<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECURITIES EXCHANGE ACT OF SECTION 13 OR
15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: DECEMBER 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 (I.R.S. Employer Identification Number)
of incorporation or organization)
4949 N. RANCHO DRIVE, LAS VEGAS, NEVADA 89130
- --------------------------------------------------------------------------------
(Address of principal executive office and zip code)
(702) 658-4300
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(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 February 13, 1997
- ----------------------------------- ---------------------------------------
Amount Outstanding Date
<PAGE>
SANTA FE GAMING CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Balance sheets at December 31, 1996
(unaudited) and September 30, 1996................................ 2
Statements of Operations for the three months
ended December 31, 1996 and 1995 (unaudited)...................... 3
Statement of Changes in Stockholders' Equity
for the three months ended December 31, 1996 (unaudited).......... 4
Statements of Cash Flows for the three months
ended December 31, 1996 and 1995 (unaudited)...................... 5
Notes to Consolidated Condensed Financial
Statements (unaudited)........................................... 6
Independent Accountants' Review Report........................... 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 11
PART II. OTHER INFORMATION..................................................... 20
</TABLE>
1
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
- ----------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 11,869,673 $ 17,497,824
Accounts receivable, net 1,830,214 1,529,723
Accounts receivable, officer 648,761 636,113
Inventories 1,302,941 1,218,120
Prepaid expenses & other 3,684,493 3,778,514
Assets held for sale 2,424,821 2,424,821
------------ ------------
Total current assets 21,760,903 27,085,115
Land held for development 38,194,065 38,194,065
Property and equipment, net 108,425,480 110,217,659
Goodwill 45,715,750 46,073,869
Other assets 8,133,225 7,085,069
------------ ------------
Total assets $222,229,423 $228,655,777
============ ============
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,779,681 $ 3,770,817
Accounts payable 4,910,234 5,757,161
Interest payable 1,986,134 7,142,225
Accrued and other liabilities 12,699,271 9,134,856
------------ ------------
Total current liabilities 23,375,320 25,805,059
Deferred income taxes 1,098,584 2,687,751
Long-term debt - less current portion 168,750,385 167,687,476
Commitments
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-
8,856,651 shares 18,953,233 18,953,233
Additional paid-in capital 51,513,504 51,513,504
Accumulated deficit (41,435,783) (37,965,426)
------------ ------------
Total 29,092,908 32,563,265
Less treasury stock - 4,875 shares, at cost (87,774) (87,774)
------------ ------------
Total stockholders' equity 29,005,134 32,475,491
------------ ------------
Total liabilities and stockholders' equity $222,229,423 $228,655,777
============ ============
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
2
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31, 1996 December 31, 1995
----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Casino $19,877,173 $21,998,864
Hotel 989,406 1,013,267
Food and beverage 2,729,075 2,835,139
Other revenues 1,812,185 2,218,721
Gain on sale of assets 0 40,753,738
----------- -----------
Total revenues 25,407,839 68,819,729
----------- -----------
Operating expenses:
Casino 10,630,817 10,617,544
Hotel 414,718 439,858
Food and beverage 3,915,410 3,734,860
Other operating expenses 767,825 947,512
Selling, general & administrative 3,398,183 4,096,628
Utilities & property expenses 2,981,869 2,384,706
Depreciation & amortization 2,727,536 3,923,318
----------- -----------
Total operating expenses 24,836,358 26,144,426
----------- -----------
Operating income 571,481 42,675,303
Interest expense 5,645,112 6,822,262
----------- -----------
Income (loss) before income tax expense
(benefit) (5,073,631) 35,853,041
Federal income tax expense (benefit) (1,603,274) 12,219,000
----------- -----------
Income (loss) (3,470,357) 23,634,041
Dividends on preferred shares 379,065 350,428
----------- -----------
Net income (loss) applicable to common shares $(3,849,422) $23,283,613
=========== ===========
Average common shares outstanding 6,195,356 6,195,356
=========== ===========
Income (loss) per common share $ (0.62) $ 3.76
=========== ===========
