Subordination Provision relating to the Bonds (included as
an Exhibit to the Pioneer Indenture).(1)
10.8 Form of Pari Passu Certificate relating to the Bonds (included as an
---- -----
exhibit to the Pioneer Indenture).(1)
10.9 Depositary and Transfer Agent Agreement including Form of Depositary
Receipt and Form of Certificate of Limited Partners' Interest.(2)
10.10 Tax Services Agreement between the Partnership and CLR Fast-tax.(4)
10.11 Acquisition Agreement relating to the Pioneer Acquisition.(1)
10.12 Pioneer Ground Lease, as amended.(1)
10.13 Conformed Lessor's Agreement dated as of November 16, 1988 among
Lessor, Lessee and Pioneer Operating Partnership relating to the
Pioneer Acquisition.(1)
10.14 Promissory Note in the amount of $25,300,000.00 dated December 23,
1980 between Casino Properties and the Public Employees Retirement
System of Nevada, along with Deed of Trust and Assignment of Rents,
Guaranty Agreement of Paul W. Lowden, Subordination Agreement of
Valley Bank of Nevada, Security Agreement and Collateral Assignment
of Agreement, each dated on or about December 23, 1980.(3)
10.15 Net Parking Lease by and between Sahara Las Vegas and Sahara
Operating Partnership dated July 30, 1987 and Amendment thereto.(3)
10.16 Standard Form of Agreement between Owner and Contractor by and
between Sahara Operating Partnership and Sierra Construction
Corp.(3)
10.17 Amendments dated February 25, 1985 relating, respectively, to the
Promissory Note and Deed of Trust referred to in Exhibit 10.14.(3)
10.18 Notes secured by liens on office building in Las Vegas, Nevada in
the original principal amounts of $301,598.05, $23,337.96 and
$649,063.99 bearing interest at 10%, 11% and 13.5% per annum,
respectively.(3)
10.19 Promissory Note in the amount of $4,500,000 dated September 1, 1987
59
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
from Sahara Las Vegas to the Partnership.(2)
10.20 Indenture dated as of August 17, 1989 among Sahara Finance, the
Partnership and U.S. Trust Company of California, N.A., as trustee
(the "Note Trustee"), and related First Supplemental Indenture dated
as of October 5, 1989 relating to Sahara Finance's 12-1/8%
Guarantied First Mortgage Notes Due 1996 (the "First Mortgage
Notes").(4)
10.21 Form of Sahara Finance's 12-1/8% Guarantied First Mortgage Notes due
1996.(4)
10.22 Secured Promissory Note dated August 17, 1989 in the amount of
$116,200,000 issued by Sahara Operating Partnership in favor of
Sahara Finance.(4)
10.23 Deed of Trust and Security Agreement with Assignment of Rents and
Fixture Filing dated as of August 17, 1989 from Sahara Operating
Partnership to Nevada Title Company.(4)
10.24 Guarantee by the Partnership relating to the First Mortgage Notes
(included in the Indenture referred to in Exhibit 10.20).
10.25 Assignment Agreement dated August 17, 1989 between Sahara Finance,
as Assignor, and the Note Trustee, as Assignee, and acknowledged by
Sahara Operating Partnership.(4)
10.26 Note Purchase Agreement dated August 17, 1989 by and among Sahara
Finance, the Partnership, Sahara Operating Partnership and Solomon
Brothers Realty Corp.(4)
10.27 Disbursement and Escrow Agreement dated as of August 17, 1989 among
Sahara Finance, as Lender, Sahara Operating Partnership, as
Borrower, and Nevada Construction Services, as Agent, Amendment
thereto dated as of August 31, 1989 and Second Amendment thereto
dated as of October 5, 1989.(4)
10.28 Assignment of Leases, Rents and Revenues dated as of August 17, 1989
from Sahara Operating Partnership to Sahara Finance.(4)
10.29 Guarantee of Completion dated as of August 17, 1989 by the
Partnership to Sahara Finance.(4)
10.30 Assignment of Structural Engineer's Agreement dated as of August 17,
1989 by Sahara Operating Partnership to Sahara Finance.(4)
10.31 Assignment of Contracts, Warranties, Licenses, Permits and Plans and
Specifications dated as of August 17, 1989 by Sahara Operating
Partnership to Sahara Finance.(4)
10.32 Assignment of Affiliate Notes and Security Agreements dated as of
August 17, 1989 by Sahara Operating Partnership to Sahara Finance,
and Amendment thereto dated as of October 5, 1989.(4)
60
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
10.33 Assignment of General Contractor's Agreement dated as of August 17,
1989 by Sahara Operating Partnership to Sahara Finance.(4)
10.34 Assignment of Airspace Lease and Consent dated as of August 17, 1989
by Sahara Operating Partnership to Sahara Finance.(4)
10.35 Assignment of Architect's Contract dated as of August 17, 1989 by
Sahara Operating Partnership to Sahara Finance.(4)
10.36 Security Agreement dated August 17, 1989 by and between Sahara
Operating Partnership and Santa Fe Operating Partnership, and
Amendment thereto dated as of October 5, 1989.(4)
10.37 Security Agreement dated August 17, 1989 by and between Sahara
Operating Partnership and Hacienda Operating Partnership, and
Amendment thereto dated as of October 5, 1989.(4)
10.38 Security Agreement dated August 17, 1989 by and between Sahara
Finance and Sahara Operating Partnership.(4)
10.39 Amended and Restated Santa Fe Hotel and Casino Note as of August 17,
1989 in the principal amount of $18,181,818 issued by the Santa Fe
Operating Partnership to Sahara Operating Partnership.(4)
10.40 Amended and Restated Hacienda Note dated as of August 17, 1989 in
the principal amount of $32,323,232 by the Hacienda Operating
Partnership to Sahara Operating Partnership.(4)
10.41 Quality Construction Consultant Agreement dated August 17, 1989 by
and among the Trustee, Etc Testing Laboratories, Inc., and Sahara
Operating Partnership.(4)
10.42 Construction Consultant Agreement dated August 17, 1989 by and among
the Trustee, Nevada Construction Services and Sahara Operating
Partnership.(4)
10.43 Third and Fourth Amendments dated, respectively, December 21, 1988
and August 17, 1989 to the Net Parking Lease referred to in Exhibit
10.15.(4)
10.44 Agreement Between Owner and Contractor dated August 11, 1989 between
Sahara Finance and Sierra Construction Corp. relating to the Sahara
Project.(4)
10.45 Structural engineering consulting services agreements dated,
respectively, July 25, 1989 and August 3, 1989 between Sahara
Operating Partnership and Martin Pulsion & Associates, Inc.(4)
10.46 Architect's agreement dated August 10, 1989 between the Partnership
and Fred Dared regarding the Sahara Project.(4)
10.47 Architect's agreement dated August 10, 1989 between the Partnership
and Fred Dared regarding the Hacienda Project.(4)
61
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
10.48 Architect's agreement dated August 10, 1989 between the Partnership
and Quadrille Garlic and Associates regarding the Santa Fe Hotel and
Casino construction.(4)
10.49 Agreement Between Owner and Contractor dated August 11, 1989 between
Sahara Finance and Sierra Construction Corp. relating to the Santa
Fe construction.(4)
10.50 Agreement Between Owner and Contractor dated August 11, 1989 between
Sahara Finance and Sierra Construction Corp. relating to the
Hacienda Expansion.(4)
10.51 Environmental Indemnity Agreement dated as of August 17, 1989 among
Sahara Operating Partnership, Sahara Finance and the Partnership.(4)
10.52 Amendments to Deed of Trust and Promissory Note between Casino
Properties and the Public Employees Retirement System of Nevada
referred to in Exhibit 10.14 hereto.(5)
10.53 Sahara Resorts Key Employee Stock Option Plan. (Previously filed
with the Securities and Exchange Commission as an exhibit to the
Registration Statement of Hacienda Resorts, Inc. on Form S-1
(No. 2-82796) and incorporated herein by reference.)
10.54 Agreement for the sale and purchase of real property and related
documents, assumption of $885,162.11 on three promissory notes in
favor of Dobrusky Family Trust uta, between the Company and
Consolidated Hospitality Services, Inc.(5)
10.55 Form of Second Supplemental Indenture by and among Sahara Finance,
the Partnership and the Trustee, dated February 13, 1990.(7)
10.56 Construction Loan Agreement dated as of December 21, 1989 among
Valley Bank of Nevada and Santa Fe Operating Partnership and the
Partnership as joint and several co-borrowers.(6)
10.57 Construction Deed of Trust, Assignment of Rents and Security
Agreement dated as of December 21, 1989 in favor of Valley Bank of
Nevada and executed by Santa Fe Operating Partnership and the
Partnership.(6)
10.58 Secured Promissory Note dated December 21, 1989 in the original
principal amount of $25,000,000 in favor of Valley Bank of Nevada
and executed by Santa Fe Operating Partnership and the
Partnership.(6)
10.59 Assignment of Leases, Rents, Income and Profits dated December 21,
1989 in favor of Valley Bank of Nevada executed by Santa Fe
Operating Partnership.(6)
10.60 Revolving Credit Agreement dated March 8, 1990 by and among Valley
Bank of Nevada, the Partnership and Hacienda Operating partnership
regarding a $20,000,000 revolving line of credit.(8)
62
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
10.61 Deed of Trust, Assignment of Rents and Security Agreement dated
March 8, 1990 by and among Hacienda Partnership, as Trustor, Chicago
Title Insurance Company, as Trustee, and Valley Bank as
Beneficiary.(8)
10.62 Revolving Credit Agreement dated November 22, 1989 by and among
Valley Bank of Nevada and Sahara Operating Limited Partnership
regarding a $2,500,000 revolving line of credit.
10.63 Revolving Credit Agreement dated September 12, 1990 by and among
Valley Bank of Nevada and Sahara Operating Limited Partnership
regarding a $2,000,000 revolving line of credit.
10.64 Equipment Contract dated December 3, 1990, between Paul Lowden and
Beckman Eisenman & Associates regarding purchase of equipment for
Pioneer.
10.65 Agreement dated February 7, 1991, among Sierra Construction Corp.,
the Company, and Sahara Casino Partners, L.P. (9)
10.66 Agreement dated February 10, 1991 among Sierra Construction Corp.,
Sahara Operating Limited Partnership,, Hacienda Operating Limited
Partnership and Santa Fe Operating Limited Partnership. (9)
10.67 First Supplemental Indenture to Pioneer Indenture dated as of
December 21, 1990 among Pioneer Finance, and Sahara Casino Partners,
L.P. and Security Pacific National Bank. (9)
10.68 Lease agreement for furniture, fixtures and equipment dated March
20, 1991 between Valley Leasing Company, Inc. and Michigan National
Bank, Lessors, and Santa Fe Operating Limited Partnership, Lessee.
(11)
10.69 Promissory Note in the amount of $2,760,079 dated October 10, 1990
executed by Santa Fe Operating Limited Partnership in favor of
Deutsche Credit Corporation, collateralized by equipment. (11)
10.70 Lease agreement for furniture and equipment dated August 6, 1991
between Valley Leasing Company, Inc. and C.I.T. Leasing, Lessors,
and Santa Fe Operating Limited Partnership, Lessee. (11)
10.71 Lease agreement for furniture and equipment dated August 6, 1991
between Valley Leasing Company, Inc. and C.I.T. Leasing, Lessors,
and Hacienda Operating Limited Partnership, Lessee. (11)
10.72 Lease agreement for signage dated April 29, 1991 between SNET as
Lessor and Santa Fe Operating Limited Partnership as Lessee. (11)
10.73 Lease agreement for computer equipment dated August 6, 1991 between
Valley Leasing Company, Inc. as Lessor and Sahara Casino Partners,
L.P. as Lessee. (11)
10.74 Promissory notes dated February 7, 1992, February 14, 1992,
March 10, 1992, April 13, 1992, June 16, 1992, July 20, 1992 and
August 11,
63
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
1992 by Paul W. Lowden in favor of Sahara Resorts in the aggregate
amount of $1,250,000 (10).
10.75 Promissory notes dated September 14, 1992, October 8, 1992, October
19, 1992 and November 24, 1992 by Paul W. Lowden in favor of Sahara
Resorts in the aggregate amount of $650,000.
10.76 Second Supplemental Indenture dated as of September 30, 1993 between
Sahara Resorts, Sahara Gaming Corporation and Nevada State Bank, as
Trustee, with respect to 10-1/4% Subordinated Sinking Fund
Debentures.
10.77 Sahara Gaming Corporation's 1993 Key Employee Stock Option Plan.
10.78 Agreement Concerning Guaranty dated as of April 20, 1994, by and
among Treasure Bay Corp., Treasure Bay Gaming and Resorts, Inc., and
Sahara Gaming Corporation
10.79 Form of Guaranty of Sahara Gaming Corporation of an aggregate of
$4.5 million of indebtedness of Treasure Bay Corp.
10.80 Notice, Consent and Acknowledgment of Assignment
10.81 Form of Credit Agreement by and between Treasure Bay Corp. and
Progressive Distribution Systems, Inc. with respect to equipment
financing indebtedness of Treasure Bay Corp. (the "Credit
Agreements")
10.82 Form of Commercial Security Agreement with respect to the Credit
Agreements
10.83 Form of Promissory Note with respect to the Credit Agreements
10.84 Form of Subordination Agreement by and among Treasure Bay Gaming &
Resorts, Inc., Santa Fe Hotel Inc., First Trust National
Association, and PDS Financial Corporation with respect to the
Credit Agreements
10.85 Offer to Purchase Real Property, dated March 16, 1994, from Sahara
Gaming Corporation to Marcor Green Valley, Limited Partnership
10.86 Note Purchase Agreement, dated as of March 31, 1994, between Sahara
Mission Valley Inc. and Sahara Gaming Corporation and each of Muico
& Co., PaineWebber Managed Investment Trust-PaineWebber High Income
Fund, and Cerberus Partners with respect to $15 million principal
amount of 12% Convertible First Mortgage Notes Due 1995, of Sahara
Mission Valley Inc.
10.87 Assignment, dated as of June 14, 1994, between Cerberus Partners,
Equifax, Inc., U. S. Retirement Income Plan Trust, and Sahara
Mission Valley Inc.
64
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
10.88 Amendment #1 to Note Purchase Agreement, dated as of November 30,
1994, among Sahara Mission Valley Inc., and Sahara Gaming
Corporation, on the one hand and each of Muico & Co., PaineWebber
Managed Investment Trust-PaineWebber High Income Fund, Equifax, Inc.
U. S. Retirement Income Plan Trust and Sherborne Group Master Trust,
on the other
10.89 Agreement of Sale and Escrow Instructions, dated November 25, 1994,
by and between Sahara Mission Valley, Inc. and Players International
10.90 Working Capital Loan Agreement, by and between Santa Fe Hotel Inc.
and Miller & Schroeder Investments Corporation in connection with
$3.0 million Working Capital Loan, dated December 7, 1994
10.91 Treasure Bay I, Biloxi Loan Purchase Agreement, dated December 7,
1994, by and between Santa Fe Hotel Inc. and Miller & Schroeder
Investments Corporation
10.92 Treasure Bay III, Tunica Loan Purchase Agreement, dated December 7,
1994 by and between Santa Fe Hotel Inc. and Miller & Schroeder
Investments Corporation
10.93 Lease Agreement, dated May 26, 1993, between City of Parkville,
Missouri, and Sahara Casino Partners, L.P., was previously filed
with the Commission as Exhibit 10.86 to the Company and Santa Fe
Hotel Inc.'s Registration Statement on Form S-1 (No. 33-70286)
10.94 Amendment to Lease Agreement, made as of September 7, 1993, by
Sahara Casino Partners, L.P., and the City of Parkville, Missouri
10.95 Second Amendment to Lease Agreement, made as of December 27, 1993,
by Sahara Parkville, Inc. and the City of Parkville, Missouri
10.96 Landlord's Consent, Estoppel Certificate and Third Amendment to
Lease Agreement, entered into on December 27, 1993, by and between
the City of Parkville, Missouri, Sahara Parkville, Inc., IBJ
Schroeder Bank & Trust Company, and Santa Fe Hotel Inc.
10.97 Fourth Amendment to Lease Agreement, made as of January 18, 1994 by
Sahara Parkville, Inc and the City of Parkville, Missouri
10.98 Fifth Amendment to Lease Agreement, made as of January 18,1994, by
Sahara Parkville, Inc. and the City of Parkville, Missouri
10.99 Development Agreement by Sahara Parkville, Inc. and the City of
Parkville, Missouri
10.100 Amendment to Development Agreement, dated January 18, 1994, by
Sahara Parkville, Inc. and the City of Parkville, Missouri
10.101 Second Amendment to Development Agreement, dated October 28, 1994,
by
65
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
Sahara Parkville, Inc. and the City of Parkville, Missouri
10.102 Bill of Sale dated as of December 28, 1994 from PDS Financial
Corporation to Pioneer Hotel Inc. with respect to the sale of
certain gaming equipment.
10.103 Credit Agreement dated as of December 28, 1994 by and between
Pioneer Hotel Inc. and PDS Financial Corporation.
10.104 Promissory Note dated as of December 28, 1994 in the amount of
$627,800 by Pioneer Hotel Inc. to the order of PDS Financial
Corporation.
10.105 Security Agreement dated as of December 28, 1994 by Pioneer Hotel
Inc. in favor of PDS Financial Corporation.
10.106 Subordination Agreement dated as of December 28, 1994 by and between
PDS Financial Corporation and Pioneer Hotel Inc.
10.107 Agreement for Purchase and Sale dated as of January 10, 1995 by and
among Hacienda Hotel Inc., Sahara Gaming Corporation, as Guarantor,
and William G. Bennett.
10.108 Letter of Modification and Clarification by and between Hacienda
Hotel Inc., Sahara Gaming Corporation, as Guarantor, and William G.
Bennett dated March 3, 1995.
10.109 Assignment and Consent to Assignment of Agreement for Purchase and
Sale dated January 10, 1995 by and among Hacienda Hotel Inc., Sahara
Gaming Corporation, as Guarantor, and William G. Gennett to Circus
Circus Enterprises, Inc. dated March 5, 1995.
10.110 Amendment #2 to Note Purchase Agreement dated March 30, 1995 between
Sahara Mission Valley, Inc., Sahara Gaming Corporation and Hacienda
Hotel Inc. and Muico & Co., PaineWebber Managed Investment Trust-
Paine Webber High Income Fund, Equifax Inc. U. S. Retirement Income
Plan Trust and Sherborne Group Master Trust.
10.111 Third Amendment to Development Agreements dated June 30, 1995 by
Sahara Parkville, Inc. and the City of Parkville, Missouri.
10.112 Sixth Amendment to Lease Agreement dated June 30, 1995 by Sahara
Parkville, Inc., and the City of Parkville, Missouri.
10.113 Sale and Purchase Contract dated November 7, 1995 by and between
Sahara Gaming Corporation and Argasy Gaming Company.
10.114 Promissory Note dated June 14, 1995 issued by Santa Fe Hotel, Inc.
in favor of Sahara Nevada Corp.
10.115 Hacienda Adventure Club Acquisition and Assignment Agreement dated
September 29, 1995 by and between Hacienda Hotel, Inc. and Resort
Marketing International and Brett Torino.
66
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
10.116 Camperland Responsibility Agreement dated August 31, 1995 by and
among Hacienda Hotel, Inc., Sahara Gaming Corporation and Pinkless,
Inc.
10.117 Assignment Agreement dated October 2, 1995 by and between Howard
Hughes Properties, Limited Partnership and Sahara Las Vegas Corp.
and Guaranty Agreement dated October 2, 1995 by and between Howard
Hughes Properties, Limited Partnership and Sahara Las Vegas Corp.
10.118 Lease Modification Letter dated August 24, 1995 by and between
Wet N' Wild Nevada, Inc. and Sahara Corporation.
22. Subsidiaries of the Company. (12)
23.1 Consent of Deloitte & Touche LLP.
27. Financial Data Schedule
FOOTNOTES TO EXHIBIT INDEX
--------------------------
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to the Registration Statement on Form S-1 (No. 33-24589) of Pioneer
Finance Corp., the Partnership and Pioneer Operating Partnership and
incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as an exhibit
to the Partnership's Annual Report on Form 10-K for the year ended
September 30, 1987 and incorporated herein by reference.
(3) Previously filed with the Securities and Exchange Commission as an exhibit
to the Partnership's Registration Statement on Form S-1 (No. 33-13214) and
incorporated herein by reference.
(4) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Annual Report on Form 10-K for the year ended September
30, 1989, and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Annual Report on Form 10-K for the year ended September
30, 1985, and incorporated herein by reference.
(6) Previously filed with the Securities and Exchange Commission as an exhibit
to Amendment No. 1 to the Registration Statement on Form S-1 (No. 33-
33031) of Sahara Finance Corp., Sahara Casino Partners, L.P., Sahara
Operating Limited Partnership, Hacienda Operating Limited Partnership,
Santa Fe Operating Limited Partnership as filed on February 12, 1990, and
incorporated herein by reference.
(7) Previously filed with the Securities and Exchange Commission as an exhibit
to Amendment No. 2 to the Registration Statement on Form S-1 (No. 33-
33031) of Sahara Finance Corp., Sahara Casino Partners, L.P., Sahara
Operating Limited Partnership, Hacienda Operation Limited Partnership,
Santa Fe Operating Limited Partnership as filed on February 14, 1990, and
incorporated herein by reference.
67
<PAGE>
(8) Previously filed with the Securities and Exchange Commission as an exhibit
to post effective Amendment No. 2 to the Registration Statement on Form
S-1 (No. 33-33031) of Sahara Finance Corp., Sahara Casino Partners, L.P.,
Sahara Operating Limited Partnership, Hacienda Operating Limited
Partnership, Santa Fe Operating Limited Partnership, as filed on August
14, 1990 and incorporated herein by reference.
(9) Previously filed with the Securities and Exchange Commission as an exhibit
to post effective Amendment No. 5 to the Registration Statement on Form
S-1 (No. 33-33031) of Sahara Finance Corp., Sahara Casino Partners, L.P.,
Sahara Operating Limited Partnership, Hacienda Operating Limited
Partnership, Santa Fe Operating Limited Partnership, as filed on April 15,
1991 and incorporated herein by reference.
(10) Previously filed with the Securities and Exchange Commission as an exhibit
to post effective Amendment No. 12 to the Registration Statement on Form
S-1 (No. 33-33031) of Sahara Finance Corp., Sahara Casino Partners, L.P.,
Sahara Operating Limited Partnership, Hacienda Operating Limited
Partnership, Santa Fe Operating Limited Partnership, as filed August 14,
1992.
(11) Previously filed with the Securities and Exchange Commission as an exhibit
to post effective Amendment No. 8 to the Registration Statement on Form
S-1 (No. 33-33031) of Sahara Finance Corp., Sahara Casino Partners, L.P.,
Sahara Operating Limited Partnership, Hacienda Operating Limited
Partnership, Santa Fe Operating Limited Partnership, as filed December 30,
1991.
(12) Previously filed with the Securities and Exchange Commission as an exhibit
to Amendment No. 4 to the Registration Statement on Form S-1 (No. 33-
70268) of Sahara Gaming Corporation.
68
<PAGE>
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.
SAHARA GAMING CORPORATION
December 29, 1995 By: /s/ Paul W. Lowden
----------------------------
Paul W. Lowden, President
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 date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Paul W. Lowden Chairman of the Board and President December 29, 1995
- ------------------------------------------- (Principal Executive Officer)
Paul W. Lowden
/s/ William J. Raggio Director December 29, 1995
- -------------------------------------------
William J. Raggio
/s/ James W. Lewis Director December 29, 1995
- -------------------------------------------
James W. Lewis
/s/ Keith Ashworth Director December 29, 1995
- -------------------------------------------
Keith Ashworth
/s/ Suzanne Lowden Director December 29, 1995
- -------------------------------------------
Suzanne Lowden
/s/ George P. Miller Director December 29, 1995
- -------------------------------------------
George P. Miller
/s/ Thomas K. Land Director and Chief Financial Officer December 29, 1995
- ------------------------------------------- (Principal Financial and
Thomas K. Land Accounting Officer)
</TABLE>
69
<PAGE>
EXHIBIT 10.113
SALE AND PURCHASE CONTRACT
--------------------------
THIS SALE AND PURCHASE CONTRACT (this "Contract") is made and entered into
as of the 7th day of November, 1995 by and between SAHARA GAMING CORPORATION, a
Nevada corporation (referred to as "Seller"), and ARGOSY GAMING COMPANY, a
Delaware corporation (referred to as "Buyer").
1. Sale of Vessel and Sale of Property. Seller hereby agrees to sell to
-----------------------------------
Buyer and Buyer hereby agrees to purchase from Seller the following described
property:
a. The barge vessel known as the "Spirit of America" (Official No.
259139) (the "Vessel"), presently berthed at mile marker 486 on the Ohio
River, near North Bend, Ohio, together with said Vessel's superstructure
(including without limitation that certain three story metal structure and
all improvements and systems contained therein), all cables, machinery,
rigging, anchors, chains, tackle, furniture, fittings, pumps, equipment,
heating, ventilation and cooling systems, electrical and other hook-ups
which connect to shore-based facilities (including all lines to the extent
same are owned by Seller), and all supplies, accessories, appurtenances and
improvements thereto belonging and presently aboard the Vessel; and
b. Those items of furniture, fixtures and equipment currently stored
in Riverside, Missouri (the "Stored Items"), as itemized on Exhibit "A"
attached hereto and incorporated herein by reference.
c. Notwithstanding the foregoing descriptions in subparagraphs "a" and
"b" hereof, none of the foregoing shall be construed to include any
property not presently aboard or attached to the Vessel or not presently in
storage in Riverside, Missouri.
2. Purchase Price; Terms. The purchase price for the Vessel and the
---------------------
Stored Items shall be THREE MILLION, THREE HUNDRED THOUSAND AND NO/100 DOLLARS
($3,300,000.00) payable as follows (the "Purchase Price"):
(a) upon the execution of this Contract, $100,000.00 shall be paid in
cash as an earnest money deposit (the "Escrow Deposit") to be held in
escrow pursuant to the terms of Paragraph 3 hereof; and
(b) $3,200,000.00 shall be paid in cash at the Closing, as hereinafter
provided.
3. Escrow. Upon the execution hereof, Buyer shall deposit with Seller's
------
broker, J.S. Productions, Inc. (hereinafter sometimes referred to as "Escrow
Agent"), the Escrow Deposit to be held in escrow as set forth in the Escrow
Agreement, attached hereto as Exhibit "B" and incorporated herein by this
reference, and as provided herein.
<PAGE>
4. Closing. The closing (the "Closing") shall occur on November 9, 1995
-------
(the "Date of Closing"). The following shall occur at Closing:
(a) Seller's Delivery. On the Date of Closing, Seller shall deliver to
-----------------
Buyer:
(i) a Bill of Sale for the Vessel (the "Vessel Bill of Sale")
which shall be substantially in the form attached hereto as Exhibit
"C", and such other documents and instruments as Buyer may reasonably
request in order to transfer to Buyer title to the Vessel, free and
clear of all liens, mortgages, and security agreements;
(ii) a Bill of Sale for the Stored Items (the "Stored Items Bill
of Sale") which shall be in substantially the form attached hereto as
Exhibit "D", and such other documents and instruments as Buyer may
reasonably request in order to transfer to Buyer title to the Stored
Items, free and clear of all liens, mortgages, and security agreements;
(iii) an assignment (or other arrangement acceptable to Buyer) of
the mooring contract for the Vessel (the "Mooring Contract"), with all
outstanding charges, fees and expenses relating to the Mooring Contract
being paid by Seller up to the Date of Closing, which contract shall be
cancelable by Buyer upon not more than forty-eight (48) hours advance
written notice; and
(iv) an assignment (or other arrangement acceptable to Buyer) of
the storage contract for the Stored Items (the "Storage Contract"),
with all outstanding charges, fees and expenses relating to the Storage
Contract being paid by Seller up to the Date of Closing, which contract
shall be cancelable by Buyer upon not more than thirty (30) days
advance written notice.
(b) Buyer's Delivery. On the Date of Closing, Buyer shall deliver to
----------------
Seller by wire transfer to Seller's account, the Purchase Price, less the
amount delivered by the Escrow Agent pursuant to subparagraph (c) below.
(c) Escrow Agent's Delivery. On the Date of Closing, the Escrow Agent
-----------------------
shall deliver to Seller the Escrow Deposit plus all interest earned
thereon, and such funds shall be applied toward Buyer's obligation to pay
the Purchase Price required hereunder.
(d) Simultaneous Execution of Contract and Closing. Notwithstanding the
----------------------------------------------
foregoing provisions of this Paragraph 4, the Seller and Buyer may agree to
close the transaction contemplated hereunder simultaneously with the
execution of this Contract. In that event, Seller's delivery shall include
delivery of a signed counterpart of this Contract; Buyer's delivery shall
include delivery of a signed counterpart of this Contract, together with
the Purchase Price without adjustment for the Escrow Deposit; and the
2
<PAGE>
provisions of this Contract relating to the Escrow Agent and the Escrow
Deposit shall be disregarded.
5. Representations, Warranties and Covenants of Seller. Seller warrants
---------------------------------------------------
and represents to Buyer as of the execution of this Contract and again as of the
Date of Closing, with the intent that Buyer shall rely thereon as follows:
(a) Corporate Status. Seller is a corporation duly organized and
----------------
validly existing under the laws of the State of Nevada, and has the
requisite power and authority to execute, deliver and carry out the
provisions of this Contract to be performed by it, together with any and
all other documents executed by it in connection with this transaction.
