<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1996
-----------------------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from
to
- ---------------- ----------------
COMMISSION FILE NUMBER: 1-9481
-----------------------------
SANTA FE GAMING CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 88-0304348
- ------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
4949 NORTH RANCHO DRIVE, LAS VEGAS, NEVADA 89130
- ------------------------------------------------------------------------------
(Address of principal executive office and zip code)
(702) 658-4300
----------------------------------------------------
(Registrant's telephone number, including area code)
Sahara Gaming Corporation 2535 Las Vegas Blvd., South, Las Vegas, NV 89109
-----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
6,195,356 as of May 14, 1996
- ----------------------------------------- ------------------------------
Amount Outstanding Date
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Balance sheets at March 31, 1996
(unaudited) and September 30, 1995 2
Statements of Operations for the three and six
months ended March 31, 1996 and 1995
(unaudited) 3
Statement of Changes in Stockholders' Equity
for the six months ended March 31, 1996
(unaudited) 4
Statements of Cash Flows for the six months
ended March 31, 1996 and 1995 (unaudited) 5
Notes to Consolidated Condensed Financial
Statements (unaudited) 6
Independent Accountants' Review Report 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
PART II. OTHER INFORMATION 25
</TABLE>
1
<PAGE>
Santa Fe Gaming Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1996 1995
- ------------------------------------------------ --------------- ---------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and short-term investments $23,634,015 $42,749,932
Accounts receivable, net 2,437,172 6,189,109
Accounts receivable, officer 568,663 545,042
Inventories 1,358,792 1,776,427
Prepaid expenses & other 4,503,837 5,758,808
Assets held for sale 0 98,712,541
--------------- ---------------
Total current assets 32,502,479 155,731,859
Land held for development 40,618,886 19,114,486
Property and equipment, net 121,231,147 126,311,847
Goodwill 46,790,109 47,506,348
Deferred income taxes 0 5,663,665
Other assets 8,505,867 12,309,796
--------------- ---------------
Total assets $249,648,488 $366,638,001
============== ==============
LIABILITIES and STOCKHOLDERS' EQUITY
- ------------------------------------------------
Current liabilities:
Current portion of long-term debt $2,664,016 $6,234,550
Accounts payable 5,019,212 7,024,980
Interest payable 7,028,554 9,516,776
Accrued and other liabilities 12,777,308 15,709,850
Debt due upon sale of assets 0 114,612,680
--------------- ---------------
Total current liabilities 27,489,090 153,098,836
Deferred income taxes 9,725,335 0
Long-term debt - less current portion 168,476,980 198,655,174
Stockholders' Equity:
Common Stock, $.01 par value; authorized-100,000,000
shares; issued and outstanding-6,195,356 shares 61,954 61,954
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 8,514,761 at March 31, 1996. 18,221,589 17,521,385
Additional paid-in capital 51,513,504 51,513,504
Accumulated deficit (25,752,190) (54,125,078)
--------------- ---------------
Total 44,044,857 14,971,765
Less treasury stock - 4,875 shares, at cost (87,774) (87,774)
--------------- ---------------
Total stockholders' equity 43,957,083 14,883,991
--------------- ---------------
Total liabilities and stockholders' equity $249,648,488 $366,638,001
============== ==============
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
2
<PAGE>
Santa Fe Gaming Corporation and Subsidiaries
Consolidated Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
31-Mar-96 31-Mar-95 31-Mar-96 31-Mar-95
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Casino $22,832,021 $38,927,969 $44,830,885 $ 77,548,645
Hotel 951,492 10,555,917 1,964,759 20,181,259
Food and beverage 2,841,320 8,440,479 5,676,459 15,726,126
Other revenues 2,462,536 6,409,411 4,681,257 12,517,660
Gain on sale of assets 0 0 40,753,738 0
----------- ----------- ----------- ------------
Total revenues 29,087,369 64,333,776 97,907,098 125,973,690
----------- ----------- ----------- ------------
Operating expenses:
Casino 11,171,925 18,338,953 21,789,469 35,390,676
Hotel 451,110 4,331,533 890,968 8,457,447
Food and beverage 4,027,683 10,867,506 7,762,543 19,924,497
Other operating expenses 886,662 3,611,952 1,834,174 7,002,356
Selling, general & administrative 4,091,367 7,906,794 8,187,995 15,270,237
Utilities & property expenses 2,392,248 6,456,625 4,776,954 12,457,688
Depreciation & amortization 3,411,941 7,266,411 7,335,259 14,042,793
----------- ----------- ----------- ------------
Total operating expenses 26,432,936 58,779,774 52,577,362 112,545,694
----------- ----------- ----------- ------------
Operating income 2,654,433 5,554,002 45,329,736 13,427,996
Interest expense 6,127,877 11,277,299 12,950,139 22,369,767
----------- ----------- ----------- ------------
Income (loss) before income tax expense
(benefit) and extraordinary item (3,473,444) (5,723,297) 32,379,597 (8,941,771)
Federal income tax expense (benefit) (1,059,000) (1,769,000) 11,160,000 (2,719,000)
----------- ----------- ------------ ------------
Income (loss) before extraordinary item (2,414,444) (3,954,297) 21,219,597 (6,222,771)
Extraordinary item-gain on early
extinguishment of debt, net of tax
provision of $4,229,000 7,854,707 7,854,707
----------- ------------ ------------ -----------
Net income (loss) 5,440,263 (3,954,297) 29,074,304 (6,222,771)
Dividends on preferred shares 350,988 324,103 701,416 648,138
----------- ------------ ------------ -----------
Net income (loss) applicable to common shares $5,089,275 ($4,278,400) $ 28,372,888 ($6,870,909)
=========== ============ ============ ===========
Average common shares outstanding 6,195,356 6,195,356 6,195,356 6,195,356
=========== ============ ============ ===========
Income (loss) per common share $0.82 ($0.69) $4.58 ($1.11)
============ ============ ============ ===========
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
Santa Fe Gaming Corporation and Subsidiaries
Consolidated Condensed Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Preferred Paid-in Accumulated Treasury
Stock Stock Capital Deficit Stock Total
------- ----------- ----------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, October 1, 1995 $61,954 $17,521,385 $51,513,504 ($54,125,078) ($87,774) $14,883,991
Net Income 29,074,304 29,074,304
Preferred stock dividend 700,204 (701,416) (1,212)
------- ----------- ----------- ------------ -------- -----------
Balances,March 31, 1996 $61,954 $18,221,589 $51,513,504 ($25,752,190) ($87,774) $43,957,083
======= =========== =========== ============ ======== ===========
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
Santa Fe Gaming Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
31-Mar-96 31-Mar-95
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Cash and short-term investments
provided by operations $37,300,941 $8,799,774
Gain on sale of subsidiary assets (40,753,738)
Gain on early extinguishment of debt (7,854,707)
Decrease (increase) in accounts receivable, net 3,751,937 (1,698,277)
Increase in due from officer (23,621) (15,338)
Decrease in inventories 417,635 201,685
Decrease in prepaid expenses & other 649,092 221,105
Decrease (increase) in deferred income taxes 11,160,000 (2,719,000)
Decrease (increase) in other assets 1,635,988 (1,475,922)
Increase (decrease) in accounts payable (2,005,768) 1,354,567
Decrease in interest payable (2,488,222) (773,543)
Decrease in other current liabilities (2,932,542) (681,680)
------------ -----------
Net cash provided by (used in) operating activities (1,143,005) 3,213,371
------------ -----------
Cash flows from investing activities:
Proceeds from sale of subsidiary assets 128,508,377
Decrease in restricted cash 95,569 1,827,131
Capital expenditures (3,423,060) (19,766,563)
------------ -----------
Net cash provided by (used in) investing activities 125,180,886 (17,939,432)
------------ -----------
Cash flows from financing activities:
Cash proceeds of long-term debt 20,000,000 1,800,000
Cash paid on long-term debt (163,153,798) (4,122,181)
------------ -----------
Net cash used in financing activities (143,153,798) (2,322,181)
------------ -----------
Decrease in cash and short-term investments (19,115,917) (17,048,242)
Cash and short-term investments,
beginning of year 42,749,932 55,582,503
------------ -----------
Cash and short-term investments,
end of period $23,634,015 $38,534,261
------------ -----------
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
SANTA FE GAMING CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION AND GENERAL INFORMATION
Santa Fe Gaming Corporation, formerly known as Sahara Gaming Corporation, (the
"Company" or "Santa Fe Gaming"), a publicly traded Nevada corporation, is the
successor corporation of two affiliates, Sahara Resorts and Sahara Casino
Partners, L.P., which combined in a business combination in September, 1993. The
Company's primary business operations have been conducted through four wholly
owned subsidiary corporations, Sahara Nevada Corp. ("SNC"), Hacienda Hotel Inc.
("HHI"), Santa Fe Hotel Inc. ("SFHI") and Pioneer Hotel Inc. ("PHI") (the
"Operating Companies"). HHI sold substantially all the assets of the Hacienda
Resort Hotel and Casino (the "Hacienda") in August 1995 and SNC sold
substantially all the assets of the Sahara Hotel and Casino (the "Sahara") in
October 1995. SFHI owns and operates the Santa Fe Hotel and Casino (the "Santa
Fe"), located in Las Vegas, Nevada, and PHI owns and operates the Pioneer Hotel
& Gambling Hall (the "Pioneer") in Laughlin, Nevada.
These consolidated condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report to stockholders for the year ended September 30, 1995.
The results of operations for the three and six month periods ended March 31,
1996 are not necessarily indicative of the results to be expected for the entire
year.
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
accruals) necessary to present fairly the financial position of the Company at
March 31, 1996, the results of its operations for the three and six month
periods ended March 31, 1996 and 1995, the changes in stockholders' equity for
the six month period ended March 31, 1996, and cash flows for the six month
periods ended March 31, 1996 and 1995.
NOTE 2 - CASH AND SHORT-TERM INVESTMENTS
Approximately $7.8 million of the Company's consolidated cash and short-term
investments is held by PHI and is subject to certain restrictions, including
restrictions on its availability for distribution to the Company, by the terms
of an indenture pursuant to which $120.0 million principal amount of 13-1/2%
First Mortgage Bonds due 1998 ("13-1/2% Notes") of Pioneer Finance Corp. was
issued, the proceeds of which were loaned to PHI.
6
<PAGE>
In November 1995, the Company made an equity contribution of $15 million in cash
to PHI, 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. 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 on the 13 1/2% Notes of $5.6 million. In March 1996, the
Pioneer used $8.6 million of such funds to acquire $10.2 million principal
amount of 13 1/2% Notes and accrued interest thereon. The funds remaining from
the equity contribution represent approximately $3.4 million of the $7.8 million
of cash and short term investments held at the Pioneer and 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 contribution to capital of a wholly-owned
subsidiary of PHI that owns real property in Henderson, Nevada.
Approximately $5.8 million of the Company's consolidated cash and short term
investments is held by SFHI and is subject to certain restrictions, including
restrictions on its availability for distribution to the Company, by the terms
of an indenture pursuant to which $115.0 million principal amount of 11% First
Mortgage Notes due 2000 ("11% Notes") of SFHI was issued.
NOTE 3 - ASSETS HELD 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 the approximately $115 million outstanding principal
amount of 12 1/8% Notes issued by Sahara Finance Corp ("12 1/8% Notes") and
secured by the Sahara assets and to pay costs associated with 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 were added to
working capital. The Company recorded a pre-tax gain of $40.8 million (net of
the extinguishment of debt charge discussed in Note 5) on the sale in the
quarter ended December 31, 1995.
NOTE 4 - LAND HELD FOR DEVELOPMENT
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 outstanding balance of 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
7
<PAGE>
an outstanding balance of $6.1 million as of March 31, 1996. 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 27 acre
parcel was valued at approximately $22 million for purposes of the Sahara sale
and is reported as land held for development in the March 31, 1996 consolidated
balance sheet.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
In October 1995, the Company entered into an agreement to transfer its rights
and obligations under contracts with members of Camperland, a recreational
vehicle park located on approximately 14 acres of Hacienda property that is
operated by the Company under a lease with the new owners of the Hacienda, to
the developer of a existing recreational vehicle park. However, certain
conditions to the consummation of that agreement may not be satisfied. The
developer and certain of his business associates are in negotiations with the
Company with respect to the assumption by the business associates of the
obligations relating to the Camperland contracts. If the Company reaches an
agreement with such parties for the assumption, Camperland services would be
provided in an existing recreational vehicle park operated by such parties. No
assurance can be given that an agreement will be reached with such parties. If
the original agreement is not consummated and the Company is unable to negotiate
and consumate a satisfactory assumption agreement with the operators of the
existing recreational vehicle park, the Company will be obligated to transfer
the Camperland operations to another location on or before February 1997 and
continue to service existing contracts. In September 1995, the Company acquired
an undeveloped 40 acre parcel of property for such purposes. Substantial
improvements would be necessary if it were to be used as a recreational vehicle
park.
In November 1995, the Company sold the Spirit of America barge vessel ("Spirit")
for $3.3 million which approximates the carrying value of the Spirit in the
consolidated balance sheet. 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 February 1996, the Company completed a $1.75 million sale leaseback
transaction with respect to gaming equipment at the Santa Fe. The lease requires
an approximate $70,000 per month rental payment over a 24 month term. In
conjunction with the transaction, the Company deferred a $1.7 million gain which
will be recognized over the lease term.
NOTE 6 - DEBT DUE UPON SALE OF ASSETS
In connection with the sale of the Sahara, the Company made a tender offer to
purchase for cash all outstanding 12 1/8% Notes at a price of $1,047 per $1,000
principal amount, plus accrued interest. The Company accepted for payment and
retired $89.2 million original
8
<PAGE>
principal amount of 12 1/8% Notes tendered in the offer and the Company defeased
the remaining approximately $27 million balance of 12 1/8% Notes. In November
1995, the Company purchased and retired the remaining $27 million original
principal amount of 12 1/8% Notes that were defeased upon consummation of the
sale. The Company recorded an approximate $6.0 million charge for extinguishment
of debt against the gain on the sale of the Sahara in the quarter ended December
31, 1995.
NOTE 7 - LONG-TERM DEBT
In December 1995, the Company acquired $2.6 million principal amount of 10 1/4%
Subordinated Debentures due 1998 (the "10 1/4% Debentures"). The Company retired
$2.3 million principal amount of 10 1/4 Debentures to meet a sinking fund
payment due in June 1996 and $300,000 to partially satisfy the sinking fund
payment due in June 1997.
In January 1996, the Company completed the repurchase of an aggregate of $38.1
million principal amount of long-term debt, comprised of $25.6 million principal
amount of 11% Notes and $12.5 million principal amount 13 1/2% Notes. The
Company retired $5.6 million principal amount of the 11% Notes and the entire
$12.5 million principal amount of the 13 1/2% Notes acquired. The Company
financed the repurchase of debt with $7.5 million of working capital and the net
proceeds of a private placement of $20 million principal amount of 12% Notes due
1999 (the "12% Notes") issued by the Company's subsidiary, Sahara Las Vegas
Corp. In connection with these transactions, the Company satisfied a
contingent obligation to make additional equity contributions to its subsidiary,
PHI. In addition, in March 1996, the Company completed the repurchase of $10.2
million principal amount of 13 1/2% Notes and accrued interest thereon for $8.6
million. As a result of the January and March repurchases, at March 31, 1996 the
outstanding balances of the 11% Notes and of the 13 1/2% Notes were
approximately $99.4 million and $60.0 million, respectively. The Company
recorded an extraordinary gain of approximately $7.9 million after tax related
to the debt repurchases in the quarter ended March 31, 1996.
The 12% Notes due December 15, 1999 are secured by, among other things, the
Company's 27 acre parcel of real property on the Las Vegas Strip and $20 million
principal amount of the 11% Notes acquired. The 12% Notes are guaranteed by the
Company. Interest is payable semi-annually on June 30 and December 31, and
principal payments of $500,000 are due December 31, 1996, 1997 and 1998. In
addition, pursuant to the 12% Note Agreement, if, as of the end of any quarter
commencing with the quarter ending December 31, 1997, SFHI Cash FLow (as defined
in the 12% Note Agreement) for the preceding four quarter period is less than
$13.5 million, the Company will be required to redeem $3.5 million principal of
12% Notes at a redemption price of 100% of the principal amount, plus accrued
and unpaid interest thereon. Such obligation, if it arises, will be reduced-on-
dollar for dollar basis to the extent that, during the period in which the
Company is so required to repurchase 12% Notes, the Company acquires 11% Notes
and pledges such acquired 11% Notes as additional collateral for the 12% Notes
or contributes the acquired 11% Notes to SFHI and causes the contributed SFHI
Notes to be canceled. The Company may, at its option, exclude a fiscal quarter
from the calculation of SFHI Cash Flow if SFHI undertakes certain capital
expenditures in such quarter and provides notification under the 12% Note
Agreement.
In February 1996, SFHI prepaid in full the $1.6 million principal balance on its
working capital loan agreement. The working capital loan agreement required
monthly principal and interest payments of $157,000 monthly and matured in
December 1996.
NOTE 8 - INVESTMENT
In February 1996, the Company acquired a 50% equity interest for $175,000 in a
proposed restaurant/tavern operation in northwest Las Vegas, to be known as
Santa Fe Mining Company, L.L.C. ("Santa Fe Mining."). The Company and its
partner have guaranteed a $850,000 loan incurred to finance construction and
equipment. The Company
9
<PAGE>
anticipates that the facility will open during the summer of 1996. Pending
receipt of a restricted gaming license, Santa Fe Mining has executed a space
lease with a slot route operator.
NOTE 9 - SUBSEQUENT EVENTS - OTHER
In May 1996, the Company completed a $1.835 million sale leaseback transaction
with respect to gaming equipment at the Santa Fe. The lease requires an
approximate $75,000 per month payment over a 24 month term.
The Company has agreed to purchase a 22 acre parcel of undeveloped land held by
SFHI for approximately $2.85 million, which the Company and SFHI believe to be
the fair market value of the property. The Company will pay $2.0 million in cash
and assume an existing $850,000 note secured by the property. The $850,000 note
maturity date due November 1996 has been extended two years until November 1998.
SFHI acquired the property in November 1994 for a purchase price of $1.6
million. The intercompany gain on sale recorded by SFHI will be eliminated in
the consolidated financial statements.
NOTE 10 - SUPPLEMENTAL INFORMATION
Supplemental statement of cash flows information for the six-month period ended
March 31, 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Operating Activities:
Cash paid during the period
for interest, net of amount
capitalized of $2,851,325
for 1995 $14,950,249 $22,163,561
=========== ===========
Investing and Financing Activities:
Land acquired in exchange of assets $21,504,400
===========
</TABLE>
10
<PAGE>
11. Supplemental Statement of Subsidiary Information-
For The Six Months Ended March 31, 1996 and 1995
The Company's primary operations are in the hotel/casino industry and in
fiscal year 1996 are conducted through PHI and SFHI, and in fiscal 1995 were
conducted through SNC, HHI, PHI and SFHI. The Company sold substiantially 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 for the six months
ended March 31, 1996 and 1995, as set forth in the table below (dollars in
thousands), see notes 2, 7 and 9 for additional discussion of subsidiary
operations.
<TABLE>
<CAPTION>
Year PHI SFHI Other TOTAL
---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating revenues 1996 $23,436 $31,504 $42,967 $97,907
======= ======= ======= =======
1995 $23,511 $33,150 $69,313 $125,974
======= ======= ======= =======
Operating Income 1996 $2,123 $2,410 $40,797 $45,330
======= ======= ======= =======
1995 $3,693 $5,639 $4,096 $13,428
======= ======= ======= =======
Interest Expense 1996 $5,219 $6,909 $822 $12,950
======= ======= ======= =======
1995 $6,937 $6,669 $8,764 $22,370
======= ======= ======= =======
Depreciation and Amortization 1996 $3,011 $4,260 $64 $7,335
======= ======= ======= =======
1995 $2,464 $4,481 $7,098 $14,043
======= ======= ======= =======
Capital Expenditures 1996 $828 $2,329 $266 $3,423
======= ======= ======= =======
1995 $3,287 $14,799 $1,681 $19,767
======= ======= ======= =======
Identifiable Assets 1996 $117,516 $90,553 $41,579 $249,648
======= ======= ======= =======
1995 $103,895 $147,081 $219,768 $470,744
======= ======= ======= =======
</TABLE>
11
<PAGE>
12. Supplemental Statement of Subsidiary Information
For The Three Months Ended March 31, 1996 and 1995
The Company's primary operations are in the hotel/casino industry and in
fiscal year 1996 are conducted through PHI and SFHI, and in fiscal 1995 were
conducted through SNC, HHI, PHI and SFHI. The Company sold substiantially 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 for the three months
ended March 31, 1996 and 1995, as set forth in the table below (dollars in
thousands), see notes 2, 7 and 9 for additional discussion of subsidiary
operations.
<TABLE>
<CAPTION>
Year PHI SFHI Other TOTAL
---- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Operating revenues 1996 $12,064 $16,094 $929 $29,087
======= ======= ======= =======
1995 $12,103 $16,954 $35,277 $64,334
======= ======= ======= =======
Operating Income 1996 $1,257 $1,371 $26 $2,654
======= ======= ======= =======
1995 $1,896 $1,979 $1,679 $5,554
======= ======= ======= =======
Interest Expense 1996 $2,412 $3,390 $326 $6,128
======= ======= ======= =======
1995 $3,462 $3,424 $4,391 $11,277
======= ======= ======= =======
Depreciation and Amortization 1996 $1,502 $2,009 ($99) $3,412
======= ======= ======= =======
1995 $1,213 $2,445 $3,608 $7,266
======= ======= ======= =======
Capital Expenditures 1996 $270 $1,293 $0 $1,563
======= ======= ======= =======
1995 $1,834 $1,721 $419 $3,974
======= ======= ======= =======
</TABLE>
12
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Santa Fe Gaming Corporation:
We have reviewed the accompanying consolidated condensed balance sheet of Santa
Fe Gaming Corporation (formerly Sahara Gaming Corporation) and subsidiaries (the
"Company") as of March 31, 1996, the related consolidated condensed statements
of operations for three-month and six-month periods ended March 31, 1996 and
1995, stockholders' equity for the six-month period ended March 31, 1996 and of
cash flows for the six-month periods ended March 31, 1996 and 1995, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
Company's management.