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS 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, 1996 $61,954 $18,953,233 $51,513,504 $(37,965,426) $(87,774) $32,475,491
Net loss (3,470,357) (3,470,357)
------- ----------- ----------- ------------ -------- -----------
Balances, December 31, 1996 $61,954 $18,953,233 $51,513,504 $(41,435,783) $(87,774) $29,005,134
======= =========== =========== ============ ======== ===========
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Cash and short-term investments
provided by operations $ (300,601) $ 27,904,763
Gain on sale of subsidiary assets (40,753,738)
Decrease (increase) in accounts receivable, net (300,491) 2,788,814
Increase in accounts receivable, officer (12,648) (11,910)
Decrease (increase) in inventories (84,821) 369,821
Decrease (increase) in prepaid expenses and other 94,031 (401,724)
Decrease (increase) in deferred income taxes (1,589,167) 12,219,000
Decrease (increase) in other assets (1,225,970) 1,324,860
Decrease in accounts payable (846,927) (1,607,061)
Decrease in interest payable (5,037,292) (6,981,348)
Increase (decrease) in accrued and other liabilities 3,564,405 (4,158,206)
----------- -------------
Net cash used in operating activities (5,739,481) (9,306,729)
----------- -------------
Cash flows from investing activities:
Proceeds from sale of subsidiary assets 128,508,377
Increase in restricted cash 64,976
Capital expenditures, net (236,576) (1,860,330)
----------- -------------
Net cash provided by (used in) investing activities (236,576) 126,713,023
----------- -------------
Cash flows from financing activities:
Cash proceeds of long-term debt 1,559,000
Cash paid on long-term debt (1,211,094) (124,994,751)
----------- -------------
Net cash provided by (used in) financing activities 347,906 (124,994,751)
----------- -------------
Decrease in cash and short-term investment (5,628,151) (7,588,457)
----------- -------------
Cash and short-term investments,
beginning of year 17,497,824 42,749,932
----------- -------------
Cash and short-term investments,
end of year $11,869,673 $ 35,161,475
----------- -------------
</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
SANTA FE GAMING CORPORATION AND SUBSIDIARIES
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 are conducted through two wholly owned
subsidiary corporations, Santa Fe Hotel Inc. ("SFHI") and Pioneer Hotel Inc.
("PHI") (the "Operating Companies"). 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.
The Company owns real estate parcels on Las Vegas Boulevard South and adjacent
to the Santa Fe, and a wholly-owned subsidiary of the Pioneer owns real estate
in Henderson, Nevada, for possible development opportunities. The Company,
through its wholly-owned subsidiaries, Hacienda Hotel, Inc. ("HHI") and Sahara
Nevada Corp ("SNC") previously owned and operated the Hacienda Resort Hotel &
Casino (the "Hacienda") and the Sahara Hotel & Casino (the "Sahara"), but sold
substantially all of the assets related to those hotel/casinos in August 1995
and October 1995, respectively.
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, 1996.
The results of operations for the three month period ended December 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
December 31, 1996, the results of its operations for the three month periods
ended December 31, 1996 and 1995, the changes in stockholders' equity for the
three month periods ended December 31, 1996, and cash flows for the three month
periods ended December 31, 1996 and 1995.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from estimates.
NOTE 2 - CASH AND SHORT-TERM INVESTMENTS
At December 31, 1996, approximately $6.2 million of the Company's consolidated
cash and short term investments was held by SFHI and was subject to certain
restrictions and limitations on its use, including restrictions on its
availability for distribution to the Company,
6
<PAGE>
by the terms of an indenture pursuant to which $115 million principal amount of
11% First Mortgage Notes due 2000 ("11% Notes") of SFHI was issued. As of
December 31, 1996, SFHI did not meet the conditions precedent to making a
distribution to the Company.
At December 31, 1996, approximately $3.3 million of the Company's consolidated
cash and short-term investments was held by PHI and was subject to certain
restrictions, including restrictions on its availability for distribution to the
Company, by the terms of an indenture pursuant to which the 13 1/2% First
Mortgage Notes due 1998 ("13 1/2% Notes") of Pioneer Finance Corp. were issued.
As of December 31, 1996, PHI did not meet the conditions precedent to making a
distribution to the Company.