(b) Authorization and Validity. All necessary action on the part of
--------------------------
Seller relating to the authorization, execution and delivery of this
Contract, and all other documents executed in connection herewith, has been
properly taken. This Contract, when executed and delivered, will be a legal
and binding obligation of Seller, enforceable in accordance with its
respective terms. Seller has obtained, or prior to Closing shall obtain,
all necessary consents, approvals and authorizations of third parties in
connection with the execution and delivery of this Contract and/or the
performance of the obligations of Seller hereunder.
(c) Title to Vessel and Stored Items. Seller has good and marketable
--------------------------------
title to the Vessel and the Stored Items, and at Closing the Vessel and the
Stored Items shall be transferred to Buyer free and clear of any mortgages,
liens, charges, claims or encumbrances of any nature whatsoever.
(d) Condition of the Vessel. Buyer agrees to accept the Vessel and the
-----------------------
Stored Items "as is" and "where is" at Closing.
(e) Litigation. There are no actions, suits or proceedings pending
----------
or, to Seller's knowledge, threatened against or affecting Seller, at law
or in equity, or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality which
would involve the possibility of any judgment or liability which may result
in any material adverse claim, lien or liability against the Vessel or the
Stored Items.
(f) Compliance with other Instruments. Seller is not in default in the
---------------------------------
performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any agreement to which it is a party which would
adversely affect Seller's ability to perform its obligations under this
Contract. Neither the documents executed in connection herewith, nor the
consummation of the transaction contemplated hereby, will (i) violate the
provisions of any applicable law or of any applicable order or regulation
of any governmental authority having jurisdiction over
3
<PAGE>
Seller, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of any restriction, or of any agreement or
instrument to which Seller is subject, or constitute a default thereunder,
or (iii) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon Seller, the Vessel, or the Stored
Items.
6. Representations, Warranties and Covenants of Buyer. Buyer warrants and
--------------------------------------------------
represents to Seller as of the execution of this Contract and again as of the
Date of Closing, with the intent that Seller shall rely thereon as follows:
(a) Corporate Status. Buyer is a corporation duly organized and
----------------
validly existing under the laws of the State of Delaware, and has the
requisite power and authority to execute, deliver and carry out the
provisions of this Contract to be performed by it, together with any and
all other documents executed by it in connection with this transaction.
(b) Authorization and Validity. All necessary action on the part of
--------------------------
Buyer relating to the authorization, execution and delivery of this
Contract, and all other documents executed in connection herewith, has been
properly taken. This Contract, when executed and delivered, will be a legal
and binding obligation of Buyer, enforceable against Buyer in accordance
with its respective terms. Buyer has obtained, or prior to Closing shall
obtain, all necessary consents, approvals and authorizations of third
parties in connection with the execution and delivery of this Contract
and/or the performance of the obligations of Buyer hereunder.
7. Expenses.
--------
(a) Sales Taxes. The Buyer shall be responsible for the payment of any
-----------
applicable sales or use taxes, assessments, charges, duties, and fees
resulting from this transaction, and Buyer agrees to protect, defend,
indemnify and hold Seller harmless against any attempted or actual
imposition of any such sales or use taxes, assessments, charges, duties,
fees, and interest or penalties thereon. Seller will cooperate with Buyer
in the closing of this transaction to permit Buyer to minimize the
application of sales and use taxes in this transaction. In that regard, the
site of delivery and closing may be changed, with all costs associated
therewith to be borne by Buyer.
(b) Buyer's Sole Expenses. The following expenses shall also be the
---------------------
sole responsibility of the Buyer:
(i) The detachment of the Vessel from its current mooring and
utilities;
(ii) Transportation of the Vessel;
4
<PAGE>
(iii) Registration costs of the Vessel into the name of the Buyer;
and
(iv) Buyer's legal costs and expenses;
(v) All charges, fees, and expenses incurred under the Mooring
Contract following the time that title to the Vessel is transferred to
Buyer; and
(vi) All charges, fees, and expenses incurred under the Storage
Contract following the time that title to the Stored Items is
transferred to Buyer.
(c) Seller's Sole Expenses. The following expenses shall be the sole
----------------------
responsibility of the Seller:
(i) Any and all costs required to give clear title to the Vessel
to Buyer;
(ii) Seller's legal costs and expenses;
(iii) Seller's federal, state and local income taxes; and
(iv) All charges, fees, and expenses incurred under the Mooring
Contract prior to the time that title to the Vessel is transferred to
Buyer; and
(v) All charges, fees, and expenses incurred under the Storage
Contract prior to the time that title to the Stored Items is
transferred to Buyer.
(d) Personal Property Taxes. Seller shall be solely responsible for
-----------------------
the payment of personal property taxes relating to the Vessel and the
Stored Items due or accrued for any period of time prior to the Date of
Closing, and Seller shall protect, defend, indemnify and hold Buyer
harmless against any attempted or actual imposition of such taxes,
including interest and/or penalties thereon. Buyer shall be solely
responsible for the payment of personal property taxes relating to the
Vessel and the Stored Items due or accrued for any period of time after the
Date of Closing, and shall protect, defend, indemnify and hold Seller
harmless against any attempted or actual imposition of such taxes,
including interest and/or penalties thereon. However, notwithstanding the
foregoing, neither Seller nor Buyer shall pay any taxes that it believes
are not its responsibility under the terms of this Paragraph 7(d) without
the express, written consent of the other party first obtained.
8. Passage of Title; Risk of Loss. Title and risk of loss relating to the
------------------------------
Vessel and the Stored Items shall pass from Seller to Buyer at the time of the
Closing, upon Seller's delivery to Buyer of the Vessel Bill of Sale and the
Stored Items Bill of Sale, respectively.
5
<PAGE>
9. Insurance.
---------
(a) Seller's Responsibility. During the period of time from the
-----------------------
execution hereof until title is transferred to Buyer, the Seller shall
provide insurance to protect the Vessel and the Stored Items from loss or
hazards. Buyer will be furnished proof of such insurance upon request.
(b) Major Damage. In the event of damage to the Vessel exceeding a
------------
repair cost of $500,000.00 by fire, accident, act of God, or otherwise
prior to the Closing, Buyer is hereby given the following options which
must be exercised by notice to Seller given by Buyer in writing within five
(5) days following such event of damage:
(i) It may decline to consummate this sale transaction and the
Escrow Deposit made pursuant hereto shall be fully refunded, together
with interest, to the Buyer; or
(ii) It may elect to purchase the Vessel, as damaged, and the
Purchase Price shall be reduced by an amount equal to the difference
between the Purchase Price stated in Paragraph 2 hereof and the fair
market value of the Vessel, as damaged.
(c) Minor Damage. In the event the cost to repair any such damage to
------------
the Vessel is $500,000.00 or less, then, in such event, Buyer shall have
the following options:
(i) It may require that the Seller immediately repair the Vessel
to its pre-damage condition within sixty (60) days thereafter (the
"Repair Period"), in which event Seller shall be entitled to all
insurance proceeds resulting therefrom and the Closing shall occur at
the later of the end of the Repair Period or the previously scheduled
Closing Date; or
(ii) It may elect to close and accept the Vessel in such damaged
condition and receive all insurance proceeds with any deficiency
between such insurance proceeds and the cost to repair such damages
being deducted from the balance due at Closing.
(d) Waiver of Consequential Damages. The options contained in
-------------------------------
subparagraphs (b) and (c) of this Paragraph 9 are Buyer's sole and
exclusive remedies in the event that damage is sustained by the Vessel
prior to Closing. Buyer hereby expressly agrees that Seller shall not be
liable to Buyer for any damages sustained by Buyer as a result of any such
damage sustained by the Vessel prior to Closing, and Buyer hereby waives
any and all rights against Seller for consequential and/or exemplary
damages.
6
<PAGE>
(e) Damage or Destruction of Stored Items. In the event that any of
-------------------------------------
the Stored Items shall be damaged or destroyed prior to Closing, Buyer
shall have the option to either receive the insurance proceeds pertaining
to such damage or destruction, or to exclude the damaged or destroyed items
from the Closing and reduce the Purchase Price by the fair market value of
such property immediately prior to such damage or destruction.
10. Remedies.
--------
(a) Seller's Default. In the event Seller defaults hereunder and
----------------
Buyer is not in default, then Buyer's sole and exclusive remedies shall be
(i) to seek specific performance of this Contract, or (ii) to terminate
this Contract. Upon written demand by Buyer after default by Seller and
termination of this Contract by Buyer, the Escrow Agent shall return the
Escrow Deposit and all interest thereon to Buyer. In no event shall Seller
be liable to Buyer for any monetary damages, and Buyer hereby waives any
and all rights against Seller for consequential and/or exemplary damages.
(b) Buyer's Default. In the event Buyer defaults hereunder and
---------------
Seller is not in default, the Escrow Agent, upon demand by Seller, shall
pay the Escrow Deposit, and all interest thereon, to Seller as liquidated
damages and not as a penalty.
11. Survival; Indemnity. This Contract and all representations,
-------------------
warranties, covenants and agreements of Seller and Buyer herein, shall survive
the Closing hereunder and any investigation and inquiry made by or on behalf of
either party. Seller and Buyer, and their respective successors and assigns,
agree to protect, defend, indemnify and hold the other party, its successors and
assigns, harmless from and against all expenses, damages, liabilities, losses,
costs (including reasonable attorney's fees) and claims of every kind and nature
whatsoever which may be sustained or suffered by such other party as a
consequence of the breach of any representation, warranty, covenant or agreement
contained in this Contract or in any document or instrument executed and
delivered in connection herewith.
12. Governing Law. This Contract shall be interpreted and enforced
-------------
pursuant to the law of the State of Illinois.
13. Complete Agreement. This Contract contains the entire agreement of
------------------
the parties and no change or modification of this Contract shall be valid unless
the same be in writing and signed by the Buyer and the Seller.
14. Notices. All communications between the parties hereto and notices
-------
herein shall be in writing and shall be mailed by Federal Express or other
overnight delivery, or certified mail, return receipt requested, to the parties
at the following addresses:
7
<PAGE>
TO THE BUYER: Argosy Gaming Company
219 Piasa Street
Alton, Illinois 62002
Attn: Roger L. Archibald
with information copy to: Michael M. Sayers
Summers, Compton, Wells & Hamburg, P.C.
8909 Ladue Road
St. Louis, Missouri 63124
TO THE SELLER: Sahara Gaming Corporation
Santa Fe Hotel
4949 N. Rancho Drive
Las Vegas, Nevada 89130
Attn: Tom Land
with information copy to: Daniel C. Rodgers
Phelps Dunbar, L.L.P.
400 Poydras Street
New Orleans, Louisiana 70130-3246
or at such other addresses as either party may designate pursuant to this
Paragraph.
15. Counterparts. The parties agree that this Contract may be executed in
------------
counterparts all of which taken together shall form a single instrument.
16. Commissions. The parties hereto agree and acknowledge that the
-----------
procuring Broker for this transaction is JoAnne Serdar of J. S. Productions
("Broker") and that such Broker has been retained by Seller. Seller, under
separate agreement with Broker, shall be solely responsible for any commission
due for this sale. Buyer and Seller represent and warrant unto each other that
they have had no dealings with any other broker or finder other than as set
forth herein, and agree to defend, indemnify, and hold each other harmless from
any and all loss or claim arising out of or related to any claim for commission
or brokerage fee as a result of any breach of this representation and warranty.
17. Successors and Assigns. All the terms, conditions, covenants and
----------------------
agreements of this Contract shall extend to and be binding upon Seller and Buyer
and their respective successors and assigns.
8
<PAGE>
18. Headings. The sections, titles and other headings of this Contract
--------
are inserted for convenience only and shall not control or affect the meaning,
construction or interpretation of this Contract.
19. Post-Closing Assistance. Upon the request of Buyer at any time and
-----------------------
from time to time following the Closing, Seller and its authorized officers,
without further consideration, shall execute and deliver to Buyer such further
documents or instruments of assignment, transfer, conveyance, endorsement,
direction or authorization as Buyer or its counsel may reasonably request in
order to perfect the title of Buyer and its successors and assigns in and to the
Vessel purchased hereunder, or otherwise to fulfill the purpose and intent of
this Contract.
IN WITNESS WHEREOF, the parties hereto have executed this Contract as of
the day and year first above written.
SELLER: SAHARA GAMING CORPORATION
By: /s/ Thomas K. Land
---------------------------------------------------
THOMAS K. LAND
Title: SENIOR VICE PRESIDENT & CHIEF FINANCIAL OFFICER
------------------------------------------------
BUYER: ARGOSY GAMING COMPANY
By: /s/ H. Steven Norton
---------------------------------------------------
H. STEVEN NORTON
Title: PRESIDENT
------------------------------------------------
9
<PAGE>
EXHIBIT "A"
INVENTORY OF STORED ITEMS
-------------------------
1. Wooden shelf with miniature showboat (4ft by 3ft)
2. Antique maple credenza with miniature, Robert E. Lee, showboat
3. Miniature showboat (3 1/2 ft by 1 1/2 ft)
4. Wooden, rounded arms, with pad on seat and top of back (178)
5. Cushioned lounge chairs (10)
6. Ear stool - wooden frame, armless, with padded seat and back (23)
7. Dining room chair - armless, dark wood frame, padded seat and back (145)
8. Wicker chair with tall back and square cushioned seat (44)
9. Antique, floral print sofa, maple trim
10. Lead stain glass picture
11. Square mirror, oak frame, very detailed
12. Large oval mirror surrounded by very detailed frame with a cherub
13. Tall rectangular mirror with oak frame, small shelf at the bottom
14. Tall rectangular mirror, wide frame
15. Full length mirror, very detailed frame
16. Oval mirror (5)
17. Maple antique vanity
18. Waist level, maple end table
19. Maple antique desk
20. Armoire with marble top
<PAGE>
21. Dresser with 3 drawers, marble top (top broken)
22. Small credenza
23. Tall dresser, several drawers and marble top
24. Waist level dresser with marble top
25. Armoire with marble top (top broken)
26. Plain desk and 2 pictures
27. Small bureau with mirror
28. Copper wash tub (1)
29. Copper kettle (1)
30. Hanging glass light made from lead stain glass (1)
31. Pictures (41)
32. Kitchen equipment as follows:
Garland convection oven
Garland range, 6 burner (2)
18" Wire flat top Garland
Garland range with broiler
Ice machines without bins (3)
Proofing cabinet
Metro Auto Sham
4 door Mc Can refrigerators (2)
48" charbroil with stand
South Bend broilers (2)
4 burner range Garland
Stainless steel work tables/some with shelves (several)
Ice cream freezer
Green machine vegetable dryer
Hobart Slicers (2)
Garland Cyclone convection oven (3)
Microwave
Stainless steel sink (several)
24" Refrigerators Randal (2)
Refrigerator work table 60"
Milk dispenser
3 door refrigerator work station
<PAGE>
2 door refrigerator work station
3 bay deep fryer Pitco
8 drawer refrigerator work table
Garland 4 qt. tilt skillet
Large convection oven (2)
Station Pitco Deep Fryer (2)
36" gas Charbroiler
Hobart dishwashers (2)
Stainless steel shelves
10 door refrigerator work station
6 drawer refrigerator work table
2 door beer box
2 door glass reach in box
Boxes miscellaneous glassware, packed (75)
Stage lights (6)
Boxes China dishes (28)
Plastic racks of glassware (37)
Brass lights (2)
24 qt. tilt skillet (1)
Tub silverware (1)
<PAGE>
EXHIBIT 10.114
PROMISSORY NOTE
$8,000,000.00 Dated as of June 14, 1995
This Promissory Note (this "Note") is issued by SANTA FE HOTEL INC., a
----
Nevada corporation (hereinafter called "Santa Fe Inc."), in favor of SAHARA
-------------
NEVADA CORP., a Nevada corporation (hereinafter called the "Company"), in the
-------
face amount of Eight Million Dollars ($8,000,000).
Santa Fe Inc., for value received, hereby promises to pay to the order
of the Company, having its principal office at 2535 Las Vegas Boulevard South,
Las Vegas, Nevada 89109, or its permitted assigns, the principal sum of Eight
Million Dollars ($8,000,000) or such other principal sum as shall be outstanding
hereunder, on August 30, 1996 (the "Maturity Date") in accordance with the
-------------
provisions hereof, and to pay interest thereon from the date first above written
on the unpaid principal amount of this Note from time to time outstanding,
monthly, in arrears, on the first day of each month commencing July 1, 1995, at
the rate of twelve and 1/8 percent (12-1/8%) per annum (the "Contract Rate"),
-------------
until the principal of this Note is paid in full (such date for any particular
month being hereinafter referred to as a "Due Date").
--- ----
1. Payments of principal shall be made on each Due Date in the
amounts set opposite such Due Dates on Schedule I hereto; provided, however,
-------- -------
that the amount of such principal payment on each such Due Date shall equal not
less than the portion of principal outstanding hereunder that would be due and
payable on such Due Date if the then outstanding principal amount hereof were
being fully amortized on a self-liquidating basis by level monthly payments of
principal and interest over the period from such Due Date through August 1, 2022
with a fixed interest rate equal to the interest rate then accruing under the
Note on such Due Date. The entire outstanding principal balance, together with
all accrued and unpaid interest, shall be due and payable on Maturity Date or on
the Sale Date (as hereinafter defined).
2. Payments of principal of, and premium, if any, and interest on
this Note shall be made at the address of the Company set forth above, or at
such other address as the Company (or its permitted assigns) may designate in
writing. Principal, premium, if any, and interest shall be paid in lawful money
of the United States of America that at the time of payment is legal tender for
payment of public and private debts and in immediately available funds. If the
date on which any principal of or interest on this Note shall be due and payable
in accordance with the terms hereof is not a Business Day (as defined in the
Indenture referred to below), payment of such principal (together with premium,
if any) or interest need not be made on such date but may be made on the next
succeeding Business Day with the same force and effect as if made on such date
and, if so made, no interest shall accrue on any amounts due on such date from
and after such date. Interest on this Note shall be computed on the basis of a
360-day year of twelve 30-day months.
3. (a) This Note shall be prepaid in connection with any
redemption of the 12 1/8% Guaranteed First Mortgage Notes due August 31, 1996
(the "Secured Notes") issued by the Company under the Indenture dated as of
-------------
August 17, 1989 (as amended or supplemented from time to time, the "Indenture")
---------
among Sahara Finance Corp., a Nevada corporation (the "Issuer"), Sahara Gaming
Corporation, a Nevada corporation, as guarantor (the "Guarantor"), and U.S.
---------
Trust Company of California, N.A., a national banking association, as trustee
(together with its successors in such capacity, the "Trustee"), as set forth in,
-------
and in accordance with the terms of Article Three of the Indenture. Each such
prepayment of this Note shall be made (i) at the time that payment is required
to be made to
<PAGE>
the Trustee or Paying Agent, if any, under the Indenture in respect of any
redemption of Secured Notes (the "Redemption Date") and (ii) in an amount equal
---------------
to the aggregate principal amount of the Secured Notes to be redeemed up to the
principal amount then outstanding hereunder, together with (A) accrued and
unpaid interest on the principal amount of this Secured Note to be prepaid to
the date fixed for such redemption of Secured Notes and (B) a prepayment premium
equal to the amount of any premium required to be paid in connection with such
redemption of Secured Notes. For purposes of this subparagraph (a), the
principal amount of this Note to be redeemed in connection with any redemption
of Secured Notes shall be calculated in accordance with Article Three of the
Indenture.
(b) In the event Santa Fe Inc. enters into any transaction, merger,
consolidation, liquidation, windup or dissolution, or conveys, sells, leases,
transfers or otherwise disposes of in one transaction or a series of
transactions of the Property (as hereinafter defined) or all or substantially
all of its property or assets, this Note, subject to the following sentence,
shall become immediately due and payable on the date (the "Sale Date") such
---------
event occurs. Notwithstanding the foregoing, Santa Fe Inc. may dispose of all
or substantially all of the Property to an entity which is either (A) a limited
partnership all of whose outstanding general partner interests are owned
directly or indirectly by the Lowden Family (as such term is defined in the
Indenture) and at least 99% of whose outstanding limited partner interests are
owned by the Guarantor or (B) any other entity 99% of whose outstanding equity
or other ownership interests are owned directly or indirectly by the Guarantor,
in either case without this Note becoming due and payable, if the entity to
which such property is transferred assumes this Note.
(c) This Note may be prepaid in whole (but not in part) at any time
during the term hereof upon five (5) days' notice to the Company.
(d) All prepayments of the principal amount of this Note shall be
recorded by the holder of this Note and, prior to any transfer hereof, shall be
endorsed on the schedule attached hereto or on a continuation of such schedule
attached hereto.
4. Santa Fe Inc. shall pay interest on overdue principal of (and
overdue premium, if any, on) this Note at the per annum rate of interest borne
by this Note; it shall also pay interest on overdue installments of interest on
this Note at the same rate, to the extent lawful.
5. Santa Fe Inc. shall make all required reports and disclosures to
the Nevada State Gaming Control Board, including but not limited to reporting
this loan within thirty (30) days of the date hereof as required by Regulation
8.130(2) of the Regulations of Nevada Gaming Commission and State Gaming Control
Board.
6. The occurrence of any one or more of the following shall
constitute an event of default (collectively, the "Events of Default" and
-----------------
individually each and "Event of Default") hereunder: (1)(a) any failure to pay
----------------
any installment of principal under this Note on the Due Date or the Sale Date
therefor and the default continues for a period of five (5) days thereafter, (b)
any failure to pay the principal outstanding under this Note on the Maturity
Date (or such earlier Maturity Date whether by acceleration, redemption or
otherwise), (c) any failure to pay any installment of interest under this Note
on the Due Date therefor and such failure continues to exist for a period of
fifteen (15) days and (d) any failure to pay any other sum under this Note,
whether additional interest or other amount, on the date when the sum is due and
payable and such failure continues for a period of thirty (30) days after the
Company has given Santa Fe Inc. written demand therefor; (2) any failure to
comply with or otherwise perform, keep or observe, any other term, provision,
condition, covenant, warranty or representation contained in this Note and such
failure continues for more than thirty (30) days
2
<PAGE>
after notice thereof, and (3) any Event of Default under the Indenture after the
expiration of any applicable notice or grace period. If any such event shall
occur, the Company or its permitted assigns or their permitted assigns
(including, without limitation, the Trustee), or Holders holding not less than
25% in aggregate outstanding principal amount of the Secured Notes, may declare
the entire unpaid principal balance hereof and all accrued interest thereon and
all other amounts due hereunder to be immediately due and payable and thereby
accelerate the maturity hereof, and the Company or its permitted assigns or
their permitted assigns (including without limitation, the Trustee) or the
Holders holding not less than 25% in the aggregate outstanding principal amount
of the Secured Notes may proceed to exercise any rights and remedies that they
may have under this Note.
7. If at any time an Event of Default occurs which results in the
acceleration and subsequent prepayment of amounts owing hereunder, Santa Fe Inc.
shall pay to the Company (or its permitted assigns or their permitted assigns,
including, without limitation, the Trustee) an acceleration premium equal to the
Loss of Yield (as such term is defined in the Indenture) on this Note, as
provided in the Indenture.
8. Santa Fe Inc. hereby waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Note and agrees to pay
all costs of collection when incurred (including, without limitation, reasonable
attorneys' fees and disbursements), and including all reasonable costs and
expenses incurred in connection with the pursuit by the Company (or its
permitted assignee) or in connection with any of the Company's (or its permitted
assignee's) collection efforts, whether or not suit on this Note is filed and
all such costs and expenses shall be payable on demand.
9. Santa Fe Inc. covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon or plead or in any manner whatsoever
claim or take the benefit or advantage of, any usury, stay or extension law or
any other law which would prohibit or forgive Santa Fe Inc. from paying all or
any portion of the principal of, or premium, if any, or interest on, this Note,
wherever enacted, now or at any time hereafter in force, or which may otherwise
affect the covenants or the performance of this Note; and Santa Fe Inc. (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder, delay or impede
the execution of any power herein or therein granted to the Company, its assigns
or the Securityholders, but will suffer and permit the execution of every such
power as though no such law had been enacted.
10. Santa Fe Inc. represents and warrants that:
(a) Santa Fe Inc. (i) is a corporation duly formed and validly
existing under the laws of the State of Nevada, (ii) has the requisite corporate
power and authority to execute and deliver this Note and to perform the
obligations it is required to perform hereunder, and (iii) has taken all
necessary corporate action to authorize the execution, delivery and performance
of this Note;
(b) the execution and delivery of this Note by Santa Fe Inc. and
performance of its obligations under this Note will not result in Santa Fe Inc.
being in default under any provision of its Articles of Incorporation or Bylaws
or of any deed of trust, mortgage, material document, material lease, material
instrument, indenture, material credit or other material agreement to which it
is a party;
(c) as of the date hereof, Santa Fe Inc. has good and marketable title
to that certain real property and the improvements located thereon known as the
Santa Fe Hotel & Casino located in the County of Clark and State of Nevada more
particularly described in Exhibit "A" attached hereto and made a part hereof
-----------
(the "Property");
--------
3
<PAGE>
(d) as of the date hereof, Santa Fe Inc. has not received any notice
of any Taking (as defined in the Deed of Trust and Security Agreement with
Assignment of Rents and Fixture Filing dated as of the date hereof between the
Company, as Grantor, and the Issuer, as Beneficiary (the "Deed of Trust")) of
-------------
the Property or any portion thereof and Santa Fe Inc. has no knowledge that any
such Taking is contemplated;
(e) except as disclosed to the Company in writing prior to the date
hereof, there are no investigations, claims, demands, notices of violation,
actions, labor disputes, suits or proceedings pending or, to the best knowledge
of Santa Fe Inc., threatened against or affecting Santa Fe Inc., at law or in
equity, before any court or administrative officer or agency which, if adversely
determined, would have (i) a material adverse effect upon the business,
operations, property or financial or other condition of Santa Fe Inc., or (ii) a
material adverse effect upon any of the transactions contemplated by this Note.
Except as disclosed to the Company in writing prior to the date hereof, Santa Fe
Inc. is not in default (A) in the payment of any real estate or other taxes
levied or assessed against it with respect to the Property other than (i) those
the amount or validity of which is currently being contested in good faith by
appropriate proceedings and which have been provided for on their respective
books, as the case may be, to the extent required by generally accepted
accounting principles, or (ii) as may be permitted by the Indenture or
(B) under, or in violation of, any applicable judgment, statute, rule, order,
decree, demand, writ, injunction or regulation of any court or governmental body
which default would have a material adverse effect upon the business,
operations, property or financial or other condition of Santa Fe Inc. or the
transaction contemplated by this Note;
(f) this Note constitutes a legal, valid and binding obligation of
Santa Fe Inc., enforceable against Santa Fe Inc. 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 generally, including without
limitation statutory or other laws regulating fraudulent conveyances or
preferential transfers, and general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law);
(g) neither the execution, delivery or performance by Santa Fe Inc.
of this Note nor compliance herewith by Santa Fe Inc., (i) will conflict with or
will result in a breach of or will constitute a default under (A) its Articles
of Incorporation or Bylaws or any of its material contractual obligations,
(B) any judgment, statute, rule, order, decree, writ, injunction or regulation
(including, without limitation, those relating to gaming, zoning, land use and
environmental protection, and any applicable fire and building codes) applicable
to it of any court or Governmental Authority or any agreement or instrument to
which it is a party, or by which it is bound, in each case where such conflict
or breach could reasonably be expected to materially adversely affect the
financial condition of Santa Fe Inc. or (ii) will result in the creation or
imposition of any lien, charge, security interest or encumbrance upon any of its
properties or assets other than the Liens contemplated by the Collateral
Documents (as defined in the Indenture).
11. This Note shall be governed by and construed in accordance with
the laws of the State of Nevada.
12. This Note may not be changed or terminated orally, but only by an
agreement in writing signed by any party against whom enforcement of such change
or termination is sought in compliance with the provisions of Article Ten of the
Indenture.
13. Concurrently with its execution and delivery to the Company, this
Note is being assigned to the Issuer, and the Issuer will assign this Note to
the Trustee under the
4
<PAGE>
Indenture in its capacity as such for the benefit of the Holders, pursuant to
that certain Assignment Agreement dated as of the date hereof between Issuer, as
assignor, and Trustee, as assignee. Trustee shall have and shall exercise and
benefit from all of the rights and remedies of the Company hereunder. Santa Fe
Inc. hereby acknowledges the foregoing and agrees to be bound to Trustee, upon
such assignment, as if Trustee were the original lender hereunder. From and
after the date hereof, this Note may not be amended or modified except upon the
written agreement of Trustee and pursuant to the terms of the Indenture and the
Assignment Agreement. Any notices given to third parties shall indicate that
Trustee is the lender hereunder. All rights and remedies of Trustee hereunder
including all indemnities running to the Company, shall also operate for the
benefit of the Holders and shall be exercised by Trustee in accordance with the
terms and conditions set forth in the Indenture. Santa Fe Inc. shall perform or
cause to be performed all covenants and agreements contained in the Indenture to
the extent required to enable the Company to comply with the terms of the
Indenture. This Note is not assignable by the Trustee to any person or entity
other than a successor Trustee under the Indenture or in connection with the
exercise by the Trustee of its rights and remedies under the Indenture. Any
purported assignment of this Note other than as permitted in this paragraph 14
or as contemplated by paragraph 4(b) hereof shall be null and void and of no
force or effect.
14. Whenever the provisions of this Note and the provisions of the
Indenture shall be inconsistent, the provisions of the Indenture shall govern.