A review of interim financial information consists principally of inquiries of
Company personnel and analytical procedures applied to financial data. It is
substantially less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated condensed financial statements in order for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Santa Fe Gaming Corporation and
subsidiaries as of September 30, 1995, and the related consolidated statements
of operations, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated December 16, 1995 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of September 30, 1995 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
May 13, 1996
13
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SANTA FE GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - Six Months Ended March 31, 1996 and 1995
- ----------------------------------------------------------------
CONSOLIDATED
Santa Fe Gaming Corporation (the "Company") sold substantially all the assets of
the Hacienda Hotel and Casino (the "Hacienda") in August 1995 and of the Sahara
Hotel and Casino (the "Sahara") in October 1995. Accordingly, consolidated
results of operations for the six months ended March 31, 1996 are not comparable
to the same period in the prior year.
Consolidated revenues for the six month period ended March 31, 1996 were $97.9
million, a $28.1 million or 22.3% decrease from $126.0 million for the same
period in fiscal 1995. Revenues in the current period include $40.8 million
gain on the sale of substantially all the assets of the Sahara. The Hacienda and
Sahara contributed $69.3 million in the prior year revenues. Revenues at the
Santa Fe Hotel and Casino (the "Santa Fe") and Pioneer Hotel and Gambling Hall
(the "Pioneer") decreased $1.6 million and $75,000, respectively when compared
to the prior year period.
Consolidated operating income for the six month period ended March 31, 1996 was
$45.3 million, a $31.9 million or 237.6% increase from $13.4 million for the
same period in fiscal 1995. Included in operating income in the current period
is a $40.8 million gain on the sale of substantially all the assets of the
Sahara. The Hacienda and Sahara contributed $4.8 million in the prior year to
operating income. Operating income at the Santa Fe and Pioneer decreased $3.2
million and $1.6, respectively, in the six months ended March 31, 1996 compared
to the six months ended March 31, 1995.
Consolidated interest expense for the six month period ended March 31, 1996 was
$13.0 million, a $9.4 million decrease compared to $22.4 million for the same
period in fiscal 1995. The Hacienda and Sahara contributed $7.4 million to the
prior year interest expense. Interest expense increased by $200,000 at the Santa
Fe and decreased by $1.7 million at the Pioneer in the 1996 period.
Consolidated net income before income taxes and extraordinary item for the six
month period ended March 31, 1996 was $32.4 million, a $41.3 million increase
compared to the net loss of $8.9 million in the same period in the prior year.
The increase in the current period resulted from a
14
<PAGE>
$40.8 million gain on the sale of substantially all the assets of the Sahara.
The Hacienda and Sahara were responsible for $2.6 million of the $8.9 million
net loss before income taxes in the prior year. Net loss before income taxes and
extraordinary item at the Santa Fe increased $3.5 million to $4.5 million in the
six month period ended March 31, 1996 compared to the prior year period in which
the net loss was $1.0 million. The Pioneer recorded net loss before income taxes
and extraordinary item of $3.1 million, a $100,000 improvement from the
$3.2 net loss before income taxes recorded in the prior year period.
In January and March 1996, the Company completed the repurchase of an aggregate
of $48.3 million principal amount of long-term debt, comprised of $25.6 million
principal amount of 11% Notes and $22.7 million principal amount of $13 1/2%
Notes. As a result, the Company recorded an extraordinary gain of $7.9 million
after tax related to the debt repurchase in the quarter ended March 31, 1996.
SANTA FE
Revenues at the Santa Fe decreased 5.0%, or $1.6 million, in the six months
ended March 31, 1996 to $31.5 million as compared to $33.1 million in the same
period in the prior year. Casino revenues decreased 5.5%, or $1.4 million, to
$23.8 million from $25.2 million, comprised of decreases in slot revenue of
4.8%, or $1.0 million, and table game revenue of 16.8%, or $500,000, offset by
an increase of $100,000, or 6.1%, in other gaming revenues. Management believes
the decrease is due primarily to increased competition resulting from the
opening of two competing facilities within five miles of the Santa Fe in
December 1994 and July 1995.
Operating expenses increased by 5.8%, or $1.6 million. Casino expenses increased
by 10.8%, or $1.1 million, primarily due to 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 as a
result of the expanding competition in the area. Selling, general and
administrative expenses increased 19.8%, or $700,000, primarily as a result of
increased advertising and promotional costs, in addition to increased
promotional costs relating principally to the casino operations. A decrease in
depreciation and amortization of 4.9% or $200,000, was due to equipment placed
in service at the opening of the Santa Fe in February 1991 being fully
depreciated. Accordingly, operating income decreased $3.2 million or 57.3% to
$2.4 million in 1996 from $5.6 million in 1995.
Interest expense increased $200,000, or 3.6% to $6.9 million in 1996 compared to
$6.7 million 1995. The increase is primarily due to the expensing of interest
costs on approximately $32 million of debt commencing in July 1995, which were
previously capitalized in connection with the development of the Company's
proposed Parkville project. This increase was partially offset by the retirement
of $21 million principal amount of 11% Notes in July 1995 pursuant to the terms
of a repurchase offer and the retirement of $5.6 million principal amount of 11%
Notes acquired in January 1996.
15
<PAGE>
PIONEER
Revenues at the Pioneer decreased slightly 0.3%, or $75,000, to $23.4 million.
Casino revenues were $20.7 million in 1996, representing a decrease of 0.8%, or
$200,000, comprised of a decrease in slot revenue of 2.7%, or $500,000, offset
by an increase of 10.3% or $200,000 in table games revenues, and 21.2%, or
$100,000 in other gaming revenues. The decrease in the fiscal 1996 period is
believed to be primarily due to the continued competitive gaming market
environment in and around Laughlin, including Indian gaming facilities operating
in Arizona and Southern California.
Operating expenses increased $1.5 million or 7.6% to $21.3 million. Casino
expenses increased 3.1%, or $300,000, primarily due to increased promotional
expenses. Selling, general and administrative expenses increased 17.5%, or
$400,000, primarily as a result of increased advertising and promotional costs.
Increases in depreciation and amortization expenses of 22.2% or $500,000 were
related to the expansion project completed in December 1994. Accordingly,
operating income decreased by 42.5% or $1.6 million, to $2.1 million in fiscal
1996 from $3.7 million in fiscal 1995.
Interest expense decreased $1.7 million or 24.8% to $5.2 million in 1996
compared to $6.9 million in 1995, primarily due to the repurchase of $20.0
million principal amount of 13 1/2% Notes in September 1995, and $22.8 million
principal amount of 13 1/2% Notes in January and March 1996.
Three Months Ended March 31, 1996 and 1995
- ------------------------------------------
CONSOLIDATED
As a result of the sale of substantially all the assets of Hacienda in August
1995 and of the Sahara in October 1995, consolidated results of operations for
the three months ended March 31, 1996 are not comparable to the same period in
the prior year.
Consolidated revenues for the three month period ended March 31, 1996 were $29.1
million, a $35.2 million or 54.8% decrease from $64.3 million for the same
period in fiscal 1995. The Hacienda and Sahara contributed $35.2 million to the
prior year revenues. Revenues at the Santa Fe and Pioneer decreased $900,000 and
$40,000, respectively, when compared to the prior year period.
Consolidated operating income for the three month period ended March 31, 1996
was $2.7 million, a $2.9 million or 52.2% decrease from $5.6 million for the
same period in fiscal 1995. The Hacienda and Sahara contributed $2.1 million in
the prior year to operating income. Operating income at the Santa Fe and Pioneer
decreased $600,000 and
16
<PAGE>
$600,000, respectively in the three months ended March 31, 1996 compared to the
three months ended March 31, 1995.
Consolidated interest expense for the three month period ended March 31, 1996
was $6.1 million, a $5.2 million decrease compared to $11.3 million for the same
period in fiscal 1995. The Hacienda and Sahara contributed $3.7 million to the
prior year interest expense. Interest expense decreased by $1.0 million at the
Pioneer in the 1996 period.
Consolidated net loss before income taxes and extraordinary item for the three
month period ended March 31, 1996 was $3.5 million, a $2.2 million improvement
compared to the net loss before income taxes of $5.7 million in the same period
in the prior year. The Hacienda and Sahara were responsible for $1.6 million of
the $5.7 million net loss before income taxes in the prior year. Net loss before
income taxes and extraordinary item at the Santa Fe increased by $600,000 to
$2.0 million in the quarter ended March 31, 1996 compared to the prior year
period in which the net loss was $1.4 million. The Pioneer recorded net loss
before income taxes and extraordinary item of $1.2 million, a $400,000
improvement from the $1.6 million net loss before income taxes recorded in the
prior year period.
In January and March 1996, the Company completed the repurchase of an aggregate
of $48.3 million principal amount of long-term debt, comprised of $25.6 million
principal amount of 11% Notes and $22.7 million principal amount of $13 1/2%
Notes. As a result, the Company recorded an extraordinary gain of $7.9 million
after tax related to the debt repurchase in the quarter ended March 31, 1996.
SANTA FE
Revenues at the Santa Fe decreased 5.1%, or $900,000, in the three months ended
March 31, 1996 to $16.1 million as compared to $17.0 million in the same period
in the prior year. Casino revenues decreased 5.1%, or $600,000, to $12.2 million
from $12.8 million, comprised of decreases in slot revenue of 5.7%, or $600,000,
and of table game revenue of 15.5%, or $200,000, offset by an increase of
$200,000, or 22.9%, in other gaming revenues. The food and beverage departments
posted a decrease in revenues of $200,000 or 10.8% over the same period in the
prior year. Management believes the decreases are due primarily to increased
competition resulting from the opening of a competing facility within five miles
of the Santa Fe in July 1995.
Operating expenses decreased by 1.7%, or $300,000. Casino expenses increased by
13.2%, or $700,000, primarily due to increased promotional costs as a result of
the expanding competition in the area. Food and beverage expenses had
volume related decreases of 9.5%, or $300,000 over the prior year period. A
decrease in depreciation and amortization of 17.8% or $400,000, was due to the
full depreciation of equipment placed in service at the opening of the Santa Fe
in February 1991. Accordingly, operating income decreased $600,000 or 30.7% to
$1.4 million in 1996 from $2.0 million in 1995.
17
<PAGE>
PIONEER
Revenues at the Pioneer decreased slightly 0.3%, or $40,000, to $12.1 million.
Casino revenues were $10.7 million in 1996, representing a decrease of 0.2%, or
$20,000. Food and beverage revenues decreased 5.8% or $50,000. The decrease in
1996 is believed to be primarily due to the continuing competitive gaming market
environment in and around Laughlin, including Indian gaming facilities opened in
Arizona and Southern California.
Operating expenses increased $600,000 or 5.9% to $10.8 million. Casino expenses
increased 2.0%, or $100,000, primarily due to increased promotional expenses.
Selling, general and administrative expenses increased 31.9%, or $300,000,
primarily as a result of increased advertising and promotional costs. Increases
in depreciation and amortization expenses of 23.9% or $300,000 were related to
the expansion project completed in December 1994. Accordingly, operating income
decreased by 33.7% or $600,000, to $1.3 million in fiscal 1996 from $1.9 million
in fiscal 1995.
Interest expense decreased $1.0 million or 30.3% to $2.4 million in 1996
compared to $3.5 million in 1995, primarily due to the repurchase of $20 million
principal amount of 13 1/2% Notes in September 1995, and $22.8 million principal
amount of 13 1/2 Notes in January and March 1996.
LIQUIDITY AND CAPITAL RESOURCES; TRENDS AND FACTORS RELEVANT TO FUTURE
OPERATIONS
The Company's earnings before interest, taxes, depreciation and amortization
("EBITDA") were $6.1 million and $52.7 million for the three and six months
ended March 31, 1996, including a $40.8 million gain from the sale of the Sahara
in the six month period. Excluding the gain, EBITDA was $6.1 million and $11.9
million for the three and six months ended March 31, 1996 as compared to $12.8
million and $27.5 million for the prior year periods, to which the Hacienda and
Sahara contributed $5.5 million and $11.5 million, respectively. 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 EBITDA in fiscal
1995, exclusive of the gain on the sales of the Sahara and the Hacienda.
Excluding EBITDA attributable to the Sahara and Hacienda, the Company's EBITDA
in the current year declined $2.1 million and $5.1 million, respectively, in the
three and six month periods ended March 31, 1996. The current year decline is
primarily due to the increased competition near the Santa Fe from a hotel casino
that opened in July 1995. Santa Fe's EBITDA in future periods may be impacted by
expansions of two competitors, which opened in April and May 1996 and by
restricted access to the property, beginning in April 1996, during construction
of an interchange (at Interstate 95 and Rancho) next to the property that is
expected ultimately to improve traffic flow to the property.
18
<PAGE>
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 an indicator of the Company's
operating performance, or to cash flows from operating activities as a measure
of liquidity.
Indenture restrictions on SFHI and PHI restrict the distribution of cash to the
Company by these subsidiaries, 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 PHI and SFHI (collectively "Corporate") must rely on existing cash
resources to provide liquidity to fund cash requirements of the parent company.
Liquidity - Corporate - Approximately $13.5 million of the Company's current
- ---------------------
assets at March 31, 1996, including approximately $9.9 million of cash and
shortterm investments, was held by Corporate. Corporate had working capital of
approximately $15.0 million at March 31, 1996.
Corporate's principal uses of cash are to satisfy the debt service on $9.0
million principal amount outstanding of the 10 1/4% Subordinated Debentures due
1998 (the "10 1/4% Debentures"); on a $5.9 million note payable to Sierra
Construction due 1998 and on $20 million principal amount of 12% Notes. 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 and its subsidiaries
are parties 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 prevent the payment of cash
dividends on the preferred stock.
In October 1995, the Company entered into an agreement to transfer its rights
and obligations under contracts with members of Camperland, a recreational
vehicle park located on approximately 14 acres of the Hacienda property that is
operated by the Company under a lease with the new owners of the Hacienda, to
the developer of an existing recreational vehicle park. However, conditions to
the consummation of that agreement may not be satisfied. The developer and
certain of his business associates are in negotiations with the Company with
respect to the assumption by the business associates of the obligations relating
to the Camperland contracts. If the Company reaches an agreement with such
parties for the assumption, Camperland services would be provided in an existing
recreational vehicle park operated by such parties. No assurance can be given
that an agreement will be reached with such parties.
19
<PAGE>
If the original agreement is not consummated, and the Company is unable to
negotiate and consumate a satisfactory assumption agreement with the operators
of the existing recreational vehicle park, 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 an
undeveloped 40 acre parcel of property for such purposes. Substantial
improvements would be necessary if it was used as a recreational vehicle park.
In November 1995, the Company filed an amended plan of reorganization and
disclosure statement (the "Plan") for Treasure Bay Gaming and Resorts ("Treasure
Bay") in the United States bankruptcy court in the Southern District of
Mississippi. On May 10, 1996, the bankruptcy court approved the Company's plan
and disclosure statement for submission to a vote of the creditors. At the same
time, the court approved two other competing plans for submission. The
Company's plan of reorganization for Treasure Bay contemplates that, subject to
various conditions, the various classes of secured and unsecured creditors of
Treasure Bay agree to accept modifications to, and reductions in outstanding
amounts of, Treasure Bay's outstanding obligations and the Company make a cash
equity contribution to acquire 100% of the equity interests in Treasure Bay.
The bankruptcy court will hold a hearing to confirm the one of the three
competing plans that attains the highest vote. This hearing is scheduled for
August 5, 1996. Any plan must be approved by the bankruptcy court, and no
assurance can be given that the Company's plan of reorganization will attain the
highest votes, 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.
Pursuant to the Note Purchase Agreement (the "12% Note Agreement") under which
Sahara Las Vegas Corp. issued $20 million principal amount of 12% notes due
November 15, 1999 (the "12% Notes"), the Company made a capital contribution to
SFHI in the amount of $3 million in May 1996.
In addition, pursuant to the 12% Note Agreement, if, as of the end of any
quarter commencing with the quarter ending December 31, 1997, SFHI Cash Flow (as
defined in the 12% Note Agreement) for the preceding four quarter period is less
than $13.5 million, the Company will be required to redeem $3.5 million
principal amount of 12% Notes at a redemption price of 100% of the principal
amount, plus accrued and unpaid interest thereon. Such obligation, if it arises,
will be reduced-on-dollar for dollar basis to the extent that, during the period
in which the Company is so required to repurchase 12% Notes, the Company
acquires 11% Notes and pledges such acquired 11% Notes as additional collateral
for the 12% Notes or contributes the acquired 11% Notes to SFHI and causes the
contributed SFHI Notes to be canceled. The Company may, at its option, exclude a
fiscal quarter from the calculation of SFHI Cash Flow if SFHI undertakes certain
capital expenditures in such quarter and provides notification under the 12%
Note Agreement.
The Company has agreed to purchase from SFHI a 22 acre parcel of undeveloped
land held by SFHI for $2.85 million, which the Company and SFHI believe to be
the fair market value of the property. The Company will pay $2.0 million in cash
and assume an existing $850,000 note secured by the property. The $850,000 note
maturity date due November 1996 has been extended two years until November 1998.
SFHI acquired the property in November 1994 for a purchase price of $1.6
million. The intercompany gain on sale recorded by SFHI will be eliminated in
the consolidated financial statements.
SFHI and SNC have agreed to a modification of the 12-1/8% affiliate note due
August 1996 from SFHI in favor of SNC, pursuant to which the maturity date is
extended to December 31, 1997, monthly principal and interest payments are
eliminated and partial prepayments are allowed. The outstanding principal
amount of the affiliate note at May 14, 1996 was $4.96 million.
20
<PAGE>
In the event that cash resources at the Santa Fe or Pioneer are insufficient to
meet operating or debt service requirements, Corporate may elect to make
contributions or loans to either SFHI or PHI to prevent an event of default
under debt instruments to which SFHI or Pioneer Finance Corp. is a party.
Additionally, the Company may purchase 11% Notes, 13 1/2% Notes and 10 1/4%
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% Notes were issued
- --------------------
contains restrictions on payments to and investments in affiliates by SFHI,
including the Company. As a result of these restrictions, all of the cash flow
generated by SFHI is not currently and is not expected during the next twelve
months to be available for distribution to the Company. Approximately $8.8
million of the Company's current assets, including approximately $5.8 million of
cash and short term investments, were held by SFHI at March 31, 1996.
SFHI's principal uses of funds generated from operations are for interest
payments on indebtedness and capital expenditures to maintain and improve the
facility. Interest expense (net of debt discount armortization) for the six
month period ended March 31, 1996 and 1995 was $6.2 million and $6.1 million,
respectively. Santa Fe generated EBITDA of $6.7 million for the six months ended
March 31, 1996, approximately 1.07 times interest expense (net of debt discount
armortization), during the same period. (See Results of Operations -Revenues;
Operating Expenses). EBITDA in future periods at the Santa Fe may be impacted by
expansions of two competitors which opened in April and May 1996 and by
restricted access to the property, beginning in April 1996, during construction
of an interchange (at Interstate 95 and Rancho) next to the property that is
expected ultimately to improve traffic flow to the property.
Interest expense attributable to the 11% Notes is expected to increase in fiscal
1996 compared to fiscal 1995 as a result of the expensing of interest costs on
approximately $32 million of debt commencing in July 1995, which were previously
capitalized in connection with the development of the Company's proposed
Parkville project. This increase was partially offset by the retirement of $21
million principal amount of 11% Notes in July 1995 pursuant to the terms of a
repurchase offer and by the retirement of an additional $5.6 million principal
amount of 11% Notes acquired in January 1996. (See Liquidity-Corporate, above).
Capital expenditures for the six month period ended March 31, 1996 and 1995 were
$2.3 million and $14.8 million, respectively. Management believes capital
expenditures in fiscal 1996 for capital/improvement projects will be less than
the amount expended in the prior period in which expansion projects were
undertaken. (See Capital Expenditures below).
In May 1996, the Company completed a $1.835 million sale leaseback transaction
with respect to gaming equipment at the Santa Fe. The lease requires an
approximate $75,000 per month payment over a 24 month term.
21
<PAGE>
The Company has agreed to purchase from SFHI a 22 acre parcel of undeveloped
land held by SFHI for $2.85 million, which the Company and SFHI believe to be
the fair market value of the property. The Company will pay $2.0 million in cash
and assume an existing $850,000 note secured by the property. The $850,000
note maturity date due November 1996 has been extended two years until November
1998. SFHI acquired the property in November 1994 for a purchase price of $1.6
million. The intercompany gain on sale recorded by SFHI will be eliminated in
the consolidated financial statements.
SFHI and SNC have agreed to a modification of the 12-1/8% affiliate note due
August 1996 by SFHI in favor of SNC, pursuant to which the maturity date is
extended to December 31, 1997, monthly principal and interest payments are
eliminated and partial prepayments are allowed. The outstanding principal amount
of the affiliate note at May 14, 1996 was $4.96 million.