15 Notwithstanding anything herein to the contrary, (i) Santa Fe
Inc. is liable hereunder only to the extent of its assets, and (ii) except as
provided in the Guarantee in the Indenture and the Guaranty of Completion in the
case of the Guarantor, no other person or entity, including, but not limited to,
any general partner of Santa Fe Inc., any incorporator, officer, director,
shareholder, affiliate or controlling Person of Santa Fe Inc. or any general
partner of Santa Fe Inc., or any successor, personal representative, heir or
assign of any of the foregoing, in each case past, present or future, shall be
liable in respect of any obligation of Santa Fe Inc. under this Note; provided,
--------
however, that the foregoing shall not be deemed to limit the liability of Santa
- -------
Fe Inc. in respect of claims arising under federal or state securities laws or
that cannot be limited or waived under applicable law.
16. In the event that any provision of the Indenture incorporated by
reference in this Note is amended or supplemented in accordance with the terms
of the Indenture, then such provision, as so amended or supplemented, shall be
deemed to be incorporated by reference in and made a part of this Note, from and
after the effective date of such amendment or supplement, without the execution
of any instrument by Santa Fe Inc. or any other action whatsoever by any Person.
5
<PAGE>
IN WITNESS WHEREOF, Santa Fe Hotel Inc. has caused this Note to be duly
executed as of the date and year first above written.
SANTA FE HOTEL INC.
By: /s/ Thomas K. Land
-------------------------------
Name: Thomas K. Land
--------------------------
Title: Senior Vice President &
-------------------------
Chief Financial Officer
6
<PAGE>
Pay to the order of U.S. Trust Company of California, N.A., as trustee, pursuant
to and in accordance with that certain Assignment Agreement dated as of June 14,
1995, among Sahara Finance Corp., as assignor, U.S. Trust Company of California,
N.A., as assignee, and acknowledged by Sahara Nevada Corp.
SAHARA NEVADA CORP.
By: /s/ Thomas K. Land
------------------------------
Name: Thomas K. Land
-------------------------
Title: Senior Vice President &
------------------------
Chief Financial Officer
7
<PAGE>
Exhibit "A"
The portion of the Southeast Quarter (SE 1/4) of Section 34, Township 19 south,
Range 60 East, M.D.B. & M., more particularly described as follows:
COMMENCING at the Southeast corner of said Section 34;
thence South 89(degrees)51'11" West along the South line thereof a distance of
350.00 feet to the TRUE POINT OF BEGINNING;
thence continuing South 89(degrees)51'11" West a distance of 416.85 feet to a
point on the Easterly right-of-way line of the US 95 Expressway;
thence along said right-of-way line the following five courses North
00(degrees)08'49" West a distance of 50.00 feet;
thence North 84(degrees)08'04" West a distance of 477.42 feet;
thence North 00(degrees)01'40" West a distance of 525.36 feet;
thence North 04(degrees)05'48" East a distance of 1030.51 feet to a point on a
tangent curve concave to the South having a radius of 200.00 feet;
thence Northeasterly and Southeasterly along the arc of said curve through a
central angle of 139(degrees)28'12" an arc length of 486.84 feet to a point on
the Southwesterly right-of-way line of US Highway 95 (Rancho Road) (200.00 feet
wide);
thence South 36(degrees)26'00" East along said Southwesterly right-of-way line a
distance of 1347.62 feet to a point on the East line of the aforementioned
Section 34;
thence South 00(degrees)40'00" East along said East line of Section 34 a
distance of 370.37 feet;
thence South 89(degrees)51'11" West a distance of 350.00 feet;
thence South 00(degrees)40'00" East a distance of 300.00 feet to the TRUE POINT
OF BEGINNING.
EXCEPTING THEREFROM:
That portion of the South 50 feet of the East Half (E 1/2) of the Southeast
Quarter (SE 1/4) of Section 34, Township 19 South, Range 60 East M.D.M., in the
City of Las Vegas, County of Clark, State of Nevada, bounded as follows:
Bounded on the East by the West line of the Easterly 350 feet, measured along
the South line, of the Southeast Quarter (SE 1/4) of said Section 34, being the
West line of that certain parcel of land described above by Deed of the City of
Las Vegas recorded May 1, 1974 as Instrument No. 381002 of Clark County, Nevada
Records and bounded on the West by the Easterly boundary of that certain parcel
of land described by Parcel No. F-006-CL-086.621 of that certain Final Order of
Condemnation recorded September 19, 1978 as Instrument No. 904738 of Clark
County, Nevada Records.
TOGETHER with those parcels vacated by the City of Las Vegas in that certain
Order of Vacation recorded December 5, 1991 in Book 911205 as Document No.
00484, Official Records, described as follows:
<PAGE>
That portion of the East 30.00 feet of the Southeast Quarter (SE 1/4) of the
Southeast Quarter (SE 1/4) of Section 34, lying Southerly of the Southwesterly
Right-of-way line of Rancho Drive (U.S. Highway No. 95).
EXCEPT THEREFROM the South 50.00 feet of said East 30.00 feet.
AND
A triangular parcel of land bounded as follows:
bounded on the South by the North line of the South 50.00 feet of the Southeast
Quarter (SE 1/4) of the Southeast Quarter (SE 1/4) of said Section 34;
bounded on the East by the West line of the East 30.00 feet of the Southeast
Quarter (SE 1/4) of the Southeast Quarter (SE 1/4) of said Section 34:
and bounded on the Northwest by the arc of a circle concave Northwesterly,
having a radius of 25.00 feet and being tangent to the North line of said south
50.00 feet and tangent to the West line of said East 30.00 feet.
<PAGE>
Exhibit "B"
<TABLE>
<CAPTION>
Principal Amount
----------------
Outstanding as of
-----------------
Such Date After Authorization on
--------------- ----------------
Subtraction of Behalf of Paying
-------------- ----------------
Date Principal Payments Principal Payments Agent
- ---- ------------------ ------------------ -----
<S> <C> <C> <C>
July 1, 1995 $1,584.50 $7,998,415.50
----------------
August 1, 1995 $3,185.01 $7,995,230.49
----------------
September 1, 1995 $3,217.19 $7,992,013.30
----------------
October 1, 1995 $3,249.70 $7,988,763.60
----------------
November 1, 1995 $3,282.54 $7,985,481.06
----------------
December 1, 1995 $3,315.70 $7,982,165.36
----------------
January 1, 1996 $3,349.21 $7,978,816.15
----------------
February 1, 1996 $3,383.05 $7,975,433.11
----------------
March 1, 1996 $3,417.23 $7,972,015.88
----------------
April 1, 1996 $3,451.76 $7,968,564.12
----------------
May 1, 1996 $3,486.63 $7,965,077.49
----------------
June 1, 1996 $3,521.86 $7,961,555.62
----------------
July 1, 1996 $3,557.45 $7,957,998.17
----------------
August 31, 1996 $3,593.39 $7,954,404.78
----------------
</TABLE>
<PAGE>
EXHIBIT 10.115
HACIENDA ADVENTURE CLUB
ACQUISITION AND ASSIGNMENT AGREEMENT
This acquisition and assignment agreement and joint escrow instructions
("AGREEMENT") is made as of September 29, 1995 ("AGREEMENT DATE"), at Las
Vegas, Nevada by and between Hacienda Hotel, Inc. and Resort Marketing
International (jointly and severally, "HACIENDA") and Brett Torino ("TORINO").
Recitals
A. Torino is the owner of an approximately 13.8 acre parcel of real property
located at the northwest corner of Wigwam and Parvin (generally south of Blue
Diamond Highway and east of I-10) in Clark County, Nevada, more particularly
described in EXHIBIT "A" ("PROPERTY"). The Property will be conveyed to a
limited liability company, to be formed pursuant to Section 23 below.
B. Hacienda Hotel, Inc. (having done business as Hacienda Resort Hotel and
Casino prior to September 1, 1995), a wholly owned second tier subsidiary of
Sahara Gaming Corporation ("SAHARA"), owns and (through Resort Marketing
International, another second tier wholly owned subsidiary of Sahara) operates a
recreational vehicle park at the Hacienda Resort Hotel and Casino on Las Vegas
Boulevard South (which hotel is now owned by Circus Circus Ent., Inc.) and has
sold memberships to the public under the name Hacienda Adventure ("CLUB"). The
Club is a non-equity club comprised of approximately 4,300 members. The Club
-----
memberships were purchased by contract, a standard copy of which (together with
Club rules and regulations) is attached hereto as EXHIBIT "B". Said contract
provides the right, subject to contract conditions, for Club members to stay in
the Hacienda recreational vehicle park, by reservation, on a first come first
serve basis. In addition to the Club membership contract purchase price,
members are required to pay annual dues to maintain membership in the Club.
C. The parties hereto have reached an understanding whereby Hacienda will pay
Torino the sum of $4,000,000.00 for Torino to assume the obligation of providing
a location and a completed recreational vehicle park on the Property ("NEW RV
PARK") for the Club and Club members. Hacienda shall assign to Torino the Club
and Club memberships, together with Club membership contracts and obligations,
including the obligation to operate and manage the Club on the New RV Park,
subject to Hacienda's indemnification described hereinafter. Hacienda shall
retain the contract note receivables ("MEMBERSHIP NOTES") due under the existing
Club membership sales contracts, and Hacienda and Torino will agree to a
procedure whereby Hacienda will keep Torino informed of the status of all
membership receivables. Hacienda has agreed to stop selling memberships in the
Club as of June 28, 1995. Any sales of memberships, proceeds or receivables
from contract sales for the Club after June 28, 1995, will be assigned to
Torino.
D. Torino shall provide Hacienda with a plan of development for the New RV Park
and a completion schedule for the improvement work depicted on the development
plan. The development plan will include floor plans and renderings of all
planned structural improvements and specifications for same. The development
plan for the New RV Park will include site improvement plans, specifications,
and a breakdown of features (i.e.; swimming pool, spa, entry features,
landscaping, fencing, together with recreational vehicle pad features and
specifications). During the Feasibility Period (defined in Section 3.01 below),
Torino will provide to Hacienda a performance and completion of improvements
guarantee acceptable to Hacienda.
Now therefore, in consideration of the mutual promises set forth in this
Agreement, it is agreed as follows:
-1-
<PAGE>
Section 1
1.01 Hacienda's acceptance of this Agreement is subject to Sahara's Board of
Directors' approval within seven (7) days of the execution of this Agreement
("APPROVAL PERIOD"). Said Approval Period shall not delay or extend Torino's
Feasibility Period, subject to reimbursement by Hacienda of reasonable Torino
expenses in the event that Sahara's Board does not approve this Agreement within
the Approval Period. Hacienda shall promptly furnish to Torino written
notification of Sahara Board approval, together with a resolution of Sahara's
Board, in the form of EXHIBIT "C" hereto, confirming this Agreement, the
transfer to Torino, and Sahara's guaranty of Hacienda's obligations hereunder.
1.02 Torino agrees that at the Closing (defined in Section 6.01 below) Torino
shall accept the Club memberships and membership contracts, and shall assume the
obligations and liabilities that go therewith, except as hereinafter provided,
for the sum of $4,000,000.00, paid as hereinafter provided. As specified
herein, the Club and Club membership will be physically relocated to the New RV
Park on the Property, located approximately 3.5 miles south of the existing and
current location at the Hacienda Resort Hotel and Casino. Torino is obligated
to complete the improvements on the Property for the New RV Park, and Torino is
obligated to provide, and make available as needed, one RV space for every 15
Club members, the RV spaces being provided first in the New RV Park, and then,
as needed, by Torino's provision or rental of spaces (at no cost to Hacienda and
on the same terms to Club members) in the recreational vehicle park adjacent to
the Property on the north.
1.03 Subject to verification during the Feasibility Period of Hacienda's
representation that the cash flow from annual dues is regularly distributed
throughout the year, the annual Club membership dues will not be prorated.
Annual dues which become due and payable (by membership agreement) on, or after,
the date of Closing shall belong to Torino, regardless of the date such dues are
actually paid by the member. Annual dues which become due and payable (by
membership agreement) before the date of Closing shall belong to Hacienda,
regardless of the date such dues are actually paid by the member. At Closing,
and once each month thereafter, for as long as necessary, Hacienda and Torino
shall account for the collections of annual dues, and each party shall reimburse
the other any dues it has collected on behalf of the other party. Within ten
(10) days of the Agreement Date, Hacienda shall: (a) furnish to Torino copies of
all records pertaining to members' dues, and (b) prepare and furnish a synopsis
of the status of each member's dues, whether current or delinquent (and if
delinquent, an aging schedule). After Closing, Hacienda shall be solely
responsible and liable for collection of all delinquent dues of members not yet
terminated, and Torino shall be reasonably entitled to review Hacienda
collection procedures pertaining to Club members. During the Feasibility Period,
Hacienda shall furnish to Torino copies of all communications previously sent by
Hacienda to Club members in connection with this Agreement or the subject matter
contemplated herein, and all communications of Club members to Hacienda in
connection therewith. Any and all notices or communications sent by Hacienda to
Club members after the Agreement Date shall be subject to the reasonable prior
approval of Torino. At Closing, the parties shall provide joint written notices
to all Club members, in form and content reasonably agreeable to the parties,
advising the members of post-Closing collection procedures.
Section 2
Price
2.01 The assignment price paid by Hacienda to Torino shall be $4,000,000.00,
paid as follows:
(a) Within eight (8) business days after the Escrowee (defined in Section
6.01 below) receives a fully executed and approved copy of this
Agreement containing original signatures of Torino and Hacienda,
Hacienda shall deposit the sum of Two Hundred Fifty Thousand Dollars
($250,000.00) into escrow. The Escrowee shall invest the $250,000.00
deposit into an interest bearing account as instructed by Hacienda,
with interest accruing to Hacienda. If, after the
-2-
<PAGE>
Feasibility Period (described hereinafter), Hacienda, for any reason
other than good cause, cancels this transaction, then the deposit
money held in escrow shall be released to Torino. Good cause shall be
defined as a material misrepresentation by Torino or the failure of
Torino to perform any obligations under this Agreement. Upon rezoning
of the Property to RVP by the Clark County Commission and upon the
receipt of all approvals required to construct the New RV Park, the
$250,000.00 deposit shall become non-refundable and shall be released
from escrow to Torino.
(b) The additional sum of $3,750,000.00 in cash shall be paid into escrow,
either (1) within five (5) business days of receipt by Torino of all
approvals required to construct the New RV Park, including the
rezoning of the Property to RVP, or (2) on September 30, 1995,
whichever date is later. Prior to September 30, 1995, Hacienda may
extend the September 30, 1995, date by thirty-one (31) days, to
October 31, 1995, by depositing an additional One Hundred Thousand
Dollars ($100,000.00) into escrow along with written notice of intent
to extend the date. The additional $100,000.00 shall be treated as
non-refundable deposit, in addition to the $250,000.00 deposit
described herein before, and said additional $100,000.00 deposit shall
be credited toward the $3,750,000.00 due from Hacienda, reducing the
amount due on October 31, 1995, to $3,650,000.00. The $3,750,000.00
or the $3,650,000.00, as the case may be, shall be deposited into a
construction trust account with the Escrowee, and upon rezoning of the
Property to RVP by the Clark County Commission and upon the receipt of
all approvals required to construct the New RV Park, $2,150,000.00 of
this sum shall be released from escrow to pay for the Property. The
remainder of the funds held in escrow shall be incrementally released
to pay for costs of construction of the New RV Park, as construction
progresses. Torino shall make written requests from time to time for
disbursements from a construction account, and Hacienda shall approve
each such request within three (3) business days after receipt
thereof. In the even that construction is not progressing, due to
alleged bad faith of Torino or other comparable reason, then any
immediate draw request then pending shall be paid by Hacienda, and the
parties shall immediately undertake good faith efforts to immediately
resolve the situation by mutual agreement (or, if mutual agreement
cannot be reached promptly, then through mediation by a mutually
acceptable third party, who shall be instructed to render a mediation
decision within twenty (20) days).
2.02 Performance of Torino's obligations hereunder (not to exceed in amount the
$4,000,000.00 paid by Hacienda) shall be secured by a first deed of trust
on the Property ("HACIENDA TRUST DEED"), subject to the following:
(a) At Torino's request, Hacienda shall subordinate the Hacienda Trust
Deed to a new lien which will secure additional funds loaned to
Torino: (1) to complete construction of the New RV Park ("CONSTRUCTION
LOAN"), not to exceed Two Million Dollars ($2,000,000.00) (subject to
upward adjustment as provided below); (2) to comprise permanent
financing for the New RV Park ("PERMANENT LOAN"), not to exceed Three
Million Dollars ($3,000,000.00) (subject to upward adjustment as
provided below).
(b) The authorized maximum amount of the Construction Loan and/or
Permanent Loan ("AUTHORIZED LOAN") shall be increased, based upon
reduction of Club members, as follows:
(1) The baseline number of Club members ("BASELINE NUMBER") shall be
that number of Club members initially assigned from Hacienda to
Torino, subject to upward adjustment for members cancelled by
Hacienda prior to assignment, but subsequently reinstated,
pursuant to Section 2.02(b)(4), below.
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(2) The Authorized Loan shall be increased by the sum of $250.00 for
each Club member reduced from the Baseline Number, by attrition,
cancellation, or consent of the Club member (such as, for
example, consensual transfer of the Club member to a new,
successor club of Torino); however, under no circumstances shall
Hacienda subordinate to an amount greater than 50% of the fair
market value of the New RV Park. The foregoing is subject to
Section 2.03 below, providing that Torino may furnish a bond in
lieu of the Authorized Loan.
(3) Subject to reinstatement, as set forth in Section 2.02(b)(4)
below: prior to assignment of Club memberships to Torino,
Hacienda shall cancel Club memberships, and after assignment,
Torino may cancel Club memberships, for: (1) Membership Notes
which are delinquent for more than 180 days in payment of
principal and interest ("DELINQUENT NOTES"), or (2) dues which
are delinquent for more than one year ("DELINQUENT DUES").
(4) Club members who are cancelled by Hacienda prior to assignment,
pursuant to Section 2.02(b)(3) above, but who subsequently bring
their memberships current (i.e., who remove all delinquencies in
their Delinquent Notes and Delinquent Dues) within 120 days after
cancellation, or if ordered by action of law, shall be reinstated
as Club members. The number of such reinstated Club members shall
be added to and included within the Baseline Number.
(5) Notwithstanding any other provision: (A) Torino's obligation to
provide and make available one RV space for every 15 Club members
shall be computed initially on the basis of the Baseline Number;
and (B) thereafter, said number of RV spaces from time to time
shall be: (1) adjusted upward, by one RV space for every 15
reinstated Club members, and (2) adjusted downward, by one RV
space for every 15 Club members reduced by attrition,
cancellation, or consent.
(c) Hacienda shall execute, acknowledge, and deliver to Torino a full
reconveyance of the Hacienda Trust Deed promptly upon the earlier of:
(1) receipt of evidence satisfactory to Hacienda that the then-current
Club membership has been reduced, by attrition, cancellation, or
consent, to five hundred (500) Club members or less.
(d) The Hacienda Trust Deed shall, upon Event of Default (as defined
below), allow Hacienda to take title to and possession of the
Property, and to operate the New RV Park. "EVENT OF DEFAULT" shall be
written complaints or legal action ("COMPLAINTS") filed by 33% or more
of the then-current Club membership alleging material breach of the
Club sponsor's obligations under the Club membership contracts, with a
finding of such material breach by a court of law or arbitrator, based
on objective standards and supported by credible evidence, subject to
the following exceptions. There shall be no Event of Default for any
complaints: (1) caused by or attributable to failure of any Hacienda
representation or warranty or otherwise caused by or attributable to
Hacienda; or (2) which are cured by Torino within 180 days; or (3)
based on the fact of this relocation of the Club; or (4) resulting
from any termination of Club members for Delinquent Notes and/or
Delinquent Dues.
(e) If Torino (or assigns) should ever relocate all of the Club facilities
from the New RV Park to a successor RV park, in accordance with the
terms and conditions of the Club membership contracts, then Hacienda
shall execute, acknowledge and deliver a full reconveyance of the
Hacienda Trust Deed, provided the following conditions are satisfied:
(1) the successor RV
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park shall contain at least one RV space for each fifteen valid Club
members plus 20 additional spaces, (2) the successor RV park shall be
constructed on property owned in fee by Torino or assigns, (3) Torino,
or assigns, shall execute a new first deed of trust in favor of
Hacienda, or assigns, to secure the Club sponsor's performance under
this Agreement, and (4) the new deed of trust shall be a first deed of
trust and Hacienda, or assigns, shall not be obligated to subordinate
said deed of trust to any other liens on the property, other than a
construction loan and/or permanent loan with the same limits as the
Authorized Loans as set forth above. In no event shall Hacienda
subordinate its deed of trust to an amount greater than 50% of the
fair market value of the successor park.
2.03 Torino shall have the option, in its sole discretion, in lieu of or in
substitution for the Hacienda Trust Deed, at any time to furnish to
Hacienda a performance bond ("PERFORMANCE BOND") denominating Hacienda
Hotel, Inc. as the insured, and guaranteeing performance of Torino's
obligations hereunder (not to exceed in insured amount the sum of
$4,000,000.00 paid by Hacienda), subject to the following:
(a) The Performance Bond shall be structured to remain in full force and
effect from date of issue until such time as the then-current Club
membership has been reduced by attrition, cancellation, or consent, to
one thousand (1,000) or fewer original Hacienda Adventure Club
members.
(b) The Performance Bond shall be substituted in lieu of the Hacienda
Trust Deed. In the event that the Hacienda Trust Deed is of record at
the time the Performance Bond is delivered to Hacienda, the Hacienda
Trust Deed shall be immediately released and reconveyed of record.
(c) After delivery to Hacienda of the Performance Bond, Torino shall be
entitled to encumber the Property with the liens of such financing or
loans in such amounts, without limitation, as Torino, in its sole
discretion, may elect.
(d) The Performance Bond insured amount shall be decreased from time to
time by the sum of $1,000.00 for each Club member reduced from the
Baseline Number, by attrition, cancellation, or consent of the Club
member.
(e) The Performance Bond shall provide for payment of amount(s) thereunder
equal to proven damages upon Event of Default.
(f) The original Performance Bond shall be returned to Torino, and shall
be fully released and exonerated, promptly upon receipt of evidence
satisfactory to Hacienda that the then-current Club membership has
been reduced, by attrition, cancellation or consent, to one thousand
(1,000) or fewer Club members.
(g) The foregoing Performance Bond provisions shall apply equally with
regard to any Hacienda trust deed in connection with a successor RV
park, as set forth in Section 2.02(e), above.
Section 3
Feasibility Period
3.01 Torino shall have thirty (30) days, from the date of receipt of materials
required, to complete Torino's review of the Club and the Hacienda Adventure RV
park operations ("FEASIBILITY PERIOD"). All books, dues records, contracts,
documents, ledgers, registers, and computer records that exist, relating to the
Club, shall be made available to Torino so that Torino may determine if Torino
will proceed with the transaction
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described in this Agreement. Hacienda shall use its best efforts to produce all
documentation within 72 hours of the full execution of this Agreement. Hacienda
represents that, to Hacienda's best knowledge, all documents, contracts,
exhibits, and other materials supplied to Torino will be correct, accurate, and
complete, except as may otherwise be disclosed by Hacienda in writing.
3.02 Torino may deliver to Hacienda a written termination notice at any time
during the Feasibility Period, if in Torino's sole and independent discretion
the transaction contemplated in this Agreement is not feasible. In the event of
such written termination notice given by Torino during the Feasibility Period,
the $250,000.00 deposit held in escrow shall be immediately returned to Hacienda
and this Agreement shall cease and terminate and be of no further force and
effect, and neither party hereto shall have any further rights against or
obligations to the other by reason of this Agreement or such termination.
Section 4
Representations and Warranties
4.01 Hacienda represents and warrants to Torino as follows:
(a) Acceptance of this Agreement by Hacienda is subject to Sahara's Board
of Directors' approval within seven (7) days of the date of execution
of this Agreement.
(b) Hacienda is a duly organized and validly existing corporation under
Nevada law, and Hacienda which, until September 1, 1995, did business
at 3950 Las Vegas Boulevard South as the Hacienda Resort Hotel and
Casino, and which previously did and currently does business at said
address as Hacienda Adventure Club. The Club is a non-equity
membership club that was organized to allow sales of non-equity
membership rights for qualified buyers/members to stay in the
recreational vehicle park area of the Hacienda Resort Hotel and
Casino. The Club has general rules and regulations which may be
amended from time to time by the Club sponsor, said sponsor being
Hacienda. At and after the Closing, Torino shall replace Hacienda as
the Club sponsor. The Club has approximately 4,300 members who
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purchased rights to use RV sites at the Hacienda Adventure RV park in
accordance with the terms and conditions of the Club membership
agreements. The dues-paying status of the members is reflected in the
computer report attached hereto as EXHIBIT "D". The Club contract
provides that members may use the Hacienda Adventure RV park, subject
to rules and regulations and other members' use of the facilities.
Current Club rules provide for a maximum stay of 14 consecutive days.
Then members must remove their RV from the park for at least 7 days
before returning, or at the sole discretion of management and subject
to availability, management may allow a member to stay as a public
customer, paying the normal daily rent for 7 days in lieu of leaving
the park; thereafter the member may stay in the park for another 14
days as a Club member, subject to space availability. Any exceptions
to Club rules and regulations, and any exceptions to the standard Club
contract, known to Hacienda, are in writing, and a copy of such is in
the individual member's file. Within ten (10) days of the Agreement
Date, Hacienda shall prepare and furnish to Torino a summary or
abstract of the members' files (to the extent any file is materially
different from the standard Club contract), which summary or abstract
shall be attached hereto as EXHIBIT "E". Hacienda represents and
warrants that, to the best of its knowledge and belief, there are no
exceptions to the standard Club contract or to the Club rules and
regulations except as specifically set forth in said Exhibit "E". If
any material deviation from the standard Club contract is undocumented
or not set forth on Exhibit "E", and such deviation imposes conditions
or restrictions on Torino greater than the exceptions set forth on
Exhibit "E", Hacienda shall indemnify and hold Torino harmless from
any and all reasonable damages. The camping and use of the Hacienda
Adventure RV park is offered by reservation on a space available
basis.
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The Club is a Camp Coast to Coast ("CCC") affiliate, and is therefore
obligated to allow members of other CCC affiliated RV parks to use RV
spaces at the Club RV park in accordance with CCC rules and
regulations. Hacienda represents and warrants that it does not have a
current written agreement with CCC; that Hacienda operates by mutual
informal understanding with CCC, as set forth in a CCC letter to
Hacienda dated 8-25-95 ("CCC LETTER"); and that true, correct and
complete copies of the CCC Letter and the current CCC rules and
regulations are attached hereto as EXHIBIT "F". Club members are
comprised of two classes of memberships, known as Campers and
Resorters. Resorter members are entitled to discounts on services and
facilities at some CCC affiliated resorts, which discounts are not
available to Camper members. Torino shall not be obligated by this
Agreement or the existing CCC agreement or rules and regulations to
offer or provide facilities or services for Resorter members beyond
those provided to Camper members; however, this Agreement shall not
preclude Torino from doing so in the future if Torino deems it to be
in Torino's best interest.
(c) The Club is duly organized and validly existing under the laws of the
State of Nevada, and is a non-equity club comprised of approximately
4,300 members.
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(d) The execution, delivery, and performance of this Agreement by the
persons executing the same on behalf of Hacienda have been duly and
validly authorized (and by their execution hereof such persons
individually represent and warrant that they are so authorized) to
execute this Agreement.
(e) Neither the execution, delivery, or performance of this Agreement will
conflict with or result in a breach of any of the terms, conditions,
or provisions of any judgment, order, injunction, decree, or ruling of
any court or governmental authority to which Hacienda or the Club is
subject or any agreement or instrument to which any of them is a party
or by which any of them is bound, or will constitute a default
thereunder.
(f) To the best of Hacienda's knowledge and belief, no consent, approval,
or authorization of any governmental authority or private party is
required in connection with the execution, delivery, or performance of
this Agreement by Hacienda. In the event that any such consent,
approval or authorization is required, then it is Hacienda's
responsibility, at its sole expense, to promptly obtain the same.
Hacienda acknowledges that a rezoning and a parcel map must be filed
with and approved by Clark County in connection with the performance
of this Agreement by Torino. Torino shall be responsible for the
rezoning application and process; however, Hacienda agrees that the
application may be made in the name of Hacienda, at the option of
Torino. Failure by Torino to obtain zoning to RVP on the Property
will terminate this Agreement and all deposit money paid by Hacienda
will be returned to Hacienda.
(g) Hacienda has full legal and corporate authority to complete this
transaction and relocate all of the Club and membership to the new
location outlined in this Agreement, and the transaction and
relocation contemplated herein do not violate any laws or breach any
contracts of Hacienda or the Club. Hacienda agrees to indemnify,
defend, and pay legal costs for Torino if any legal action relating to
this transaction or the relocation is brought against Torino,
Hacienda, and/or the Club, by: the Club, Club members, any party
having a current or previous contractual relationship with Hacienda or
the Club, or any governmental agency (including, without limitation,
the State of Nevada Real Estate Division). In the event of such legal
action, Hacienda and Torino agree to work together to provide a
satisfactory resolution to any claim, and Hacienda and Torino will use
reasonable efforts to complete the transaction contemplated in this
Agreement. Hacienda agrees to indemnify and hold Torino
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harmless from any claims by Club members, or any other parties,
against the Club, or its sponsor, which result from the actions of
Hacienda, or from operation or management of the Club, during the time
prior to Closing, or which result from collection by Hacienda of
Delinquent Notes after Closing.
(h) Hacienda shall provide to Torino, by not later than the end of the
Approval Period, Sahara's guaranty of Hacienda's performance under
this Agreement, duly executed by Sahara, in the form and content
attached hereto as EXHIBIT "G".