Management believes that, based on current operations and available resources,
barring unforeseen circumstances, SFHI will have sufficient cash resources to
meet its operating requirements and debt service requirements through the twelve
month period ending March 31, 1997. However, in the event SFHI is unable to meet
debt service payments through current operations and available resources, SFHI
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 $120.0 million principal
- -------------------
amount of First Mortgage Notes due 1998 ("13-1/2% Notes") were issued contains
restrictions on payments to and investments in affiliates by Pioneer Hotel Inc.,
including to the Company. As a result of these restrictions, all of the cash
flow generated by PHI is not currently, and is not expected
during the next twelve months to be, available for distribution to the Company.
Approximately $10.3 million of the Company's current assets, including
approximately $7.8 million of cash and short term investments, were held by
PHI at March 31, 1996.
PHI's principal uses of funds are for interest payments on indebtedness and
capital expenditures to maintain the facility. Interest expense for the six
month period ended March 31, 1996 and 1995 was $5.2 million and $6.9 million,
respectively. The Pioneer generated EBITDA of $5.1 million for the six months
ended March 31, 1996, approximately 0.98 times interest expense during the same
period. (See Results of Operations - Revenues and Operating Expenses.) Interest
expense attributable to the 13 1/2% Notes will decrease in 1996 compared to 1995
as a result of the retirement of an aggregate $42.8 million principal amount of
13 1/2% Notes. (See Liquidity - Corporate, above). Capital expenditures for the
six month period ended March 31, 1996 and 1995 were $800,000 and $3.3 million,
respectively. Management believes capital expenditures in fiscal 1996 to
maintain the facility will be less
22
<PAGE>
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,
primarily equipment financing permitted under the 13-1/2% Note indenture,
barring unforeseen circumstances, the Pioneer will have sufficient cash
resources to meet its operating requirements and debt service requirements
through the twelve month period ending March 31, 1997, although no assurance
can be given to that effect. In the event PHI is unable to meet debt service
payments through current operations and available resources, PHI 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 the six-month period ended March 31, 1996, the
- --------------------
Company incurred approximately $3.4 million of capital expenditures, of which
approximately $1.2 million is attributable primarily to administrative office
improvements at the Santa Fe, approximately $400,000 is due to software costs
associated with an automated slot tracking system at the Santa Fe and $150,000
is attributable to improvements to the river side walk at the Pioneer. The
Company anticipates entering into an operating lease with respect to the
hardware equipment for the Santa Fe's slot tracking system, the total cost of
which is estimated to be approximately $1.2 million.
Debt Obligations - For the remaining six months of fiscal 1996 and for
- -----------------
fiscal year 1997, scheduled maturities of long-term debt due to third parties
are $700,000 and $3.7 million, respectively, representing primarily principal
amortization payments under notes payable and capital leases. The scheduled
maturities applicable in fiscal 1996 and 1997 are $200,000 and $400,000 at the
Santa Fe and $300,000 and $300,000 at the Pioneer respectively.
Additionally, approximately $8.3 million of long-term debt due to third parties
is scheduled to mature during fiscal 1998 consisting primarily of $6.9 million
due in June 1998 at maturity of the 10 1/4% 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 Officer and 51% stockholder of the Company, borrowed
$476,000 from
23
<PAGE>
Hacienda Hotel Inc., pursuant to an unsecured demand loan. The outstanding
balance of the loan including accrued interest was $569,000 as of March 31,
1996. The demand loan to LICO bears interest at 2% over the prime rate.
In November 1993, Mr. Lowden and Bank of America entered into a personal loan
agreement under which 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 April 30, 1996, the principal balance
of the loan was approximately $2,802,000. 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. If 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.
Private Securities Litigation Reform Act
- ----------------------------------------
Certain statements in this Quarterly Report on Form 10-Q which are not
historical facts are forward looking statements, such as statements relating to
competition, financing and refinancing sources and availability, plans for
future development or expansion activities and capital expenditures. Such
forward looking statements involve a number of risks and uncertainties that
may significantly affect the Company's liquidity and results in the future and,
accordingly, actual results may differ materially from those expressed in any
forward looking statements. Such risks and uncertainties include, but are not
limited to, those related to leverage and debt service and ability, financing
and refinancing efforts, general economic conditions, changes in gaming laws or
regulations (including the legalization of gaming in various jurisdictions) and
risks related to development and construction activities.
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.
24
<PAGE>
SAHARA GAMING CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In the previously disclosed consolidated legal proceedings of Poulos v.
Ceasar's World, Inc., et al. and Ahern v. Ceasar's World, Inc., et al.
and the separate legal proceeding of Schrier v. Ceasar's World, Inc.,
et al., the plaintiffs' class certification motion has been denied,
with leave to amend, and the complaints in the consolidated Paulos and
Ahern cases have been dismissed without prejudice. The plaintiffs have
until May 31, 1996 to file amended complaints in the consolidated
cases. If they do not, their actions will be dismissed. The court made
no ruling with respect to the Schrier case.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a vote of Security Holders
The Annual Meeting of Shareholders was held on February 20, 1996,
wherein the following matters were submitted to a vote:
The result of the vote taken on the election of Directors was as
follows:
Paul W. Lowden For: 5,669,263 Withheld: 154,386
William J. Raggio For: 5,668,969 Withheld: 154,681
James Lewis For: 5,669,080 Withheld: 154,570
The result of the vote taken on the approval of change of company name
was:
For: 5,751,566 Against: 49,702 Abstain: 22,383
The result of the vote taken regarding the adoption of the 1995 Non
Employee Director Stock Option Plan was:
For: 5,443,801 Against: 225,263 Abstain: 51,941
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
25
<PAGE>
A. Exhibits:
10.123 Master lease agreement by and between Videotronics, Inc. and
Santa Fe Hotel Inc. dated January 31, 1996.
10.124 Guaranty of lease by Sahara Gaming Corporation dated January
31, 1996.
10.125 Notice, Consent and Acknowledgment of Assignment by and
between Videotronics, Inc. (Lessor), Santa Fe Hotel, Inc.
(Lessee), Sahara Gaming Corporation (Guarantor), PDS
Financial Corporation (Assignee) and Miller & Schroeder
Investments Corporation dated January 31, 1996.
10.126 Master lease agreement by and between Videotronics, Inc. and
Santa Fe Hotel, Inc. dated April 15, 1996.
10.127 Guaranty of lease by Santa Fe Gaming Corporation dated April
15, 1996.
10.128 Notice, Consent and Acknowledgment of Assignment by and
between Videotronics, Inc. (Lessor), Santa Fe Hotel, Inc.
(Lessee), PDS Financial Corporation and the Buyers dated
May 9, 1996.
23 Consent of Deloitte & Touche, LLP
27 Financial Data Schedule
B. Reports:
26
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
SANTA FE GAMING CORPORATION, Registrant
By: /s/ THOMAS K. LAND
----------------------------------------
Thomas K. Land, Chief Financial Officer
Dated: May 14, 1996
27
<PAGE>
Santa Fe Gaming Corporation
Las Vegas, Nevada
We have made a review, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants, of the unaudited interim financial information of Santa Fe Gaming
Corporation and subsidiaries for the periods ended March 31, 1996 and 1995, as
indicated in our report dated May 13, 1996 because we did not perform an audit,
we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 is
incorporated by reference in Registration Statement No. 33-44700 on Form S-8 and
in post-effective Amendment No. 1 to Registration Statement No. 33-7053 on Form
S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that act.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
May 13, 1996
28
<PAGE>
EXHIBIT 10.123
MASTER LEASE AGREEMENT
---------------
THIS MASTER LEASE AGREEMENT ("Lease") is made and entered into this 31st
day of January, 1996, by and between Videotronics, Inc., a Nevada corporation
("Lessor"), whose address is 1315 Greg Street, Suite 108, Sparks, Nevada 89431
and Santa Fe Hotel, Inc., a Nevada corporation ("Lessee"), whose address is 4949
North Rancho Drive, Las Vegas, Nevada 89109.
PRELIMINARY RECITALS
--------------------
A. Lessor desires to lease to Lessee, and Lessee desires to lease from
Lessor in accordance with the terms and conditions contained herein, certain
equipment more fully described in the Lease Schedule or Schedules attached
hereto and made a part hereof. Each such Lease Schedule now or hereafter
attached hereto shall be referred to herein as a "Lease Schedule", and all
equipment described in such Lease Schedules shall be collectively referred to as
the "Equipment" and individually referred to as a "Unit."
B. The term of this Lease with respect to the Equipment described in a
particular Lease Schedule shall commence on the date set forth in such Lease
Schedule (the "Commencement Date").
C. The Equipment is to be installed in and to be used in connection
with the gaming operations operated by Lessee at the Lessee's hotel and casino
facility located in Las Vegas, Nevada having a street address of 4949 North
Rancho Drive, Las Vegas, Nevada 89109 (the "Premises").
NOW, THEREFORE, in consideration of the foregoing, the sum of One Dollar
($1.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Lessor agrees to lease to Lessee and Lessee
agrees to lease from Lessor the Equipment designated in any Lease Schedule now
or hereafter executed and delivered by each of Lessor and Lessee and
incorporating by reference the terms of this Lease on the following terms and
conditions:
1. LEASE. This Lease establishes the general terms and conditions by which
-----
Lessor shall lease to Lessee the Equipment. Each such Lease Schedule shall be
in the form provided by Lessor and shall incorporate by reference the terms of
this Lease. If the provisions of a Lease Schedule conflict with the provisions
of this Lease, the provisions of such Lease Schedule shall prevail.
2. TERM: RENT AND PAYMENT; RENEWAL.
--------------------------------
2.1 Term. The term of this Lease with respect to the
----
<PAGE>
Equipment described in a particular Schedule shall begin on its Commencement
Date and continue until midnight of the Termination Date as specified in such
Lease Schedule ("Term"). The "Commencement Date" as used herein for any
Equipment is to be the date set forth on the Lease Schedule relating to that
Equipment.
2.2 Rent and Payment. Lessee's obligation to pay rent for each item of
----------------
Equipment shall commence on the Commencement Date and continue for the Term.
Each payment of the Basic Rent set forth on the Lease Schedule shall be payable
without notice or demand on the Commencement Date and on the first day of each
month thereafter ("Rent Date"). Lessor shall be paid the first month's Basic
Rent in advance on the Commencement Date. Should the Commencement Date occur
other than on the first day of a month, the first month's Basic Rent shall also
include an amount equal to the Basic Rent pro rated to the number of days from
and after the Commencement Date to the first day of such succeeding month, all
as set forth in the Lease Schedule. Any amounts payable by Lessee, other than
Basic Rent, shall be deemed Additional Charges and, unless otherwise provided
herein, shall be payable on the Rent Date next following the date upon which
they accrue or the last day of the Term, whichever is earlier. As an
accommodation to Lessee, but not as a condition precedent for payment, Lessor
may, but shall not be obligated to, invoice Lessee prior to the applicable Rent
Date. Lessee shall make all payments at the address of Lessor set forth above
or at such other address as Lessor may designate in writing. As used herein,
the term "Rent" shall mean all Basic Rent and Additional Charges invoiced to
Lessee. All Rent shall be paid without notice or demand and without abatement,
deduction or setoff of any amount whatsoever and regardless of the condition,
operation or use of the Equipment.
2.3 Late Charge. If any Rent is not received by Lessor or its Assignees
-----------
within fifteen (15) days of when due, a late charge on such Rent shall be due
and payable with such Rent in an amount equal to four percent (4%) on the amount
past due or any part thereof, as reimbursement for administrative costs and not
as a penalty.
2.4 Lessor's Performance of Lessee's Obligations. If Lessee fails to
--------------------------------------------
comply with any of its covenants or obligations herein, Lessor may, at its
option, perform such covenants or obligations on Lessee's behalf without thereby
waiving such conditions or obligations or the failure to comply therewith and
all sums advanced by Lessor in connection therewith shall be repayable by Lessee
as Additional Charges. No such performance shall be deemed to relieve Lessee of
its obligations herein.
3. CERTIFICATE OF ACCEPTANCE. Lessee shall deliver to Lessor a certificate of
-------------------------
delivery, installation and acceptance ("Certificate of Acceptance") in the form
attached as Exhibit "A"
2
<PAGE>
on the Commencement Date. If Lessee fails to so deliver such Certificate of
Acceptance, Lessee shall be deemed to have accepted the Equipment as of such
Commencement Date.
4. NET LEASE: QUIET ENJOYMENT.
---------------------------
4.1 Net Lease. This Lease including such Lease Schedule is a net lease
---------
and Lessee's obligation to pay all Rent due and the rights of Lessor or its
assignees in, and to, such Rent shall be absolute and unconditional under all
circumstances, notwithstanding: (i) any setoff, abatement, reduction,
counterclaim, recoupment, defense or other right which Lessee may have against
Lessor, its assignees, the manufacturer or seller of any Unit, or any other
person for any reason whatsoever, including, without limitation, any breach by
Lessor of this Lease; (ii) any defect in title, condition, operation, fitness
for use, or any damage to or destruction of, the Equipment; (iii) any
interruption or cessation of use or possession of the Equipment for any reason
whatsoever; (iv) any insolvency, bankruptcy, reorganization or similar
proceedings instituted by or against Lessee; or (v) any other circumstances
happening, or event whatsoever, whether or not unforeseen or similar to any of
the foregoing.
4.2 Quiet Enjoyment. Subject to the provisions of Paragraph 8.2
---------------
hereinafter, Lessor covenants that it shall take no action to disturb Lessee's
quiet enjoyment of the Equipment during the Term, provided Lessee is not in
default hereunder.
5. USE: MAINTENANCE; IDENTIFICATION AND INSPECTION.
------------------------------------------------
5.1 Use and Repairs.
---------------
a. Lessee shall keep and use the Equipment on the Premises solely
for the purpose of operating a gaming establishment therein.
b. Lessee shall comply in all material respects with manufacturer
instructions relating to the Equipment, and all applicable
laws, ordinances, rules and regulations of any lawfully
constituted governmental unit having jurisdiction over Lessee's
gaming establishment and operations, and shall hold Lessor
harmless of any of the foregoing.
c. Lessee shall pay all costs and expenses associated with the
delivery, any installation, use relocation, de-installation and
return of the Equipment.
d. Lessee shall retain uninterrupted possession and
3
<PAGE>
control of the Equipment and shall at all times use it solely
and continuously in the conduct of Lessee's business for
business purposes only and not for any personal, family or
household purposes.
5.2 Maintenance. Lessee shall at all times and, at its sole cost and
-----------
expense, properly use and keep and maintain each Unit for the Equipment in good
operating condition, repair and maintenance, and protect the same from
deterioration, other than normal wear and tear, and shall use each Unit in the
regular course of its business only, without abuse, and in a manner contemplated
by the manufacturer thereof.
5.3 Identification and Inspection. Upon request by Lessor, Lessee shall
-----------------------------
mark each Unit conspicuously with appropriate labels or tags furnished by Lessor
and maintain such markings through the Term to clearly disclose that said Unit
is being leased from Lessor. Subject to Lessee's reasonable security
requirements and all gaming laws or regulations, Lessee shall permit Lessor's
representatives to enter the Premises where any Unit is located to inspect such
Unit. Further, upon an Event of Default the Lessor shall have the right during
normal business hours to demonstrate and show the Equipment to others as long as
Lessor's demonstration does not interfere with Lessee's gaming operations.
6. LOCATION: LIENS AND ENCUMBRANCES.
---------------------------------
6.1 Equipment Location. Lessee shall keep the Equipment on the Premises
------------------
and shall not relocate or remove any Unit unless Lessor consents, in writing,
prior to its relocation or removal. Such consent shall not be unreasonably
withheld. Lessor's consent shall not be required for the relocation of
Equipment within the Premises in the ordinary course of Lessee's gaming
operations or the removal of Equipment for maintenance and repairs.
6.2 Personal Property. Each Unit is personal property and not a fixture
-----------------
and Lessee shall not affix any Unit to realty so as to change its nature to a
fixture or real property and agrees that each Unit shall remain personal
property during the Term.
a. Lessor expressly retains ownership and title to the Equipment;
and shall have the right to display notice of its ownership by
affixing to the Equipment an identifying plate, stencil or
other indica of ownership. Within thirty (30) days following
written request of Lessor, Lessee shall obtain waivers of all
right, title and interest in the Equipment from any landlord,
4
<PAGE>
mortgagee, or beneficiary under a deed of trust with respect to
the Premises. To assure and protect Lessor's rights in and to
the Equipment, Lessee shall execute and deliver such other and
further documents as Lessor may request to confirm the interest
of Lessor hereunder and shall pay to Lessor, on demand,
reasonable expenses incurred by Lessor in connection with the
preparation, execution, and filing of any such documents.
Lessee hereby authorizes, empowers, and grants a power of
attorney to Lessor to record this Lease and/or execute and file
or record, on Lessee's behalf, any certificates, memorandums,
statements, refiling, and continuations thereof as Lessor deems
necessary or advisable to preserve and protect its interest
hereunder.
b. The parties intend to create a lease agreement and the
relationship of the lessor and lessee between themselves.
Nothing in this Lease shall be construed or interpreted to
create or imply the existence of a finance lease or installment
lease contract.
c. Lessor makes no representation regarding the treatment of this
Lease, the Equipment or the payment of obligations under this
Lease for financial statement reporting or tax purposes.
6.3 Liens and Encumbrances. Title to the Equipment is and shall remain
----------------------
in Lessor or its Assignees. Unless otherwise provided herein, Lessee shall not
directly or indirectly create, incur or suffer a mortgage, claim, lien, charge,
encumbrance or the legal process of a creditor of Lessee of any kind upon or
against any Unit. Lessee shall at all times protect and defend, at its own cost
and expense, the title of Lessor from and against such mortgages, claims, liens,
charges, encumbrances and legal processes of creditors of Lessee and shall keep
all the Equipment free and clear from all such claims, liens and legal
processes. If any such lien or encumbrance is incurred, Lessee shall
immediately notify Lessor and shall take reasonable actions required by Lessor
to remove the same; provided Lessee may contest any lien or encumbrance if
(i) Lessee acts in good faith; (ii) Lessee undertakes such content and continues
the same in good faith, and (iii) deposits with Lessor such reasonable security
as Lessor may reasonably require to protect Lessor against the enforcement of
the lien being contested and loss of the Equipment.
5
<PAGE>
7. RETURN OF EQUIPMENT.
-------------------
7.1 Duty of Return. Unless Lessee exercises its options to purchase,
--------------
extend or renew as set forth in Paragraph 17 hereof, at the expiration of the
Term or termination of the Lease, Lessee at its expense shall return each Unit
to Lessor or its designee at the destination within the continental United
States and by surface transportation specified by Lessor. Such return shall not
be deemed to have occurred until and unless each Unit conforms to all of the
manufacturer's specifications with respect to normal function, capability,
design and condition (less normal wear and tear), if such is customarily
available.
7.2 Failure to Return. Notwithstanding any other rights and remedies
-----------------
Lessor has hereunder in an Event of Default, if Lessor shall require the
Equipment to be delivered to a designated address and Lessee fails to so return
the Equipment to Lessor or its designee at such designated address within thirty
(30) days following expiration of the Term or termination of the Lease, then (i)
Lessee shall pay on demand a per diem amount equal to one hundred fifty percent
(150%) of the daily Basic Rent [determined by dividing the Basic Rent by thirty
(30)] for each day after the expiration of such thirty (30) days and for each
day thereafter, as liquidated damages and not as a penalty, until so returned,
it being understood and agreed to by Lessor and Lessee that Lessor's actual
damages would be difficult or impossible to determine; and (ii) Lessee shall
have no further right to the Equipment, but until the Equipment is so returned,
this Lease shall remain in full force and effect as to all obligations of the
Lessee thereunder.
8. RISK OF LOSS: INSURANCE.
------------------------
8.1 Risk of Loss. As between Lessor and Lessee, Lessee shall bear the
------------
risk of all loss or damage to any Unit or caused by any Unit during the period
from the time the Unit is shipped by its vendor until the time it is returned as
provided herein. Lessor shall not be obligated to undertake by litigation or
otherwise the collection of any claim against any person for loss or damage to
the Equipment.
8.2 Buy-Out. In the event at any time or times during the Term of this
-------
Lease the Equipment shall be taken or condemned by an authority having the power
of eminent domain, or if Lessor or its successors or assignees is prohibited by
law from acting as a Lessor of any of the Equipment leased hereunder, or if more
than 50% of the Equipment shall be damaged or destroyed by fire, the elements or
other casualty, event or loss, either Lessor or Lessee on written notice to the
other party may terminate this Lease and Lessee shall purchase the subject
equipment by paying to Lessor an amount equal to the greater of the fair market
value of the Equipment as of the date of such event or loss as
6
<PAGE>
determined by an independent appraiser mutually selected by Lessor and Lessee,
or the aggregate remaining installment payments of monthly Rent hereunder, in
either case less the net amount of the recovery, if any, actually received by
Lessor from insurance or otherwise for such loss or damage.
8.3 Unit Replacement. Except as otherwise provided in Section 8.2
----------------
above, if any Unit is lost, stolen, destroyed, seized by governmental action or,
in Lessee's reasonable opinion or Lessor's reasonable opinion, materially
damaged through no fault of Lessor ("Event of Loss"), this Lease shall remain in
full force and effect without abatement of Rent and Lessee shall promptly
replace such Unit at its sole expense with a Unit of equivalent value and
utility, and similar kind and in substantially the same condition as the
replaced Unit immediately prior to the Event of Loss. Title to such replacement
unit immediately shall vest and remain in Lessor, and such unit shall be deemed
a Unit under this Lease. Upon such vesting of title and provided Lessee is not
in default under this Lease, Lessor shall cause to be paid to Lessee or the
vendor of the replacement unit any insurance proceeds actually received by
Lessor for the replacement Unit. Lessee shall promptly notify Lessor of any
Event of Loss and shall provide Lessor with and shall enter into, execute and
deliver such documentation as Lessor shall reasonably request with respect to
the replacement of any such Unit in accordance with this Section 8.3.
8.4 Insurance.
---------
a. Lessee shall obtain and maintain in full force and effect all
risk, full replacement cost property damage insurance on the
Premises (i) comprehensive personal liability, (ii) all risk
property damage on the Equipment in amounts reasonably
acceptable to Lessor but in no event less than the actual
replacement cost, and (iii) workers compensation insurance. If
liquor is served on the Premises, Lessee shall obtain and
maintain dram shop coverage in full force and effect. Such
insurance shall: i) name Lessor and its Assignees, if any, as
additional insureds and first loss payees as their interests
may appear; and ii) provide that the policy may not be canceled
or materially altered without thirty (30) days prior written
notice to Lessor and its Assignees.
b. All such insurance shall be placed with companies having a
rating of at least A, Class XII or better by Best's rating
service and authorized to do business in Nevada and shall be in
amounts and with co-insurance limits approved
7
<PAGE>
by Lessor. Lessee shall furnish to Lessor, upon request and
throughout the Term, insurance certificates of a kind and in
amounts satisfactory to Lessor and its Assignees showing the
existence of the insurance required hereunder and premium paid.
9. LESSOR'S PURCHASE AND PERFORMANCE.
---------------------------------
9.1 Purchase Documentation. Upon receipt of a Lease Schedule executed
----------------------
and delivered by Lessee acceptable to Lessor and after acceptance thereof by
Lessor, Lessor may execute appropriate purchase documentation, and Lessee shall
bear all responsibilities and perform all obligations of Lessor thereunder other
than payment of the purchase price.
10. TAXES.
-----
10.1 Taxes. Lessee agrees to report, file, pay promptly when due to the
-----
appropriate taxing authority and indemnify, defend, and hold Lessor harmless
from and against any and all taxes (including gross receipts), assessments,
license fees and other federal, state or local governmental charges of any kind
or nature, together with any penalties, interest or fines related thereto
(collectively, "Taxes") that pertain to the Equipment, its purchase, or this
Lease and which accrue prior to return of the Equipment to Lessor or its
designee, whether assessed against Lessor or Lessee, except such Taxes based
solely upon the net income of Lessor. Where applicable law requires the filings
to be made by Lessor, Lessor hereby authorizes and appoints Lessee and Lessee
agrees to act as Lessor's limited attorney-in-fact to file and pay the same
subject to Lessee's right to review and approve same. On all such reports or
returns required hereunder, Lessee shall show the ownership of the Equipment by
Lessor within 45 days after the due date of such filing of Lessee and shall send
to Lessor confirmation in form satisfactory to Lessor of such filing.
10.2 Lessor's Filing of Taxes. Notwithstanding the foregoing, Lessor at
------------------------
its election may report and file sales and/or use taxes which are filed and paid
periodically through the Term, and the amounts so due may be invoiced to Lessee
and payable as specified therein subject to Lessee's right to review and approve
same.
10.3 Right of Contest. Lessee shall not be obligated to pay any Taxes if
----------------
it shall, at its own cost and expense, contest in good faith and by appropriate
proceedings the validity or the amount thereof, unless such contest would
adversely and materially affect the title of Lessor to any Unit. Lessor may at
its election require Lessee to escrow with Lessor or an escrow holder appointed
by Lessor an amount sufficient to pay such taxes
8
<PAGE>
and interest and penalties thereon if Lessee should lose such contest. Such
escrowed amount shall be placed in an interest bearing account with interest
accruing in Lessee's favor.
11. INDEMNIFICATION.
---------------
a. Except for the gross negligence, willful misconduct or bad
faith, its employees or agents, Lessee hereby assumes liability
for and agrees to indemnify, defend, protect, save and hold
harmless the Lessor, its agents, employees, directors and
assignees from and against any and all losses, damages
(including without limitation Lessee's loss of business or
profits or other consequential damages), injuries, claims,
penalties, demands and all expenses, legal or otherwise
(including attorneys' fees) of whatever kind and nature arising
from the purchase, ownership, seizure, attachment, encumbrance,
installation, de-installation, delivery, return, manufacture,
purchase, use or other control (including patent or other
infringements), condition (including without limitation latent
defects, whether or not discoverable by Lessor), operation or
maintenance of the Equipment, until the Equipment is returned
to Lessor. Any claim, defense, setoff, or other right of
Lessee against any such indemnified parties shall not in any
way affect, limit, or diminish Lessee's indemnity obligations
hereunder.
b. Lessee shall notify Lessor promptly as to any claim, suit,
action, damage (including to the Equipment), or injury covered
by this section and of which Lessee has actual or other notice
and shall, at its own cost and expense, defend any and all
suits which may be brought against Lessor, either alone or in
conjunction with others upon any such liability or claim or
claims and shall satisfy, pay and discharge any and all final
judgments and fines that may be recovered against Lessor in any
such action or actions, provided, however, that Lessor shall
give Lessee prompt written notice of any such claim or demand.
Lessee agrees that its obligations under this Section 11 shall
survive the expiration or termination of this Lease. Lessee
and Lessor agree to cooperate with each other, to the extent
that there are no conflicts of interests, in the settlement or
defense of any actions or claims relating thereto.
9
<PAGE>
12. REPRESENTATIONS AND WARRANTIES.
------------------------------
a. Lessee represents and warrants to Lessor that:
i) the making of this Lease and any Lease Schedule executed
by Lessee is duly authorized on the part of Lessee and
that upon due execution thereof by Lessee and Lessor they
shall constitute valid obligations binding upon, and
enforceable against, Lessee in accordance with their
terms; except insofar as their enforceability may be
limited by applicable bankruptcy, insolvency,
reorganization, receivership or similar laws affecting
creditors right generally, or principles of equity;
ii) neither the making of this Lease or such Lease Schedule,
nor the due performance by Lessee, including the
commitment and payment of the Rent, shall result in any
breach of, or constitute a default under, or violation of,
Lessee's certificate of incorporation, by-laws, or any
material agreement to which Lessee is a party or by which
Lessee is bound;
iii) no approval or consent not already obtained or withholding
of objection is required from any governmental authority
with respect to the entering into, or performance of this
Lease or any Lease Schedule by Lessee except where the
failure to obtain such approval or consent would not
result in a material adverse effect on the financial
condition of Lessee;
iv) Lessee has obtained all material licenses and permits
required under the Gaming Act or other applicable laws or
regulations (the "Gaming Laws") for the operation of its
business.
b. Lessee shall provide to Lessor an opinion of counsel, certified
resolution of the board of trustees/directors of Lessee, and a
certificate of incumbency and such other documents, all in a
form reasonably acceptable to Lessor, if so requested.
C. LESSEE SHALL NOTIFY THE CHAIRMAN OF THE NEVADA
10
<PAGE>
STATE GAMING CONTROL BOARD TO WHOM IT IS MAKING MONTHLY LEASE
PAYMENTS.
13. DISCLAIMERS; MANUFACTURERS WARRANTIES.
-------------------------------------
13.1 Lessor's Disclaimers. LESSEE ACKNOWLEDGES THAT EACH UNIT IS OF THE
--------------------
DESIGN, CAPACITY AND MANUFACTURE SPECIFIED FOR AND BY THE LESSEE AND THAT LESSEE
IS SATISFIED THAT THE SAME IS SUITABLE FOR LESSEE'S PURPOSES. LESSEE AGREES,
REGARDLESS OF CAUSE, NOT TO ASSERT ANY CLAIM WHATSOEVER AGAINST LESSOR FOR LOSS
OF ANTICIPATORY PROFITS OR CONSEQUENTIAL DAMAGES. LESSOR EXPRESSLY DISCLAIMS
ANY AND ALL WARRANTIES WITH RESPECT TO THE EQUIPMENT WHETHER EXPRESSED OR
IMPLIED. Without limiting the generality of the foregoing, it is intended by
the parties to exclude any and all implied warranties of merchantability and
fitness for particular purposes. NO SALESMAN OR AGENT OF LESSOR IS AUTHORIZED
TO WAIVE OR ALTER ANY TERM OF THIS LEASE OR MAKE ANY REPRESENTATION REGARDING
THE EQUIPMENT.
13.2 Testing and Installation. As to each Unit of Equipment incorporated
------------------------
in a Lease Schedule, Lessee warrants that upon execution of the Certificate of
Acceptance such Equipment has been installed and tested to Lessee's satisfaction
and is in good order and working condition.
14. ASSIGNMENT OF LEASE.
-------------------
14.1 Assignment of Lessor. Lessee acknowledges and agrees that Lessor
--------------------
has entered into this Lease and shall enter into each Lease Schedule in
anticipation of assigning, mortgaging, or otherwise transferring its interest
thereunder and/or in the Equipment to others ("Assignees") without notice to, or
consent of, Lessee unless required by the laws of the State of Nevada and the
regulations of the Nevada Gaming Commission. Provided, however, that any
assignment, mortgage or other transfer of any interest in the equipment or the
right to receive the monthly lease payments hereunder must comply with the laws
of the State of Nevada and the regulations of the Nevada Gaming Commission, and
shall occur only after the receipt of all approvals required thereunder and
after written notice by the assigning party to the chairman of the Nevada State
Gaming Control Board. Any Assignee will be subject to such gaming laws and
regulations as a holder of evidence of indebtedness of a corporate licensee and,
accordingly, may be required to file an application, be investigated, and have
its suitability determined by the Nevada Gaming Commission pursuant to Nevada
Revised Statute Section 463.530. Such assignee must pay all costs of
investigation incurred by the Nevada State Gaming Control Board and the Nevada
Gaming Commission. Accordingly, Lessee and Lessor agree that:
a. upon any such assignment that complies with this section and
the laws of the State of Nevada and
11
<PAGE>
regulations of the Nevada Gaming Commission, Lessee shall:
i) upon Lessor's request acknowledge such assignment in
writing by executing the notice of Acknowledgement of
Assignment furnished by Lessor;
ii) promptly pay all Rent when due to the designated
Assignees, notwithstanding any defense, setoff, abatement,
recoupment, reduction or counterclaim whatsoever that
Lessee may have against Lessor, which payment shall not
constitute a waiver of any rights that Lessee may have;
iii) not permit the Lease or Lease Schedule so assigned to be
amended or the terms thereof waived without the prior
written consent of the Assignees which consent shall not
be unreasonably withheld;
iv) not require the Assignees to perform any obligations of
Lessor under such Lease Schedule; and
v) not terminate or attempt to terminate the Lease or Lease
Schedule on account of any default by Lessor;
b. subject to the terms and conditions hereof, any Assignee may
reassign its rights and interest with the same force and effect
as the assignment described herein, provided notice of any such
reassignment is provided to the Nevada Gaming Commission;
c. any payments received by the designated Assignees from Lessee
shall, to the extent thereof, discharge the obligations of
Lessee to Lessor hereunder; and
d. Assignees and Lessee shall notify the Chairman of the Nevada
------------------------------------------------------------
State Gaming Commission within three (3) days of any change in
--------------------------------------------------------------
the payee of the monthly lease payments hereunder if required
-------------------------------------------------------------
to do so.
--------
14.2 Assignment or Sublease by Lessee.
--------------------------------
a. Lessee shall not assign this Lease or any Lease Schedule or
assign its rights in or sublet the
12
<PAGE>
Equipment, or any interest therein without Lessor's and its
Assignee's prior written consent and only on such terms as are
reasonably acceptable to Lessor and its Assignees. Such
consent shall not be unreasonably withheld.
b. No sublease or assignment by Lessee of any of its rights under
this Lease, any Lease Schedule or in the Equipment shall in any
way discharge or diminish any of Lessee's obligations to Lessor
or its Assignees.
15. FINANCIAL INFORMATION; FURTHER ASSURANCES.
-----------------------------------------
15.1 Financial Information. Throughout the Term, Lessee shall deliver to
---------------------
Lessor (a) within forty-five (45) days after the end of each calendar quarter,
unaudited quarterly operating statements of gaming operations of the Lessee;
(b) not later than one hundred twenty (120) days after the end of each fiscal
year an annual audited balance sheet of Lessee and an annual audited statement
------- -------
of operations of the Lessee prepared in accordance with standard accounting
principles, consistently applied; and (c) copies of such other current financial
information representing the financial condition and operations of Lessee as
well as such other information regarding Lessee reasonably requested by Lessor
or its Assignees. Without in any way limiting the generality of the foregoing,
the Lessor, or its assignees, may monitor the financial condition, cash flow and
cash management of the Lessee's operations on the Premises; and the Lessee
agrees to provide such information, and access to the books and records of the
Lessee's operations, as Lessor or its assigns may reasonably request in order to
monitor such matters.
15.2 Required Documentation. Lessee shall deliver from time to time to
----------------------
Lessor all documentation specified herein promptly upon request.
15.3 Further Assurances. Lessee shall execute and deliver to Lessor,
------------------
promptly and at Lessee's expense, such other documents and assurances, and take
such further action as Lessor may reasonably request, in order to effectively
carry out the intent and purposes of this Lease and the Lease Schedules and to
establish and protect the rights, interests and remedies of Lessor hereunder.
This shall include, without limitation, providing Uniform Commercial Code
financing statements, evidence of tax filings and payments, a waiver of rights
and interests in the Equipment from the owner, landlord and any mortgagee of the
location of any Unit, a legal description of such locations and a copy of the
maintenance agreement. All documentation shall be in a form reasonably
acceptable to Lessor and its Assignees. Lessee shall pay all costs associated
with such financing statements upon relocation, sublease or reconfiguration of
the Equipment and
13
<PAGE>
upon any assignment by Lessee. The Lessee agrees that Lessor is authorized, at
its option, to file a carbon, photographic or other reproduction of each Lease
Schedule as a financing statement and such shall be sufficient as a financing
statement under Nevada's version of the Uniform Commercial Code, and to file
financing statements or amendments thereto without the signature of the Lessee
with respect to any or all of the Equipment and, if a signature is required by
law, then the Lessee appoints Lessor as Lessee's attorney-in-fact to execute any
such financing statements. Lessee agrees to pay the Lessor the actual cost for
each financing statement filing.
15.4 Lease Agreement. Whenever necessary or appropriate to ensure that
---------------
the Lessor's interest in this Lease and the Equipment are protected, Lessor and
Lessee shall execute and record notice filings as contemplated by NRS 104.9408.
Such notice filings shall state that they are for notice purposes only and do
not reflect an intention to create a security interest, and shall name the
Lessor as "debtor" and the Lessee as "secured party".
16. DEFAULT BY LESSEE; REMEDIES.
---------------------------
16.1 Default by Lessee. Lessee shall be in default upon the occurrence
-----------------
of any one of the following events ("Event of Default"):
a. failure to pay Rent when due and such failure shall continue
for a period of five (5) days;
b. failure to perform any other term, condition or covenant of the
Lease Schedule; which failure shall continue for a period of
thirty (30) days after receipt of written notice thereof;
provided, if the same is not susceptible of cure within said
time limits and the same may be cured within a reasonable
period of time thereafter the time period shall be extended for
such additional time as is reasonably necessary to effectuate
such cure provided such curative action is promptly taken in
good faith and diligently prosecuted to completion and the
security afforded hereby and the interest of the Lessor or its
Assignees is not in jeopardy or be subject to forfeiture;
c. Lessee ceases doing business as a going concern;
d. Lessee makes an assignment for the benefit of creditors, admits
in writing its inability to pay its debts as they become due,
files a voluntary petition in bankruptcy, is adjudicated
14
<PAGE>
a bankrupt or an insolvent, files a petition seeking for itself
any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under any
present or future statute, law or regulation or files an answer
admitting the material allegations of a petition filed against
it in any such proceeding, consents to or acquiesces in the
appointment of a trustee, receiver, or liquidator of it or of
all or any substantial part of its assets or properties, or if
it or its shareholders shall take any action looking to its
dissolution or liquidation;
e. within 60 days after the commencement of any proceedings
against lessee seeking reorganization, arrangement,
readjustment, liquidation, dissolution or similar relief under
any present or future statute, law or regulation, such
proceedings shall not have been dismissed, or if within 60 days
after the appointment without Lessee's consent or acquiescence
of any trustee, receiver or liquidator of it or of all or any
substantial part of its assets and properties, such appointment
shall not be vacated;
f. Lessee attempts to remove, sell, transfer, encumber, part with
possession or sublet the Equipment or any Unit thereof without
Lessor's consent;
g. any Unit is attached, levied upon, encumbered, pledged, or
seized under any judicial process and such proceedings are not
dismissed, vacated or fully stayed within ninety (90) days;
h. any warrant or representation made or furnished to the Lessor
by or on behalf of the Lessee or under Lessee's obligations to
Lessor is false in any material respect when made or furnished;
or
i. Failure to maintain in full force and effect the licenses and
permits required under the Gaming Laws for the operation of
Lessee's business.
16.2 Lessor Remedies.
---------------
a. Upon any Event of Default, and at any time thereafter, Lessor
may in addition to any and all rights and remedies, it may have
at law or in equity, without notice to or demand upon
15
<PAGE>
Lessee at its sole option:
i) declare the aggregate Rent then accrued and unpaid
together with (as liquidated damages and not as a penalty)
the balance of any Rent specified on the applicable Lease
Schedule or any renewal notice to be immediately due and
payable;
ii) proceed by appropriate court action or actions or other
proceeding, either at law or in equity to enforce
performance by Lessee of any and all covenants of this
Lease;
iii) on written notice to Lessee, terminate any of Lessee's
rights under this Lease or Schedule in default and in the
Equipment thereunder, in which event Lessee shall
immediately surrender and return the Equipment to Lessor
pursuant to the provision hereof and at Lessee's sole cost
and expense.
iv) without notice, liability or legal process, by itself
and/or its agents, and to the extent permitted by the laws
of the State of Nevada and the Regulations of the Nevada
Gaming Commission, enter the Premises or any other
location where the Equipment is located and take immediate
possession of such Unit without court order or other
process of law, in which event Lessor shall not be liable
for damages resulting therefrom, Lessee expressly waiving
all further rights to possession of the Equipment and all
claims for injuries suffered through or loss caused by
such repossession;
v) at public or private sale, with or without having the
Equipment present at the sale, with or without
advertisement, upon such terms and to such parties as
Lessor in its sole discretion may elect, and to the extent
permitted by the laws of the State of Nevada and the
Regulations of the Nevada Gaming Commission, sell any or
all of the Equipment;
vi) and to the extent permitted by the laws of the State of
Nevada and the Regulations of
16
<PAGE>
the Nevada Gaming Commission, re-lease the Equipment upon
such terms and to such third parties as Lessor in its sole
discretion may elect and recover from Lessee any
difference between the aggregate rental due under the
applicable Lease Schedule for the remaining Term thereof
and that due from such third parties under the re-lease
for a period coterminous with the then scheduled
expiration of the defaulted Lease Schedule's Term
discounted to present value at four percent (4%) per
annum; and
vii) exercise any and all rights available to a secured party
under the Uniform Commercial Code in effect in Nevada.
b. All of Lessor's rights and remedies herein are cumulative and
in addition to any rights or remedies available at law or in
equity including the Nevada Uniform Commercial Code, and may be
exercised concurrently or separately. Lessee shall pay all
reasonable costs, expenses, losses, damages and legal costs
(including reasonable attorneys' fees) incurred by Lessor and
its Assignees as a result of enforcing any terms or conditions
of the Lease or any Schedules. A termination hereunder shall
occur only upon written notice by Lessor to Lessee and no
repossession or other act by Lessor after default shall relieve
Lessee from any of its obligations to Lessor hereunder unless
Lessor so notifies Lessee in writing. Lessor shall in good
faith attempt to mitigate damages but Lessor shall not be
obligated to sell or re-lease the Equipment and at its election
may leave the Equipment idle. Any sale or re-lease may be at
wholesale or retail, in bulk or in parcels. Lessor at its
election may bid at such sale. In the event that following
exercise by Lessor of one or more of its remedies hereunder,
Lessor receives a surplus, Lessor shall pay such surplus to
Lessee.
17. END OF TERM OPTIONS.
-------------------
17.1 Purchase Option. If Lessee is not in default hereunder, at the
---------------
expiration of the Term, any Renewal Term or any Automatic Renewal Term, as
hereinafter defined, Lessor grants Lessee an option to purchase (the "Purchase
Option") all but not less than all of the Equipment under any Lease Schedule for
the sum equal to the fair market value of the Equipment as of the
17
<PAGE>
date of expiration of the Term, Renewal Term or the Automatic Renewal Term, as
appropriate, as determined by an independent appraiser selected by Lessor and
Lessee (the "Exercise Price"). Upon timely receipt of notice of exercise,
timely receipt of the payment of all Rent due and payment of the Exercise Price,
Lessor will execute and deliver to Lessee a Bill of Sale for the Equipment
leased and upon failure of the Lessor to so deliver a Bill of Sale, this
Paragraph 17 shall then constitute a conveyance of the Equipment in accordance
with this Agreement. Payment in full of the Exercise Price shall be due and
payable with the last payment of Rent.
17.2 Renewal Option. If Lessee is not in default hereunder, at the
--------------
expiration of the Term, any Renewal Term or any Automatic Renewal Term, as
hereinafter defined, Lessee shall have an option to renew the term (the "Renewal
Option") for a renewal term (the "Renewal Term") equal to 12 months at a monthly
rental equal to the then fair market rental as determined by Lessor at Lessor's
reasonable discretion.