(i) The terms of the Club membership agreement provide that the nature and
extent of the Club facilities are subject to change and the Club
sponsor may add, remove, or relocate any or all facilities as it deems
desirable, but the sponsor must employ its best efforts to provide
equal or similar facilities for any facility removed.
(j) There are no known investigations by any governmental agencies or any
claims, suits, counterclaims, or proceedings in law or in equity
against the Club, or against Hacienda, relating to the Club. Any
lawsuits or claims against the Club, or against the sponsor relating
to the Club, which become known, will be presented to Torino prior to
Closing.
(k) To the best of Hacienda's knowledge, the Club is not operating in
violation of any federal, state, or local statute, law, ordinance,
rule or regulation.
(l) Hacienda agrees to indemnify Torino against any lawsuits brought
against the Club as a result of the discharge of hazardous substances
on the Hacienda Resort Hotel and Casino property or any contiguous
real property.
(m) Between the Agreement Date and Closing, Hacienda shall operate the
Club in the ordinary course of business, subject to ordinary wear and
tear and deterioration.
(n) After June 28, 1995, Hacienda will not sell new memberships in the
Club.
(o) True, correct and complete copies of the Club's original, subsequent,
and current public offering statements are attached hereto as EXHIBIT
"H".
(p) True, correct and complete copies of all permits for or pertaining to
the Club, and all amendments, conditions and restrictions of and to
such permits (including, without limitation, any and all permits
required by or under NRS Chapter 119B), are attached hereto as EXHIBIT
"I".
(q) Other than Club membership contracts, there are no Club contracts,
obligations, or liabilities.
(r) There is no membership association (including, without limitation, any
membership association formed pursuant to NRS Chapter 119B) of or in
connection with the Club.
(s) Exhibits "B" through "J" inclusive hereto are true, correct and
complete representations or copies of what each purports to be.
(t) Casino Properties, Inc. has been fully merged into Hacienda Hotel,
Inc., which is the current holder of all of the Membership Notes, and
no Membership Note is or has been sold.
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(u) The representations or warranties by Hacienda in this Agreement are
true and correct in all material regards. There are no
representations or warranties of Hacienda other than as specifically
set forth in this Agreement.
(v) Any and all exhibits not attached hereto as of the Agreement Date
shall be furnished by not later than the end of the Approval Period,
unless earlier required pursuant to the Agreement.
4.02 Torino represents and warrants to Hacienda as follows:
(a) Brett Torino is an individual, resident in the State of Nevada, who
has full capacity and authority to enter into this Agreement.
(b) The execution, delivery, and performance of this Agreement by the
persons executing the same by or on behalf of Torino, or assigns, have
been duly and validly authorized (and by their execution hereof such
persons individually represent and warrant that they are so
authorized) and this Agreement and the other agreements and
instruments contemplated hereby constitute legal, valid and binding
obligations of Torino, enforceable in accordance with their respective
terms.
(c) Torino agrees to indemnify and hold Hacienda harmless from any claims
by Hacienda Adventure members, or any other parties, against the Club,
or its sponsor, which result from the actions of Torino, or Torino's
management of the Club, during the time after Closing.
(d) The representations or warranties by Torino in this Agreement are true
and correct in all material regards. There are no representations or
warranties of Torino other than as specifically set forth in this
Agreement.
(e) Upon Closing, Torino shall be responsible for the management of the
Club at the New RV Park and shall perform all duties and meet all
obligations of the Club sponsor for as long as there are valid members
in the Club. Torino shall construct to completion the New RV Park, in
a workmanlike manner in accordance with Clark County Code and
ordinances and the approved development plans and specifications
provided to Hacienda and Clark County. The site plan specifications
and construction schedule shall be approved by Hacienda prior to the
end of Torino's Feasibility Period. Torino shall provide to Hacienda
a performance and completion guarantee for the planned improvements to
the Property, and such guarantee shall be secured by the Property.
(f) Torino, upon Closing, warrants to Hacienda that as long as there
exists one or more valid Club members, Torino shall own, operate, and
maintain, or provide, an RV park to accommodate the Club and its
members, at a ratio of at least one (1) RV space for each fifteen (15)
Club members. Torino shall abide by all the material terms, covenants,
conditions, and warranties contained in the contract agreements
executed by the Club members and Hacienda, and Torino is assuming the
contract obligations and contract conditions of those agreements on
behalf of Hacienda as part of this Agreement.
4.03 The representations and warranties contained herein are made with the
knowledge and expectation that Hacienda and Torino are placing complete reliance
thereon. The representations and warranties contained herein shall be true and
correct as of the date of execution hereof, or such other date as specified
herein, and shall survive the Closing.
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Section 5
Access and Information; Pre-Closing Period
5.01 Throughout the Feasibility Period, Hacienda shall give Torino and Torino's
counsel, accountants, and other representatives, full access to Hacienda's
books, contracts, and records with respect to the Club. Torino shall treat
all such books, contracts, and records as confidential information.
5.02 During the period immediately following the Feasibility Period and prior to
Closing ("PRE-CLOSING PERIOD"), Hacienda and Torino shall cooperate in good
faith regarding all matters pertaining to the Club (including, but not
necessarily limited to, collection of Membership Notes; training of Torino
representatives in RV park and Club management and operations; sharing of
information; transfer of records, computer systems, permits, and so on).
If requested by Torino, Hacienda will cooperate to help to preserve any
grandfathered or favorable conditions outlined in the Nevada Real Estate
Division permit held by Resort Marketing International, subject to approval
by the Nevada Real Estate Division.
5.03 Hacienda promptly shall pay all costs incurred by Torino during the Pre-
Closing Period for engineering plans, hydrology studies, traffic studies,
landscape plans, and other similar plans or studies, connected with the
Property and/or the New RV Park. Such amounts paid by Hacienda during the
Pre-Closing Period shall be credited against any and all amounts to be paid
by Hacienda to Torino at Closing.
5.04 During the Pre-Closing Period and for a period of up to one (1) year after
Closing, Torino, in its sole discretion, may elect to have produced,
printed, and mailed or delivered to Club members, a sophisticated marketing
package (up to and including 4-color process) pertaining to the Club and
the New RV Park, to encourage Club members to voluntarily relinquish their
Club membership in favor of membership in a new, Torino-sponsored club
(subject to Torino receiving necessary permit(s) in connection with any
such new club). In the event that Torino so elects, Hacienda promptly
shall pay to Torino amounts equal to one-half of the costs incurred in
connection with such marketing package. Such payment by Hacienda shall be
in addition to any and all other amounts required to be paid by Hacienda
under this Agreement.
Section 6
Closing
6.01 The consummation of Hacienda's assignment of the Club to Torino and the
execution of the transfer, in accordance with the provisions of this Agreement
(the "CLOSING"), shall occur at the offices of First American Title Company
("ESCROWEE"), Las Vegas, Nevada. Closing shall be accomplished within two (2)
business days after all of the following have occurred:
(a) Torino has successfully completed construction of the New RV Park in
accordance with the approved plans and specifications.
(b) Torino has caused a certificate of occupancy to be issued for the New
RV Park and Torino is duly licensed to conduct business on the
Property.
(c) The New RV Park is open for business and can begin to accommodate Club
members.
(d) Fulfillment by Hacienda of its obligations as set forth in Section
6.02 below.
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6.02 At the Closing, and in addition to other items required under the terms of
this Agreement, Hacienda shall deliver to Escrowee, for delivery to Torino, the
following:
(a) A Bargain and/or Sale Document as appropriate between the parties, in
the form of EXHIBIT "J" attached hereto, transferring sponsor
responsibility for the Club from Hacienda to Torino.
(b) All money required to be paid by Hacienda to Torino pursuant to this
Agreement, which has not already been paid.
6.03 Unless otherwise specifically provided for herein, this Agreement shall
serve, for both parties hereto, as the indemnification, warranty, or guarantee
required under any section of this Agreement.
6.04 Possession of the Club shall be delivered to Torino as of Closing. It is
the intent of this Agreement that Hacienda shall, at the Closing, convey to
Torino all rights, contracts, title and interest to the Club membership and all
rights presently held by Hacienda in the Club, excluding any Membership Notes
which are not paid in full. Hacienda agrees that at the Closing, and at any
time thereafter, upon request from Torino, Hacienda shall, at Hacienda's cost
and expense, cause to be executed, acknowledged and delivered to Torino such
assignments, conveyances, transfers, and other instruments and documents and
shall cause to be performed such acts as Torino shall from time to time require
for the perfecting, assuring, conveying, assigning, transferring and confirming
unto Torino of the rights herein conveyed or assigned or intended, now or
hereafter, so to be.
6.05 All costs, fees, and expenses in connection with transfer taxes and
conveyances, if any, shall be paid by Hacienda. All escrow fees shall be paid
equally by Torino and Hacienda.
6.06 Torino shall deliver to Hacienda, through escrow, completion and
performance guarantees for the construction of the New RV Park, together with
the approved rezoning of the Property to RVP and the approved site and
development plan for all improvements to the Property. The completion date of
improvements will be guaranteed by Torino by separate document which document
will be part of this escrow.
6.07 The terms, covenants, and conditions hereof shall not merge with any
conveyance, and shall survive the Closing and shall continue in full force and
effect as long as the Club, or its successor, remains in operation.
Section 7
Brokerage Fees
Each of the parties hereto represents to the other that it has not entered into
any agreement for the payment of any fees, compensation, or expenses to any
person, firm, or corporation in connection with the transactions provided for
herein. Hacienda and Torino each agrees to hold and save the other harmless
from any such fees, compensation, or expenses which may be suffered by reason of
any other agreements, or purported agreements, by the parties to pay any
brokerage fees.
Section 8
Notices
Any and all notices and demands by any party hereto and any notices required or
desired to be given hereunder by any other party shall be in writing and shall
be validly given or made only if deposited in the United States mail, certified
or registered, postage prepaid, return receipt requested, or if made by Federal
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Express or other similar delivery service keeping records of deliveries and
attempted deliveries, or if sent by telecopy. Service by United States mail or
by Federal Express or other similar delivery service shall be conclusively
deemed made on the first business day delivery is attempted, or upon receipt,
whichever is sooner. Service by telecopy shall be deemed made upon confirmed
transmission. Any notice or demand to Torino shall be addressed to:
__________________________ LLC
Attention: Brett Torino and Stephen Macie
4820 Alpine Place #E-202
Las Vegas, NV 89107
with a copy to:
Barry S. Goold, Esq.
Goold, Patterson, DeVore & Rondeau
300 South Fourth Street
905 Bank of America Plaza
Las Vegas, NV 89101
Any notice or demand to Hacienda shall be addressed to:
Hacienda Hotel, Inc.
Resort Marketing International
Attention: David Lowden
Santa Fe Hotel and Casino
4949 N. Rancho Drive
Las Vegas, NV 89130.
with a copy to:
Sahara Gaming Corporation
Attention: Paul Lowden
Santa Fe Hotel and Casino
4949 N. Rancho Drive
Las Vegas, NV 89130.
The parties may change their address for the purpose of receiving notices or
demands as herein provided by a written notice given in the manner aforesaid to
the others, which notice of change of address shall not become effective,
however, until the actual receipt thereof by the others.
Section 9
Governing Law
This Agreement shall be deemed to be made under the laws of the State of Nevada
and for all purposes shall be governed by and construed in accordance with the
laws thereof. Clark County, Nevada shall be the exclusive venue for any action
brought by the parties in any way related to this Agreement.
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<PAGE>
Section 10
Binding Effect
Subject to any limitation on assignment set forth in this Agreement, this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and assigns. It is specifically agreed that
Torino may not assign, transfer, or convey any or all of its rights and
obligations hereunder, without the consent of Hacienda, which shall not be
unreasonably withheld. Hacienda may not assign or transfer its rights and
obligations under this Agreement without the prior consent of Torino, which
shall not be unreasonably withheld. This Agreement is not intended to, and
shall not, create any rights in any person or entity, whatsoever, except Torino
and Hacienda or their consented assigns. Any assignment consented to hereunder
shall not operate to relieve the assigning party of its warranties and
indemnities hereunder, unless and to any extent specifically set forth in the
assignment document approved by the non-assigning party hereto.
Section 11
Severability
If any term, provision, covenant or condition of this Agreement, or any
application thereof, should be held by a court of competent jurisdiction to be
invalid, void or unenforceable by the laws applicable thereto, such provision
shall be deemed severable from, and shall in no way affect the enforceability
and validity of the remaining provisions of this Agreement. All provisions,
covenants, and conditions of this Agreement, and all applications thereof, not
held invalid, void, or unenforceable, shall continue in full force and effect
and shall in no way be affected, impaired or invalidated thereby.
Section 12
Interpretation
This Agreement is an agreement between financially sophisticated and
knowledgeable parties and is entered into by the parties in reliance upon the
economic and legal bargains contained herein and shall be interpreted and
construed in a fair and impartial manner without regard to such factors as the
party who prepared (or caused the preparation of) this instrument or the
relative bargaining power of the parties.
Section 13
Joint Escrow Instructions
This Agreement shall constitute joint escrow instructions of the parties hereto.
The parties shall execute such escrow instructions, not in conflict with the
terms hereof, as may be required to fully effectuate the terms, covenants and
conditions hereof.
Section 14
Calculation of Time Periods
If any date, herein set forth for the performance of any obligation by Hacienda
or Torino or for the delivery of any instrument or notice provided for herein,
should be a Saturday, Sunday, or legal holiday, such performance or delivery may
be made on the next business day following such Saturday, Sunday, or legal
holiday. As used herein, the term "LEGAL HOLIDAY" means any state or federal
holiday for which financial
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<PAGE>
institutions or post offices are closed, in the local jurisdiction in which the
Property is located, for observance thereof, and the term "BUSINESS DAY" means
any day which is not Saturday, Sunday, or a legal holiday.
Section 15
Exhibits
All exhibits and schedules referred to herein and attached hereto are hereby
made a part of this Agreement and are incorporated herein by this reference.
Section 16
Entire Agreement
This Agreement contains the entire agreement between the parties relating to the
transactions contemplated hereby, and all prior or contemporaneous agreements,
understandings, representations and statements, oral or written, are merged
herein. No modification, waiver, amendment, discharge or change of this
Agreement shall be valid unless the same is in writing and signed by the party
against which the enforcement of such modification, waiver, amendment, discharge
or change is or may be sought.
Section 17
Attorneys' Fees
In the event any action or proceeding is commenced by any party against any
other in connection herewith, including but not limited to any proceeding in
bankruptcy, the prevailing party shall be entitled to recover from the other
party all costs and expenses, including, without limitation, reasonable
attorneys' fees and costs, incurred in such action or proceeding, in addition to
any other relief awarded by the court.
Section 18
Time of Essence
Time is of the essence of this Agreement and all of the terms, provisions,
covenants and conditions hereof.
Section 19
Captions and Pronouns
The captions appearing at the commencement of the sections hereof are
descriptive only and for convenience in reference to this Agreement and in no
way whatsoever define, limit, amplify or describe the scope or intent of this
Agreement, nor in any way shall they be used in interpreting the terms of this
Agreement, nor shall they affect this Agreement. Personal pronouns used herein
shall be construed as though of the gender and number required by the context,
and the singular shall include the plural and the plural the singular as may be
required by the context.
Section 20
Reporting Person
Escrowee is hereby designated as the Reporting Person (as defined in Section
6045(e) of the United States Internal Revenue Code and the regulations
promulgated thereunder) as permitted by Treasury Regulation Section 1.6045-
4(e)(5).
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<PAGE>
Section 21
Joint and Several Liability
If any party consists of more than one person or entity, the liability of such
person or entity signing this Agreement shall be joint and several.
Section 22
Counterparts
This Agreement may not be executed in counterparts. This Agreement is not
binding until fully executed copies of this Agreement by all the parties hereto
are deposited into escrow with receipt of copies acknowledged by Torino and
Hacienda.
Section 23
Signature by Torino
Any other provision herein notwithstanding, the parties hereby acknowledge and
agree that Brett Torino is executing this Agreement individually, subject to the
following: (a) Brett Torino will cause to be formed a limited liability company
("company"), of which he will have a principal interest; (b) when such company
is formed, all interest, rights and obligations of Torino hereunder will be
assigned and delegated to the company, and Hacienda hereby consents to such
assignment and delegation; (c) the company will execute and deliver to Hacienda
a document reasonably acceptable to Hacienda, agreeing to be bound by the terms,
conditions and covenants of the Agreement, as the sole "Torino" party hereunder;
and (d) at the time the limited liability company executes and delivers such
document to Hacienda, Brett Torino shall be fully released from any and all
personal liability hereunder, and thereafter, Brett Torino shall have no
personal liability whatsoever.
IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as
of the date first above written.
HACIENDA: HACIENDA HOTELS, INC.
By: /s/ Paul W. Lowden
_________________________________
Paul W. Lowden, Chairman
RESORT MARKETING INTERNATIONAL
By: /s/ Paul W. Lowden
_________________________________
Paul W. Lowden, Chairman
TORINO:
By: /s/ Brett Torino
_________________________________
Brett Torino
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<PAGE>
LIST OF EXHIBITS
----------------
A - Property Description
B - Club Membership Contract (standard form); Club Rules & Regulations
C - Dues Paying Status of Club Members (computer report)
D - Sahara Resolution (Approval)
E - Summary or Abstract of Club Members' Files
F - CCC Agreement; CCC Rules & Regulations
G - Sahara Guaranty
H - Club Public Offering Statement and amendments
I - Club Permits
J - Bargain/Sale Instrument from Hacienda to Torino
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<PAGE>
EXHIBIT 10.116
CAMPERLAND RESPONSIBILITY AGREEMENT
THIS CAMPERLAND RESPONSIBILITY AGREEMENT (this "Agreement") is made as of
August 31, 1995 by and among Hacienda Hotel, Inc. ("Seller"), Sahara Gaming
Corporation ("Guarantor") and Pinkless, Inc. ("Buyer") (the foregoing parties
are collectively the "Parties" and each is a "Party").
W I T N E S S E T H:
WHEREAS, by an Agreement for Purchase and Sale (the "Original Agreement"),
dated January 10, 1995, Seller, Guarantor and William G. Bennett ("Bennett")
entered into an agreement for the purchase and sale of certain real property
located in Clark County, Nevada, including the hotel and casino thereon commonly
known as the Hacienda Resort Hotel and Casino (the "Hacienda"), and the assets
of the business of the Hacienda (such real property and assets are collectively
referred to herein as the "Hacienda Property");
WHEREAS, the Original Agreement was clarified and modified by that certain
letter agreement signed by Paul Lowden and agreed and consented to by Bennett on
March 3, 1995 (the Original Agreement as so clarified and modified is referred
to herein as the "Bennett Agreement");
WHEREAS, the Bennett Agreement was assigned by Bennett to Circus Circus
Enterprises, Inc. ("Circus Circus") pursuant to that certain Assignment and
Consent to Assignment executed by Seller, Guarantor and Bennett, and accepted
and approved by Circus Circus on March 5, 1995;
WHEREAS, the Bennett Agreement was clarified and modified by a Second
Amendment to Agreement for Purchase and Sale, dated June 30, 1995, and a Third
Amendment to Agreement for Purchase and Sale (the "Third Amendment"), of even
date herewith, both among the Seller, Guarantor and Circus Circus (the Bennett
Agreement as so clarified and modified is referred to herein as the "Purchase
Agreement");
WHEREAS, title to the Hacienda Property will be conveyed to Buyer, an
affiliate of Circus Circus, at the Closing;
WHEREAS, the Purchase Agreement provides for the continued operation of the
recreational vehicle park on the Real Property known as Hacienda Camperland
("Camperland") during the Termination Period (the portion of the Real Property
containing Camperland is referred to herein as the "Camperland Property"); and
WHEREAS, the Parties desire to clarify the relative responsibilities of
Seller and Buyer and certain other matters in
<PAGE>
connection with the operation of Camperland during the Termination Period;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:
1. Capitalized terms used herein and not otherwise defined have the
meanings given in the Purchase Agreement.
2. Seller shall have a license during the Termination Period to enter
Camperland, and to use the reservation center at Camperland, all for the sole
purpose of performing its obligations with respect to the operation of
Camperland during the Termination Period.
3. The Termination Period shall commence immediately following the
Closing and end on the Actual Termination Date, as defined in Section 15 hereof,
or eighteen (18) months after the Closing (the "Outside Termination Date"),
whichever shall first occur, unless terminated earlier as elsewhere provided
herein. Seller may terminate the Termination Period at any time for any reason
prior to the Outside Termination Date by notifying Buyer of such election in
writing. If the Actual Termination Date is earlier than the Outside Termination
Date, Seller shall be entitled to receive the amount provided in paragraph 17 of
the Third Amendment regardless of whether the Termination Period ends pursuant
to this Section, or Section 14, 18 or 19 hereof. All monies required to be paid
by Buyer under paragraph 17 of the Third Amendment shall be paid to Seller
without deduction, offset, notice or demand, in lawful money of the United
States of America, at 4949 North Ranch Drive, Las Vegas, Nevada 89130,
Attention: Thomas Land, or at such other place as Seller may from time to time
designate. If Buyer shall fail to pay, when the same is due and payable, any
amount due under paragraph 17 of the Third Amendment, such unpaid amount shall
bear interest from the due date thereof to the date of payment at the rate of
fifteen percent (15%) per annum.
4. Buyer shall provide Seller with monthly reports of all costs and
expenses incurred by Buyer in connection with the maintenance and operation of
Camperland ("Buyer Costs") such as security and maintenance. Buyer Costs do not
include real property taxes or other general administrative costs of operating
the Hacienda. On the twenty-fifth (25th) day of each calendar month after the
Closing until and including the twenty-fifth (25th) day of the calendar month
after the month of the date the Termination Period ends, Seller shall pay to
Buyer an amount equal to Three Thousand Dollars ($3,000) for water, telephone
service and sewer service provided by Buyer to Camperland under Section 5 hereof
(the "Fixed Cost"), plus all Buyer Costs that Buyer has reported to
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Seller and Seller has not previously paid to Buyer; provided, however, that the
Fixed Cost portion of any such payment made the month after a partial calendar
month included in the Termination Period shall be prorated. All monies required
to be paid by Seller hereunder shall be paid to Buyer without deduction, offset,
notice or demand, in lawful money of the United States of America, at 3950 Las
Vegas Boulevard South, Las Vegas, Nevada 89119, Attention: Controller, or at
such other place as Buyer may from time to time designate. If Seller shall fail
to pay, when the same is due and payable, any amount due hereunder, such unpaid
amount shall bear interest from the due date thereof to the date of payment at
the rate of fifteen percent (15%) per annum.
5. During the Termination Period, Buyer shall maintain Camperland in a
condition equal to or better than its current condition, and provide Camperland
with all water and other utilities as are necessary to operate Camperland as it
is currently being operated, other than electricity, gas and such other
utilities as are currently metered separate from the Hacienda, which Seller
shall continue to provide. Buyer shall also provide to Camperland during the
Termination Period such telephone and sewer services as are customary for a
recreational vehicle park similar to Camperland as it is currently operated.
Charges for long distance calls made from Camperland shall be Buyer Costs.
Buyer may stop providing any utility or service to Camperland when Buyer deems
such stoppage reasonably necessary, whether by reason of accident or emergency,
or for repairs or improvements or otherwise; provided, however, that Buyer shall
use reasonable efforts to minimize the duration of any such stoppage. Buyer
shall not be liable under any circumstances for loss, damage or injury, however
occurring, through, in connection with or incident to any stoppage of utilities
or services.
6. Seller shall be responsible for handling all reservations,
registrations, collections and accounting in connection with the operation of
Camperland during the Termination Period. Seller shall keep at least one
employee or representative of Seller at Camperland, who shall be responsible for
performing the obligations of Seller under this Section and Section 11 hereof,
at all times reasonably necessary for the performance of such obligations.
Buyer shall at no time be responsible for keeping unauthorized Camperland users
out of Camperland. Seller shall be entitled to retain all revenues from renting
or licensing spaces in Camperland during the Termination Period; provided,
however, that nothing in this Section shall limit Seller's obligations under
Section 4 hereof. Seller may deposit overnight in the cage at the Hacienda
monies collected by Seller each day at Camperland from Camperland users. Buyer
shall in no event be liable to Seller or any other person or entity for such
deposited monies. Seller may purchase through Buyer's purchase department
ordinary supplies used by Seller at Camperland in the ordinary course of
operating
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<PAGE>
Camperland. Seller shall reimburse Buyer on demand for the costs of such
supplies.
7. The Parties acknowledge and agree that no slot machine or other
gambling game or device will be operated at Camperland during the Termination
Period and that Buyer may remove all such machines, games and devices from
Camperland at any time.
8. Seller shall have a license during the Termination Period to use the
name "Hacienda" for the sole purpose of operating Camperland under the name
"Hacienda Camperland". Seller shall operate Camperland to at least the same
level of quality of operation as currently exists at Camperland. Buyer shall
have the right to monitor Seller's operation of Camperland to ensure that
Seller's obligations with respect to the quality of operations are met. Seller
shall not do any act or thing that indicates directly or indirectly that
Camperland is related to, or associated or affiliated with, Buyer, any affiliate
of Buyer, or any hotel, casino or other property owned by Buyer or any affiliate
of Buyer. Seller shall not use the name "Hacienda" in connection with any sales
under the existing Hacienda Adventure program or any similar program after the
Closing.
9. Persons who have the right to use Camperland under a Hacienda
Adventure Membership Agreement (the "Camperland Agreement") entered into
pursuant to the existing Hacienda Adventure program ("Hacienda Adventure
Licensees") may use Camperland during the Termination Period in accordance with
the Camperland Agreement, the Hacienda Camperland Rules & Regulations and the
Hacienda Adventure Questions and Answers (the Hacienda Camperland Rules &
Regulations and the Hacienda Adventure Questions and Answers are collectively
the "Camperland Rules"). After the Closing, Seller shall not grant any new
license or right to use Camperland pursuant to the existing Hacienda Adventure
program or otherwise; provided, however, that after the Closing Seller may grant
licenses to use individual vehicle spaces in Camperland on a night-by-night
basis as such spaces are currently used ("Camperland Space Licenses") during the
Termination Period in accordance with its current procedures for granting
Camperland Space Licenses outside of the existing Hacienda Adventure program if
the recipients of such licenses ("General Licensees") agree to be bound by the
Camperland Rules. Seller shall at all times during the Termination Period make
available at the reservation center at Camperland for review by Buyer current
records of all persons who have a right to use Camperland, all persons occupying
Camperland, the period of time the persons occupying Camperland are entitled to
stay and all reservations for the use of Camperland (the "Camperland Records").
Seller shall not permit any persons other than Hacienda Adventure Licensees and
General Licensees to use Camperland during the Termination Period.
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<PAGE>
10. Seller represents and warrants to Buyer that Seller has delivered to
Buyer true and correct copies of the public offering statement for the existing
Hacienda Adventure program, the form Camperland Agreement and the Camperland
Rules, and that these documents set forth in full the agreements between Seller
and the Hacienda Adventure Licensees with respect to the use of Camperland,
other than agreements set forth in Exception to Contract Forms which agreements
do not affect (i) Buyer's ability to operate and maintain Camperland, (ii) the
obligations of Camperland occupants, or the rights of Buyer, under the
Camperland Rules, or (iii) Seller's ability to relocate Hacienda Adventure
Licensees to another location. Seller further represents and warrants to Buyer
that Seller has no other agreements, rules or regulations that it uses in
connection with the operation of Camperland. Seller shall not change the
Camperland Rules without the prior written consent of Buyer. Seller shall make
such changes to the Camperland Rules as Buyer may reasonably request.
11. Seller shall promptly respond to and investigate all complaints and
allegations, whether from Buyer, a Camperland user or any other person, of
illegal activities or violations of the Camperland Rules within Camperland. If
any such complaint or allegation is valid, Seller shall promptly contact the
person or persons conducting such activities or violating such rules and use its
best efforts to resolve the matter. If Seller is unable to peacefully cause
such activities or violations to cease, Seller shall promptly inform Buyer of
the situation and cooperate with Buyer in resolving the matter in such manner as
Buyer may deem appropriate. Nothing herein shall preclude Buyer from doing
anything at Camperland that Buyer may deem necessary or appropriate in view of
the security and safety procedures in effect at other properties owned by Buyer
and affiliates of Buyer, including, without limitation, removing persons or
causing persons to be removed from Camperland.
12. Seller shall at all times prior to the Actual Termination Date comply
with all governmental rules, regulations, ordinances, statutes and laws
(collectively, "Laws") now or hereafter in effect pertaining to Seller's
obligations with respect to the operation of Camperland. Buyer shall at all
times during the Termination Period comply with all Laws now or hereafter in
effect pertaining to Buyer's obligations with respect to the operation of
Camperland.
13. Seller shall not install or place on the Camperland Property any
personal property not customary for the operation of a reservation center for a
recreational vehicle park similar to Camperland as it is currently operated. By
the end of the Termination Period, Seller shall remove all personal property
that Seller has installed or placed on the Camperland Property during the
Termination Period ("Seller's Property"). In the event Seller shall fail to
remove any of Seller's Property as provided herein,
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<PAGE>
Buyer may, but is not obligated to, at Seller's cost and expense, remove all
such property not so removed, and Buyer shall have no responsibility to Seller
for any loss or damage to said property caused by or resulting from such removal
or otherwise.