17.3 Replacement Upgrade Option. If Lessee has not been in default
--------------------------
hereunder, and if there has been no material adverse change in Lessee or Sahara
Gaming Corporation, a Nevada corporation ("Guarantor") (financial, business or
otherwise) determined at Lessor's sole discretion, at the expiration of the
Term, any Renewal Term or any Automatic Renewal Term, Lessor grants Lessee an
option to replace all or any portion of the Equipment (the "Replacement Option")
with equipment acceptable to Lessor and Lessee, on terms and at the then fair
market rental as determined by Lessor and Lessee. To facilitate exercise of the
Replacement Option and replacement of the Equipment, Lessee shall have an option
to extend the Term, any Renewal Term or any Automatic Renewal Term, as
appropriate, for a period of six (6) months (the "Equipment Replacement Window")
at the most recent monthly rental payment, pro rated based upon actual number of
Units replaced during a month. During the Equipment Replacement Window, Lessee
may designate new or used equipment to be added to a new Lease Schedule under
the Lease, which equipment shall be acceptable to Lessor and Lessee. The
replacement equipment shall be installed under a new Lease Schedule on a monthly
basis during the Equipment Replacement Window, in quantities acceptable to
Lessor, at Lessor's reasonable discretion, subject to minimum increments of 250
Units, and each new Lease Schedule shall provide for a term of 24 months with
equal monthly payments of Rent and Additional Rent. The replacement equipment
shall be accepted as equipment under a new Lease Schedule upon delivery by
Lessee of such documents and instruments as Lessor may require, such documents
and instruments to be acceptable to Lessor at Lessor's reasonable discretion.
17.4 Return Option. At the expiration of the Term, any Renewal Term or
-------------
any Automatic Renewal Term, upon 120 days'
18
<PAGE>
advance written notice to Lessor, Lessee shall have the option, at Lessee's
expense, to return all and not less than all of the Equipment (the "Return
Option") to Lessor, at a facility designated by Lessor, in good working order
and condition. Lessee shall in all respects remain obligated under the Lease
for payment of Rent, care, maintenance, delivery, use and insurance of the
Equipment until Lessor inspects and accepts the Equipment being returned. In
the event it shall at any time be determined that by reason of the options
hereby given or otherwise that the lease of the Equipment to which the Options
applies was in fact a sale to the Lessee of the Equipment, the Lessee agrees
that neither it nor its successors or assigns has or will have any claim or
cause of action against Lessor, its successors or assigns, for any reason for
loss sustained by virtue of such determination.
17.5 Notice of Exercise of Options. Written notice of exercise of any of
-----------------------------
the Options must be given by Lessee 120 days prior to expiration of the Term,
the Renewal Term or Automatic Renewal Term. If Lessee fails to timely exercise
either the Purchase Option, Renewal Option, Replacement Option or Return Option
(collectively the "Options") the Lease shall automatically renew for a period of
120 days (the "Automatic Renewal Term") at the most recent monthly rental
payment due under any Lease Schedule. At the expiration of the Automatic
Renewal Term, and absent timely written notice of the exercise of any of the
Options, the Automatic Renewal Term shall be automatically renewed for
additional consecutive 120-day terms at the most recent monthly rental payment
due under any Lease Schedule.
18. MISCELLANEOUS.
-------------
18.1 Notices. Except as otherwise required by law, all notices required
-------
herein shall be in writing and sent by prepaid certified mail or by courier,
addressed to the party to whom notice is being given at the address of the party
specified herein or such other address designated in writing. Notice shall be
effective upon the earlier of its receipt or four (4) days after it is sent.
18.2 Survival of Indemnities. All indemnities of Lessee shall survive
-----------------------
and continue in full force and effect for events occurring prior to the return
of the Equipment to the Lessor, notwithstanding the expiration or termination of
the Term.
18.3 Counterparts. Each Lease and any Lease Schedule may be executed in
------------
counterparts.
18.4 Multiple Lessees. If more than one Lessee is named in this Lease or
----------------
a Lease Schedule the liability of each shall be joint and several.
19
<PAGE>
18.5 Titles. Section titles are not intended to have legal effect or
------
limit or otherwise affect the interpretation of this Lease or any Lease
Schedule.
18.6 Waiver. No delay or omission in the exercise of any right or remedy
------
herein provided or otherwise available to Lessor, or prior course of conduct,
shall impair or diminish Lessor's rights to exercise the same or any other right
of Lessor; nor shall any obligation of Lessee hereunder be deemed waived. The
acceptance of rent by Lessor after it is due shall not be deemed to be a waiver
of any breach by Lessee of its obligation under this Lease or any Lease
Schedule.
18.7 Successors. This Lease and each Lease Schedule shall inure to the
----------
benefit of and be binding upon Lessor and Lessee and their respective successors
in interest.
18.8 Not an Offer. Neither this Lease nor any Lease Schedule shall be
------------
deemed to constitute an offer or be binding upon Lessor until executed by
Lessor's authorized officer.
18.9 Severability. If any provisions of this Lease or any Lease Schedule
------------
shall be held to be invalid or unenforceable, the validity and enforceability of
the remaining provisions thereof shall not be affected or impaired in any way.
18.10 Disclosure to Gaming Authorities. Lessor agrees to cooperate fully
--------------------------------
with Lessee, the Nevada Gaming Commission and/or the Nevada Gaming Control Board
relating to any disclosure or transaction report Lessee is required to make with
respect to this Lease or any assignment of this Lease.
18.11 Modification. Lessor and Lessee agree that any modifications to
------------
this Lease or any Lease Schedule shall be in writing and shall be signed by both
parties and their last known assignees, if any. LESSOR AND LESSEE AGREE TO
PROVIDE THE CHAIRMAN OF THE NEVADA STATE GAMING CONTROL BOARD NOTICE AND DETAIL
OF ANY AMENDMENT TO THIS LEASE OR ANY LEASE SCHEDULE.
18.12 Lease Irrevocable. This Lease is irrevocable for the full Term
-----------------
hereof and the Rent shall not abate by reason of termination of Lessee's right
of possession and/or the taking of possession by the Lessor or for any other
reason.
18.13 Governing Law. This Lease and each Lease Schedule are entered into
-------------
under and shall be construed in accordance with, and governed by the laws of the
State of Nevada.
18.14 Riders. In the event that any riders are attached hereto and made a
------
part hereof and if there is a conflict between the terms and provisions of any
rider and the terms and provisions hereof, the terms and provisions of the rider
shall
20
<PAGE>
control to the extent of such conflict.
18.15 Entire Agreement. LESSEE REPRESENTS THAT IT HAS READ, RECEIVED,
----------------
RETAINED A COPY OF AND UNDERSTANDS THIS LEASE, AND AGREES TO BE BOUND BY ITS
TERMS AND CONDITIONS. LESSOR AND LESSEE AGREE THAT THIS LEASE, ALL RIDERS,
LEASE SCHEDULES, OR EXHIBITS HERETO, AND THE LEASE SCHEDULES SHALL CONSTITUTE
THE ENTIRE AGREEMENT AND SUPERSEDE ALL PROPOSALS, ORAL OR WRITTEN, ALL PRIOR
NEGOTIATIONS AND ALL OTHER COMMUNICATIONS BETWEEN LESSOR AND LESSEE WITH RESPECT
TO ANY UNIT.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be duly
executed on the date first set forth above.
LESSOR: VIDEOTRONICS, INC.,
A NEVADA CORPORATION
By: /s/ Neil Netley
-------------------------
Its: President
-------------------------
LESSEE: SANTA FE HOTEL, INC.,
A NEVADA CORPORATION
By: /s/ Thomas K. Land
-------------------------
Its: Sr. V.P. & CEO
-------------------------
21
<PAGE>
LEASE SCHEDULE NO. 1
TO EQUIPMENT LEASE
This Lease Schedule No. 1 is attached to and made a part of the Master
Lease Agreement ("Lease") between Videotronics, Inc., a Nevada corporation
("Lessor") and Santa Fe Hotel, Inc., a Nevada corporation ("Lessee") dated
January 31, 1996.
1. Description of Equipment: The Equipment listed on Attachment "A" to
this Lease Schedule is added to the Equipment leased under the Lease and made
subject to the provisions of the Lease.
2. Commencement Date: The Commencement Date for the Equipment leased
under this Schedule is January 31, 1996.
3. Termination: The Term shall commence on the Commencement Date and
shall terminate February 28, 1998.
4. The Basic Rent due each month during the Term for the Equipment
described herein is as follows:
a. The first payment under this Lease Schedule in the amount of
$71,448.00 shall be due and payable on March 1, 1996.
b. The remaining payments are due on the first day of each month
thereafter through and including February 1, 1998 in the amount
of $71,448.00.
c. In addition to the monthly Basic Rent due as set forth above,
Lessee shall pay Lessor an amount equal to all taxes which may be
imposed by any Federal, State or local authority from time to
time except any taxes based upon the income of Lessor.
5. All of the provisions of the above-mentioned Lease are
<PAGE>
incorporated by reference herein as if set forth fully herein.
Dated: January 31, 1996.
LESSOR: VIDEOTRONICS, INC.,
a Nevada corporation
By: /s/ Neil Netley
------------------
Its: President
------------------
LESSEE: SANTA FE HOTEL, INC.,
a Nevada corporation
By: /s/ Thomas K. Land
------------------
Its: Sr. VP & CFO
------------------
2
<PAGE>
EXHIBIT 10.124
GUARANTY OF LEASE
--------
January 31, 1996
FOR VALUE RECEIVED, and in order to induce Videotronics, Inc., a Nevada
corporation ("Lessor"), to enter into, execute and deliver that certain Master
Lease Agreement and Lease Schedule No. 1, each dated January __, 1996
(hereinafter collectively referred to as the "Lease"), between Lessor and Santa
Fe Hotel, Inc., a Nevada corporation ("Lessee"), the undersigned ("Guarantor,"
whether one or more) hereby absolutely and unconditionally guarantees to said
Lessor, its successors and assigns, the due and prompt performance and
observance of all of the obligations of said Lease to be met by Lessee,
including but not limited to the payment of rent and other payments to be made
under the Lease. The undersigned agrees that no act or thing, except for
payment in full or written release of this Guaranty by Lessor, which but for
this provision might or could at law or in equity act as a release of the
liability of the undersigned hereunder, shall in any way affect or impair the
absolute and unconditional obligation of the undersigned. This Guaranty shall
be a continuing, absolute and unconditional Guaranty and shall be in full force
and effect until all amounts due and owing under the Lease are paid in full,
notwithstanding the expiration or sooner termination of the Lease or for the
term of the Lease and any renewals thereof or until this Guaranty has been
released in writing by Lessor, whichever occurs first. The undersigned hereby
waives all notices and protests, as well as all defenses and offsets which could
or may in any way be asserted against said Lessor, either on the part of Lessee
or by the Guarantor itself. This Guaranty shall inure to the benefit of the
successors and assigns of said Lessor, including any subsequent holder of
Lessor's interest in the Lease. The undersigned hereby waives notice of the
execution of the Lease; waives notice of the date of commencement of said Lease
and of any assignment or transfer of Lessor's interest in the Lease and agrees
to be bound by the terms of this Guaranty to any subsequent transferee or
assignee of Lessor without further notice or acceptance by such transferee or
assignee. Additionally, the undersigned Guarantor agrees to reimburse Lessor
for any and all reasonable costs or expenses, including reasonable legal fees,
incurred by Lessor in enforcing the terms and conditions of the Lease or this
Guaranty.
The undersigned hereby agrees that the Lessor may from time to time without
notice to or consent of the undersigned and upon such terms and conditions as
the Lessor may deem advisable without affecting this Guaranty (a) release any
maker, surety or other person liable for payment of all or any part of the
obligations under the Lease; (b) make any agreement extending or otherwise
altering the time for or the terms of payment of rent and/or fulfillment of the
obligations of Lessee under the Lease; (c) modify, waive, compromise, release,
subordinate, resort to,
<PAGE>
exercise or refrain from exercising any right the Lessor may have hereunder,
under the Lease or any other security given for payment of rent and/or
fulfillment of other obligations of Lessee under the Lease; (d) accept
additional security or guarantees of any kind; (e) transfer or assign the Lease
to any other party; (f) accept from Lessee or any other party partial payment or
payments on account of the Lease; (g) release, settle or compromise any claim of
the Lessor against the Lessee, or against any other person, firm or corporation
whose obligation is held by the Lessor as security for the payment of rent
and/or the fulfillment of other obligations of Lessee under the Lease.
The undersigned hereby unconditionally and absolutely waives (a) any
obligation on the part of the Lessor to protect, secure or insure any of the
Leased Premises; (b) the invalidity or unenforceability of the Lease; (c) notice
of acceptance of this Guaranty by the Lessor; (d) notice of presentment, demand
for payment, notice of non-performance, protest, notices of protest and notices
of dishonor, notice of non-payment or partial payment; (e) notice of any
defaults under the lease or in the performance of any of the covenants and
agreements contained therein or in any instrument given as security for the
Lease; (f) any defense, offset or claim the Lessee or the undersigned may have
against the Lessor; (g) any limitation or exculpation of liability on the part
of the Lessee whether contained in the Lease or otherwise; (h) any transfer by
the Lessee; (i) any failure, neglect or omission on the part of Lessor to
realize or protect the equipment leased pursuant to the Lease (the "Leased
Equipment") or any security given therefor; (j) any right to insist that the
Lessor proceed against the Lessee or against any other Guarantor or surety prior
to enforcing this Guaranty; provided, however, at its sole discretion the Lessor
may either in a separate action or an action pursuant to this Guaranty pursue
its remedies against the Lessee or any other Guarantor or surety, without
affecting its rights under this Guaranty; or (k) any order, method or manner of
application of any payments on the Lease.
Without limiting the generality of the foregoing, the undersigned will not
assert against the Lessor any defense of waiver, release, discharge in
bankruptcy, statute of limitations, res judicata, statute of frauds, anti-
deficiency statute, fraud, ultra vires acts, usury, illegality or
unenforceability which may be available to the Lessee in respect of the Lease,
or any setoff available against the Lessor to the Lessee whether or not on
account of a related transaction.
The undersigned further agrees that no act or thing which, but for this
provision, might or could at law or in equity act as a release of the
liabilities of the undersigned hereunder, shall in any way affect or impair this
Guaranty and the undersigned agrees that this shall be a continuing, absolute
and unconditional Guaranty and shall be in full force and effect until the
2
<PAGE>
indebtedness Guaranty has been paid in full.
The undersigned agrees this Guaranty is executed in order to induce the
Lessor to lease the Leased Equipment to Lessee with the intent that it be relied
upon by the Lessor. This Guaranty shall run with the Leased Equipment and
without the need for any further assignment of this Guaranty to any subsequent
owner of the Leased Equipment or the need for any notice to the undersigned
thereof. Upon assignment of the Lease to any subsequent party, said subsequent
party may enforce this Guaranty as if said party had been originally named as
Lessor hereunder.
No right or remedy herein conferred upon or reserved to the Lessor is
intended to be exclusive of any other available remedy or remedies but each and
every remedy shall be cumulative and shall be in addition to every other remedy
given under this Guaranty or now or hereafter existing at law or in equity. No
waiver, amendment, release or modification of this Guaranty shall be established
by conduct, custom or course of dealing, but only by an instrument in writing
duly executed by Lessor.
This Guaranty and each and every part hereof, shall be binding upon the
undersigned and upon its heirs, administrators, representatives, executors,
successors and assigns and shall inure to the pro rata benefit of each and every
future Lessor under the Lease, including the heirs, administrators,
representatives, executors, successors and assigns of the Lessor.
The undersigned expressly agrees that the liability and obligations under
this Guaranty shall not in any way be affected by the institution by or against
the Lessee of any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or any other similar proceedings for relief under any
bankruptcy law or similar law for relief of debtors and that upon the
institutions of any of the above actions, at the Lessor's sole discretion and
without any notice thereof or demand therefor, the entire unpaid rent and other
payments due under the Lease shall become immediately due and payable and
enforceable against the Guarantor.
This Guaranty is executed under and intended to be construed by the laws of
the State of Nevada. The undersigned consents to be sued in the jurisdiction
and venue of any District Court in the State of Nevada, such jurisdiction and
venue to be determined at the sole option and election of Lessor.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be executed
as of the 31st day of January, 1996.
GUARANTOR: SAHARA GAMING CORPORATION,
a Nevada Corporation
By: /s/ Thomas K. Land
----------------------
Its: Sr. V.P. CFO
----------------------
4
<PAGE>
EXHIBIT 10.125
NOTICE, CONSENT AND ACKNOWLEDGMENT OF ASSIGNMENT
THIS NOTICE, CONSENT AND ACKNOWLEDGMENT OF ASSIGNMENT is made and entered
into as of the 31st day of January, 1996, by and between VIDEOTRONICS, INC., a
Nevada corporation ("Lessor"), SANTA FE HOTEL, INC., a Nevada corporation
("Lessee"), SAHARA GAMING CORPORATION, a Nevada corporation ("Guarantor"), PDS
FINANCIAL CORPORATION, a Minnesota corporation ("Assignee") and MILLER &
SCHROEDER INVESTMENTS CORPORATION, a Minnesota corporation ("M&S").
PRELIMINARY RECITALS
A. Lessor is leasing to Lessee certain equipment and personal property
(the "Equipment") pursuant to Master Lease Agreement dated January 31, 1996 and
Lease Schedule No. 1 thereto, dated of even date therewith, entered into by and
between Lessor and Lessee (collectively, the "Lease").
B. Guarantor has guaranteed all obligations of Lessee under the Lease
pursuant to a Guaranty of Lease (the "Guaranty") dated January 31, 1996.
C. The Lessor has assigned to Assignee, its right, title and interest in
and to all payments due and to become due under the Lease and Guaranty.
D. The Assignee has further transferred and assigned to M&S, an undivided
interest in Assignee's right, title and interest in and to all payments due and
to become due under the Lease and Guaranty.
E. M&S and Assignee desire to notify Lessor, Lessee and Guarantor of the
assignment of the rental payments due under the Lease and to enter into certain
agreements in regard thereto.
NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00) and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Lessor, Lessee, Guarantor, Assignee and M&S agree as follows:
1. Notice of Assignment. M&S and Assignee hereby give notice to Lessor,
--------------------
Lessee and Guarantor that Assignee has assigned the rental payments
payable under the Lease, and has granted a security interest in the
Equipment leased thereunder, to M&S. Notwithstanding the foregoing,
until such time as Lessee receives written notification from M&S to
make payments due under the Lease to M&S, Lessee shall continue to
make all such payments to Assignee. Such assignment of the rental
payments is effective with the rental payment due on March 1, 1996,
from which time all payments
<PAGE>
owing by Lessee or Guarantor to Lessor under the Lease or the
Guaranty, respectively, are to be made directly to PDS at the
following address:
PDS Financial Corporation
6442 City West Parkway, Suite 300
Eden Prairie, MN 55346
This Assignment is irrevocable on the part of the Assignee and may not be
amended, withdrawn, rescinded or canceled without the written consent of
M&S.
2. Consent and Acknowledgment. Lessee and Guarantor acknowledge receipt
--------------------------
of notice of, and consent to, such assignment and agrees as follows:
(a) Lessee's and Guarantor's obligations, to pay rent and all other
sums under the Lease and Guaranty, respectively, are absolute and
unconditional, and Lessee and the Guarantor shall pay to M&S all rent
and other sums under the Lease and the Guaranty directly to M&S,
without abatement, reduction, set-off, counterclaim, recoupment,
defense, deferment or interruption for any reason whatever, and said
obligations shall continue in all events and shall not be terminated
or affected in any regard as a result of any reason, cause or event
whatever; (b) the Lease is in full force and effect and a true and
correct copy of the Lease is attached hereto as Exhibit "A"; (c) no
default exists on the part of Lessee or, to the knowledge of Lessee
and Guarantor, Lessor in the performance of their respective
obligations under the Lease; (d) M&S shall not be chargeable with any
obligations or liabilities under the Lease; (e) the Equipment has been
delivered to the location set forth in the Lease, found to be in good
working order and accepted as the Equipment under the Lease; (f)
Lessee will send copies of all notices which are required to be sent
to Lessor under the Lease to M&S as well; and (g) Lessee will not
permit the Lease or any of its provisions to be amended or waived and
Lessee will not rely on any consents given by Lessor, without the
prior written consent of M&S, which shall not be unreasonably
withheld.
3. Reaffirmation of Lease. Lessee hereby affirms the Lease and this
----------------------
Notice, Consent and Acknowledgment of Assignment. There have been no
prepayments of rent or other payments due under the Lease.
4. Reaffirmation of Guaranty. Guarantor hereby affirms the Guaranty and
-------------------------
this Notice, Consent and Acknowledgment of Assignment.
<PAGE>
5. M&S's Rights. This instrument is executed to induce M&S to advance
------------
funds to Assignee, and M&S shall be entitled to rely on the terms
contained herein and to enforce this instrument.
6. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of each of the parties hereto, and their
respective successors and assigns.
7. Reaffirmation of Repossession Agreement. Lessor hereby consents to
---------------------------------------
the above referenced assignment to M&S and affirms its obligation
under the Repossession Agreement dated January 31, 1996 between Lessor
and Assignee in favor of M&S.
8. Gaming Approval. Lessor, Assignee and M&S hereby agree that they will
---------------
seek all necessary approvals from the Nevada Gaming Commission with
respect to the above-referenced assignments.
Executed as of the date first above-written.
VIDEOTRONICS, INC.,
A NEVADA CORPORATION
By: /s/ Neil Netley
--------------------------
Its: President
--------------------------
SANTA FE HOTEL, INC.,
A NEVADA CORPORATION
By: /s/ Thomas K. Land
--------------------------
Its: Sr. V.P & CEO
--------------------------
SAHARA GAMING CORPORATION,
A NEVADA CORPORATION
By: /s/ Thomas K. Land
--------------------------
Its: Sr. V.P. & CFO
--------------------------
<PAGE>
PDS FINANCIAL CORPORATION,
A MINNESOTA CORPORATION
By: /s/ David R. Mylrea
--------------------------
Its: COO
--------------------------
MILLER & SCHROEDER INVESTMENTS CORPORATION,
A MINNESOTA CORPORATION
By: /s/ E. J. Hentges
--------------------------
Its: President
--------------------------
<PAGE>
EXHIBIT 10.126
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT ("Lease") is made and entered into this 15 day
of April, 1996, by and between Videotronics, Inc., a Nevada corporation
("Lessor"), whose address is 1315 Greg Street, Suite 108, Sparks, Nevada 89431
and Santa Fe Hotel, Inc., a Nevada corporation ("Lessee"), whose address is 4949
North Rancho Drive, Las Vegas, Nevada 89109.
PRELIMINARY RECITALS
--------------------
A. Lessor desires to lease to Lessee, and Lessee desires to lease from
Lessor in accordance with the terms and conditions contained herein, certain
equipment more fully described in the Lease Schedule or Schedules attached
hereto and made a part hereof. Each such Lease Schedule now or hereafter
attached hereto shall be referred to herein as a "Lease Schedule", and all
equipment described in such Lease Schedules shall be collectively referred to as
the "Equipment" and individually referred to as a "Unit."
B. The term of this Lease with respect to the Equipment described in a
particular Lease Schedule shall commence on the date set forth in such Lease
Schedule (the "Commencement Date").
C. The Equipment is to be installed in and to be used in connection with
the gaming operations operated by Lessee at the Lessee's hotel and casino
facility in located in Las Vegas, Nevada having a street address of 4949 North
Rancho Drive, Las Vegas, Nevada 89109 (the "Premises").
NOW THEREFORE, in consideration of the foregoing, the sum of One Dollar
($1.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Lessor agrees to lease to Lessee and Lessee
agrees to lease from Lessor the Equipment designated in any Lease Schedule now
or hereafter executed and delivered by each of Lessor and Lessee and
incorporating by reference the terms of this Lease on the following terms and
conditions:
1. LEASE. This Lease establishes the general terms and conditions by which
-----
Lessor shall lease to Lessee the Equipment. Each such Lease Schedule shall be
in the form provided by Lessor and shall incorporate by reference the terms of
this Lease. If the provisions of a Lease Schedule conflict with the provisions
of this Lease, the provisions of such Lease Schedule shall prevail.
2. TERM: RENT AND PAYMENT; RENEWAL.
--------------------------------
2.1 TERM. The term of this Lease with respect to the Equipment described
in a particular Schedule shall begin on its
<PAGE>
Commencement Date and continue until midnight of the Termination Date as
specified in such Lease Schedule ("Term"). The "Commencement Date" as used
herein for any Equipment is to be the date set forth on the Lease Schedule
relating to that Equipment.
2.2 RENT AND PAYMENT. Lessee's obligation to pay rent for each item of
Equipment shall commence on the Commencement Date and continue for the Term.
Each payment of the Basic Rent set forth on the Lease Schedule shall be payable
without notice or demand on the Commencement Date and on the first day of each
month thereafter ("Rent Date"). Lessor shall be paid the first month's Basic
Rent in advance on the Commencement Date. Should the Commencement Date occur
other than on the first day of a month, the first month's Basic Rent shall also
include an amount equal to the Basic Rent pro rated to the number of days from
and after the Commencement Date to the first day of such succeeding month, all
as set forth in the Lease Schedule. Any amounts payable by Lessee, other than
Basic Rent, shall be deemed Additional Charges and, unless otherwise provided
herein, shall be payable on the Rent Date next following the date upon which
they accrue or the last day of the Term, whichever is earlier. As an
accommodation to Lessee, but not as a condition precedent for payment, Lessor
may, but shall not be obligated to, invoice Lessee prior to the applicable Rent
Date. Lessee shall make all payments at the address of Lessor set forth above
or at such other address as Lessor may designate in writing. As used herein,
the term "Rent" shall mean all Basic Rent and Additional Charges invoiced to
Lessee. All Rent shall be paid without notice or demand and without abatement,
deduction or setoff of any amount whatsoever and regardless of the condition,
operation or use of the Equipment.
2.3 LATE CHARGE. If any Rent is not received by Lessor or its Assignees
within fifteen (15) days of when due, a late charge on such Rent shall be due
and payable with such Rent in an amount equal to four percent (4%) on the amount
past due or any part thereof, as reimbursement for administrative costs and not
as a penalty.
2.4 LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee fails to
comply with any of its covenants or obligations herein, Lessor may, at its
option, perform such covenants or obligations on Lessee's behalf without thereby
waiving such conditions or obligations or the failure to comply therewith and
all sums advanced by Lessor in connection therewith shall be repayable by Lessee
as Additional Charges. No such performance shall be deemed to relieve Lessee of
its obligations herein.
3. CERTIFICATE OF ACCEPTANCE. Lessee shall deliver to Lessor a certificate of
-------------------------
delivery, installation and acceptance ("Certificate of Acceptance") in the form
attached as Exhibit "A" on the Commencement Date. If Lessee fails to so deliver
such Certificate
-2-
<PAGE>
of Acceptance, Lessee shall be deemed to have accepted the Equipment as of such
Commencement Date.
4. NET LEASE: QUIET ENJOYMENT.
--------------------------
4.1 NET LEASE. This Lease including each Lease Schedule is a net lease
and Lessee's obligation to pay all Rent due and the rights of Lessor or its
assignees in, and to, such Rent shall be absolute and unconditional under all
circumstances, notwithstanding: (i) any setoff, abatement, reduction,
counterclaim, recoupment, defense or other right which Lessee may have against
Lessor, its assignees, the manufacturer or seller of any Unit, or any other
person for any reason whatsoever, including, without limitation, any breach by
Lessor of this Lease; (ii) any defect in title, condition, operation, fitness
for use, or any damage to or destruction of, the Equipment; (iii) any
interruption or cessation of use or possession of the Equipment for any reason
whatsoever; (iv) any insolvency, bankruptcy, reorganization or similar
proceedings instituted by or against Lessee; or (v) any other circumstances
happening, or event whatsoever, whether or not unforeseen or similar to any of
the foregoing.
4.2 QUIET ENJOYMENT. Subject to the provisions of Paragraph 8.2
hereinafter, Lessor covenants that it shall take no action to disturb Lessee's
quiet enjoyment of the Equipment during the Term, provided Lessee is not in
default hereunder.
5. USE: MAINTENANCE; IDENTIFICATION AND INSPECTION.
-----------------------------------------------
5.1 USE AND REPAIRS.
a. Lessee shall keep and use the Equipment on the Premises solely for the
purpose of operating a gaming establishment therein.
b. Lessee shall comply in all material respects with manufacturer
instructions relating to the Equipment and all applicable laws,
ordinances, rules and regulations of any lawfully constituted
governmental unit having jurisdiction over Lessee's gaming
establishment and operations, and shall hold Lessor harmless of any of
the foregoing.
c. Lessee shall pay all costs and expenses associated with the delivery,
any installation, use relocation, de-installation and return of the
Equipment.
d. Lessee shall retain uninterrupted possession and control of the
Equipment and shall at all times use it solely and continuously in the
conduct of Lessee's business for business purposes only and not for
any personal, family or household purposes.
-3-
<PAGE>
5.2 MAINTENANCE. Lessee shall at all times and, at its sole cost and
expense, properly use and keep and maintain each Unit of the Equipment in good
operating condition, repair and maintenance, and protect the same from
deterioration, other than normal wear and tear, and shall use each Unit in the
regular course of its business only, without abuse, and in a manner contemplated
by the manufacturer thereof.
5.3. IDENTIFICATION AND INSPECTION. Upon request by Lessor, Lessee shall
mark each Unit conspicuously with appropriate labels or tags furnished by Lessor
and maintain such markings through the Term to clearly disclose that said Unit
is being leased from Lessor. Subject to Lessee's reasonable security
requirements and all gaming laws and regulations, Lessee shall permit Lessor's
representatives to enter the Premises where any Unit is located to inspect such
Unit. Further, upon an Event of Default the Lessor shall have the right during
normal business hours to demonstrate and show the Equipment to others as long as
Lessor's demonstration does not interfere with Lessee's gaming operations.
6. LOCATION: LIENS AND ENCUMBRANCES.
--------------------------------
6.1 EQUIPMENT LOCATION. Lessee shall keep the Equipment on the Premises
and shall not relocate or remove any Unit unless Lessor consents, in writing,
prior to its relocation or removal. Such consent shall not be unreasonably
withheld. Lessor's consent shall not be required for the relocation of
Equipment within the Premises in the ordinary course of Lessee's gaming
operations or the removal of Equipment for maintenance and repairs.
6.2 PERSONAL PROPERTY. Each Unit is personal property and not a fixture
and Lessee shall not affix any Unit to realty so as to change its nature to a
fixture or real property and agrees that each Unit shall remain personal
property during the Term.
a. Lessor expressly retains ownership and title to the Equipment; and
shall have the right to display notice of its ownership by affixing to
the Equipment an identifying plate, stencil or other indica of
ownership. Within thirty (30) days following written request of
Lessor, Lessee shall obtain waivers of all right, title and interest
in the Equipment from any landlord, mortgagee, or beneficiary under a
deed of trust with respect to the Premises. To assure and protect
Lessor's rights in and to the Equipment, Lessee shall execute and
deliver such other and further documents as Lessor may request to
confirm the interest of Lessor hereunder and shall pay to Lessor, on
demand, reasonable expenses incurred by Lessor in connection with the
preparation, execution, and filing of any such documents. Lessee
hereby authorizes, empowers, and grants a power of attorney to Lessor
to record this Lease and/or execute and file or record, on
-4-
<PAGE>
Lessee's behalf, any certificates, memorandums, statements, refiling,
and continuations thereof as Lessor deems necessary or advisable to
preserve and protect its interest hereunder.
b. The parties intend to create a lease agreement and the relationship of
lessor and lessee between themselves. Nothing in this Lease shall be
construed or interpreted to create or imply the existence of a finance
lease or installment lease contract.
c. Lessor makes no representation regarding the treatment of this Lease,
the Equipment or the payment of obligations under this Lease for
financial statement reporting or tax purposes.
6.3 LIENS AND ENCUMBRANCES. Title to the Equipment is and shall remain in
Lessor or its Assignees. Unless otherwise provided herein, Lessee shall not
directly or indirectly create, incur or suffer a mortgage, claim, lien, charge,
encumbrance or the legal process of a creditor of Lessee of any kind upon or
against any Unit. Lessee shall at all times protect and defend, at its own cost
and expense, the title of Lessor from and against such mortgages, claims, liens,
charges, encumbrances and legal processes of creditors of Lessee and shall keep
all the Equipment free and clear from all such claims, liens and legal
processes. If any such lien or encumbrance is incurred, Lessee shall
immediately notify Lessor and shall take all reasonable actions required by
Lessor to remove the same; provided Lessee may contest any lien or encumbrance
if (i) Lessee acts in good faith, (ii) Lessee undertakes such content and
continues the same in good faith, and (iii) deposits with Lessor such reasonable
security as Lessor may reasonably require to protect Lessor against the
enforcement of the lien being contested and loss of the Equipment.
7. RETURN OF EQUIPMENT.
-------------------
7.1 DUTY OF RETURN. Unless Lessee exercises its options to purchase,
extend or renew as set forth in Paragraph 17 hereof, at the expiration of the
Term or termination of the Lease, Lessee at its expense shall return each Unit
to Lessor or its designee at the destination within the continental United
States and by surface transportation specified by Lessor. Such return shall not
be deemed to have occurred until and unless each Unit conforms to all of the
manufacturer's specifications with respect to normal function, capability,
design and condition (less normal wear and tear), if such is customarily
available.
7.2 FAILURE TO RETURN. Notwithstanding any other rights and remedies
Lessor has hereunder in an Event of Default, if Lessor shall require the
Equipment to be delivered to a designated address and Lessee fails to so return
the Equipment to Lessor or its
-5-
<PAGE>
designee at such designated address within thirty (30) days following expiration
of the Term or termination of the Lease, then (i) Lessee shall pay on demand a
per diem amount equal to one hundred fifty percent (150%) of the daily Basic
Rent [determined by dividing the Basic Rent by thirty (30)] for each day after
the expiration of such thirty (30) days and for each day thereafter, as
liquidated damages and not as a penalty, until so returned, it being understood
and agreed to by Lessor and Lessee that Lessor's actual damages would be
difficult or impossible to determine; and (ii) Lessee shall have no further
right to the Equipment, but until the Equipment is so returned, this Lease shall
remain in full force and effect as to all obligations of the Lessee thereunder.
8. RISK OF LOSS: INSURANCE.
-----------------------
8.1 RISK OF LOSS. As between Lessor and Lessee, Lessee shall bear the
risk of all loss or damage to any Unit or caused by any Unit during the period
from the time the Unit is shipped by its vendor until the time it is returned as
provided herein. Lessor shall not be obligated to undertake by litigation or
otherwise the collection of any claim against any person for loss or damage to
the Equipment.
8.2 BUY-OUT. In the event at any time or times during the Term of this
Lease the Equipment shall be taken or condemned by an authority having the power
of eminent domain, or if Lessor or its successors or assigns is prohibited by
law from acting as a Lessor of any of the Equipment leased hereunder, or if more
than 50% of the Equipment shall be damaged or destroyed by fire, the elements or
other casualty, event or loss, either Lessor or Lessee on written notice to the
other party may terminate this Lease and Lessee shall purchase the subject
equipment by paying to Lessor an amount equal to the greater of the fair market
value of the Equipment as of the date of such event or loss as determined by an
independent appraiser mutually selected by Lessor and Lessee, or the aggregate
remaining installment payments of monthly Rent hereunder, in either case less
the net amount of the recovery, if any, actually received by Lessor from
insurance or otherwise for such loss or damage.
8.3 UNIT REPLACEMENT. Except as otherwise provided in Section 8.2 above,
if any Unit is lost, stolen, destroyed, seized by governmental action or, in
Lessee's reasonable opinion or Lessor's reasonable opinion, materially damaged
through no fault of Lessor ("Event of Loss"), this Lease shall remain in full
force and effect without abatement of Rent and Lessee shall promptly replace
such Unit at its sole expense with a Unit of equivalent value and utility, and
similar kind and in substantially the same condition as the replaced Unit
immediately prior to the Event of Loss. Title to such replacement unit
immediately shall vest and remain in Lessor, and such unit shall be deemed a
Unit under this Lease. Upon such vesting of title and provided Lessee is not
in default
-6-
<PAGE>
under this Lease, Lessor shall cause to be paid to Lessee or the vendor of the
replacement unit any insurance proceeds actually received by Lessor for the
replacement Unit. Lessee shall promptly notify Lessor of any Event of Loss and
shall provide Lessor with and shall enter into, execute and deliver such
documentation as Lessor shall reasonably request with respect to the replacement
of any such Unit in accordance with this Section 8.3.
8.4 INSURANCE.
a. Lessee shall obtain and maintain in full force and effect all risk,
full replacement cost property damage insurance on the Premises (i)
comprehensive personal liability, (ii) all risk property damage on the
Equipment in amounts reasonably acceptable to Lessor but in no event
less than the actual replacement cost, and (iii) workers compensation
insurance. If liquor is served on the Premises, Lessee shall obtain
and maintain dram shop coverage in full force and effect. Such
insurance shall: i) name Lessor and its Assignees, if any, as
additional insureds and first loss payees as their interests may
appear; and ii) provide that the policy may not be canceled or
materially altered without thirty (30) days prior written notice to
Lessor and its Assignees.
b. All such insurance shall be placed with companies having a rating of
at least A, Class XII or better by Best's rating service and
authorized to do business in Nevada and shall be in amounts and with
co-insurance limits approved by Lessor. Lessee shall furnish to
Lessor, upon request and throughout the Term, insurance certificates
of a kind and in amounts satisfactory to Lessor and its Assignees
showing the existence of the insurance required hereunder and premium
paid.
9. LESSOR'S PURCHASE AND PERFORMANCE.
---------------------------------
9.1 PURCHASE DOCUMENTATION. Upon receipt of a Lease Schedule executed and
delivered by Lessee acceptable to Lessor and after acceptance thereof by Lessor,
Lessor may execute appropriate purchase documentation, and Lessee shall bear all
responsibilities and perform all obligations of Lessor thereunder other than
payment of the purchase price.
10. TAXES.
-----
10.1 TAXES. Lessee agrees to report, file, pay promptly when due to the
appropriate taxing authority and indemnify, defend, and hold Lessor harmless
from and against any and all taxes (including gross receipts), assessments,
license fees and other federal, state or local governmental charges of any kind
or nature, together with any penalties, interest or fines related thereto
(collectively,
-7-
<PAGE>
"Taxes") that pertain to the Equipment, its purchase, or this Lease and which
accrue prior to return of the Equipment to Lessor or its designee, whether
assessed against Lessor or Lessee, except such Taxes based solely upon the net
income of Lessor. Where applicable law requires the filings to be made by
Lessor, Lessor hereby authorizes and appoints Lessee and Lessee agrees to act as
Lessor's limited attorney-in-fact to file and pay the same subject to Lessee's
right to review and approve same. On all such reports or returns required
hereunder, Lessee shall show the ownership of the Equipment by Lessor within 45
days after the due date of such filing of Lessee and shall send to Lessor
confirmation in form satisfactory to Lessor of such filing.
10.2 LESSOR'S FILING OF TAXES. Notwithstanding the foregoing, Lessor at
its election may report and file sales and/or use taxes which are filed and paid
periodically through the Term, and the amounts so due may be invoiced to Lessee
and payable as specified therein subject to Lessee's right to review and approve
same.
10.3 RIGHT OF CONTEST. Lessee shall not be obligated to pay any Taxes if
it shall, at its own cost and expense, contest in good faith and by appropriate
proceedings the validity or the amount thereof, unless such contest would
adversely and materially affect the title of Lessor to any Unit. Lessor may at
its election require Lessee to escrow with Lessor or an escrow holder appointed
by Lessor an amount sufficient to pay such taxes and interest and penalties
thereon if Lessee should lose such contest. Such escrowed amount shall be
placed in an interest bearing account with interest accruing in Lessee's favor.
11. INDEMNIFICATION.
---------------
a. Except for the gross negligence, willful misconduct or bad faith, its
employees or agents, Lessee hereby assumes liability for and agrees to
indemnify, defend, protect, save and hold harmless the Lessor, its
agents, employees, directors and assignees from and against any and
all losses, damages (including without limitation Lessee's loss of
business or profits or other consequential damages), injuries, claims,
penalties, demands and all expenses, legal or otherwise (including
attorneys' fees) of whatever kind and nature arising from the
purchase, ownership, seizure, attachment, encumbrance, installation,
de-installation, delivery, return, manufacture, purchase, use or other
control (including patent or other infringements), condition
(including without limitation latent defects, whether or not
discoverable by Lessor), operation or maintenance of the Equipment,
until the Equipment is returned to Lessor. Any claim, defense,
setoff, or other right of Lessee against any such indemnified parties
shall not in any way
-8-
<PAGE>
affect, limit, or diminish Lessee's indemnity obligations hereunder.
b. Lessee shall notify Lessor promptly as to any claim, suit, action,
damage (including to the Equipment), or injury covered by this section
and of which Lessee has actual or other notice and shall, at its own
cost and expense, defend any and all suits which may be brought
against Lessor, either alone or in conjunction with others upon any
such liability or claim or claims and shall satisfy, pay and discharge
any and all final judgments and fines that may be recovered against
Lessor in any such action or actions, provided, however, that Lessor
shall give Lessee prompt written notice of any such claim or demand.
Lessee agrees that its obligations under this Section 11 shall survive
the expiration or termination of this Lease. Lessee and Lessor agree
to cooperate with each other, to the extent that there are no
conflicts of interests, in the settlement or defense of any actions or
claims relating thereto.
12. REPRESENTATIONS AND WARRANTIES.
------------------------------
a. Lessee represents and warrants to Lessor that:
i) the making of this Lease and any Lease Schedule executed by
Lessee is duly authorized on the part of Lessee and that upon
due execution thereof by Lessee and Lessor they shall
constitute valid obligations binding upon, and enforceable
against, Lessee in accordance with their terms;, except insofar
as their enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership or similar
laws affecting creditors right generally, or principles of
equity;
ii) neither the making of this Lease or such Lease Schedule, nor
the due performance by Lessee, including the commitment and
payment of the Rent, shall result in any breach of, or
constitute a default under, or violation of, Lessee's
certificate of incorporation, by-laws, or any material
agreement to which Lessee is a party or by which Lessee is
bound;
iii) no approval or consent not already obtained or withholding of
objection is required from any governmental authority with
respect to the entering into, or performance of this Lease or
any Lease Schedule by Lessee except where the failure to obtain
such approval or consent would not
-9-
<PAGE>
result in a material adverse effect on the financial condition
of Lessee;
iv) Lessee has obtained all material licenses and permits required
under the Gaming Act or other applicable laws or regulations
(the "Gaming Laws") for the operation of its business.
b. Lessee shall provide to Lessor an opinion of counsel, certified
resolution of the board of trustees/directors of Lessee, and a
certificate of incumbency and such other documents, all in a form
reasonably acceptable to Lessor, if so requested.
c. Lessee shall notify the Chairman of the Nevada State Gaming Control
Board to whom it is making monthly lease payments.