14. Seller shall have no right, and Buyer shall not be required, to make
any addition, alteration, improvement or change in or to the Camperland Property
("Improvement"); provided, however, that if an Improvement is required by any
Law in connection with the operation of Camperland, Seller shall either make
such Improvement or terminate the Termination Period as provided in Section 15
hereof. All Improvements made by Seller during the Termination Period shall, at
Buyer's option, become the property of Buyer at the end of the Termination
Period. Buyer shall have the right, however, to require Seller to remove any or
all such Improvements upon the termination of the Termination Period and return
the Camperland Property to the condition as it was prior to the making of any or
all Improvements.
15. Seller shall, by the end of the Termination Period, terminate all
rights of all Hacienda Adventure Licensees, General Licensees and other persons
to use or have any other interest in Camperland and otherwise permanently cease
operations in connection with Camperland, and remove or cause to be removed from
the Camperland Property all recreational vehicles, motor homes, trucks and other
vehicles, and all occupants of the Camperland Property. The date by which
Seller performs its obligations under this Section is the "Actual Termination
Date". Seller shall notify Buyer in writing once the Actual Termination Date
occurs. If the Actual Termination Date is after the Outside Termination Date,
Seller shall indemnify Buyer against loss or liability resulting from the delay
by Seller in performing its obligations under this Section, including, without
limitation, any loan carry costs or other loss or liability resulting from the
inability to commence redevelopment of, and construction on, the Camperland
Property. For sixty (60) days after the Termination Period, Buyer shall use
reasonable efforts to provide information regarding the location of the
recreational vehicle park that replaces Camperland to persons who request such
information at the Hacienda. Buyer may satisfy its obligation under the
preceding sentence by posting a sign on the Real Property or by such other
method as Buyer may reasonably determine.
16. Seller shall be liable for and shall pay before delinquency (and,
upon demand by Buyer, Seller shall furnish Buyer with satisfactory evidence of
the payment thereof) all taxes, fees and assessments of whatsoever kind or
nature, and penalties and interest thereon, if any, (i) levied against any
Seller's Property and any other personal property not owned by Buyer of
whatsoever kind and to whomsoever belonging situate or installed in or upon the
Camperland Property on or after the Closing, whether or not
6
<PAGE>
affixed to the realty, or (ii) arising directly or indirectly from the operation
of Camperland, including, without limitation, income tax. Buyer and Seller
acknowledge that Seller shall not be required to pay real property taxes on the
Camperland Property during the Termination Period. Whenever Buyer shall receive
any statement or bill for any tax payable in whole or in part by Seller, or
shall otherwise be required to make any payment on account thereof, Seller shall
pay the amount due hereunder within ten (10) days after demand therefor
accompanied by delivery to Seller of a copy of such tax statement, if any.
17. Seller for itself and its successors and assigns hereby covenants and
agrees to protect, indemnify, save and hold harmless Buyer, its affiliates, and
its and their agents, representatives, employees, directors, officers,
shareholders, partners, consultants, independent contractors, successors and
assigns (collectively, "Buyer Indemnitees") from any and all liability, loss,
costs, expenses, including attorneys' fees, damages, judgments, claims, liens
and demands of any kind whatsoever that Buyer or any other Buyer Indemnitee,
whether as owner of the Camperland Property or otherwise, may suffer or be
exposed to in connection with, arising out of, or by reason of (i) any act,
omission or negligence of Seller, its agents, representatives, officers,
directors, employees, servants, contractors or business invitees in connection
with the operation of Camperland or while in, upon, about or in any way
connected with the Camperland Property, or (ii) the existing Hacienda Adventure
program or any similar program related to Camperland. Buyer for itself and its
successors and assigns hereby covenants and agrees to protect, indemnify, save
and hold harmless Seller, its affiliates, and its and their agents,
representatives, employees, directors, officers, shareholders, partners,
consultants, independent contractors, successors and assigns (collectively,
"Seller Indemnitees") from any and all liability, loss, costs, expenses,
including attorneys' fees, damages, judgments, claims, liens and demands of any
kind whatsoever that Seller or any other Seller Indemnitee may suffer or be
exposed to in connection with, arising out of, or by reason of any act, omission
or negligence of Buyer, its agents, representatives, officers, directors,
employees, servants, contractors or business invitees in connection with the
operation of Camperland or while in, upon, about or in any way connected with
the Camperland Property. The respective indemnification obligations of Seller
and Buyer hereunder, including, without limitation, those set forth in this
Section and Section 15 hereof, shall survive the termination of Termination
Period, and shall extend to and include, without limitation, all costs, expenses
and attorneys' fees incurred or sustained by any Buyer Indemnitee or Seller
Indemnitee, as the case may be, in making any investigation on account of any
liability, loss, judgment, claim, lien or demand, in prosecuting or defending
any action brought in connection
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<PAGE>
therewith, and in obtaining or seeking to obtain a release therefrom.
18. Should the whole or any part of the Camperland Property be condemned
or taken by a competent authority for any public or quasi public purpose, all
awards payable on account of such condemnation and taking shall be payable to
Buyer, and Seller hereby waives any and all interest therein. For the purposes
of this Section, a deed granted in lieu of condemnation shall be deemed a
taking. If the whole of the Camperland Property is condemned or taken, then the
Termination Period shall end upon such taking.
19. In the event Camperland, or any portion thereof, shall be damaged by
fire or other casualty, Seller shall either repair all damaged property, in
which case the Termination Period shall continue (but in no event past the
Outside Termination Date), or raze and remove from the Camperland Property all
damaged property, in which case the Termination Period shall end upon the
completion of such razing and removal and the fulfillment of Seller's
obligations under Section 15 hereof.
20. Any and all notices and demands by any Party to any other Party
required or desired to be given hereunder shall be in writing and shall be
validly given or made only if (a) deposited in the United States mail, certified
or registered, postage prepaid, return receipt requested, (b) made by Federal
Express or other similar delivery service keeping records of deliveries and
attempted deliveries, or (c) sent by telecopy (followed by a hard copy by
regular mail). Service shall be conclusively deemed made on the first business
day delivery is attempted or upon receipt, whichever is sooner. Service by
telecopy shall be deemed made upon confirmed transmission if received before the
end of regular business hours and otherwise the business day following confirmed
transmission. Any notice or demand to Buyer shall be addressed to Buyer at:
c/o Circus Circus Enterprises, Inc.
2880 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Attention: General Counsel
Telecopy No.: (702) 794-3810
Any notice or demand to Seller shall be addressed to Seller at:
c/o Santa Fe Hotel and Casino
4949 North Ranch Drive
Las Vegas, Nevada 89130
Attention: Thomas Land
Telecopy No.: (702) 658-4919
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Any notice or demand to Guarantor shall be addressed to Guarantor at:
c/o Santa Fe Hotel and Casino
4949 North Ranch Drive
Las Vegas, Nevada 89130
Attention: Thomas Land
Telecopy No.: (702) 658-4919
Any Party may change its address for the purpose of receiving notices or demands
as herein provided by a written notice given in the manner aforesaid to the
other Party, which notice of change of address shall not become effective,
however, until the actual receipt thereof by the other Party.
21. If any term, provision, covenant or condition of this Agreement, or
any application thereof, should be held by a court of competent jurisdiction to
be invalid, void or unenforceable, all terms, provisions, covenants and
conditions of this Agreement, and all applications thereof not held invalid,
void or unenforceable, shall continue in full force and effect and shall in no
way be affected, impaired or invalidated thereby, provided that the invalidity,
voidness or unenforceability of such term, provision, covenant or condition does
not materially impair the ability of the Parties to consummate the transactions
contemplated hereby.
22. In the event any action is commenced by any Party against any other in
connection with this Agreement, including any bankruptcy proceeding, the
prevailing Party shall be entitled to its costs and expenses, including
reasonable attorneys' fees.
23. This Agreement sets forth the entire understanding and agreement
between the Parties, and supersedes all previous communications, negotiations
and agreements, whether oral or written, with respect to the subject matter
hereof. No addition to or modification of this Agreement shall be binding on
any of the Parties unless reduced to writing and duly executed and delivered by
the Parties.
24. Except as modified or clarified in this Agreement, all the terms,
covenants and conditions of the Purchase Agreement shall remain in full force
and effect. To the extent that the provisions of this Agreement are
inconsistent with the provisions of the Purchase Agreement, the terms of this
Agreement shall control.
25. The laws of the State of Nevada shall govern the validity,
construction, performance and effect of this Agreement.
26. This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
instrument.
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27. The Parties acknowledge and agree that this Agreement modifies and
clarifies the provisions in the Purchase Agreement regarding the operation of
Camperland after the Closing and that the guarantee of Guarantor in the Purchase
Agreement shall apply to the terms and conditions of this Agreement as if such
terms and conditions were fully set forth in the Purchase Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
"Seller" "Seller's Parent Corporation"
"Guarantor"
Hacienda Hotel, Inc. Sahara Gaming Corporation
By: /s/ PAUL W. LOWDEN By: /s/ PAUL W. LOWDEN
--------------------------- -------------------------------
Paul W. Lowden Paul W. Lowden
Its: President Its: President
-------------------------- ------------------------------
"Buyer"
Pinkless, Inc.
By: /s/ YVETTE E. LANDAU
---------------------------
Yvette E. Landau
Its: Secretary
---------------------------
10
<PAGE>
EXHIBIT 10.117
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
Stewart Title of Nevada
3800 Howard Hughes Parkway
Suite 500
Las Vegas, Nevada 89109
Attention: Linda J. Jones
Escrow No. 95-09-0308
GRANTEE'S ADDRESS FOR TAX BILLS
SAHARA LAS VEGAS CORP.
c/o Santa Fe Hotel
4949 North Rancho Drive
Las Vegas, Nevada 89130
Attention: Thomas K. Land
===============================================================================
(Space above line for Recorder's use)
ASSIGNMENT AGREEMENT
--------------------
THIS ASSIGNMENT AGREEMENT (this "Assignment") is entered into on this
2nd day of October, 1995 by and between HOWARD HUGHES PROPERTIES, LIMITED
PARTNERSHIP, a Delaware limited partnership ("Assignor") and SAHARA LAS VEGAS
CORP., a Nevada corporation ("Assignee").
R E C I T A L S:
- - - - - - - -
A. Assignor and Wet 'N Wild, Inc., a Florida corporation ("Wet 'N
Wild"), entered into that certain Ground Lease, dated January 1, 1987, as
amended by the assignment of the Ground Lease, dated March 1, 1987, from Wet 'N
Wild to Wet 'N Wild Nevada, Inc., a Nevada corporation ("Wet 'N Wild Nevada"),
as further amended by the First Amendment to Ground Lease, dated March 1, 1993,
(collectively referred to as the "Lease") attached as Exhibit "C" to that
certain Agreement for the Purchase and Sale of Real Property, dated May 31,
1995, ("Sale and Purchase Agreement") between GORDON GAMING CORPORATION, a
Nevada corporation ("Gordon") and Assignor. Pursuant to the Sale and Purchase
Agreement, Gordon had the right to assign Gordon's interest in the Sale and
Purchase Agreement to Assignee. Pursuant to the Lease, Tenant leased the
property legally described on Schedule 1 attached hereto (the "Land").
-1-
<PAGE>
B. Assignor has agreed to assign all of its rights, titles and
interest in the Lease to Assignee and Assignee has agreed to assume all of
Assignor's rights, titles and interest in the Lease. Assignor has further
agreed to assign all of its rights, title and interest in certain other items
relating to the Land, as more fully set forth in Paragraph 3 hereof.
WHEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, Assignor and Assignee agree as
follows:
1. Assignor hereby assigns all of its rights, title and interest in the
Lease to Assignee.
2. Assignee agrees to assume and perform all the obligations of lessor
arising under the Lease after the date hereof, including but not limited to the
obligation to pay Tenant all amounts due to Tenant under Section 2.4 of the
Lease upon the early termination of the Lease.
3. Assignor hereby assigns all of its rights, title and interest in the
following items to Assignee:
(a) contracts or agreements, if any, relating to the Land or any
improvements located thereon (including, without limitation, maintenance or
utility contracts);
(b) warranties, guarantees and indemnities (including, without
limitation, those for workmanship, materials and performance) which exist or may
hereafter exist, from, by or against any contractor, subcontractor,
manufacturer, laborer or supplier of labor, materials or other services relating
to the Land or any improvements located thereon;
(c) plans, drawings, and specifications for the improvements located
on the Land.
4. Assignor agrees to defend, indemnify and hold harmless Assignee, its
directors, officers, partners, employees, agents, successors and assigns from
and against any and all suits, claims, judgement, loss, cost, damage, expense
(including reasonable attorneys' fees and costs) or liability arising directly
or indirectly from Assignor's failure to perform any obligations of landlord
under the Lease on or prior to the date hereof.
5. Assignee agrees to defend, indemnify and hold harmless Assignor, its
directors, officers, partners, employees, agents, successors and assigns from
and against any and all suits, claims and judgements, loss, cost, damage,
expense (including reasonable attorneys' fees and costs) or liability arising
directly or
-2-
<PAGE>
indirectly from Assignee's failure to perform any obligations of landlord under
the Lease after the date hereof.
6. Assignor hereby covenants that it will, at any time and from time to
time upon written request therefor, at Assignee's sole expense and without the
assumption of any additional liability therefor, execute and deliver to
Assignee, and its successors and assigns, any new or confirmatory instruments
and take such further acts as Assignee may reasonably request to fully evidence
the assignment contained herein and to enable Assignee, and its successors and
assigns, to fully realize and enjoy the rights and interests assigned hereby.
7. The provisions of this Assignment shall be binding upon, and shall
inure to the benefit of, the successors and assigns of Assignor and Assignee,
respectively.
8. This Assignment shall be construed as if prepared by both parties.
This Assignment shall be construed, interpreted and governed by the laws of the
State of Nevada.
9. In the event Assignee or Assignor initiates any litigation regarding
this Assignment, the prevailing party shall be entitled to the payment by the
losing party of its reasonable attorneys' fees, court costs and litigation
expenses, as determined by the court.
10. This Assignment may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which when taken together shall
constitute one and the same instrument. The signature page of any counterpart
may be detached therefrom without impairing the legal effect of the signature(s)
-3-
<PAGE>
thereon, provided such signature page is attached to any other counterpart
identical thereto except having additional signature pages executed by other
parties to this Assignment attached thereto.
IN WITNESS THEREOF, Assignee and Assignor have executed this Assignment as
of the day and year first above written.
ASSIGNOR: ASSIGNEE:
- -------- --------
HOWARD HUGHES PROPERTIES, SAHARA LAS VEGAS CORP., a
LIMITED PARTNERSHIP, a Nevada corporation
Delaware limited partnership
By: THE HOWARD HUGHES By: /s/ PAUL W. LOWDEN
CORPORATION (formerly known -------------------------------
as Summa Corporation), a Print Name: Paul W. Lowden
Delaware corporation, its ----------------------
sole general partner Print Title: President
----------------------
By: /s/ RONALD C. BROOKS
------------------------------
Print Name: Ronald C. Brooks
---------------------
Print Title: Senior Vice President
---------------------
-4-
<PAGE>
SCHEDULE 1
----------
TO ASSIGNMENT AGREEMENT
-----------------------
LEGAL DESCRIPTION OF THE LAND
-----------------------------
BEING A PORTION OF THE NORTHEAST QUARTER (NE 1/4) OF SECTION 9 AND A PORTION OF
THE NORTHWEST (NW 1/4) OF THE NORTHWEST (NW 1/4) OF SECTION 10, TOWNSHIP 21
SOUTH, RANGE 61 EAST, M.D.B.&M., CLARK COUNTY, NEVADA, DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER (NE COR.) OF THE NORTHEAST QUARTER (NE 1/4)
OF SAID SECTION 9; THENCE SOUTH 04 DEGREES 43'06" EAST ALONG THE EAST LINE OF
SAID SECTION 9 A DISTANCE OF 896.80 FEET TO A POINT, SAID POINT BEING THE
NORTHEAST CORNER (NE COR.) OF THAT CERTAIN PARCEL OF LAND CONVEYED BY HOTEL
SECURITIES C. TO EL RANCHO VEGAS BY CORPORATION DEED RECORDED MARCH 20, 1945
SHOWN AS DOCUMENT NO. 194417, CLARK COUNTY, NEVADA OFFICIAL RECORDS, SAID POINT
ALSO BEING THE POINT OF BEGINNING; THENCE SOUTH 87 DEGREES 12'23" EAST PARALLEL
TO THE NORTH LINE OF SAID SECTION 9 A DISTANCE OF 342.86 FEET TO THE WEST LINE
OF PARADISE ROAD; THENCE SOUTH 00 DEGREES 14'47" WEST ALONG SAID WEST LINE OF
PARADISE ROAD A DISTANCE OF 868.44 FEET; THENCE NORTH 87 DEGREES 12'23" WEST
PARALLEL TO THE NORTH LINE OF SAID SECTION 9 A DISTANCE OF 1572.55 FEET TO THE
EAST LINE OF LAS VEGAS BOULEVARD SOUTH; THENCE NORTH 28 DEGREES 00'00" EAST
ALONG SAID EAST LINE OF LAS VEGAS BOULEVARD SOUTH A DISTANCE OF 958.89 FEET;
THENCE SOUTH 87 DEGREES 12'23" EAST PARALLEL TO THE NORTH LINE OF SAID SECTION 9
A DISTANCE OF 782.72 FEET TO THE POINT OF BEGINNING.
-5-
<PAGE>
STATE OF NEVADA )
) :SS
COUNTY OF CLARK )
This instrument was acknowledged before me on 29 Sept., 1995, by
-------
Ronald C. Brooks as Senior Vice President of Howard Hughes Properties, Limited
- ---------------- ---------------------
Partnership.
/s/ SHARON K. WALKER
[SEAL OF SHARON K. WALKER] -----------------------------------
NOTARY PUBLIC
(My Commission expires: 7-31-98)
-------
STATE OF NEVADA )
) :SS
COUNTY OF CLARK )
This instrument was acknowledged before me on October 2, 1995, by
---------
Paul W. Lowden as President of Sahara Las Vegas Corp.
- -------------- ---------
/s/ L. J. JONES
--------------------------------
[SEAL OF L. J. JONES] NOTARY PUBLIC
(My Commission expires: 8-5-97)
------
-6-
<PAGE>
GUARANTY AGREEMENT
------------------
THIS GUARANTY AGREEMENT (this "Guaranty") is entered into on this 2nd day
of October, 1995 by and between HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP, a
Delaware limited partnership ("HHP") and SAHARA LAS VEGAS CORP., a Nevada
corporation ("Sahara").
R E C I T A L S:
- - - - - - - -
A. HHP and Wet 'N Wild, Inc., a Florida corporation ("WWI"), entered
into that certain Ground Lease, dated January 1, 1987, as amended by the
assignment of the Ground Lease, dated March 1, 1987, from WWI to Wet 'N Wild
Nevada, Inc., a Nevada corporation, as further amended by the First Amendment to
Ground Lease, dated March 1, 1993, (collectively referred to as the "Lease").
B. Concurrently with the execution of this Guaranty, HHP has sold to
Sahara that certain real property which is subject to the Lease as legally
described on Schedule 1 attached hereto (the "Land") and assigned the Lease to
Sahara.
C. Hughes Entertainment, a Nevada limited partnership ("HEL") and
WWI were parties to that certain Agreement for Sale of Partnership Interest and
Dissolution of Partnership date January 1, 1987 ("Dissolution Agreement"), a
copy of which is attached hereto as Exhibit "A."
D. Pursuant to the Dissolution Agreement, WWI issued to HEL that
certain promissory note dated January 1, 1987 in the original principal amount
of $9,000,000 (the "Note"), a copy of which is attached hereto as Exhibit "B,"
and granted to HEL a security interest in property of WWI located on the Land in
order to secure the Note pursuant to that certain Security Agreement dated
January 1, 1987 (the "Security Agreement"), a copy of which is attached hereto
as Exhibit "C."
E. HHP has succeeded by merger to the interest of HEL in the
Dissolution Agreement, the Note and the Security Agreement.
F. As consideration for the sale of the Land and assignment of the
Lease to Sahara, Sahara has agreed to guaranty the payment of the Note to HHP.
-1-
<PAGE>
WHEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, HHP and Sahara agree as follows:
1. In consideration of the sale of the Land and the assignment of the
Lease, Sahara hereby agrees to guaranty absolutely and unconditionally the
payment to HHP of the Note. Sahara hereby waives notice of any default,
nonpayment, partial payment, presentment, demand, protest, or notice of protest,
and all other notice to which Sahara might be otherwise entitled, or which may
be required by law, as to any note, draft, acceptance, or other obligation
signed, accepted, guaranteed, or endorsed by WWI.
2. Sahara hereby waives any defense by reason of disability or other
defense of WWI or by reason of cessation from any cause whatsoever of the
liability of WWI or in the event the Note becomes unenforceable for any reason
whatsoever prior to its payment in full, including without limitation, the
operation of Section 5.07 of the Dissolution Agreement whereby the Note is
deemed forgiven as a result of termination of the Lease.
3. Sahara agrees that in the event the Lease terminates for any reason
whatsoever, including without limitation, exercise of any rights of the Landlord
or Tenant under the Lease to terminate the Lease, Sahara shall immediately pay
to HHP the full amount of the then outstanding principal balance of the Note and
all then accrued unpaid interest on the Note.
4. Sahara agrees that this Guaranty is separate and independent from the
Note and HHP may proceed against the Sahara for any amount guaranteed hereunder
whether action is brought against debtor or whether debtor is joined in any such
action or actions or not. The right of Sahara to demand, and the obligation of
guarantor to pay , the Note shall not be suspended, abrogated, or affected in
any way whatever by the fact that the Note or any part thereof is secured by the
Security Agreement and HHP shall not be required to take any action under the
Security Agreement as a condition to enforcing this Guaranty.
5. Sahara agrees that HHP may surrender, release, exchange, or alter any
collateral or other security held by HHP for the Note, either in whole or in
part, without affecting the obligation or liability of Sahara under this
Guaranty. Sahara further agrees that HHP may make, alter, and renew the Note
with WWI as it may elect without diminishing or discharging Sahara's liability
under this Guaranty.
6. Any and all amounts due under this Guaranty not paid when due shall
bear interest at the rate of fourteen percent (14%) per annum from the date such
amounts are due until paid.
-2-
<PAGE>
7. HHP hereby represents and warrants to Sahara as follows:
(a) Attached hereto are true and correct copies of the Dissolution
Agreement, The Security Agreement and the Note. There are no other agreements
or understandings whatsoever, whether oral or written, relating to the
Dissolution Agreement, the Note or the Security Agreement.
(b) As of September 29, 1995, the principal balance outstanding under
the Note as of the date of this Guaranty is Six Million Three Hundred Six
Thousand Nine Hundred Eighty-Six and 61/100 Dollars ($6,306,986.61) and accrued
interest is Forty-Seven Thousand Six Hundred Three and 76/100 Dollars
($47,603.76).
(c) WWI is currently not in default of the Note or the Security
Agreement.
8. The provisions of this Guaranty shall be binding upon, and shall inure
to the benefit of, the successors and assigns of HHP and Sahara, respectively.
9. In the event HHP initiates any litigation to enforce this Guaranty,
HHP shall be entitled to the payment of its reasonable attorneys' fees, court
costs and litigation expenses, as determined by the court.
10. This Guaranty shall be governed as to validity, enforcement,
construction, effect and in all other respects, by the law of the State of
Nevada.
IN WITNESS THEREOF, Sahara and HHP have executed this Guaranty as of the
day and year first above written.
HHP: SAHARA:
- --- ------
HOWARD HUGHES PROPERTIES, SAHARA LAS VEGAS CORP., a
LIMITED PARTNERSHIP, a Nevada corporation
Delaware limited partnership
By: THE HOWARD HUGHES By: /s/ PAUL W. LOWDEN
CORPORATION (formerly known ------------------------------
as Summa Corporation), a Print Name: Paul W. Lowden
Delaware corporation, its ---------------------
sole general partner Print Title: President
---------------------
By: /s/ RONALD C. BROOKS
------------------------------
Print Name: Ronald C. Brooks
---------------------
Print Title: Senior Vice President
---------------------
-3-
<PAGE>
SCHEDULE 1
----------
TO GUARANTY AGREEMENT
---------------------
LEGAL DESCRIPTION OF THE LAND
-----------------------------
BEING A PORTION OF THE NORTHEAST QUARTER (NE 1/4) OF SECTION 9 AND A PORTION OF
THE NORTHWEST (NW 1/4) OF THE NORTHWEST (NW 1/4) OF SECTION 10, TOWNSHIP 21
SOUTH, RANGE 61 EAST, M.D.B.&M., CLARK COUNTY, NEVADA, DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER (NE COR.) OF THE NORTHEAST QUARTER (NE 1/4)
OF SAID SECTION 9; THENCE SOUTH 04 DEGREES 43'06" EAST ALONG THE EAST LINE OF
SAID SECTION 9 A DISTANCE OF 896.80 FEET TO A POINT, SAID POINT BEING THE
NORTHEAST CORNER (NE COR.) OF THAT CERTAIN PARCEL OF LAND CONVEYED BY HOTEL
SECURITIES C. TO EL RANCHO VEGAS BY CORPORATION DEED RECORDED MARCH 20, 1945
SHOWN AS DOCUMENT NO. 194417, CLARK COUNTY, NEVADA OFFICIAL RECORDS, SAID POINT
ALSO BEING THE POINT OF BEGINNING; THENCE SOUTH 87 DEGREES 12'23" EAST PARALLEL
TO THE NORTH LINE OF SAID SECTION 9 A DISTANCE OF 342.86 FEET TO THE WEST LINE
OF PARADISE ROAD; THENCE SOUTH 00 DEGREES 14'47" WEST ALONG SAID WEST LINE OF
PARADISE ROAD A DISTANCE OF 868.44 FEET; THENCE NORTH 87 DEGREES 12'23" WEST
PARALLEL TO THE NORTH LINE OF SAID SECTION 9 A DISTANCE OF 1572.55 FEET TO THE
EAST LINE OF LAS VEGAS BOULEVARD SOUTH; THENCE NORTH 28 DEGREES 00'00" EAST
ALONG SAID EAST LINE OF LAS VEGAS BOULEVARD SOUTH A DISTANCE OF 958.89 FEET;
THENCE SOUTH 87 DEGREES 12'23" EAST PARALLEL TO THE NORTH LINE OF SAID SECTION 9
A DISTANCE OF 782.72 FEET TO THE POINT OF BEGINNING.
-4-
<PAGE>
STATE OF NEVADA )
) :SS
COUNTY OF CLARK )
This instrument was acknowledged before me on 29 Sept., 1995, by
-------
Ronald C. Brooks as Senior Vice President of Howard Hughes Properties, Limited
- ---------------- ---------------------
Partnership.
/s/ SHARON K. WALKER
-----------------------------------
[SEAL OF SHARON K. WALKER] NOTARY PUBLIC
(My Commission expires: 7-31-98)
-------
STATE OF NEVADA )
) :SS
COUNTY OF CLARK )
This instrument was acknowledged before me on October 2, 1995, by
---------
Paul W. Lowden as President of Sahara Gaming Corporation.
- -------------- ---------
/s/ L. J. JONES
-----------------------------------
[SEAL OF L. J. JONES] NOTARY PUBLIC
(My Commission expires: 8-5-97)
------
-5-
<PAGE>
================================================================================
GROUND LEASE
BETWEEN
HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP
AND
WET'N WILD, INC.