13. DISCLAIMERS; MANUFACTURERS WARRANTIES.
-------------------------------------
13.1 LESSOR'S DISCLAIMERS. LESSEE ACKNOWLEDGES THAT EACH UNIT IS OF THE
DESIGN, CAPACITY AND MANUFACTURE SPECIFIED FOR AND BY THE LESSEE AND THAT LESSEE
IS SATISFIED THAT THE SAME IS SUITABLE FOR LESSEE'S PURPOSES. LESSEE AGREES,
REGARDLESS OF CAUSE, NOT TO ASSERT ANY CLAIM WHATSOEVER AGAINST LESSOR FOR LOSS
OF ANTICIPATORY PROFITS OR CONSEQUENTIAL DAMAGES. LESSOR EXPRESSLY DISCLAIMS
ANY AND ALL WARRANTIES WITH RESPECT TO THE EQUIPMENT WHETHER EXPRESSED OR
IMPLIED. Without limiting the generality of the foregoing it is intended by the
parties to exclude any and all implied warranties of merchantability and fitness
for particular purposes. NO SALESMAN OR AGENT OF LESSOR IS AUTHORIZED TO WAIVE
OR ALTER ANY TERM OF THIS LEASE OR MAKE ANY REPRESENTATION REGARDING THE
EQUIPMENT.
13.2 TESTING AND INSTALLATION. As to each Unit of Equipment incorporated
in a Lease Schedule, Lessee warrants that upon execution of the Certificate of
Acceptance such Equipment has been installed and tested to Lessee's satisfaction
and is in good order and working condition.
14. ASSIGNMENT OF LEASE.
-------------------
14.1 ASSIGNMENT OF LESSOR. Lessee acknowledges and agrees that Lessor has
entered into this Lease and shall enter into each Lease Schedule in anticipation
of assigning, mortgaging, or otherwise transferring its interest thereunder
and/or in the Equipment to others ("Assignees") without notice to, or consent
of, Lessee unless required by the laws of the State of Nevada and the
regulations of the Nevada Gaming Commission. PROVIDED, HOWEVER, THAT ANY
ASSIGNMENT, MORTGAGE OR OTHER TRANSFER OF ANY INTEREST IN THE EQUIPMENT OR THE
RIGHT TO RECEIVE THE MONTHLY LEASE PAYMENTS HEREUNDER MUST COMPLY WITH THE LAWS
OF THE STATE OF NEVADA AND THE REGULATIONS OF THE NEVADA GAMING COMMISSION, AND
SHALL OCCUR ONLY
-10-
<PAGE>
AFTER RECEIPT OF ALL APPROVALS REQUIRED THEREUNDER AND AFTER WRITTEN NOTICE BY
THE ASSIGNING PARTY TO THE CHAIRMAN OF THE NEVADA STATE GAMING CONTROL BOARD.
ANY ASSIGNEE WILL BE SUBJECT TO SUCH GAMING LAWS AND REGULATIONS AS A HOLDER OF
EVIDENCE OF INDEBTEDNESS OF A CORPORATE LICENSEE AND, ACCORDINGLY, MAY BE
REQUIRED TO FILE AN APPLICATION, BE INVESTIGATED, AND HAVE ITS SUITABILITY
DETERMINED BY THE NEVADA GAMING COMMISSION PURSUANT TO NEVADA REVISED STATUTE
SECTION 463.530. SUCH ASSIGNEE MUST PAY ALL COSTS OF INVESTIGATION INCURRED BY
THE NEVADA STATE GAMING CONTROL BOARD AND THE NEVADA GAMING COMMISSION.
Accordingly, Lessee and Lessor agree that:
a. upon such assignment that complies with this section and the laws of
the State of Nevada and regulations of the Nevada Gaming Commission,
Lessee shall:
i) upon Lessor's request acknowledge such assignment in writing by
executing the notice of Acknowledgement of Assignment furnished
by Lessor;
ii) promptly pay all Rent when due to the designated Assignees,
notwithstanding any defense, setoff, abatement, recoupment,
reduction or counterclaim whatsoever that Lessee may have
against Lessor, which payment shall not constitute a waiver of
any rights that Lessee may have;
iii) not permit the Lease or Lease Schedule so assigned to be
amended or the terms thereof waived without the prior written
consent of the Assignees which consent shall not be
unreasonably withheld;
iv) not require the Assignees to perform any obligations of Lessor
under such Lease Schedule; and
v) not terminate or attempt to terminate the Lease or Lease
Schedule on account of any default by Lessor;
b. subject to the terms and conditions hereof, any Assignee may reassign
its rights and interest with the same force and effect as the
assignment described herein, provided notice of any such reassignment
is provided to the Nevada Gaming Commission;
c. any payments received by the designated Assignees from Lessee shall,
to the extent thereof, discharge the obligations of Lessee to Lessor
hereunder; and
d. Assignees and Lessee shall notify the Chairman of the Nevada State
------------------------------------------------------------------
Gaming Commission within three (3) days of
------------------------------------------
-11-
<PAGE>
any change in the payee of the monthly lease payments hereunder if
------------------------------------------------------------------
required to do so.
------------------
14.2 ASSIGNMENT OR SUBLEASE BY LESSEE.
a. Lessee shall not assign this Lease or any Lease Schedule or assign its
rights in or sublet the Equipment, or any interest therein without
Lessor's and its Assignee's prior written consent and only on such
terms as are reasonably acceptable to Lessor and its Assignees. Such
consent shall not be unreasonably withheld.
b. No sublease or assignment by Lessee of any of its rights under this
Lease, any Lease Schedule or in the Equipment shall in any way
discharge or diminish any of Lessee's obligations to Lessor or its
Assignees.
15. FINANCIAL INFORMATION; FURTHER ASSURANCES.
-----------------------------------------
15.1 FINANCIAL INFORMATION. Throughout the Term, Lessee shall deliver to
Lessor (a) within forty-five (45) days after the end of each calendar quarter,
unaudited quarterly operating statements of gaming operations of the Lessee; (b)
not later than one hundred twenty (120) days after the end of each fiscal year
an annual audited balance sheet of Lessee and an annual audited statement of
------- -------
operations of the Lessee prepared in accordance with standard accounting
principles, consistently applied; and (c) copies of such other current financial
information representing the financial condition and operations of Lessee as
well as such other information regarding Lessee reasonably requested by Lessor
or its Assignees. Without in any way limiting the generality of the foregoing,
the Lessor, or its assignees, may monitor the financial condition, cash flow and
cash management of the Lessee's operations on the Premises; and the Lessee
agrees to provide such information, and access to the books and records of the
Lessee's operations, as Lessor or its assigns may reasonably request in order to
monitor such matters.
15.2 REQUIRED DOCUMENTATION. Lessee shall deliver from time to time to
Lessor all documentation specified herein promptly upon request.
15.3 FURTHER ASSURANCES. Lessee shall execute and deliver to Lessor,
promptly and at Lessee's expense, such other documents and assurances, and take
such further action as Lessor may reasonably request, in order to effectively
carry out the intent and purposes of this Lease and the Lease Schedules and to
establish and protect the rights, interests and remedies of Lessor hereunder.
This shall include, without limitation, providing Uniform Commercial Code
financing statements, evidence of tax filings and payments, a waiver of rights
and interests in the Equipment from the owner, landlord and any mortgagee of the
location of any Unit, a legal
-12-
<PAGE>
description of such locations and a copy of the maintenance agreement. All
documentation shall be in a form reasonably acceptable to Lessor and its
Assignees. Lessee shall pay all costs associated with such financing statements
upon relocation, sublease or reconfiguration of the Equipment and upon any
assignment by Lessee. The Lessee agrees that Lessor is authorized, at its
option, to file a carbon, photographic or other reproduction of each Lease
Schedule as a financing statement and such shall be sufficient as a financing
statement under Nevada's version of the Uniform Commercial Code, and to file
financing statements or amendments thereto without the signature of the Lessee
with respect to any or all of the Equipment and, if a signature is required by
law, then the Lessee appoints Lessor as Lessee's attorney-in-fact to execute any
such financing statements. Lessee agrees to pay the Lessor the actual cost for
each financing statement filing.
15.4 LEASE AGREEMENT. Whenever necessary or appropriate to ensure that the
Lessor's interest in this Lease and the Equipment are protected, Lessor and
Lessee shall execute and record notice filings as contemplated by NRS 104.9408.
Such notice filings shall state that they are for notice purposes only and do
not reflect an intention to create a security interest, and shall name the
Lessor as "debtor" and the Lessee as "secured party".
16. DEFAULT BY LESSEE; REMEDIES.
---------------------------
16.1 DEFAULT BY LESSEE. Lessee shall be in default upon the occurrence of
any one of the following events ("Event of Default"):
a. failure to pay Rent when due and such failure shall continue for a
period of five (5) days;
b. failure to perform any other term, condition or covenant of the Lease
Schedule; which failure shall continue for a period of thirty (30)
days after receipt of written notice thereof; provided, if the same is
not susceptible of cure within said time limits and the same may be
cured within a reasonable period of time thereafter the time period
shall be extended for such additional time as is reasonably necessary
to effectuate such cure provided such curative action is promptly
taken in good faith and diligently prosecuted to completion and the
security afforded hereby and the interest of the Lessor or its
Assignees is not in jeopardy or be subject to forfeiture;
c. Lessee ceases doing business as going concern;
d. Lessee makes an assignment for the benefit of creditors, admits in
writing its inability to pay its debts as they become due, files a
voluntary petition in bankruptcy, is adjudicated a bankrupt or an
insolvent, files a petition seeking for itself any reorganization,
arrangement,
-13-
<PAGE>
composition, readjustment, liquidation, dissolution or similar
arrangement under any present or future statute, law or regulation or
files an answer admitting the material allegations of a petition filed
against it in any such proceeding, consents to or acquiesces in the
appointment of a trustee, receiver, or liquidator of it or of all or
any substantial part of its assets or properties, or if it or its
shareholders shall take any action looking to its dissolution or
liquidation;
e. within 60 days after the commencement of any proceedings against
Lessee seeking reorganization, arrangement, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law
or regulation, such proceedings shall not have been dismissed, or if
within 60 days after the appointment without Lessee's consent or
acquiescence of any trustee, receiver or liquidator of it or of all or
any substantial part of its assets and properties, such appointment
shall not be vacated;
f. Lessee attempts to remove, sell, transfer, encumber, part with
possession or sublet the Equipment or any Unit thereof without
Lessor's consent;
g. any Unit is attached, levied upon, encumbered, pledged, or seized
under any judicial process and such proceedings are not dismissed,
vacated or fully stayed within ninety (90) days;
h. any warranty or representation made or furnished to the Lessor by or
on behalf of the Lessee or under Lessee's obligations to Lessor is
false in any material respect when made or furnished; or
i. failure to maintain in full force and effect the licenses and permits
required under the Gaming Laws for the operation of Lessee's business.
16.2 LESSOR REMEDIES.
a. Upon any Event of Default, and at any time thereafter, Lessor may in
addition to any and all rights and remedies, it may have at law or in
equity, without notice to or demand upon Lessee at its sole option:
i) declare the aggregate Rent then accrued and unpaid together
with (as liquidated damages and not as a penalty) the balance
of any Rent specified on the applicable Lease Schedule or any
renewal notice to be immediately due and payable;
-14-
<PAGE>
ii) proceed by appropriate court action or actions or other
proceeding, either at law or in equity to enforce performance
by Lessee of any and all covenants of this Lease;
iii) on written notice to Lessee, terminate any of Lessee's rights
under this Lease or Schedule in default and in the Equipment
thereunder, in which event Lessee shall immediately surrender
and return the Equipment to Lessor pursuant to the provision
hereof and at Lessee's sole cost and expense;
iv) without notice, liability or legal process, by itself and/or
its agents, and to the extent permitted by the laws of the
State of Nevada and the Regulations of the Nevada Gaming
Commission, enter the Premises or any other location where the
Equipment is located and take immediate possession of such Unit
without court order or other process of law, in which event
Lessor shall not be liable for damages resulting therefrom,
Lessee expressly waiving all further rights to possession of
the Equipment and all claims for injuries suffered through or
loss caused by such repossession;
v) at public or private sale, with or without having the Equipment
present at the sale, with or without advertisement, upon such
terms and to such parties as Lessor in its sole discretion may
elect, and to the extent permitted by the laws of the State of
Nevada and the Regulations of the Nevada Gaming Commission,
sell any or all of the Equipment;
vi) and to the extent permitted by the laws of the State of Nevada
and the Regulations of the Nevada Gaming Commission, re-lease
the Equipment upon such terms and to such third parties as
Lessor in its sole discretion may elect and recover from Lessee
any difference between the aggregate rental due under the
applicable Lease Schedule for the remaining Term thereof and
that due from such third parties under the re-lease for a
period coterminous with the then scheduled expiration of the
defaulted Lease Schedule's Term discounted to present value at
four percent (4%) per annum; and
vii) exercise any and all rights available to a secured party under
the Uniform Commercial Code in effect in Nevada.
-15-
<PAGE>
b. All of Lessor's rights and remedies herein are cumulative and in
addition to any rights or remedies available at law or in equity
including the Nevada Uniform Commercial Code, and may be exercised
concurrently or separately. Lessee shall pay all reasonable costs,
expenses, losses, damages and legal costs (including reasonable
attorneys' fees) incurred by Lessor and its Assignees as a result of
enforcing any terms or conditions of the Lease or any Schedules. A
termination hereunder shall occur only upon written notice by Lessor
to Lessee and no repossession or other act by Lessor after default
shall relieve Lessee from any of its obligations to Lessor hereunder
unless Lessor so notifies Lessee in writing. Lessor shall in good
faith attempt to mitigate damages but Lessor shall not be obligated to
sell or re-lease the Equipment and at its election may leave the
Equipment idle. Any sale or re-lease may be at wholesale or retail,
in bulk or in parcels. Lessor at its election may bid at such sale.
In the event that following exercise by Lessor of one or more of its
remedies hereunder, Lessor receives a surplus, Lessor shall pay such
surplus to Lessee.
17. END OF TERM OPTIONS.
-------------------
17.01 PURCHASE OPTION. If Lessee is not in default hereunder, at the
----------------
expiration of the Term, any Renewal Term or any Automatic Renewal Term, as
hereinafter defined, Lessor grants Lessee an option to purchase (the "Purchase
Option") all but not less than all of the Equipment under any Lease Schedule for
the sum equal to the fair market value of the Equipment as of the date of
expiration of the Term, Renewal Term or the Automatic Renewal Term, as
appropriate, as determined by an independent appraiser selected by Lessor and
Lessee (the "Exercise Price"). Upon timely receipt of notice of exercise,
timely receipt of the payment of all Rent due and payment of the Exercise Price,
Lessor will execute and deliver to Lessee a Bill of Sale for the Equipment
leased and upon failure of the Lessor to so deliver a Bill of Sale, this
Paragraph 17 shall then constitute a conveyance of the Equipment in accordance
with this Agreement. Payment in full of the Exercise Price shall be due and
payable with the last payment of Rent.
17.02 RENEWAL OPTION. If Lessee is not in default hereunder, at the
---------------
expiration of the Term, any Renewal Term or any Automatic Renewal Term, as
hereinafter defined, Lessee shall have an option to renew the Term (the "Renewal
Option") for a renewal term (the "Renewal Term") equal to 12 months at a monthly
rental equal to the then fair market rental as determined by Lessor at Lessor's
reasonable discretion.
17.03 REPLACEMENT UPGRADE OPTION. If Lessee has not been in default
---------------------------
hereunder, and if there has been no material adverse change in Lessee
(financial, business or otherwise)
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<PAGE>
determined at Lessor's sole discretion, at the expiration of the Term, any
Renewal Term or any Automatic Renewal Term, Lessor grants Lessee an option to
replace all or any portion of the Equipment (the "Replacement Option") with
equipment acceptable to Lessor and Lessee, on terms and at the then fair market
rental as determined by Lessor and Lessee. To facilitate exercise of the
Replacement Option and replacement of the Equipment, Lessee shall have an option
to extend the Term, any Renewal Term or any Automatic Renewal Term, as
appropriate, for a period of six (6) months (the "Equipment Replacement Window")
at the most recent monthly rental payment, pro rated based upon actual number of
Units replaced during a month. During the Equipment Replacement Window, Lessee
may designate new or used equipment to be added to a new Lease Schedule under
the Lease, which equipment shall be acceptable to Lessor and Lessee. The
replacement equipment shall be installed under a new Lease Schedule on a monthly
basis during the Equipment Replacement Window, in quantities acceptable to
Lessor, at Lessor's reasonable discretion, subject to minimum increments of 250
Units, and each new Lease Schedule shall provide for a term of 24 months with
equal monthly payments of Rent and Additional Rent. The replacement equipment
shall be accepted as equipment under a new Lease Schedule upon delivery by
Lessee of such documents and instruments as Lessor may require, such documents
and instruments to be acceptable to Lessor at Lessor's reasonable discretion.
17.04 RETURN OPTION. At the expiration of the Term, any Renewal Term
--------------
or any Automatic Renewal Term, upon 120 days' advance written notice to Lessor,
Lessee shall have the option, at Lessee's expense, to return all and not less
than all of the Equipment (the "Return Option") to Lessor, at a facility
designated by Lessor, in good working order and condition. Lessee shall in all
respects remain obligated under the Lease for payment of Rent, care,
maintenance, delivery, use and insurance of the Equipment until Lessor inspects
and accepts the Equipment being returned. In the event it shall at ant time be
determined that by reason of the options hereby given or otherwise that the
lease of the Equipment to which the Options applies was in fact a sale to the
Lessee of the Equipment, the Lessee agrees that neither it nor its successors or
assigns has or will have any claim or cause of action against Lessor, its
successors or assigns, for any reason for loss sustained by virtue of such
determination.
17.05 NOTICE OF EXERCISE OF OPTIONS. Written notice of exercise of
------------------------------
any of the Options must be given by Lessee 120 days prior to expiration of the
Term, the Renewal Term or Automatic Renewal Term. If Lessee fails to timely
exercise either the Purchase Option, Renewal Option, Replacement Option or
Return Option (collectively the "Options") the Lease shall automatically renew
for a period of 120 days (the "Automatic Renewal Term") at the most recent
monthly rental payment due under any Lease Schedule. At the expiration of the
Automatic Renewal Term, and absent timely written notice of the exercise of any
of the Options,
-17-
<PAGE>
the Automatic Renewal Term shall be automatically renewed for additional
consecutive 120-day terms at the most recent monthly rental payment due under
any Lease Schedule.
18. MISCELLANEOUS.
-------------
18.1 NOTICES. Except as otherwise required by law, all notices required
-------
herein shall be in writing and sent by prepaid certified mail or by courier,
addressed to the party to whom notice is being given at the address of the party
specified herein or such other address designated in writing. Notice shall be
effective upon the earlier of its receipt or four (4) days after it is sent.
18.2 SURVIVAL OF INDEMNITIES. All indemnities of Lessee shall survive and
-----------------------
continue in full force and effect for events occurring prior to the return of
the Equipment to the Lessor, notwithstanding the expiration or termination of
the Term.
18.3 COUNTERPARTS. Each Lease and any Lease Schedule may be executed in
------------
counterparts.
18.4 MULTIPLE LESSEES. If more than one Lessee is named in this Lease or a
----------------
Lease Schedule the liability of each shall be joint and several.
18.5 TITLES. Section titles are not intended to have legal effect or limit
------
or otherwise affect the interpretation of this Lease or any Lease Schedule.
18.6 WAIVER. No delay or omission in the exercise of any right or remedy
------
herein provided or otherwise available to Lessor, or prior course of conduct,
shall impair or diminish Lessor's rights to exercise the same or any other right
of Lessor; nor shall any obligation of Lessee hereunder be deemed waived. The
acceptance of rent by Lessor after it is due shall not be deemed to be a waiver
of any breach by Lessee of its obligations under this Lease or any Lease
Schedule.
18.7 SUCCESSORS. This Lease and each Lease Schedule shall inure to the
----------
benefit of and be binding upon Lessor and Lessee and their respective successors
in interest.
18.8 NOT AN OFFER. Neither this Lease nor any Lease Schedule shall be
------------
deemed to constitute an offer or be binding upon Lessor until executed by
Lessor's authorized officer.
18.9 SEVERABILITY. If any provisions of this Lease or any Lease Schedule
------------
shall be held to be invalid or unenforceable, the validity and enforceability of
the remaining provisions thereof shall not be affected or impaired in any way.
-18-
<PAGE>
18.10 DISCLOSURE TO GAMING AUTHORITIES. Lessor agrees to cooperate fully
--------------------------------
with Lessee, the Nevada Gaming Commission and/or the Nevada Gaming Control Board
relating to any disclosure or transaction report Lessee is required to make with
respect to this Lease or any assignment of this Lease.
18.11 MODIFICATION. Lessor and Lessee agree that any modifications to
------------
this Lease or any Lease Schedule shall be in writing and shall be signed by both
parties and their last known assignees, if any. LESSOR AND LESSEE AGREE TO
PROVIDE THE CHAIRMAN OF THE NEVADA STATE GAMING CONTROL BOARD NOTICE AND DETAIL
OF ANY AMENDMENT TO THIS LEASE OR ANY LEASE SCHEDULE.
18.12 LEASE IRREVOCABLE. This Lease is irrevocable for the full Term
-----------------
hereof and the Rent shall not abate by reason of termination of Lessee's right
of possession and/or the taking of possession by the Lessor or for any other
reason.
18.13 GOVERNING LAW. This Lease and each Lease Schedule are entered into
-------------
under and shall be construed in accordance with, and governed by the laws of the
State of Nevada.
18.14 RIDERS. In the event that any riders are attached hereto and made a
------
part hereof and if there is a conflict between the terms and provisions of any
rider and the terms and provisions herein, the terms and provisions of the rider
shall control to the extent of such conflict.
18.15 ENTIRE AGREEMENT. LESSEE REPRESENTS THAT IT HAS READ, RECEIVED,
----------------
RETAINED A COPY OF AND UNDERSTANDS THIS LEASE, AND AGREES TO BE BOUND BY ITS
TERMS AND CONDITIONS. LESSOR AND LESSEE AGREE THAT THIS LEASE, ALL RIDERS,
LEASE SCHEDULES, OR EXHIBITS HERETO, AND THE LEASE SCHEDULES SHALL CONSTITUTE
THE ENTIRE AGREEMENT AND SUPERSEDE ALL PROPOSALS, ORAL OR WRITTEN, ALL PRIOR
NEGOTIATIONS AND ALL OTHER COMMUNICATIONS BETWEEN LESSOR AND LESSEE WITH RESPECT
TO ANY UNIT.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be duly
executed on the date first set forth above.
LESSOR: VIDEOTRONICS, INC.,
A NEVADA CORPORATION
By: /s/ NEIL NETLEY
__________________________________
Its: President
__________________________________
LESSEE: SANTA FE HOTEL, INC.,
A NEVADA CORPORATION
By: /s/ THOMAS K. LAND
______________________________________________
Its: Sr. Vice President and Chief Financial Officer
______________________________________________
-20-
<PAGE>
LEASE SCHEDULE NO. 1 TO EQUIPMENT LEASE
This Lease Schedule No. 1 is attached to and made a part of the Master
Lease Agreement ("Lease") between Videotronics, Inc., a Nevada corporation,
("Lessor") and Santa Fe Hotel, Inc., a Nevada corporation ("Lessee") dated
April 15, 1996.
1. Description of Equipment: The Equipment listed on Attachment "A" to
this Lease Schedule is added to the Equipment leased under the Lease and made
subject to the provisions of the Lease.
2. Commencement Date: The Commencement Date for the Equipment leased
under this Schedule is April 15, 1996.
3. Termination: The Term shall commence on the Commencement Date and
shall terminate May 15, 1998.
4. The Basic Rent due each month during the Term for the Equipment
described herein is as follows:
a. The first payment under this Lease Schedule in the amount of
$75,448.35 shall be due and payable on May 15, 1996.
b. The remaining payments are due on the first day of each month
thereafter through and including May 15, 1998 in the amount of
$75,448.35.
c. In addition to the monthly Basic Rent due as set forth above,
Lessee shall pay Lessor an amount equal to all taxes which may be
imposed by any Federal, State or local authority from time to
time.
5. All of the provisions of the above-mentioned Lease are incorporated by
reference herein as if set forth fully herein.
Dated: April 15, 1996.
LESSOR: VIDEOTRONICS, INC.,
a Nevada corporation
By: /s/ NEIL NETLEY
____________________________
Its: President
____________________________
LESSEE: SANTA FE HOTEL, INC.,
A NEVADA CORPORATION
By: /s/ THOMAS K. LAND
____________________________
Its: Sr. Vice President and
____________________________
Chief Financial Officer
____________________________
<PAGE>
EXHIBIT 10.127
GUARANTY OF LEASE
-----------------
April 15, 1996
FOR VALUE RECEIVED, and in order to induce Videotronics, Inc., a Nevada
corporation ("Lessor"), to enter into, execute and deliver that certain Master
Lease Agreement and Lease Schedule No. 1, each dated April 15, 1996 (hereinafter
collectively referred to as the "Lease"), between Lessor and Santa Fe Hotel,
Inc., a Nevada corporation ("Lessee"), the undersigned ("Guarantor," whether one
or more) hereby absolutely and unconditionally guarantees to said Lessor, its
successors and assigns, the due and prompt performance and observance of all of
the obligations of said Lease to be met by Lessee, including but not limited to
the payment of rent and other payments to be made under the Lease. The
undersigned agrees that no act or thing, except for payment in full or written
release of this Guaranty by Lessor, which but for this provision might or could
at law or in equity act as a release of the liability of the undersigned
hereunder, shall in any way affect or impair the absolute and unconditional
obligation of the undersigned. This Guaranty shall be a continuing, absolute
and unconditional Guaranty and shall be in full force and effect until all
amounts due and owing under the Lease are paid in full, notwithstanding the
expiration or sooner termination of the Lease or for the term of the Lease and
any renewals thereof or until this Guaranty has been released in writing by
Lessor, whichever occurs first. The undersigned hereby waives all notices and
protests, as well as all defenses and offsets which could or may in any way be
asserted against said Lessor, either on the part of Lessee or by the Guarantor
itself. This Guaranty shall inure to the benefit of the successors and assigns
of said Lessor, including any subsequent holder of Lessor's interest in the
Lease. The undersigned hereby waives notice of the execution of the Lease;
waives notice of the date of commencement of said Lease and of any assignment or
transfer of Lessor's interest in the Lease and agrees to be bound by the terms
of this Guaranty to any subsequent transferee or assignee of Lessor without
further notice or acceptance by such transferee or assignee. Additionally, the
undersigned Guarantor agrees to reimburse Lessor for any and all reasonable
costs or expenses, including reasonable legal fees, incurred by Lessor in
enforcing the terms and conditions of the Lease or this Guaranty.
The undersigned hereby agrees that the Lessor may from time to time without
notice to or consent of the undersigned and upon such terms and conditions as
the Lessor may deem advisable without affecting this Guaranty (a) release any
maker, surety or other person liable for payment of all or any part of the
obligations under the Lease; (b) make any agreement extending or otherwise
altering the time for or the terms of payment of rent and/or fulfillment of the
obligations of Lessee under the Lease; (c) modify, waive, compromise, release,
subordinate, resort to,
<PAGE>
exercise or refrain from exercising any right the Lessor may have hereunder,
under the Lease or any other security given for payment of rent and/or
fulfillment of other obligations of Lessee under the Lease; (d) accept
additional security or guarantees of any kind; (e) transfer or assign the Lease
to any other party; (f) accept from Lessee or any other party partial payment or
payments on account of the Lease; (g) release, settle or compromise any claim of
the Lessor against the Lessee, or against any other person, firm or corporation
whose obligation is held by the Lessor as security for the payment of rent
and/or the fulfillment of other obligations of Lessee under the Lease.
The undersigned hereby unconditionally and absolutely waives (a) any
obligation on the part of the Lessor to protect, secure or insure any of the
Leased Premises; (b) the invalidity or unenforceability of the Lease; (c) notice
of acceptance of this Guaranty by the Lessor; (d) notice of presentment, demand
for payment, notice of non-performance, protest, notices of protest and notices
of dishonor, notice of non-payment or partial payment; (e) notice of any
defaults under the lease or in the performance of any of the covenants and
agreements contained therein or in any instrument given as security for the
Lease; (f) any defense, offset or claim the Lessee or the undersigned may have
against the Lessor; (g) any limitation or exculpation of liability on the part
of the Lessee whether contained in the Lease or otherwise; (h) any transfer by
the Lessee; (i) any failure, neglect or omission on the part of Lessor to
realize or protect the equipment leased pursuant to the Lease (the "Leased
Equipment") or any security given therefor; (j) any right to insist that the
Lessor proceed against the Lessee or against any other Guarantor or surety prior
to enforcing this Guaranty; provided, however, at its sole discretion the Lessor
may either in a separate action or an action pursuant to this Guaranty pursue
its remedies against the Lessee or any other Guarantor or surety, without
affecting its rights under this Guaranty; or (k) any order, method or manner of
application of any payments on the Lease.
Without limiting the generality of the foregoing, the undersigned will not
assert against the Lessor any defense of waiver, release, discharge in
bankruptcy, statute of limitations, res judicata, statute of frauds, anti-
deficiency statute, fraud, ultra vires acts, usury, illegality or
unenforceability which may be available to the Lessee in respect of the Lease,
or any setoff available against the Lessor to the Lessee whether or not on
account of a related transaction.
The undersigned further agrees that no act or thing which, but for this
provision, might or could at law or in equity act as a release of the
liabilities of the undersigned hereunder, shall in any way affect or impair this
Guaranty and the undersigned agrees that this shall be a continuing, absolute
and unconditional Guaranty and shall be in full force and effect until the
2
<PAGE>
indebtedness Guaranty has been paid in full.
The undersigned agrees this Guaranty is executed in order to induce the
Lessor to lease the Leased Equipment to Lessee with the intent that it be relied
upon by the Lessor. This Guaranty shall run with the Leased Equipment and
without the need for any further assignment of this Guaranty to any subsequent
owner of the Leased Equipment or the need for any notice to the undersigned
thereof. Upon assignment of the Lease to any subsequent party, said subsequent
party may enforce this Guaranty as if said party had been originally named as
Lessor hereunder.
No right or remedy herein conferred upon or reserved to the Lessor is
intended to be exclusive of any other available remedy or remedies but each and
every remedy shall be cumulative and shall be in addition to every other remedy
given under this Guaranty or now or hereafter existing at law or in equity. No
waiver, amendment, release or modification of this Guaranty shall be established
by conduct, custom or course of dealing, but only by an instrument in writing
duly executed by Lessor.
This Guaranty and each and every part hereof, shall be binding upon the
undersigned and upon its heirs, administrators, representatives, executors,
successors and assigns and shall inure to the pro rata benefit of each and every
future Lessor under the Lease, including the heirs, administrators,
representatives, executors, successors and assigns of the Lessor.
The undersigned expressly agrees that the liability and obligations under
this Guaranty shall not in any way be affected by the institution by or against
the Lessee of any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or any other similar proceedings for relief under any
bankruptcy law or similar law for relief of debtors and that upon the
institutions of any of the above actions, at the Lessor's sole discretion and
without any notice thereof or demand therefor, the entire unpaid rent and other
payments due under the Lease shall become immediately due and payable and
enforceable against the Guarantor.
This Guaranty is executed under and intended to be construed by the laws of
the State of Nevada. The undersigned consents to be sued in the jurisdiction
and venue of any District Court in the State of Nevada, such jurisdiction and
venue to be determined at the sole option and election of Lessor.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be executed
as of the 15th day of April, 1996.
GUARANTOR: SANTA FE GAMING CORPORATION,
a Nevada Corporation
By: /s/ THOMAS K. LAND
____________________________
Its: CFO & Senior Vice President
____________________________
4
<PAGE>
EXHIBIT 10.128
NOTICE, CONSENT AND ACKNOWLEDGMENT OF ASSIGNMENT
THIS NOTICE, CONSENT AND ACKNOWLEDGMENT OF ASSIGNMENT is made and entered
into as of the 9 day of May, 1996, by and between VIDEOTRONICS, INC., a Nevada
corporation, ("Lessor"), SANTA FE HOTEL, INC., a Nevada corporation ("Lessee")
PDS FINANCIAL CORPORATION, a Minnesota corporation ("Assignee") and the certain
entities listed on Schedule I hereto (each as "Buyer" and collectively, the
----------
"Buyers").
PRELIMINARY RECITALS:
A. Lessor is leasing to Lessee certain equipment and personal property
(the "Equipment") pursuant to a Master Lease Agreement dated April 15, 1996 and
Lease Schedule No. 1 thereto, dated of even date therewith, entered into by and
between Lessor and Lessee (collectively the "Lease").
B. The Lessor has assigned to Assignee, all of its right, title and
interest in and to all payments due and to become due under the Lease as well as
such security interest in the Equipment pursuant to a Security Agreement dated
April 15, 1996 by and between Lessor and Assignee (the "Security Agreement").
Lessor has agreed to take possession of the Equipment in the event of a default
under the Lease pursuant to a Repossession Agreement dated April 15, 1996 by and
between Lessor and Assignee (the "Repossession Agreement").
C. The Assignee has further transferred and assigned to The Buyers, an
undivided interest in Assignee's right, title and interest in and to all
payments due and to become due under the Lease.
D. The Buyers and Assignee desire to notify Lessor and Lessee of the
assignment of the rental payments due under the Lease and to enter into certain
agreements in regard thereto.
NOW THEREFORE, in consideration of the sum of One Dollar ($1.00) and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Lessor, Lessee, Assignee and The Buyers agree as follows:
1. Notice of Assignment. The Buyers and Assignee hereby give notice to
--------------------
Lessor and Lessee that Assignee has assigned the rental payments
payable under the Lease, and has assigned a security interest in and
to the Equipment leased thereunder and all proceeds thereof granted by
Lessor to Lessee, to the Buyers.
-1-
<PAGE>
Notwithstanding the foregoing, until such time as Lessee receives
written notification from the Buyers to the contrary, effective upon
the execution and delivery of this Agreement, Lessee hereby agrees to
make all rental payments and other sums owing under the Lease directly
to the Buyers in the following amounts and at the following addresses:
(a) 36% of all such rental payments and other sums owing under
the Lease to Oppenheimer & Co., Inc., for itself and as agent for
certain entities through the following wire instructions:
OPCO Entities
Morgan Guaranty
ABA #021-000-238
A/C Oppenheimer & Co., Inc.
A/C #047-32-996
F/C to Reorg - Contrarian
A/C #599-1-5
Ref: Santa Fe Hotels
and, at the same time,
(b) 47% of all such rental payments and other sums owing under
the Lease to Mellon Bank, N.A., as Trustee for First Plaza Group Trust
through the following wire instructions.
Federal Reserve Bank of Boston
ABA # 011-2341 BOS SA FE DEP
DDA #: 16229
For: First Plaza Group Trust CCA
ACCT # 6MCF1744212
Ref: Santa Fe Hotels
and, at the same time,
(c) 17% of all such rental payments and other sums owing under
the Lease to Contrarian Capital Fund I, L.P. through the following
wire instructions:
Citibank
ABA #021-000-089
A/C Bear Stearns & Co., Inc.
A/C #0925-3186
F/C to Contrarian Capital Fund I, L.P.
A/C #102-04788-20
Ref: Santa Fe Hotels
-2-
<PAGE>
This Assignment is irrevocable on the part of the Assignee, the Lessee
and Lessor and may not be amended, withdrawn, rescinded or canceled
without the written consent of The Buyers.
2. Consent and Acknowledgment. Lessee hereby acknowledges receipt of
--------------------------
notice of, and consent to, such assignment and agrees as follows: (a)
Lessee's obligation to pay rent and all other sums under the Lease are
absolute and unconditional, and Lessee shall pay to the Buyers all
rent and other sums under the Lease directly to the Buyers, without
abatement, reduction, set-off, counterclaim, recoupment, defense,
deferment or interruption for any reason whatever, and said
obligations shall continue in all events and shall not be terminated
or affected in any regard as a result of any reason, cause or event
whatsoever; (b) the Lease is in full force and effect and a true and
correct copy of the Lease is attached hereto as Exhibit "A"; (c) no
default exists on the part of Lessee or Lessor in the performance of
its respective obligations under the Lease; (d) The Buyers and
Assignee shall not be chargeable with any obligations or liabilities
under the Lease; (e) the Equipment has been delivered to the Premises
set forth in the Lease, found to be in good working order and accepted
as the Equipment under the Lease; (f) Lessee will send copies of all
notices which are required to be sent to Lessor under the Lease to
Assignee and The Buyers; and (g) Lessee will not permit the Lease or
any of its provisions to be amended or waived and Lessee will not rely
on any consents given by Lessor, without the prior written consent of
Assignee and he Buyers which shall not be unreasonably withheld.
Lessor hereby acknowledges receipt of notice of, and consent to such
assignment and hereby agrees during the Term of the Lease as follows:
(a) Lessor will forward to the Buyers at their address set forth on
Schedule I hereto copies of any financial statements and other
----------
documents and written information Lessor receives pursuant to the
Lease and any other documents executed and delivered in connection
therewith, (b) to the extent not in violation of the Lease, Lessor
agrees that it will not take any action or grant any consent, waiver
or amendment with respect to the Lease, the Security Agreement, the
Repossession Agreement or the Equipment or with respect to any party
thereto, except in accordance with the prior written directions of the
Buyers and (c) Lessor agrees to promptly pay over and deliver to the
Buyers the entire amount of all payments (without set-off, deduction
or withholding) received by the Lessor in consideration of the Lease,
the Security Agreement, the Repossession Agreement or the Equipment.
-3-
<PAGE>
3. Reaffirmation of Lease. Lessee hereby affirms the Lease and this
----------------------
Notice, Consent and Acknowledgment of Assignment and that there have
been no prepayments of rent or other payments due under the Lease.
4. The Buyers's Rights. This instrument is executed to induce the Buyers
-------------------
to advance funds to Assignee, and the Buyers shall be entitled to rely
on the terms contained herein and to enforce this instrument.
5. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of each of the parties hereto, and their
respective successors and assigns. Lessor and Lessee agree that Buyers
are a permitted assignee under the terms of the Lease and that subject
to the laws and regulations of the Nevada Gaming authorities all of
the rights and remedies of the Lessor under the Lease shall inure to
the benefit of and shall be enforceable by the Buyers.
6. Reaffirmation of the Security Agreement and the Repossession
------------------------------------------------------------
Agreement. Lessor hereby consents to the above referenced assignment
---------
to The Buyers and affirms its obligation under the Security and the
Repossession Agreements dated April 15, 1996 between Lessor and
Assignee in favor of The Buyers and all of the rights and remedies of
Assignee under the Security and the Repossession Agreements shall
inure to the benefit of and shall be enforceable by the Buyers.
7. Gaming Approval. Lessor, Assignee and the Buyers hereby agree that
---------------
they will seek all necessary approvals from the Nevada Gaming
Commission and/or Nevada Gaming Control Board with respect to the
above-referenced assignments.
Lessee has been advised by the Nevada Gaming Control Board that the
Lease and the collateral documents have been approved.
8. Liability of the Buyers. The liability of the Buyers on account of any
-----------------------
obligation created or incurred hereunder shall be several, not joint,
and shall be limited to the percentage interest owned by such Buyer as
set forth on Schedule I hereto. Notwithstanding anything contained in
----------
this Agreement to the contrary, the parties agree that no officer,
director or general or limited partner of any Buyer, as the case may
be, shall be personally liable for any obligations or liabilities of
such Buyer under this Agreement and all obligations and liabilities of
any Buyer under this Agreement shall be enforceable solely against
such Buyer and such Buyer's assets and not against any assets of any
officer, director or general or limited partner of such Buyer, as the
case may be.
-4-
<PAGE>
Executed as of the date first above-written.
VIDEOTRONICS, INC.,
A NEVADA CORPORATION
By: /s/ NEIL NETLEY
-------------------------------------
Its: President
------------------------------------
SANTA FE HOTEL, INC.,
A NEVADA CORPORATION
By: /s/ THOMAS K. LAND
-------------------------------------
Its: Sr. V. Pres. & CFO
------------------------------------
PDS FINANCIAL CORPORATION,
A MINNESOTA CORPORATION
By: /s/ DAVID R. MYLREA
-------------------------------------
Its: COO
------------------------------------
OPPENHEIMER & CO., INC.,
FOR ITSELF AND AS AGENT FOR THE OPCO
ENTITIES SET FORTH ON SCHEDULE I HERETO
By Contrarian Capital Advisors, L.L.C.,
its duly authorized agent
By: /s/ Sam S. Kim
-------------------------------------
Name: Sam S. Kim
Title: Partner
MELLON BANK, N.A.
SOLELY IN ITS CAPACITY AS TRUSTEE FOR
FIRST PLAZA GROUP TRUST (AS DIRECTED BY
CONTRARIAN CAPITAL ADVISORS, L.L.C.),
AND NOT IN ITS INDIVIDUAL CAPACITY
By: /s/ William R. Nee
-------------------------------------
Name: William R. Nee
Title: Associate Counsel
-5-
<PAGE>
CONTRARIAN CAPITAL FUND I
By Contrarian Capital Management,
L.L.C., General Partner
By: /s/ Sam S. Kim
-------------------------------------
Name: Sam S. Kim
Title: Partner
-6-
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
Pro Rata Share
--------------
<S> <C>
A. OPCO ENTITIES
Oppenheimer Horizon Partners, L.P. 14.95%
Oppenheimer Institutional Horizon
Partners, L.P. 15.71%
Oppenheimer International Horizon
Fund II, Ltd. 3.64%
Oppenheimer & Co., Inc 0.58%
The & Trust 1.14%
------
Total OPCO ENTITIES 36.00%
B. Mellon Bank, N.A., as Trustee
for First Plaza Group Trust 47.00%
C. Contrarian Capital Fund I 17.00%
------
Total 100.00%
=======
</TABLE>
Address for All Notices to the Buyers:
--------------------------------------
c/o Contrarian Capital Management, L.L.C.
411 West Putnam Avenue
Suite 225
Greenwich, Connecticut 06830
Unites States of America
Attention: Ms. Janice Stanton
Tel: (203) 862-8204
Fax: (203) 629-1977
with copies to
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
United States of America
Attention: Thomas T. Janover, Esq.
Tel: (212) 541-2097
Fax: (212) 541-4630
-7-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 23,634,015
<SECURITIES> 0
<RECEIVABLES> 3,005,835
<ALLOWANCES> 0
<INVENTORY> 1,358,792
<CURRENT-ASSETS> 32,502,479
<PP&E> 206,836,141
<DEPRECIATION> 44,986,108
<TOTAL-ASSETS> 249,648,488
<CURRENT-LIABILITIES> 27,489,090
<BONDS> 168,476,980
0
18,221,589
<COMMON> 61,954
<OTHER-SE> 51,513,504
<TOTAL-LIABILITY-AND-EQUITY> 249,648,488
<SALES> 0
<TOTAL-REVENUES> 97,907,098
<CGS> 0
<TOTAL-COSTS> 32,277,154
<OTHER-EXPENSES> 20,300,208
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,950,139
<INCOME-PRETAX> 32,379,597
<INCOME-TAX> 11,160,000
<INCOME-CONTINUING> 21,219,597
<DISCONTINUED> 0
<EXTRAORDINARY> 7,854,707
<CHANGES> 0
<NET-INCOME> 29,074,304
<EPS-PRIMARY> 4.58
<EPS-DILUTED> 0
</TABLE>