================================================================================
<PAGE>
CONTENTS
ARTICLE 1 Description of Demised Premises......................... 2
ARTICLE 2 Term.................................................... 3
2.1 Term.................................................... 3
2.2 First Negotiation....................................... 3
2.3 Holding Over............................................ 3
2.4 Termination............................................. 4
2.5 Termination Fee......................................... 4
2.6 Restrictive Covenant.................................... 6
ARTICLE 3 Rent.................................................... 7
3.1 Base Rent............................................... 7
3.2 Percentage Rent......................................... 8
3.3 Off-Season Uses......................................... 10
3.4 Additional Rent......................................... 11
3.5 Place of Payment........................................ 11
3.6 Base Rent Net........................................... 11
3.7 Utilities............................................... 12
3.8 Billboards.............................................. 12
ARTICLE 4 Condition and Use of Property; Compliance............... 14
4.1 Condition of Property................................... 14
4.2 Use of Leased Property.................................. 14
4.3 Compliance with Requirements, etc....................... 15
ARTICLE 5 Alterations and Improvements; Maintenance and Repairs... 16
5.1 Alterations, Additions and Capital Expenditures......... 16
5.2 Landlord's Approval of Capital Expenditures............. 18
5.3 Landlord's Non-Responsibility for Improvements.......... 18
i
<PAGE>
5.4 Demolition.............................................. 19
5.5 No Claims Against Landlord, etc......................... 19
5.6 Liens, etc.............................................. 19
5.7 Removal of Improvements................................. 21
5.8 Maintenance and Repairs................................. 22
ARTICLE 6 Taxes; Permitted Contests............................... 22
6.1 Payment of Impositions.................................. 22
6.2 Permitted Contests...................................... 23
ARTICLE 7 Insurance............................................... 23
7.1 Insurance Coverage...................................... 23
7.2 Proof of Insurance...................................... 26
7.3 Waiver of Liability and Policy Terms.................... 26
ARTICLE 8 Indemnification......................................... 27
ARTICLE 9 Subordination........................................... 28
ARTICLE 10 Assignment and Subletting............................... 30
10.1 No Assignments.......................................... 30
10.2 Assignment to Affiliate................................. 30
10.3 Permitted Subleases..................................... 30
10.4 Affect on Percentage Rent............................... 31
ARTICLE 11 Insolvency.............................................. 31
ARTICLE 12 Condemnation............................................ 31
12.1 Taking.................................................. 31
12.2 Total Taking............................................ 32
12.3 Partial Taking.......................................... 32
12.4 Awards.................................................. 32
12.5 Abatement............................................... 33
ii
<PAGE>
12.6 Appraisal............................................... 33
ARTICLE 13 Destruction of Premises................................. 35
13.1 Notice of Destruction................................... 35
13.2 Restoration............................................. 35
13.3 Proceeds................................................ 35
ARTICLE 14 Right of Access......................................... 36
ARTICLE 15 Performance by Landlord................................. 37
ARTICLE 16 Estoppel Certificates................................... 37
16.1 Estoppel Certificate by Tenant.......................... 37
16.2 Estoppel Certificate by Landlord........................ 37
ARTICLE 17 Default................................................. 38
17.1 Default................................................. 38
17.2 Remedies................................................ 39
17.3 Legal Costs............................................. 40
17.4 Waiver.................................................. 40
ARTICLE 18 Quiet Possession........................................ 41
ARTICLE 19 Sale by Landlord........................................ 41
ARTICLE 20 Default by Landlord..................................... 41
ARTICLE 21 Notices................................................. 42
ARTICLE 22 Miscellaneous........................................... 43
22.1 Remedies Cumulative..................................... 43
22.2 Successors and Assigns.................................. 43
22.3 Partial Invalidity...................................... 43
22.4 Time of the Essence..................................... 43
22.5 Entire Agreement........................................ 43
22.6 No Partnership.......................................... 43
iii
<PAGE>
22.7 Brokers................................................. 44
22.8 Captions................................................ 44
22.9 Gender.................................................. 44
22.10 Applicable Law.......................................... 44
22.11 Plurals................................................. 44
22.12 Construction............................................ 44
22.13 Short Form Lease........................................ 44
ARTICLE 23 Definitions............................................. 45
23.1 Additional Rent......................................... 45
23.2 Affiliate of Tenant..................................... 45
23.3 Base Rent............................................... 45
23.4 Capital Expenditures.................................... 45
23.5 Gross Revenues.......................................... 45
23.6 Impositions............................................. 45
23.7 Insurance Requirements.................................. 46
23.8 Lease................................................... 46
23.9 Lease Term.............................................. 46
23.10 Lease Year.............................................. 46
23.11 Legal Requirements...................................... 46
23.12 Liens................................................... 47
23.13 Park.................................................... 47
23.14 Percentage Rent......................................... 47
23.15 Person.................................................. 47
23.16 Property................................................ 47
23.17 Restoration............................................. 47
23.18 Taking.................................................. 47
iv
<PAGE>
23.19 Total Taking............................................ 47
v
<PAGE>
GROUND LEASE
THIS GROUND LEASE (this "Lease") is made and entered into as of the
1st day of January, 1987, by and between HOWARD HUGHES PROPERTIES, LIMITED
PARTNERSHIP, a Delaware limited partnership ("Landlord"), and WET'N WILD INC., a
Florida corporation ("Tenant").
R E C I T A L S
A. Landlord owns the land which is legally described on Exhibit "A"
attached hereto.
B. Landlord previously leased the land to Wet'N Wild Nevada Associates,
a Nevada general partnership ("WWMA"), pursuant to a Lease dated April 1, 1984
(the "Original Lease")
C. WWNA has designed and constructed at its own expense all those
improvements now existing on the land without participation, supervision or
control by Landlord.
D. WWNA and Landlord have by written agreement of even date herewith,
terminated the Original Lease and WWNA has retained title to all of the
aforesaid improvements. WWNA has concurrently been dissolved and the assets of
WWNA (including without limitation all of such improvements) have been
transferred to Tenant.
E. Landlord and Tenant now desire to enter into a groundlease as
hereinafter set forth.
ARTICLE 1
DESCRIPTION OF DEMISED PREMISES
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord
for the term, at the rental, and upon all of the terms, covenants, conditions,
and limitations
<PAGE>
set forth herein, that certain land more particularly described in Exhibit A
attached hereto and incorporated herein by reference (the "Property"). Landlord
expressly reserves from this demise of the Property any and all water rights,
mineral rights, and oil and gas rights, provided, however, that Landlord shall
have no right to direct surface entry or to affect or interfere with the lateral
support of any improvements on the Property.
ARTICLE 2
TERM
2.1 Term. Unless terminated earlier as elsewhere herein provided, the
----
term of this Lease (the "Lease Term") shall be for a period commencing on
January 1, 1987 and ending on December 31, 2004. The term "Lease Year" refers to
(i) the period commencing on the date hereof and ending on December 31, 1987,
(the first Lease Year) and (ii) each consecutive twelve month period thereafter
up to December 31, 2004.
2.2 First Negotiation. For a period of six (6) months following the
-----------------
expiration or earlier termination of this Lease, if Tenant is not in default
under the terms hereof, Landlord shall, prior to entering into any agreement for
the sale or lease of the Property, (i) notify Tenant of the proposed sale or
lease, and (ii) negotiate in good faith with Tenant for a period of at least
twenty (20) days in the event that Tenant desires to acquire or lease the
Property from Landlord. Nothing herein shall be deemed to give Tenant any
rights, title or interest in the Property after the expiration or earlier
termination of this Lease nor any right of first refusal or extension option
with respect to the Property or this Lease.
2.3 Holding Over. Should Tenant hold possession of the Property with the
------------
consent of Landlord after the expiration or other termination of the Lease Term,
such holding over shall create a tenancy from month to month only, upon the same
terms and conditions as are hereinafter set forth, and such holding over shall
not constitute renewal hereof or give Tenant any other rights in the Property.
2
<PAGE>
2.4 Termination. Any provision hereof to the contrary notwithstanding,
-----------
Landlord shall have the right to terminate this Lease at any time after the end
of the tenth (10th) Lease Year (i.e., after December 31, 1996) if Landlord has a
----
bona fide alternative use for the Property or has entered into a bona fide
agreement for the sale of the Property and such use requires possession of the
Property; provided, however, that Landlord shall pay to Tenant a Termination Fee
as provided in Section 2.5 below. Landlord may exercise its right to terminate
this Lease by providing Tenant with one hundred eighty (180) days' prior written
notice of the date of termination.
Tenant shall have the right to terminate this Lease during the Lease
Term by giving written notice to Landlord not less than three (3) business days
prior to the date of termination which notice shall specifically state that
Tenant elects to terminate this Lease pursuant to the provisions of this Section
2.4 and the date of such termination. In such event this Lease shall terminate
on the date stated in the notice provided that Tenant shall not be relieved of
any liability or responsibility of Tenant to pay any amounts due Landlord
hereunder through the date of termination or to perform any obligations of
Tenant in connection with the restoration of the Property. Tenant shall have no
obligation to pay rent hereunder for the period of 180 days during which Tenant
performs restoration of the Property pursuant to Section 5.7 below.
2.5 Termination Fee.
---------------
(a) Definitions. For purposes of this Section 2.5 the following
-----------
terms shall have the following respective meanings:
(i) "Capital Expenditures" shall have the meaning set forth in
Section 23.4 below.
(ii) "Approved Capital Expenditures" shall mean all Capital
Expenditures which are approved in advance by Landlord pursuant to the terms of
Section 5.2 below.
3
<PAGE>
(iii) "Amortized Approved Capital Expenditures" shall mean all
Approved Capital Expenditures made within four (4) years of the year in which
Landlord terminates this Lease pursuant to Section 2.4 above amortized at a rate
of twenty percent (20%) per annum for each year commencing in the year in which
any such Capital Expenditure is made and at a rate of One and 67/100 percent
(1.67%) per month for each month of the year in which Landlord so terminates
this Lease prior to the month in which such termination occurs.
(b) In the event that (i) this Lease is terminated by Landlord after
December 31, 1996 and prior to December 31, 2004 pursuant to the terms of
Section 2.4 above, and (ii) Tenant is not, as of the date of notice of such
termination, in default under this Lease, then Landlord shall pay to Tenant
within ninety (90) days after such termination an amount equal to the Amortized
Approved Capital Expenditures on the date of such termination.
By way of illustration of the foregoing, assume that Tenant makes
Approved Capital Expenditures of the following amounts, in the following
respective years:
<TABLE>
<CAPTION>
Approved Capital
Year Expenditures
---- ----------------
<S> <C>
1995 $350,000
1996 $200,000
1997 $700,000
1998 $500,000
</TABLE>
Based on the foregoing assumptions Amortized Approved Capital
Expenditures, as of January 1, 1999, would equal $970,000 calculated as follows:
20% ($350,000) + 40% ($200,000) + 60% ($700,000) + 80% ($500,000)
Therefore, Landlord would be required, under the foregoing assumptions, to
pay Tenant $970,000 in the event that Landlord terminated this Lease in 1999
plus the
- ----
4
<PAGE>
Amortized Approved Capital Expenditures (amortized at 1.67% per month) made by
Tenant in 1999 prior to the date of termination of this Lease.
2.6 Restrictive Covenant. Upon termination or expiration of this
--------------------
Lease, if Tenant is not in default under this Lease, Landlord agrees that it
will file in the Official Records Office of the Clark County Recorder, a
covenant restricting the Property from being used as a Water Theme Amusement
Park (as hereinafter defined) for ten (10) years after the date of such
termination or expiration of this Agreement, provided that any swimming pool or
other water recreational activities which are part of another primary use shall
not be violative of such covenant. Such covenant shall be in form and substance
reasonably acceptable to Landlord and Tenant and shall provide that no part of
the Property shall be developed, operated, maintained or used, in whole or in
part, in any manner as a Water Theme Amusement Park, for a period of ten (10)
years from and after the date of termination or expiration of this Lease.
The term "Water Theme Amusement Park" as used herein means an amusement or
recreational area or facility, whether or not operated on a commercial or non-
profit basis, whether open to the public or restricted to private use and
whether or not requiring (directly or indirectly) any fee, admission charge or
membership dues for use thereof, the use of which area or facility is designed
to permit its users' active involvement and interaction with and/or immersion
in, water for recreational purposes and which includes one or more of the
following: wave action pool, water slide, water flume, inner tube and life raft
ride, "Lazy River" type propulsion pool, water ski machine, or any other similar
type attraction, ride or equipment (other than a water pool designed primarily
for swimming without additional equipment of such nature). Notwithstanding the
foregoing, the term "Water Theme Amusement Park" shall not include a swimming
pool or other facility of the type described above for water recreational
activities if and to the extent used and operated for the exclusive use of
persons (and their guests and invitees) lodging at
5
<PAGE>
any hotel, motel or other establishment providing temporary lodging or tennis
club, multi-family dwelling or health club facility which may hereafter be
constructed on the Property.
The restriction set forth in this Section 2.6 shall inure to the benefit of
Tenant and its successors and assigns. Landlord, for itself, its legal
representatives, successors and assigns does hereby grant to Tenant and its
successors and assigns the right to prosecute, at law or in equity, any person
or entity violating or attempting to violate such restriction and to prevent him
or it from doing so and to correct such violation and seek any and all remedies
as may be available as a result of any such violation. Failure to enforce the
restriction herein contained at any time shall in no event be deemed a waiver of
the right to do so thereafter.
The covenant and restriction set forth hereinabove shall run with and bind
the Property as a covenant running with the land and shall inure to the benefit
of, and be enforceable by Tenant and its successors and assigns, and any person
or entity by acceptance of title to the Property or any part thereof or interest
therein shall thereby agree and covenant to abide by and fully perform the
foregoing covenant and restriction.
ARTICLE 3
RENT
3.1 Base Rent. Tenant shall pay Landlord as monthly rent (the "Base
---------
Rent") for the Property the sums set forth below, in advance on the first day
of each month without abatement, deduction or offset, commencing on January 1,
1987; provided that the rent for any partial month shall be prorated.
(a) During the first through fifth Lease Years, the Base Rent
shall be $14,583 per month;
(b) During the sixth through tenth Lease Years, the Base Rent
shall be $16,042 per month;
6
<PAGE>
(c) During the eleventh through fifteenth Lease Years, the Base
Rent shall be $17,646 per month; and
(d) Commencing with the sixteenth Lease Year, and thereafter
until the end of the Lease Term the Base Rent shall be
$19,410 per month.
3.2 Percentage Rent. In addition to the Base Rent specified in
---------------
Section 3.1, Tenant shall pay without abatement, deduction or offset, the
following amounts (the "Percentage Rent"):
(a) Twelve and one-half percent (12 1/2%) of the Gross Revenues
(hereinafter defined) derived by Tenant from the operation of the
Park (except for Off-Season Uses as hereinafter defined) in each
Lease Year in excess of the sum of (a) Six Million Dollars
($6,000,000) of Gross Revenues, plus (b) twenty-five percent
(25%) of Approved Capital Expenditures (as defined in Section 5.2
below) made by Tenant to the Park in such Lease Year (less
$125,000 in 1987 and less $250,000 each year thereafter) up to
Eight Million Five Hundred Thousand Dollars ($8,500,000) of Gross
Revenues; and (b) fifteen percent (15%) of the Gross Revenues
derived by Tenant from the operation of the Park (except for Off-
Season Uses) in each Lease Year in excess of Eight Million Five
Hundred Thousand Dollars ($8,500,000) of Gross Revenues.
Thus, by way of illustration only, if the Gross Revenues derived by Tenant from
the operation of the Park in the third Lease Year are Nine Million Dollars
($9,000,000) and Tenant has made Three Hundred Thousand Dollars ($300,000) of
Approved Capital Expenditures to the Park in such third Lease Year, the
Percentage Rent due pursuant to
7
<PAGE>
this Section 3.2 would be Three Hundred Eighty-Five Thousand Nine hundred
Thirty-Seven and 50/100 Dollars ($365,937.50), which is calculated as follows:
(12 1/2% ($8,500,000-$6,012,500)] + [15% ($9,000,000-$8,500,000)].
It is hereby agreed that no Percentage Rent shall be payable in connection with
any Approved Off-Season Uses (hereinafter defined) of the Property.
On or before January 31 of each year during the Lease Term, Tenant shall,
without notice or demand from Landlord, deliver to Landlord in the manner
prescribed in Article 21 for Notices, a statement certified by an officer of
Tenant showing the Gross Revenues derived from operation of the Park for the
immediately preceding Lease Year and shall simultaneously pay the Percentage
Rent payable for such prior Lease Year.
Tenant shall keep true, complete and correct records and shall require
its sublessees, concessionaires and licensees to keep true, complete and correct
records of all Gross Revenues. All records shall be kept at the offices of
Tenant at 3260 Industrial Road, Las Vegas, Nevada, for not less than three (3)
years after delivery of the required annual report; provided, that each party
may, at any reasonable time and from time to time, remove any or all records or
permit or cause them to be removed for legal or accounting purposes or for other
purposes promotive of and consistent with these provisions and this Lease.
Landlord shall have the right, at any reasonable time and from time to
time after giving reasonable notice, to do any or all of the following: to audit
the records; to cause an audit of the records to be made: to make abstracts from
the records; to make copies of any or all of the records; to examine any or all
subleases, licenses, and concession agreements; and to make copies of any or all
subleases, licenses, and concession agreements. Tenant shall make all records
specified in the notice available at the time specified in the notice if
reasonable, and at the place where the records are to be kept; provided, that
Landlord may remove any or all records to a place or places
8
<PAGE>
reasonable for such purpose. All information so obtained by Landlord or
otherwise obtained under the Percentage Rent provisions of this Lease shall be
treated as confidential except in any litigation or arbitration proceedings
between the parties and except, further, that Landlord may divulge the
information to a prospective buyer or encumbrances of the Property or of
Landlord's interest in this Lease or to a governmental agency or by order of a
court demanding such information.
If the audit discloses that Gross Revenues were understated by more
than two percent (2%) in any Lease Year, Tenant shall immediately pay the
additional Percentage Rent to Landlord plus the cost of the audit; otherwise
Landlord shall bear the cost of the audit.
3.3 Off-Season Uses. In the event that Tenant elects to conduct any
---------------
Off-Season Use of the Property and Landlord approves such use as provided below,
Tenant shall pay to Landlord, not less than ten (10) days prior to the
commencement of such activity on the Property, in addition to all other rent due
hereunder the following amounts (the "Off-Season Rent"):
(a) One Hundred Thousand Dollars ($100,000) per Lease Year for
the first two Lease Years during which Tenant conducts an
Off-Season Use of the Property;
(b) One Hundred Twenty-Five Thousand Dollars ($125,000) per
Lease Year for the next two Lease Years during which Tenant
conducts an Off-Season Use of the Property; and
(c) One Hundred Fifty Thousand Dollars ($150,000) per Lease Year
for any subsequent Lease Year during which Tenant conducts
an Off-Season Use of the Property.
3.4 Additional Rent. Tenant will also pay from time to time as
---------------
provided in this Lease as additional rent ("Additional Rent"), (i) all other
amounts and obligations
9
<PAGE>
which Tenant herein assumes or agrees to pay, provided that if under the terms
--------
and conditions set forth in this Lease, Tenant is to satisfy such obligation to
one other than Landlord, Landlord shall have no claim to said amount as
Additional Rent unless Landlord, as permitted by Article 15 hereof, shall have
satisfied such obligation and demanded reimbursement from Tenant, (ii) interest
at the rate of fourteen percent (14%) per annum on such of the foregoing amounts
and obligations as are payable to Landlord and are not paid within thirty (30)
days after the due date (or, if a demand therefor is required by the terms of
this Lease, then within ten (10) days after the date of such demand) from the
due date or the date of such demand, as the case may be, until payment thereof,
and (iii) interest at the rate of fourteen percent (14%) per annum on all
installments of Base Rent not paid within ten (10) days of the due date, from
the due date thereof until payment. In the event of any failure on the part of
Tenant to pay any Additional Rent, Landlord shall have all the rights, powers
and remedies provided for in this Lease or at law or in equity or otherwise in
the case of nonpayment of Base Rent.
3.5 Place of Payment. All rents and other monies required to be
----------------
paid by Tenant hereunder shall be paid to Landlord without deduction or offset,
prior notice or demand, in lawful money of the United States of America, at
P.O. Box 14000, Las Vegas, Nevada 89156, or at such other place as Landlord may,
from time to time, designate in writing.
3.6 Base Rent Net. Base Rent shall be absolutely net to Landlord so that
-------------
this Lease shall yield to Landlord the full amount of the installments of Base
Rent throughout the Lease Term and Tenant shall pay all expenses of operation
and maintenance of the Property during the Lease Term. Base Rent, percentage
Rent, Off-Season Rent, Additional Rent and all other sums payable by Tenant
hereunder shall be paid without notice (except as otherwise expressly herein
provided), demand, counterclaim, setoff, deduction or defense and without
abatement suspension, deferment, diminution or
10
<PAGE>
reduction, and the obligations and liabilities of Tenant hereunder shall in no
way be released, discharged or otherwise affected (except as provided in Section
12.5 of this Lease) by reason of (i) any damage to or destruction of or any
Taking of the Park or any part thereof; (ii) any restriction or prevention of or
interference with any use of the Park; (iii) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding relating to Landlord, or any action taken with respect to this Lease
by such proceeding; (iv) any claim which Tenant has or might have against
Landlord; (v) any failure on the part of Landlord to perform or comply with any
of the terms hereof or of any other agreement with Tenant; or any other
occurrence whatsoever, whether similar or dissimilar to the foregoing, whether
or not Tenant shall have notice or knowledge of any of the foregoing. Except as
expressly provided in this Lease, Tenant waives all rights now or hereafter
conferred by statute or otherwise to quit, terminate or surrender this Lease or
the Property or any part thereof, or to any abatement, suspension, deferment,
diminution or reduction of Base Rent, Percentage Rent, Off-Season Rent or
Additional Rent or any other sum payable by Tenant hereunder.
3.7 Utilities. Tenant shall pay all charges for water, gas,heat,
---------
electricity, power, garbage service, air conditioning, telephone service, sewer
service charges and sewer rentals charged or attributable to the Property, and
all other services or utilities used in, upon or about the Property by Tenant or
any of its subtenants, licensees or concessionaires during the Lease Term.
3.8 Billboards. Tenant shall have the right to construct and maintain
----------
billboards on the Property; provided, however, that Tenant shall pay to Landlord
as Additional Rent, the following amounts:
(a) With respect to any billboards on the Property for which any
advertising rental is paid to Tenant or to any other Person,
Tenant shall pay to Landlord an amount equal to eighteen and
11
<PAGE>
one-half percent (18 1/2%) of the gross advertising rentals
paid for the use of such billboard regardless of whether
Tenant actually receives any portion of the rentals so paid;
and
(b) As to any use of a billboard not covered by paragraph (a)
above, including, without limitation, any use of a billboard
by Tenant itself for advertising purposes or the use by any
Person in exchange for a right granted to Tenant to use a
billboard at a location off the Property, Tenant shall pay
to Landlord an amount equal to eighteen and one-half percent
(18 1/2%) of the fair market advertising rental value of the
use of such billboard. Fair market advertising rental value
shall mean the rental rate which could be obtained for the
rental of the billboard to a third party in an arm's length
transaction.
Provided, however, that no rent shall be due Landlord with respect to
a permanent monument sign erected by Tenant on the Property for the purpose of
identifying the location of the Park.
Tenant shall pay to Landlord, in advance on the first day of each month
an amount equal to $750 times the number of billboard faces located on the
Property at any time during such month as an estimate of the actual rental which
shall be payable with respect to billboards. Not later than January 31 of each
year during the Lease Term, Landlord shall submit to Tenant, Landlord's
determination of the actual amount payable pursuant to the terms of paragraphs
(a) and (b) above. Within fifteen (15) days thereafter, Tenant or the Landlord,
as the case may be, shall pay to the other an amount sufficient to adjust the
total estimated payments actually made to the amount properly payable hereunder.
12
<PAGE>
ARTICLE 4
CONDITION AND USE OF PROPERTY; COMPLIANCE
4.1 Condition of Property. Tenant represents to Landlord that the
---------------------
Property has been inspected by Tenant and that it has been assured by means
independent of Landlord or any agent of Landlord of the truth of all facts
material to this Lease and that the Property is leased by Tenant as a result of
an inspection or investigation and not by or through any representations made by
Landlord or any agent of Landlord. Tenant expressly acknowledges that no
representations have been made and agrees to lease the Property "as is" and
Landlord shall not be liable for any latent or patent defect therein. Landlord
shall have no responsibility hereunder to Tenant for any defect in the
construction, design, or operation of any improvements built on the Property.
4.2 Use of Leased Property. The Property is leased to Tenant solely for
----------------------
(i) the operation of a recreational water theme park (the "Water Park") and
various concessions and operations related thereto available to the general
public, and (ii) at Tenant's option, certain other uses to be made of the
Property (the "Off-Season Uses") during those months of each year when the Water
Park is not in operation. Tenant shall not use or suffer to be used the
Property, or any portion thereof, for any other purpose or purposes whatsoever,
nor shall Tenant change the manner or scope of use. Tenant shall, not less than
sixty (60) days prior to any intended Off-Season Use, notify Landlord in writing
of the specific Off-Season Use contemplated by Tenant. Such notice shall include
but not be limited to (i) a detailed description of the proposed use, in form
and substance satisfactory to Landlord, and (ii) plans and specifications,
including colored elevations of any improvements to be constructed in connection
therewith. Landlord shall have the right to approve or disapprove such proposed
Off-Season Use within thirty (30) days after receipt of Tenant's notice,
provided that such approval shall not unreasonably be withheld. in making its
determination Landlord may consider, without limitation, whether such
13
<PAGE>
proposed Off-Season Use: (i) is of a nature which does not create or require any
permanent change, alteration or use of the Property, (ii) is legally permissible
on the Property pursuant to any applicable statute, code or regulation regarding
the use of the Property, (iii) is not, in Landlord's good faith opinion, likely
to cause or create any Increase in Hazard under Landlord's insurance program;
"Increase in Hazard" being deemed to mean any increase in risk of loss to
Landlord or the Property (whether such increase be physical or moral) within the
control or knowledge of Tenant which could cause or result in a cancellation or
suspension of any insurance coverage maintained by Landlord, (iv) will not
create or emit any offensive, hazardous or excessive quantities of dust, dirt,
smoke, noise, fumes, odors or vibrations, (v) is, in Landlord's good faith
opinion, consistent with the quality of operation and the entertainment concept
of the Water Park, and (vi) is not, in Landlord's opinion, morally offensive.
Tenant shall not, without the prior written consent of all insurance
companies which have issued any insurance of any kind whatsoever pursuant to any
provision of this Lease, sell, or suffer to be kept, used or sold in, upon or
about the Property any gasoline, distillate or other petroleum products or any
other hazardous or toxic waste, contaminant or material or any other substance
or material of an explosive, inflammable or radiological nature, in any quantity
which is excluded from coverage by any such insurance policy, or which may be in
violation of regulations or orders of any governmental agency.
4.3 Compliance with Requirements, etc. Subject to Section 6.2
----------------------------------
relating to contests, Tenant at its expense will promptly and diligently (i)
comply with all Legal Requirements and Insurance Requirements, whether or not
compliance therewith shall require structural changes in the Park or interfere
with the use and enjoyment of the Park or any part thereof, and (ii) procure,
maintain and comply with all permits, licenses, franchises and other
authorizations required for any use of the Park, including, without
14
<PAGE>
limitation, all permits, licenses and franchises which Tenant is required to
obtain for the proper erection, installation, operation and maintenance of the
Park.
ARTICLE 5
ALTERATIONS AND IMPROVEMENTS; MAINTENANCE AND REPAIRS
5.1 Alterations, Additions and Capital Expenditures. Subject to
-----------------------------------------------
Landlord's right of approval as provided below in Section 5.2, Tenant shall have
the right to make any alterations, additions, or improvements on or to the
Property without Landlord's consent; provided, however, that (i) Tenant shall
deliver to Landlord, for Landlord's approval prior to any construction, a
complete set of plans and specifications for the proposed alterations, additions
or improvements, Tenant's good faith estimate of total construction costs,
copies of contracts with general contractor, evidence of contractor's insurance
and bonds, and all necessary permits for such construction, (ii) Landlord may
require Tenant to provide lien and completion bonds in form and amount
satisfactory to Landlord, (iii) Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Section 5 upon
Landlord's written request, and (iv) all alterations, additions, and
improvements will be accomplished in a good and workmanlike manner, in
conformity, with all applicable laws and regulations, and by a contractor
reasonably acceptable to Landlord, and (v) upon completion of any such work,
Tenant shall provide Landlord with "as built" plans and drawings if such plans
and drawings are available, copies of all construction contractors, and proof of
payment for all labor and materials.
Whenever Landlord's approval is required or sought by Tenant for an
alteration or addition to the Park pursuant to this Article 5, Tenant shall have
the right to seek a tentative approval in the following manner:
(i) prior to any construction, Tenant shall submit to Landlord
Tenant's good faith estimate of total construction costs together with schematic
drawings
15
<PAGE>
and plans which shall indicate the location, size and elevation of the proposed
construction and shall provide a sketch graphically depicting the appearance of
the proposed construction.
(ii) Landlord shall have thirty (30) days from receipt of the items
referred to in clause (i) above in which to notify Tenant either that Landlord
tentatively approves the construction or disapproves and stating the reasons for
Landlord's disapproval. Landlord shall not unreasonable withhold its approval.
(iii) In the event that Landlord tentatively approves the Tenant's
proposed construction, Tenant shall provide Landlord all the items required for
final approval as set forth above in this Section 5.1; provided, however, that
Landlord shall not withhold its final approval so long as the proposed
construction does not differ materially from the proposal to which Landlord has
given its tentative approval.
Whenever Landlord's approval is required or sought under this Article 5,
Landlord shall respond to Tenant's request within thirty (30) days of submission
by Tenant of all items required to be submitted or reasonably requested by
Landlord to make an informed decision. If Landlord does not respond to Tenant
within such thirty (30) days it shall be conclusively presumed that Landlord has
approved Tenant's proposed alteration, addition or Capital Expenditure as such
alteration, addition or Capital Expenditure is described in Tenant's submittals.
Tenant shall pay when due all claims for labor and material furnished to
the Property. Tenant shall give Landlord at least ten (10) days' prior written
notice of the commencement of any work on the Property. Landlord may elect to
record and post notices of non-responsibility on the Property.
5.2 Landlord's Approval of Capital Expenditures. Landlord shall have
-------------------------------------------
the right to approve or disapprove any Capital Expenditures made by Tenant,
including,
16
<PAGE>
without limitation, any alterations, additions or improvements, made
by Tenant on or to the Property under the following circumstances:
(a) Prior to the end of the fifth (5th) Lease Year (i.e., prior
----
to December 31, 1991) Landlord shall have the right to
approve or disapprove any Capital Expenditures (i) in excess
of $125,000 in the first Lease Year, and (ii) in excess of
$250,000 in each of the second, third, fourth, and fifth
Lease Years.
(b) Commencing in the beginning of the sixth (6th) Lease Year
(i.e., commencing on January 1, 1992) Landlord shall have
----
the right to approve or disapprove all Capital Expenditures.
(c) Landlord's approval pursuant to subsections (a) and (b)
above shall not unreasonably be withheld and shall be based
on Landlord's reasonable determination of whether such
Capital Expenditures are reasonably calculated to increase
the Gross Revenues from the Park.
(d) Any Capital Expenditures made with Landlord's written
approval pursuant to this Section 5.2 are herein referred to
as "Approved Capital Expenditures." Any Capital
Expenditures made without Landlord's written approval shall
not be counted in the calculation of Approved Capital
Expenditures for purposes of Sections 2.5 and 3.2 above.
5.3 Landlord's Non-Responsibility for Improvements. Landlord shall not
----------------------------------------------
under any circumstances whatsoever be required under this Lease to build any
improvements on the Property, or to maintain or make any maintenance, repairs,
replacements, alterations or renewals of any nature or description to the
improvements on
17
<PAGE>
the Property, which now exist or are hereafter constructed by Tenant. Landlord
shall have no obligation to improve, construct, maintain, operate, hold, manage,
finance or guarantee the financing of or warrant in any way the Park or any
improvements now existing or hereafter constructed in or to the Park or the
Property.
5.4 Demolition. Except upon Landlord's direction as provided in Section
----------
5.7, Tenant shall not demolish the Park or any portion thereof nor remove any
personal property, buildings, structures, fixtures or equipment located on the
Property without obtaining Landlord's prior written consent.
5.5 No Claims Against Landlord, etc. Nothing contained in this Lease
--------------------------------
shall constitute a consent or request by Landlord, express or implied, for the
performance of any labor or services or the furnishing of any materials or other
property in respect of the Park or any part thereof, or be construed as giving
Tenant any right, power or authority to contract for or permit the performance
of any labor or services or the furnishing of any materials or other property in
such fashion as would permit the making of any claim against Landlord or the
Property. Tenant shall (except in the case of work costing less than $10,000 or
work undertaken in an emergency situation which does not allow time for advance
notice to Landlord, in which event such notice shall be given to Landlord as
promptly as possible) give Landlord written notice of any work that could result
in a mechanic's or materialman's lien being placed against the Property
sufficiently prior to the commencement of any such work to allow Landlord to
post a notice of non-responsibility or any similar notice on the Property, but
in no event less than fifteen (15) days prior to the commencement of such work.
5.6 Liens, etc. Tenant will not directly or indirectly create or permit
-----------
to be executed or to remain and will discharge any mortgage, lien, security
interest, encumbrance or charge on, pledge of or conditional sale or other title
retention agreement (collectively "Liens") with respect to the Park or any part
thereof, or any personal
18
<PAGE>
property, fixtures or equipment located in or on the Property, or Base Rent,
Additional Rent or any other sum payable under this Lease, other than the
following items, which may be created and may remain and which Tenant will
discharge as the same, or any portions thereof, become due: (a) this Lease; (b)
Liens for Impositions not yet payable, or payable without the addition of any
fine, penalty, interest or cost for nonpayment, or being contested as permitted
herein; (c) Liens of mechanics, materialmen, suppliers or vendors, or rights
thereto, incurred in the ordinary course of business for sums which under the
terms of the related contracts are not at the time due, provided that adequate
provision for the payment thereof shall have been made; (d) Liens created by or
at the instance of Landlord after the date of this Lease, provided that Tenant
shall not be obligated to discharge the same unless created by Landlord in
performance or satisfaction of an obligation of Tenant hereunder which Tenant
has failed to perform or satisfy and which Landlord is permitted to perform or
satisfy on Tenant's behalf; and (e) a lien or security interest in improvements
owned by Tenant located in the Park for the purpose of securing a loan, the
proceeds of which shall be used solely in connection with the operation of the
Park provided that (i) the amount of any loan secured by such a lien shall not
exceed $750,000 and (ii) such lien shall be fully discharged by Tenant no later
than July 31, 1987. In the event any such lien described in clause (e) above is
not fully discharged by Tenant on or before July 31, 1987, Landlord shall have
the right (without limiting any other right Landlord may have hereunder) to pay
the party holding such lien in order to have the lien removed and Tenant shall
upon demand pay to Landlord any amount so expended by Landlord plus interest at
the rate of fourteen percent (14%) per annum until such amount is paid by
Tenant.
5.7 Removal of Improvements. All improvements, structures, fixtures and
-----------------------
equipment on the Property at the expiration of the Lease Term or sooner
termination of this Lease shall, without compensation to Tenant, then become
Landlord's property free
19
<PAGE>
and clear of all claims to or against them by Tenant or any third party, and
Tenant shall defend and indemnify Landlord against all liability and loss
arising from such claim or from Landlord's exercise of the rights conferred by
this Section 5.7. Upon expiration or other termination of this Lease or upon
repossession of the Property by Landlord without termination by Landlord of this
Lease, Tenant agrees that it shall, at Landlord's request, remove all
improvements (including, without limitation, any buildings), fixtures and
equipment on the Property and shall restore the Property to grade provided that
Tenant shall have no such obligation if Landlord terminates this Lease pursuant
to Section 2.4 above. The cost of such removal shall be borne equally by
Landlord and Tenant. At Landlord's request, Tenant shall use its best efforts to
sell any fixtures and equipment in a commercially reasonable manner and the
proceeds of such sale or sales shall offset the cost of removal. Landlord shall,
to the extent permitted by law, have (in addition to all other rights) a right
of distress for rent and a security interest lien on Tenant's interest in all
improvements and equipment then on the Property as security for all Base Rent,
Percentage Rate, Off-Season Rent, Additional Rent and other sums payable under
this Lease. Tenant agrees, if Landlord elects to have Tenant remove the
improvements, equipment and fixtures, to complete such removal and restoration
within one hundred eighty (180) days of such expiration or termination of this
Lease or repossession of the Property provided that (i) Tenant shall be
permitted access to the Property for such purposes, and (ii) Tenant shall not be
deemed to be holding over under this Lease while performing such removal and
restoration. Tenant will pay Landlord, upon demand, all costs and expenses
incurred by Landlord in removing, storing or disposing of any of the
improvements and/or equipment and restoration of the Property to grade. Tenant
will immediately repair all damage to the Property caused by any removal of
Tenant's improvements or equipment therefrom, whether effected by Tenant or any
other Person; provided, that Landlord shall bear one-half (1/2) of the cost of
repair of such damage unless
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Tenant has defaulted hereunder and except for such damage as is caused by
Tenant's negligent or intentional act. In the event Landlord exercises any right
hereunder to take possession and control of Tenant's improvements and property,
Landlord shall not be responsible for any loss or damage unless caused solely by
the willful or negligent act (but not omission) of Landlord.
5.8 Maintenance and Repairs. Tenant at its expense will keep the Park
-----------------------
and the adjoining sidewalks and curbs in good and clean order and condition, and
will promptly make or cause others to make all necessary or appropriate repairs,
replacements and renewals thereof, whether interior or exterior, structural or
nonstructural, ordinary or extraordinary, foreseen or unforeseen. Tenant will
use its best efforts to see that the County of Clark, or other appropriate
political subdivision, maintains adjoining streets and ways in good order. All
repairs replacements and renewals shall be equal in quality to the original
work. Tenant waives any rights created by any law now or hereafter in force to
make repairs to the Park or any part thereof at Landlord's expense.
ARTICLE 6
TAXES; PERMITTED CONTESTS
6.1 Payment of Impositions. Tenant shall be liable for and shall pay
----------------------
before delinquency (and, upon demand by Landlord, Tenant shall furnish Landlord
with satisfactory evidence of the payment thereof) all Impositions except for
real property taxes assessed against the land (excluding any improvements
thereon) and penalties and interest thereon, if any, levied against the Park or
any personal property of whatsoever kind and to whomsoever belonging situate or
installed in or upon the Park, whether or not affixed to the realty. Whenever
Landlord shall receive any statement or bill for any Imposition or shall
otherwise be required to make any payment on account thereof, Tenant shall pay
the amount due hereunder to Landlord within ten (10) days prior to the date such
payment would have been delinquent had Landlord not so paid.
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6.2 Permitted Contests. Tenant at its expense may contest, after prior
------------------
written notice to Landlord, by appropriate legal proceedings conducted in good
faith and with due diligence, the amount or validity or application, in whole or
in part, of any Imposition or any Legal Requirement or the validity of any lien
referred to in Section 5.6, provided that (a) Tenant shall first make all
contested payments, under protest if it desires, unless such proceedings shall
suspend the collection thereof from Landlord or from Base Rent, Percentage Rent,
Off-Season Rent, Additional Rent and any other sums payable under this Lease,
(b) neither the Park nor any part thereof or interest therein nor any such rent
or other sums would be in any danger of being sold, forfeited, lost or
interfered with, (c) in the case of a Legal Requirement, Landlord would not be
in any danger of any civil or any criminal liability for failure to comply
therewith and the Property would not be subject to the imposition of any lien as
a result of such failure, and (d) Tenant shall have furnished such security, if
any, as may be required in the proceedings or reasonably requested by Landlord.
Landlord, at the sole expense of Tenant, will join in any such contest if (i)
requested so to do by Tenant, (ii) reasonably necessary to the effective
prosecution of such contest, and (iii) Tenant shall furnish evidence reasonably
satisfactory to Landlord that Landlord shall incur no liability by reason of
such contest.
ARTICLE 7
INSURANCE
---------
7.1 Insurance Coverage. Tenant shall, at all times during the Lease
------------------
Term, at its sole cost and expense, procure and maintain in full force and
effect with insurance carriers with a BEST rating of A+ or better the following
insurance coverages:
(i) a policy of Commercial General Liability insurance.
(a) Such policy will be an I.S.O. "occurrence" version
as approved from time to time by the Nevada
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Department of Insurance and will include the
following coverages:
I) Bodily Injury,
II) Property Damage,
III) Personal & Advertising Injury,
IV) Products Liability,
V) Liquor Liability,
VI) Employer's Liability,
VII) Fire Damage Liability.
(b) Such liability policy shall have a limit of not less
than $1,000,000 per each occurrence and a $1,000,000
limit as General Aggregate. Fire Damage, Liquor
Liability and Employer's Liability shall have sub-
limits equal to the lesser of (i) $500,000, or (ii)
the highest sub-limit Tenant is able to obtain from
the insurance carrier providing the Commercial
General Liability ("CGL") Insurance for a premium
cost equal to five percent (5%) of the premium which
would be payable for such CGL policy excluding Fire
Damage, Liquor Liability and Employer's Liability.
(c) Such liability policy or policies will show Landlord
as "Additional Insured" and as such, the defense of
any legal action or suit against the Park involving
the Landlord will be tendered to the Tenant's
insurance carrier.
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(d) Landlord will not monetarily share or participate in
the retention or deductible amount contained in the
Tenant's liability policy.
(e) Tenant shall use its best efforts to procure the
Commercial General Liability Policy from an
insurance carrier with an adjusting company with a
Las Vegas branch which will adjust and settle
Tenant's liability claims.
(ii) a policy of Worker's Compensation insurance issued by the Nevada
State Industrial Insurance System (to include Employer's Liability coverage)
against liabilities arising from claims of workers in respect of and during the
period of any work on or about the Park; (iii) An "All Risk" buildings and
contents policy covering (a) Tenant's personal business property and all
buildings and appurtenances; (b) the property of others left in the Tenant's
care, custody, and control in, upon, or about the Park; and (c) all Betterments
and Improvements. The buildings and contents policy shall have a loss limit of
not less than Three Million Dollars ($3,000,000) per occurrence. Landlord
acknowledges that such $3,000,000 loss limit buildings & contents policy shall
provide coverage at Tenant's other water parks in Orlando Florida, and
Arlington, Texas, and Garland, Texas, as well as the Park. Such insurance shall
contain a Lender's Less Payable Endorsement in favor of Hughes Entertainment,
Ltd., a Nevada limited partnership, as its interests may appear.
Tenant agrees to use its best efforts to comply strictly with the
requirements set forth above in this Section 7.1. The parties acknowledge that
changes in the availability of insurance and governmental regulations may make
it impractical or difficult to obtain insurance as specified above. In the event
that Tenant is unable, despite its best efforts to obtain insurance coverages as
specified herein, Tenant shall promptly give notice
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to Landlord in writing of its inability to provide such coverages. Upon receipt
of such notice, Landlord agrees to negotiate in good faith with Tenant to reach
a mutually acceptable agreement regarding modifications to the foregoing
requirements. Landlord shall not unreasonably withhold its consent to such
modifications; provided, however, that Landlord may withhold such consent if any
insurance carrier providing Landlord with "excess" or "umbrella" coverage deems
the insurance maintained by Tenant inadequate and refuses to afford coverage to
Landlord as owner of the Property on such grounds.
7.2 Proof of Insurance. A certificate issued by the insurance carrier
------------------
for each policy of insurance required to be maintained by Tenant hereunder
together with a certified copy of each such policy shall be delivered to
Landlord and all other additional insureds on or before the commencement date
hereof and thereafter, as to policy renewals, Tenant shall deliver to Landlord a
binder not less than fifteen (15) days prior to the expiration of the policy and
a certified copy of the renewal policy within sixty (60) days after inception.
Each of said certificates of insurance and each such policy of insurance
required to be maintained by Tenant hereunder shall be from an insurer and in
form and substance satisfactory to Landlord and shall expressly evidence
insurance coverage as required by this Lease.
7.3 Waiver of Liability and Policy Terms. Tenant hereby waives any
------------------------------------
and all rights of recovery from Landlord, its officers, agents and employees for
any loss or damage, including consequential loss or damage, caused by any peril
or perils (including negligent acts) enumerated in each form of insurance policy
required to be maintained by Tenant hereunder. All insurance maintained by
Tenant pursuant to Section 7.1 shall: (a) except for workmen's compensation
insurance, name Landlord, Tenant and any mortgagee as insureds (and such other
Persons as are designated by Landlord), as their respective interests may
appear, and shall include an effective waiver by the issuer of all rights of
subrogation (if Tenant is able to obtain a waiver of the right of subrogation
after
25
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using its best efforts) against any named insured or such insured's interest in
the Park or any income derived therefrom; (b) provide that all insurance
proceeds for losses of less than $100,000 shall be adjusted by Tenant; (c)
provide that, except in the case of Commercial General Liability and workmen's
compensation insurance (or liability insurance obtained in lieu of workmen's
compensation insurance), insurance proceeds shall be payable to Tenant for the
benefit of Landlord and Tenant as their respective interests may appear; (d)
provided that any losses shall be payable notwithstanding any act or failure to
act or negligence of Landlord or Tenant or any other Person; (e) provide that no
cancellation, reduction in amount or material change in coverage thereof shall
be effective until at least thirty (30) days after receipt by Landlord, Tenant
and Mortgagee of written notice thereof; and (f) be otherwise reasonably
satisfactory to Landlord.
If at any time Tenant is unable to obtain or maintain insurance coverage as
provided in this Article 7, Tenant shall immediately discontinue operation of
the Park so long as insurance coverage is not in effect as herein required.
Tenant shall have sixty (60) days thereafter in which to cure and obtain such
insurance coverage during which time Tenant shall continue to pay all rent
provided for herein and Tenant shall not be deemed to be in default hereunder
during such sixty (60) day period. If Tenant is unable to obtain insurance
within such sixty (60) day period, Landlord shall have the right and option to
terminate this Lease upon written notice to Tenant.
ARTICLE 8
INDEMNIFICATION
Tenant is deemed to be in possession and control of the Property during the
term of this Lease. Any right of entry by Landlord hereunder other than upon
Tenant's default is for purposes of inspection. Tenant will protect, indemnify
and hold harmless Landlord and the Park from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, attorneys'
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fees and expenses, but excluding any income or excess profits, franchise or
other similarly imposed taxes of Landlord determined on the basis of general
income or revenue or any interest or penalties in respect thereof) imposed upon
or incurred by or asserted against Landlord or the Park by reason of the
occurrence or existence of any of the following and whether or not resulting
from any negligent act or omission of Landlord (except as provided in clause (a)
below): (a) any accident, injury to or death of persons (including workmen) or
loss of or damage to property occurring on or about the Park or any part thereof
or the adjoining sidewalks, curbs, streets or ways, except for any accident,
injury to or death of persons or loss or damage to property to the extent caused
by the willful or negligent act of Landlord, (b) any use, nonuse or condition of
the Park or any part thereof or the adjoining sidewalks, curbs, streets or ways,
(c) any failure on the part of Tenant to perform or comply with any of the terms
of this Lease, or (d) performance of any labor or services or the furnishing of
any materials or other property in respect of the Park, or any part thereof. In
case any action, suit or proceeding is brought against Landlord by reason of any
such occurrence, Landlord will notify Tenant of such action, suit or proceeding,
or cause the same to be resisted and defended by counsel designated by Tenant
and approved by Landlord. Without limiting Tenant's obligations hereunder,
Landlord shall have the right to appear on its own in any such action, suit or
proceeding.
ARTICLE 9
SUBORDINATION
-------------
Tenant agrees upon request of Landlord to subordinate this Lease and its
rights hereunder to the lien of any mortgage, deed of trust or other
encumbrance, together with any renewals, extensions or replacements thereof, now
or hereafter placed, charged or enforced against the Property, or any portion
thereof, or any property of which the Property is a part, and to execute and
deliver at any time, and from time to time, upon demand by Landlord, such
documents as may be required to effectuate such subordination,
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<PAGE>
and in the event that Tenant shall fail, neglect or refuse to execute and
deliver any such documents within ten (10) days after receipt of written notice
so to do and the receipt by Tenant of the document to be executed by it, Tenant
hereby appoints Landlord, its successors and assigns, the attorney-in-fact of
Tenant irrevocably to execute and deliver any and all such documents for and on
behalf of Tenant; provided, however, that Tenant shall not be required to
effectuate such subordination, nor shall Landlord be authorized to effectuate
such subordination on behalf of Tenant, unless the mortgagee or beneficiary
named in such mortgage, deed of trust, or other encumbrance shall first agree in
writing, for the benefit of Tenant, that so long as Tenant is not in default
under any of the provisions, covenants or conditions of this Lease on the part
of Tenant to be kept and performed, that neither this Lease nor any of the
rights of Tenant hereunder shall be terminated or modified or be subject to
termination or modification, save and except as herein provided, nor shall
Tenant's possession of the Property be disturbed or interfered with, by any
trustee's sale or by any action or proceeding to foreclose said mortgagor deed
of trust or other encumbrance. In the event that the mortgagee or beneficiary
elects to have this Lease a prior lien to its mortgage or deed of trust, then
and in such event, upon such mortgagee's or beneficiary's giving written notice
to Tenant to that effect, this Lease shall be deemed prior in lien to such
mortgage or deed of trust, whether this Lease is dated prior to or subsequent to
the date of recordation of such mortgage of deed of trust. Tenant shall, in the
event any proceedings are brought for the foreclosure of the Property or in the
event of exercise of the power of sale under any deed of trust made by Landlord
covering the Property, attorn to the purchaser upon any such foreclosure or sale
and recognize such purchaser as the Landlord under this Lease.
28
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ARTICLE 10
ASSIGNMENT AND SUBLETTING
10.1 No Assignments. Except as permitted (i) in Section 5.6 with respect
--------------
to a loan for operation of the Park, and (ii) in Section 10.2 in connection with
an assignment to an affiliate of Tenant, (iii) in Section 10.3 in connection
with certain approved subleases, and (iv) in Rider No. 1 attached hereto, Tenant
shall not assign, mortgage, pledge, hypothecate or encumber this Lease or the
leasehold estate hereby created or any interest herein or sublet the Property or
any portion thereof, or license the use of all or any portion of the Property.
10.2 Assignment to Affiliate. Notwithstanding Section 10.1 above, Tenant
-----------------------
shall have the right to assign all of its right, title and interest in this
Lease to an Affiliate of Tenant (including, without limitation, Wet'N Wild
Nevada, Inc., a Nevada corporation) by appropriate written assignment, the form
of which shall be reasonably acceptable to Landlord; provided, however, that
Tenant shall not be released by such assignment from any obligation or liability
hereunder arising before or after the effective date of such assignment. Tenant
shall have no right to make a partial assignment of its interest in this Lease.
10.3 Permitted Subleases. Tenant shall not sublease all or any part of the
-------------------
Property, or allow any other person or entity (except Tenant's authorized
representatives) to occupy or use all or any part of the Property nor permit any
concessionaire to operate on the Property, without first obtaining the
Landlord's written consent. Any sublease without Landlord's written consent
shall be voidable and, at Landlord's election, shall constitute a default. No
consent to any sublease shall constitute a further waiver of the provisions of
this Section 10. Landlord shall have the right to approve or disapprove any
proposed sublease in Landlord's sole and absolute discretion; and Landlord may
consider, without limitation, the following factors: (i) whether the proposed
sublease or concession
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<PAGE>
and the use contemplated by the proposed sublessee or concessionaire are
compatible with existing use of the Property as a first class recreational water
park; (ii) whether the proposed use would increase the insurance risk to the
Property or Landlord; and (iii) whether the proposed sublease or concession
would diminish Percentage Rent by reducing Gross Income subject to the
Percentage Rent provisions hereof.
10.4 Affect on Percentage Rent. With respect to any sublease or concession
-------------------------
approved by Landlord pursuant to this Article 10, Landlord shall not be entitled
to receive percentage rentals based on the income of such sublease or
concessionaire; provided, however, that any income derived by Tenant from the
sublease, license or granting of a concession shall be Gross Revenue to Tenant
which shall enter into the calculation of Percentage Rent payable to Landlord.
ARTICLE 11
INSOLVENCY
----------
It is understood and agreed that neither this Lease nor any interest
herein or hereunder, nor any estate hereby created in favor of Tenant, shall
pass by operation of law under any state or federal insolvency, bankruptcy, or
inheritance act, or any similar law now or hereafter in effect, to any trustee,
receiver, assignee for the benefit of creditors, heir, legatee, devisee, or any
other person whomsoever without the express written consent of Landlord first
had and obtained therefor.
ARTICLE 12
CONDEMNATION
------------
12.1 Taking. In the event of a Taking or should any proceedings or
------
negotiations which might result in such Taking commence, Landlord or Tenant, as
the case may be, will promptly give notice thereof to the other generally
describing the nature and extent of such Taking or the nature of such
proceedings and negotiations therefor, as the case may be. Landlord and Tenant
may each file and prosecute their respective claims for
30
<PAGE>
an award, provided that all awards and other payments by the condemning
authority on account of a Taking shall be paid for allocation in accordance with
Section 12.4 below.
12.2 Total Taking. In case of a Taking of the fee of the entire Park, this
------------
Lease shall terminate as of the date of such Taking. In case of a Taking of (a)
a perpetual easement on the Park, or (b) such a substantial part of the Park as
shall result in the portion remaining after such Taking (even if restoration
were made) being unsuitable for use as a recreational water theme park on
substantially the same scale and manner as previously operated by Tenant, Tenant
may, at its option, terminate this Lease by notice to Landlord given within
ninety (90) days after such Taking, as of a date specified in such notice within
ninety (90) days after such Taking. Any Taking of the Property or improvements
of the character referred to in this Section 12.2 which result in the
termination of this Lease is referred to as a "Total Taking."
12.3 Partial Taking. In case of a Taking of the Park other than a Total
--------------
Taking this Lease shall remain in full force and effect as to the portion of the
Park remaining immediately after such Taking, without any abatement or reduction
of rent, or any other sum payable hereunder, except as provided in Section 12.5
and Tenant, whether or not Tenant's share pursuant to Section 12.4 in the awards
or payments, if any, on account of such Taking shall be sufficient for the
purpose, at its expense, will promptly commence and complete restoration of the
Park.
12.4 Awards. Awards and other payments on account of a Taking (less
------
costs, fees and expenses incurred in the collection thereof) ("net awards and
payments") shall be applied as follows:
(a) Net awards and payments received on account of a Taking
other than a Taking for a temporary use shall be allocated
so that Landlord shall first receive the full value of that
portion of the Property (i.e., the land) taken and the
---
remainder, if
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any, shall be paid to Tenant. The value of
the portion of the Property so taken shall be determined by
agreement between Landlord and Tenant or, failing such
agreement, by independent appraisers as provided in Section
12.6 hereof.
(b) Net awards and payments received on account of Taking for
temporary use shall be applied to the payment of Base Rent
and Additional Rent becoming due hereunder, until such
Taking for temporary use is terminated and restoration, if
any, has been completed, provided that, if any portion of
any such award or payment is made by reason of any damage to
or destruction of the Park, such portion shall be applied as
provided in the first sentence of paragraph (a) of this
Section 12.4. The balance, if any, of such awards and
payments shall, unless Tenant is in default hereunder, from
time to time be paid to Tenant.
12.5 Abatement. In the event that any portion of an award or other
---------
payment received on account of a Taking other than a Total Taking shall be paid
to Landlord pursuant to paragraph (a) of Section 12.4 and the area of the
Property is reduced by such Taking, each monthly installment of Base Rent
hereunder shall be reduced, commencing with the first rent payment date
following the date of such Taking, in an amount equal to that proportion of the
rent which the area of the portion taken bears to the total area of the
Property.
12.6 Appraisal. Any appraisal required by this Article 12 shall be made
---------
in the following manner: not more than thirty (30) days after any Taking
referred to in paragraph (a) or (c) of Section 12.4, Landlord and Tenant shall
each appoint one (1) appraiser to determine the value or the amount to be
determined, as the case may be, as
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required by the provisions of such paragraphs and notice of such appointment
shall be given to the other party. If either party shall fail or refuse so to
appoint an appraiser and give notice thereof within such period, the appraiser
appointed by the other party shall within thirty (30) days thereafter
individually make such determination. If the parties have each so appointed an
appraiser within such thirty (30) day period, the appraisers thus appointed
shall proceed to determine such value or the amount to be determined within
thirty (30) days after notice of their appointment. If such two (2) appraisers
shall be unable to agree on such value or the amount to be determined within
thirty (30) days, they shall, within fifteen (15) days thereafter, join to
appoint a third appraiser and if they fail so to appoint such third appraiser
within such period, the third appraiser shall be appointed by a Judge of the
Eighth Judicial District of Nevada upon application of either party. Within
thirty (30) days after the selection of the third appraiser, a majority of the
appraisers shall determine the values or amounts to be determined. If a majority
of the appraisers are unable to determine the values or amount to be determined
within the stipulated period of time, the three appraisals shall be added
together and their total divided by three; the resultant quotient shall be the
values or amounts to be determined. If, however, the low appraisal and/or the
high appraisal are/is more than ten percent (10%) lower and/or higher than the
middle appraisal, such low appraisal and/or high appraisal shall be disregarded.
If only one appraisal is disregarded, the remaining two appraisals shall be
added together and their total divided by two; the resulting quotient shall be
the values or amounts to be determined. If both the low appraisal and the high
appraisal are disregarded as stated in this paragraph, the middle appraisal
shall be the values or amounts to be determined. No hearings shall be conducted
in connection with such appraisals, and the parties waive any rights to such
hearings. All appraisers appointed hereunder shall be competent, qualified by
training and experience, disinterested and independent (in the case of the third
appraiser only) and shall be members in good standing of the American Institute
of Real Estate
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<PAGE>
Appraisers or the Society of Real Estate Appraisers, if there be one, and all
appraisal reports shall be rendered in writing and signed by the appraiser or
appraisers making the report. Each party shall pay all costs, fees and expenses
of the appraiser appointed by it and the parties shall share equally the costs,
fees and expenses of the third appraiser, if any.
ARTICLE 13
DESTRUCTION OF PREMISES
13.1 Notice of Destruction. In case of any material damage to or
---------------------
destruction of the Park or any part thereof, Tenant will promptly give notice
thereof to Landlord generally describing the nature and extent of such damage or
destruction.
13.2 Restoration. In case of any damage to or destruction of the Park or
-----------
any part thereof, Tenant, whether or not the insurance proceeds, if any, on
account of such damage or destruction shall be sufficient for the purpose shall
at its expense promptly commence and complete the restoration, replacement or
rebuilding of the Park (such restoration, replacement, rebuilding, together with
any temporary repairs and property protection pending completion of the wok,
being herein called "Restoration"). No destruction of, or damage to the Park or
any part thereof by fire or any other cause shall permit Tenant to surrender
this Lease or shall relieve Tenant from its obligation to pay all amounts due
under this Lease, or from any of its other obligations under this Lease, and
Tenant waives any rights now or hereafter conferred upon it by statute or
otherwise to quit or surrender this Lease or the Property or any suspension,
diminution, abatement or reduction of rent on account of any such destruction or
damages.
13.3 Proceeds. All insurance proceeds on account of any damage to or
--------
destruction to the Park or any part thereof (less the costs, fees and expenses
incurred in the collection thereof, including, without limitation, adjuster's
fees and expenses and attorneys' fees and expenses) shall be held by Tenant and
applied to the cost of
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Restoration, unless Tenant is in default hereunder in which event all proceeds
shall be paid to Landlord and first utilized to fully cure any such default and
the excess, if any, shall then be applied to Restoration.
ARTICLE 14
RIGHT OF ACCESS
Landlord, and its authorized agents and representatives shall be entitled
to enter the Park at any reasonable time upon reasonable notice to Tenant for
the purpose of observing, posting or keeping posted thereon notices provided for
hereunder, and such other notices as Landlord may deem necessary or appropriate
for protection of Landlord, its interest or the Park; for the purpose of making
repairs to the Park and performing any work therein or thereon which Landlord
may elect to make hereunder, or which may be necessary to comply with any laws,
ordinances, rules, regulations or requirements of any public authority or any
applicable standards that may, from time to time, be established by the
Insurance Services Office or any similar body, or which landlord may deem
necessary or appropriate to prevent waste, loss, damage or deterioration to or
in connection with the Park or any adjacent property or for any other lawful
purpose. Landlord shall have the right to use any means which Landlord may deem
proper to open all doors to the Park in an emergency. Entry onto the Park
obtained by Landlord by any such means shall not be deemed to be forcible or
unlawful entry into or a detainer of, the Park, or an eviction of Tenant from
the Park or any Portion thereof. Nothing contained herein shall impose or be
deemed to impose any duty on the part of Landlord to do any work or repair,
maintenance, reconstruction or restoration which under any provision of this
Lease is required to be done by Tenant; and the performance thereof by Landlord
shall not constitute a waiver of Tenant's default in failing to do the same.
Landlord, and/or its authorized agents and representatives, shall be entitled to
enter the Park at all reasonable times for the purpose of exhibiting the same to
prospective purchasers.
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ARTICLE 15
PERFORMANCE BY LANDLORD
Whenever under any provision of this Lease, Tenant shall be obligated
to make any payment or expenditure, or to do any act or thing, or to incur any
liability whatsoever, and Tenant fails, refuses or neglects to perform as herein
required, Landlord shall be entitled, but shall not be obligated, to make any
such payment or to do any such act or thing, or to incur any such liability, all
on behalf of and at the cost and for the account of Tenant. In such event, the
amount thereof with interest thereon as hereinafter provided, shall constitute
and be collectible as Additional Rent on demand. All such amounts shall bear
interest at the rate of fourteen percent (14%) per annum until repayment by
Tenant in full.
ARTICLE 16
ESTOPPEL CERTIFICATES
16.1 Estoppel Certificate by Tenant. Tenant will execute, acknowledge and
------------------------------
deliver to Landlord promptly upon request a certificate certifying (a) that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that the Lease is in full force and effect as modified and
stating the modifications), (b) the dates, if any, to which Base Rent,
Additional Rent and other sums payable hereunder have been paid, (c) that no
notice has been received by Tenant of any default which has not been cured,
except as to defaults specified in said certificate, and (d) such other items as
reasonably requested by Landlord. Any such certificate may be relied upon by any
prospective purchaser or mortgagee of the Property or any part thereof.
16.2 Estoppel Certificate by Landlord. Landlord will execute,
--------------------------------
acknowledge and deliver to Tenant or any Mortgagee, promptly upon request, a
certificate certifying (a) that this Lease is unmodified and in full force and
effect (or, if there have been modifications, that this Lease is in full force
and effect as modified, and stating the
36
<PAGE>
modifications), (b) the dates, if any, to which Base Rent, Additional Rent and
other sums payable hereunder have been paid, (c) whether or not, to the
knowledge of Landlord, there are then existing any defaults under this Lease
(and if so, specifying the same), and (d) such other items as reasonably
requested by Tenant. Any such certificate may be relied upon by any prospective
mortgagee of Tenant's interest.
ARTICLE 17
DEFAULT
-------
17.1 Default. Tenant's compliance with each and every covenant and
-------
obligation hereof on its part to be performed hereunder is a condition precedent
to each and every covenant and obligation of Landlord hereunder. Landlord shall
have all the rights and remedies provided in Section 17.2 in the event that:
(a) Tenant shall default in the payment of any sum of money
required to be paid hereunder and such default continues for
ten (10) days after notice thereof by Landlord;
(b) Tenant shall default in the performance of any other
provision, covenant or condition of this Lease on the part
of Tenant to be kept and performed and such default
continues for thirty (30) days after written notice thereof
from Landlord to Tenant; provided, however, that if the
default complained of in such notice is of such a nature
that the same can be rectified or cured, but cannot with
reasonable diligence be done within said thirty (30) day
period, commence to rectify and cure the same and shall
thereafter complete such rectification and cure with all due
diligence; or
(c) Except as permitted in Section 7.3 above with respect to
closure of the Park pending compliance with the insurance
37
<PAGE>
requirements of Article 7 Tenant should vacate or abandon
the Property or cease to operate the Park in the ordinary
course of business during the term of this Lease; or
(d) There is filed any petition in bankruptcy or Tenant is
adjudicated as a bankrupt or insolvent, or there is
appointed a receiver or trustee to take possession of Tenant
or of all or substantially all of the assets of Tenant, or
there is a general assignment by Tenant for the benefit of
creditors, or any action is taken by or against Tenant under
any state or federal insolvency or bankruptcy act, or any
similar law now or hereafter in effect, including, without
limitation, the filing of any petition for or in
reorganization, or should the Property or any portion
thereof be taken or seized under levy of execution or
attachment against Tenant, and the continuance of such levy
in effect for a period of twenty (20) days.
17.2 Remedies. In the event of a default as designated in this Article
--------
17, Landlord, at its sole option and sole remedy, shall have the right to
declare the term of this Lease ended and to re-enter the Property and take
possession thereof, and to terminate all of the rights of Tenant in and to the
Property. Pursuant to said rights of re-entry, Landlord may remove all Persons
and property from the Property and may, but shall not be obligated to, enforce
any rights Landlord may have against said property, or store the same in any
public or private warehouse or elsewhere at the cost and for the account of
Tenant or the owner or owners thereof. Tenant agrees to hold Landlord free and
harmless of any liability whatsoever for the removal and/or storage of any such
property, whether of Tenant or any third party whomsoever. Anything contained
herein to the contrary notwithstanding, Landlord shall not be deemed, on account
of such termination of this
38
<PAGE>
Lease, to have terminated or waived any liability or responsibility of Tenant to
pay any amounts due Landlord hereunder through the date of termination or to
perform any obligations of Tenant in connection with the restoration of the
Property; provided, however, that Tenant shall have no obligation to pay rent
hereunder during the 180 day period during which Tenant performs restoration of
the Property pursuant to Section 5.7 above.
17.3 Legal Costs. In any action brought by Landlord or Tenant to
-----------
enforce any rights under or arising from this Lease, the prevailing party shall
be entitled to receive its costs and legal expenses including reasonable
attorney's fees, whether such action is prosecuted to judgment or not. The
parties hereto shall and they hereby do waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other on any matters whatsoever arising out of or in any way connected with this
Lease, the relationship of landlord and tenant, Tenant's use or occupancy of the
Property, and/or any claim of injury or damage.
17.4 Waiver. The waiver by Landlord of any default or breach of any of
------
the provisions, covenants or conditions hereof on the part of Tenant to be kept
and performed shall not be a waiver of any preceding or subsequent breach of the
same or any other term, covenant or condition contained herein. The subsequent
acceptance of rent or any other payment hereunder by Tenant to Landlord shall
not be construed to be a waiver of any preceding breach by Tenant of any
provision, covenant or condition of this Lease other than the failure of Tenant
to pay the particular rental or other payment or portion thereof so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rental or other payment. No payment by Tenant or receipt by
Landlord of a lesser amount than the rent herein provided shall be deemed to be
other than on account of the earliest rent due and payable hereunder, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be
39
<PAGE>
deemed an accord and satisfaction, and Landlord may accept any such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy provided in this Lease. This Section 17. 4 may
be waived only by written instrument signed by both Tenant and Landlord.
ARTICLE 18
QUIET POSSESSION
Tenant, upon paying the rentals and other payments herein required
from Tenant, and upon Tenant's performance of all of the provisions, covenants
and conditions of this Lease on its part to be kept and performed, may quietly
have, hold and enjoy the Property during the term of this Lease without any
disturbance from Landlord or from any other Person claiming through Landlord.
ARTICLE 19
SALE BY LANDLORD
In the event of any sale or exchange of the Property by Landlord, Landlord
shall be and is hereby relieved of all liability under any and all of its
covenants and obligations contained in or derived from this Lease, arising out
of any act, occurrence or omission occurring after the consummation of such sale
or exchange. Tenant agrees to attorn to such purchaser or grantee.
ARTICLE 20
DEFAULT BY LANDLORD
It is agreed that in the event Landlord fails or refuses to perform any of
the provisions, covenants or conditions of this Lease on Landlord's part to be
kept or performed, that Tenant, prior to exercising any right or remedy Tenant
may have against Landlord on account of such default, shall give a thirty (30)
day written notice to Landlord of such default, specifying in said notice the
default with which Landlord is charged. Notwithstanding any other provision
hereof, Tenant agrees that if the default complained
40
<PAGE>
of in the notice provided for by this Article 20 is of such a nature that the
same can be rectified or cured by Landlord, but cannot with reasonable diligence
be rectified or cured within said thirty (30) day period, then such default
shall be deemed to be rectified or cured if Landlord within said thirty (30) day
period shall commence the rectification and curing thereof and shall continue
thereafter with all due diligence to cause such rectification and curing to
proceed.
ARTICLE 21
NOTICES
All notices, statements, demands or other communications (hereinafter
referred to as "Notices") to be given under or pursuant to this Agreement shall
be in writing, addressed to the parties at the respective addresses as provided
below and shall be by certified or registered mail, postage prepaid, return
receipt requested, charges prepaid. The Notice shall be deemed to have been
given forty-eight (48) hours after the date of mailing. The addresses of the
parties to which the Notices are to be sent are as follows:
Landlord: Howard Hughes Properties Limited partnership
4045 South Spencer Street
P.O. Box 14000
Las Vegas, NV 89156
Attention: President
---------
Real Estate Group
Tenant: Wet'N Wild Inc.
1901 North State Hwy. 360
Suite 211
Grand Prairie, Texas 75050
Attention: John Shawen
---------
With a copy to: Wet'N Wild Nevada, Inc.
3260 Industrial Road
Las Vegas, Nevada
Attention: Gary Daning
---------
41
<PAGE>
Any party may, from time to time, change its address for receipt of
Notices by sending a Notice to the other party specifying a new address.
ARTICLE 22
MISCELLANEOUS
22.1 Remedies Cumulative. The various rights, options, elections and
-------------------
remedies of Landlord contained in this Lease shall be cumulative and no one of
them shall be construed as exclusive of any other, or of any right, priority or
remedy allowed or provided for by law and not expressly waived in this Lease.
22.2 Successors and Assigns. The terms, provisions, covenants and
----------------------
conditions contained in this Lease shall apply to, bind and inure to the benefit
of the successors and assigns (where assignment is permitted) of Landlord and
Tenant, respectively.
22.3 Partial Invalidity. If any term, provision, covenant or condition
------------------
of this Lease, or any application thereof, should be held by a court of
competent jurisdiction to be invalid, void or unenforceable, all provisions,
covenants and conditions of this Lease, and all applications thereof, not held
invalid, void or unenforceable, shall continue in full force and effect and
shall in no way be affected, impaired or invalidated thereby.
22.4 Time of the Essence. Time is of the essence of this Lease and all
-------------------
of the terms, provisions, covenants and conditions hereof.
22.5 Entire Agreement. This Lease contains the entire agreement between
----------------
the parties and cannot be changed or terminated orally.
22.6 No Partnership. Nothing contained in this Lease shall be deemed or
--------------
construed by the parties hereto or by any third party to create the relationship
of principal and agent or of partnership or of joint venture or of any
association between Landlord and Tenant. Neither the method of computation of
rent nor any other provisions contained in
42
<PAGE>
this Lease nor any acts of the parties hereto shall be deemed to create any
relationship between Landlord and Tenant other than the relationship of landlord
and tenant.
22.7 Brokers. Tenant warrants that it has had no dealings with any
-------
broker or agent in connection with this Lease, and covenants to pay, hold
harmless and indemnify landlord from and against any and all cost, expense or
liability for any compensation, commissions and charges claimed by any broker or
agent with respect to this Lease or the negotiation thereof.
22.8 Captions. The captions appearing at the commencement of the sections
--------
and articles hereof are descriptive only and for convenience in reference to
this Lease and in no way whatsoever define, limit or describe the scope or
intent of this Lease, nor in any way affect this Lease.
22.9 Gender. Masculine or feminine pronouns shall be substituted for the
------
neuter form and vice versa, and the plural shall be substituted for the singular
form and vice versa, in any place or places herein in which the context requires
such substitution or substitutions.
22.10 Applicable Law. The laws of the State of Nevada shall govern the
--------------
validity, construction, performance and effect of this Lease.
22.11 Plurals. In the event either party hereto now or hereafter shall
-------
consist of more than one person, firm or corporation, then and in such event,
all such persons, firms or corporations shall be jointly and severally liable as
parties hereunder.
22.12 Construction. This Lease shall not be construed either for or
------------
against Landlord or Tenant, but this Lease shall be interpreted in accordance
with the general tenor of its language.
22.13 Short Form Lease. Landlord and Tenant shall execute, simultaneously
----------------
herewith, a Short Form of Lease, and Tenant shall cause the same to be recorded
in the Office of the County Recorder of Clark County, Nevada.
43
<PAGE>
ARTICLE 23
DEFINITIONS
As used in this Lease, the following terms have the following respective
meanings:
23.1 Additional Rent. As defined in Section 3.4.
---------------
23.2 Affiliate of Tenant. Any person, corporation or other entity
-------------------
which controls, is controlled by or is under common control with Tenant, control
being deemed to mean beneficial ownership of more than 50% of the voting power
of such entity.
23.3 Base Rent. As defined in Section 3.1.
---------
23.4 Capital Expenditures. Expenditures which extend the useful life
--------------------
of the Park or its individual components for more than one (1) year and are
necessary for the continued generation of Gross Revenues, or will create new
sources of Gross Revenues.
23.5 Gross Revenues. All moneys received by Tenant, whatsoever from
--------------
or in connection with the operation of the Park whether for cash or credit,
including, without limitation, all Park admission fees; all moneys received from
the sales of food, drink, goods, wares, merchandise and services at the Park or
in connection with the Park's operations; all fees from the rental of equipment
and other items; and any revenues received by Tenant from Tenant's
concessionaires or sublessees. Deducted from Gross Revenues shall be all
amounts for refunds, discounts and allowances made by Tenants.
23.6 Impositions. All taxes, assessments (including, without
-----------
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed prior to the date hereof and whether or not to be
completed within the term hereof, but if any portion of any such assessment
relates to a period not within the Lease Term, such portion shall not be the
responsibility of and need not be paid by Tenant), ground rents, water, sewer or
similar rents, rates and charges, excises, levies, license fees, permit fees,
inspection fees and other authorization fees and other charges, in each case
whether general
44
<PAGE>
or special, ordinary or extraordinary, foreseen or unforeseen, of every
character (including all interest and penalties thereon), which at any time
during or in respect of the Lease Term may be assessed, levied, confirmed or
imposed on or in respect of or be a lien upon (a) the Park or any part thereof
or any rent therefrom or any estate, right or interest therein, or (b) any
occupancy, use or possession of or activity conducted on the Property or the
Park or any part thereof, other than any income or excess profit tax, franchise
taxes or other similarly imposed taxes of Landlord determined on the basis of
general income or revenue or any interest or penalties in respect thereof. To
the extent that same may be permitted by law, Tenant shall have the right to
apply for the conversion of any assessment for local improvements to make the
same payable in annual or other periodic installments, and upon such conversion
Tenant shall pay and discharge punctually only such of said installments as
shall become due and payable during the term of this Lease.
23.7 Insurance Requirements. All terms of an insurance policy
----------------------
covering or applicable to the Park or any part thereof, all requirements of the
issuer or any such policy, and all orders, rules, regulations and other
requirements of the National Board of Fire Underwriters, Insurance Services
Office (or any other body exercising similar functions) applicable to or
affecting the Park or any part thereof, the reasonableness of which Tenant may
contest in the same manner as provided, and subject to the same conditions and
limitations specified, in Section 6.2.
23.8 Lease. This Lease, as at the time amended, modified or supplemented.
-----
23.9 Lease Term. As defined in Section 2.1.
----------
23.10 Lease Year. As defined in Section 2.1.
----------
23.11 Legal Requirements. All laws, statutes, codes, acts, ordinances,
------------------
orders, judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of all governments, departments,
commissions,
45
<PAGE>
boards, courts, authorities, agencies, officials and officers, foreseen or
unforeseen, ordinary or extraordinary, which now or at any time hereafter may be
applicable to the Park or any part thereof or any of the adjoining sidewalks,
curbs, streets or ways, or any use or condition of the Park or any part thereof.
23.12 Liens. As defined in Section 5.6.
-----
23.13 Park. The Property and all improvements and property now
----
existing on hereafter constructed or brought upon the Property by Tenant.
23.14 Percentage Rent. As defined in Section 3.2.
---------------
23.15 Person. An individual or a corporation, partnership, trust,
------
unincorporated organization, association, or other entity.
23.16 Property. As defined in Article 1.
--------
23.17 Restoration. As defined in Section 13.2.
-----------
23.18 Taking. A transfer during the Lease Term of all or any part of
------
the Park, or any leasehold or other interest therein or right accruing thereto,
as the result or in lieu of or in anticipation of the exercise of the right of
condemnation or eminent domain, or a change of grade affecting the Property or
any part thereof.
23.19 Total Taking. As defined in Section 12.2.
------------
46
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first above written.
LANDLORD TENANT
HOWARD HUGHES PROPERTIES, LIMITED WET'N WILD, INC.
PARTNERSHIP, a Delaware limited a Florida corporation
partnership
By: SUMMA CORPORATION,
its sole general partner,
a Delaware corporation
By /s/ John L. Goolsby By /s/ John E. Shawer
---------------------------- ----------------------------
Title Executive Vice President Title Senior Vice President
-------------------------- --------------------------
47
<PAGE>
RIDER No. 1
TO LEASE
--------
This Rider No. 1 is attached to and made a part of that certain Ground
Lease (the "Lease") dated January 1, 1987 between Howard Hughes Properties,
Limited Partnership ("Landlord") and Wet'N Wild, Inc. ("Tenant"). Capitalized
terms not otherwise defined herein shall have the same meaning as set forth in
the Lease.
The Lease contains certain restrictions upon transfers of assets and
rights covered under the Lease. Notwithstanding such restrictions, to
accommodate the possibility of a stock sale offering or sale of substantially
all of its assets by Tenant or its successors or assigns or of any subsidiary of
Tenant that includes sale or transfer of control of the Park or its assets the
parties hereby agree as follows:
1. Tenant or its successors or assigns or any subsidiary of Tenant
that owns and operates the Park shall have the right to sell shares of its stock
in a private or public offering so long as the controlling interest in the
selling entity is not transferred and the present management remains in
effective control of the operation of the Park.
2. Tenant or its successors or assigns or any subsidiary of Tenant
that owns and operates the Park shall have the right to sell all of its stock or
a controlling interest in its stock, in a public or private offering or to sell
all or substantially all of its assets (a "Sale of Control") subject to the
Security Agreement and lien thereof; provided that prior written consent of
Landlord is obtained, which consent shall not be unreasonably withheld.
In making its determination, Landlord shall have the right to consider
whether the surviving entity or the purchasing entity which becomes owner and
operator of the Park (the "Buyer") has:
(1) financial strength at least equal to the financial strength of
Tenant immediately prior to the Sale of Control.
<PAGE>
(2) the present management of the Park continues, or other management
with experience in water park management assumes the operation, so that the
Landlord is reasonably satisfied that the Park will continue to be operated in a
manner and style at least equal to the manner and style in which the Park was
operated prior to the Sale of Control to the Buyer.
(3) The Buyer agrees to assume all obligations of Tenant under the
Lease.
If Landlord consents to the transaction and the transaction is
consummated, Tenant and its successors and assigns and its subsidiaries shall be
relieved of liability under the Lease.
<PAGE>
EXHIBIT A
---------
DESCRIPTION:
Situate in the County of Clark, State of Nevada, described as follows:
PARCEL I:
- ---------
That portion of the Northeast Quarter (NE 1/4) of Section 9, Township 21 South,
Range 61 East, M.D.M., described as follows:
BEGINNING at a point on the East boundary of said Section 9, from which the
corner common to Sections 3, 4, 9 and 10, said Township and Range, bears North
40441 West 896.8 feet distance; thence parallel with the North boundary of said
Section 9, North 87 degrees 12' West a distance of 793.7 feet to a point on the
East right of way line of U.Sw Highway No. 91; thence along the East right of
way line of U.S. Highway No. 91, South 28 degrees 00' West a distance of 958
feet to a point; thence parallel with the North boundary of said Section 9,
South 87 degrees 12' East a distance of 1315.9 feet to a point on the East
boundary of said Section 9; thence along the East boundary of said Section 9,
North 4 degrees 44' West a distance of 874.2 feet to the TRUE POINT OF
BEGINNING.
PARCEL II:
- ----------
That portion of the Northwest Quarter (NW 1/2) of the Northwest Quarter
(NW 1/4) of Section 10, Township 21 South, Range 61 East, M.D.M., lying West of
Paradise Road, described as follows:
BEGINNING at a point in the West line of the said Northwest Quarter of Section
10, distant thereon South 40441 East 896.8 feet from the Northwest corner
thereof being the Northeast corner of that certain parcel of land conveyed by
Hotels Securities Co. to El Rancho Vegas by Corporation Deed recorded March 20,
1945 shown as Document No. 194417, Clark County, Nevada records; thence South 87
degrees 12' East along the Easterly prolongation of the North line of the said
parcel conveyed to El Rancho Vegas, a distance of 342.2 feet to a point in the
West line of Paradise Road; thence South 0 degrees 11' 20" West along the said
West line of Paradise Road, a distance of 338 feet to a point in the South line
of the Northwest Quarter (NW 1/4) of the Northwest Quarter (NW 1/4) of said
Section 10; thence West along the last mentioned South line a distance of 311
feet, more or less, to the Southwest corner of the said Northwest Quarter (NW
1/4) of the Northwest Quarter (NW 1/4) of Section 10; thence North 4 degrees 44'
West along the West line of the Northwest Quarter (NW 1/4) of the Northwest
Quarter (NW 1/4) a distance of 365.4 feet to the POINT OF BEGINNING.
<PAGE>
PARCEL III:
- -----------
That portion of the Southwest Quarter (SW 1/4) of the Northwest Quarter
(NW 1/4) of Section 10, Township 21 South, Range 61 East, M.D.M., lying West of
Paradise Road, described as follows:
BEGINNING at the Northwest corner of the Southwest Quarter (SW 1/4) of the
Northwest Quarter (NW 1/4) of said Section 10; thence South 4 degrees 44' East
along the West line of the said Southwest Quarter (SW 1/4) of the Northwest
Quarter (NW 1/4) a distance of 508.8 feet to the Southeast corner of that
certain parcel of land conveyed by Hotels Securities Co. to El Rancho Vegas by
Corporation Deed recorded March 20, 1945, shown as Document No. 194417, Clark
County, Nevada records; thence South 87 degrees 12' East along the Easterly
prolongation of the South line of the said conveyed parcel a distance of 267.1
feet to a point in the West line of Paradise Road; thence North 0 degrees 11'20"
East along the last mentioned West line a distance of 529.0 feet to a point in
the North line of the said Southwest Quarter (SW 1/4) of the Northwest Quarter
(NW 1/4) of said Section 10; thence West along the last mentioned North line a
distance of 311 feet, more or less, to the POINT OF BEGINNING.
<PAGE>
LESSOR COVENANTS AND REPRESENTATIONS
------------------------------------
THIS COVENANT AND REPRESENTATION, given this first day of December,
1993, by HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP, a Delaware limited
partnership (the "Lessor").
Lessor and WET'N WILD, INC., a Florida corporation ("Lessee"), entered
into a certain agreement dated the 1st day of January, 1987 (the "Lease"), for
the lease of certain real property located in Clark County, Nevada, and more
particularly described in the Lease.
WET'N WILD FLORIDA, INC., a Florida corporation (the "Borrower"), has
requested SUN BANK NATIONAL ASSOCIATION (the "Bank") to extend certain loans to
it in the aggregate amount of $9,000,000.00 (collectively, the "Loans").
The Lessor hereby covenants and represents to the Bank, to the best of
Lessor's knowledge:
1. The Lease is in full force and effect and is valid and enforceable
in all respects in accordance with its terms.
2. Attached hereto is a true, correct and complete copy of the Lease
as it currently exists.
3 No default exists under any of the terms of the Lease.
4. The Lessee has not previously assigned the Lease to any other
third party.
5. The Lessor will give the Bank notice of any default under the
terms of the Lease at the following address:
Sun Bank, National Association
P.O. Box 3433
Orlando, Florida 32801
Attn: David C. Cross, Vice President
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this document this
first day of December, 1993.
HOWARD HUGHES PROPERTIES,
LIMITED PARTNERSHIP, a
Delaware limited partnership,
By its sole general partner,
SUMMA CORPORATION, a
Delaware corporation
By: /s/ Ronald C. Brooks
---------------------
Ronald C. Brooks
Senior Vice President
The foregoing instrument was acknowledged before me this first day of
December, 1993, by Ronald C. Brooks, as the Senior Vice President of Summa
Corporation, a Delaware corporation, as the sole general partner of Howard
Hughes Properties, Limited Partnership, a Delaware limited partnership, on
behalf of the corporation and the partnership.
/s/ Anita Kim Dupuy
-------------------------
Notary Public, State of Nevada
Anita Kim Dupuy
-------------------------
Print Commissioned Name of Notary Public
2
<PAGE>
FIRST AMENDMENT TO GROUND LEASE
THIS FIRST AMENDMENT TO GROUND LEASE is entered into on this 1st day
of March, 1993, by and between HOWARD HUGHES PROPERTIES, LIMITED PARTNERSHIP, a
Delaware limited partnership ("Landlord") and WET N' WILD NEVADA, INC., a Nevada
corporation ("Tenant").
R E C I T A L S:
A. Landlord and Tenant entered into that certain Ground Lease dated
January 1, 1987
B. Landlord and Tenant have agreed to modify Section 3.8, Billboards,
of the Lease, including the addition of a provision to Section 3.8.
WHEREFORE, based upon mutual consideration, Landlord and Tenant
mutually agree as follows:
1. The last paragraph of Section 3.8 of the Lease is deleted in its
entirety and the following substituted in lieu thereof which shall be effective
as of March 1, 1993:
Tenant shall pay to Landlord, in advance on the first day of each
month an amount equal to Three Hundred Seventy-Five Dollars ($375)
times the number of billboard faces located on the Property at any
time during such month as an estimate of the actual rental which shall
be payable with respect to billboards. Not later than January 31 of
each year during the Lease Term, Landlord shall submit to Tenant,
Landlord's determination of the actual amount payable pursuant to the
terms of paragraphs (a) and (b) above. Within fifteen (15) days
thereafter, Tenant or the Landlord, as the case may be, shall pay to
the other an amount sufficient to adjust the total estimated payments
actually made to the amount property payable hereunder.
Landlord shall hereby maintain the right to evaluate the
billboard revenues on a yearly basis. In Landlord's sole discretion,
Landlord may increase the estimate of the actual rental which shall
<PAGE>
be payable for the billboards on the property; however, such increase
shall not exceed Seven Hundred Fifty Dollars ($750) per month per
face. If Landlord elects to increase the estimate of the actual
rental which shall be payable for the billboards, Landlord shall
notify Tenant by March 1 of each year of the new rate.
2. All capitalized terms not expressly defined in this First
Amendment shall have the same meaning provided in the Lease.
3. Except as expressly modified in this First Amendment, the Lease
shall remain in full force and effect in all respects.
IN WITNESS WHEREOF, the parties have executed this First Amendment on
the day and year above written.
LANDLORD TENANT
HOWARD HUGHES PROPERTIES, WET 'N WILD, NEVADA, INC.
LIMITED PARTNERSHIP, a Delaware a Nevada corporation
limited partnership
By: SUMMA CORPORATION, By: /s/Gary G. Daning
its sole general partner, -----------------------
a Delaware corporation Print Name: Gary G. Daning
--------------
By: /s/ Ronald C. Brooks Print Title: President
------------------------------- --------------
Print Name: Ronald C. Brooks
----------------------
Print Title: Senior Vice President
---------------------
2
<PAGE>
ASSIGNMENT OF GROUND LEASE
FROM WET 'N WILD, INC.
TO WET'N WILD NEVADA, INC.
THIS ASSIGNMENT is made as of March 1, 1987, by WET'N WILD, INC. a
Florida corporation ("WWI") to WET 'N WILD NEVADA, INC., a Nevada corporation
("WWN").
FOR valuable consideration Wet 'N Wild, Inc., a Florida corporation
hereby assigns unto Wet 'N Wild Nevada, Inc., a Nevada corporation all of its
right, title and interest of Wet 'N Wild, Inc. under that certain Ground Lease
between WWN and WWI, dated January 1, 1987, concerning the land described in
Exhibit "A" attached hereto; provided however, that WWI shall not be released by
this assignment from any obligation or liability binding upon WWI and arising
under the Ground Lease before or after the effective date of this assignment.
IN WITNESS WHEREOF, WWI has executed this Assignment as of the date
first above written.
WET 'N WILD, INC. WET 'N WILD NEVADA, INC.
a Florida corporation a Nevada corporation
By: John E. Shawer By: Gary G. Daning
------------------------- ------------------------
Title: Senior Vice President Title: President
--------------------- ---------------------
<PAGE>
EXHIBIT 10.118
[LETTERHEAD OF WET'N WILD]
August 24, 1995
Mr. David Lowden, Executive Vice President
Executive Offices
Sahara Corporation
Sahara Hotel & Casino
2535 Las Vegas Boulevard South
Las Vegas, Nevada 89109
Dear David:
This letter is provided as a follow-up to our meeting on Wednesday, July 26,
1995, at which time we discussed short term modification to our lease agreement
in order to buy some time for more in depth discussions.
If the following accurately reflects our conversation, please acknowledge your
agreement where indicated below.
In consideration for Wet N' Wild Nevada, Inc. committing to operate the
park through September 30, 1996, Sahara Corporation agrees to reduce the
percentage rent as set forth in Article 3, Section 3.2(a) to 25% of what
would otherwise be due in accordance with provisions of that section from
October 1, 1995 through September 30, 1996.
The lease modification above is contingent upon and effective only with
closing the pending transaction which results in the Sahara Corporation
becoming the lessor. It is anticipated that closing will take place by mid-
October.
Sincerely,
/s/ George D. Millay
George D. Millay
President/Board Chairman
GDM/cds
AGREED TO:
By: /s/ Paul W. Lowden
------------------
Title: President
----------------
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in post-effective Amendment No. 1
to Registration Statement No. 33-7053 on Form S-8 and in Registration Statement
No. 33-44700 on Form S-8 of our report dated December 15, 1995 appearing in the
annual report on Form 10-K of Sahara Gaming Corporation for the year ended
September 30, 1995.
Deloitte & Touche LLP
Las Vegas, Nevada
December 27, 1995
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