NOTE 3 - ACCOUNT RECEIVABLE OFFICER
As of December 31, 1996 and September 30, 1996, included in Accounts Receivable,
Officer is an unsecured demand loan in the principal amount of $476,000, which,
together with accrued interest, totaled approximately $649,000 and $636,000,
respectively, from HHI to LICO, a company wholly-owned by Paul W. Lowden,
Chairman of the Board, Chief Executive Officer and 52% stockholder of the
Company. The loan from HHI to LICO bears interest at the rate equal to 2% over
the prime rate. In January 1997, the Company and Mr. Lowden agreed that the
Company may offset amounts due Mr. Lowden under certain compensation
arrangements against the outstanding balance of the loan beginning in 1998.
NOTE 4 - ASSETS HELD FOR SALE
In November 1996, the Company sold an option to acquire the 40 acre parcel
located approximately eight miles south of the Hacienda on Las Vegas Boulevard
South for $2.8 million. Pursuant to the option agreement, the option holder is
entitled to purchase the property for up to a six-month period for $350,000 in
additional net proceeds to the Company. In the event the option holder does not
elect to purchase the property, the option payment will convert to a first
mortgage note with a principal amount of $2.8 million at 10% interest payable
monthly with the entire principal balance due one year from the date the
option holder gives written notice of election not to purchase the property.
NOTE 5 - LONG-TERM DEBT
In December 1996, the Company borrowed approximately $1.6 million pursuant to a
first mortgage note secured by the 22 acre parcel of real property adjacent to
the Santa Fe ("Land Note"). The Land Note requires interest only payments at a
12% per annum interest rate for a three-year term. The Company utilized proceeds
from the Land Note to satisfy an existing first mortgage note of $850,000 and
expenses of the transactions resulting in net proceeds of approximately
$650,000.
7
<PAGE>
In December 1996, the Company and the holder of the 12% First Mortgage Notes due
1999 ("12% Notes") secured by, among other things, the 27 acre real property
located on Las Vegas Boulevard South amended the terms of the 12% Notes to (i)
provide that a $500,000 principal payment due on December 31, 1996 would be
deferred until June 30, 1997 and (ii) revise a covenant requiring redemption of
$3.5 million principal amount of 12% Notes (or alternatively the redemption of
$3.5 million principal amount of the 11% Notes). The revised covenant now
requires such redemption in the event cash flow at the Santa Fe is less than
$13.5 million for any four-quarter period commencing with the four-quarter
period ending June 30, 1997.
NOTE 6 - LEASES
In December 1996, the Company executed an operating lease for 180 slot machines
at the Pioneer. The lease requires monthly payments of $37,000 for a 36 month
term.
In December 1996, the Company executed an operating lease for 229 slot machines
at the Santa Fe. The lease requires monthly payments of $46,000 for a 36 month
term.
NOTE 7 - SUPPLEMENTAL INFORMATION
Supplemental statement of cash flows information for the three month periods
ended December 31, 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Cash paid during the period
for interest $10,357,900 $13,456,207
=========== ===========
Supplemental Schedule of Non Cash
Investing and Financing Activities
Land acquired in exchange
of assets $21,504,400
===========
</TABLE>
8
<PAGE>
8. Supplemental Statement of Subsidiary Information -
For The Three Month Periods Ended December 31, 1996 and 1995
The Company's primary operations are in the hotel/casino industry and since
October 1995 have been conducted through PHI and SFHI. "Other" below includes
financial information for SNC, HHI and the Company's other operations before
eliminating entries. In addition to the financial information for the three
month periods ended December 31, 1996 and 1995, as set forth in the table below
(dollars in thousands), see notes 2, 5 and 6 for additional discussion of
subsidiary operations.
<TABLE>
<CAPTION>
Year PHI SFHI Other Eliminations TOTAL
---- --- ---- ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Operating revenues 1996 $ 9,929 $15,197 $ 669 $ (387) $ 25,408
======== ======= ======= ======= ========
1995 $ 11,373 $15,409 $42,557 $ (519) $ 68,820
======== ======= ======= ======= ========
Operating Income (Loss) 1996 $ (250) $ 759 $ 212 $ (150) $ 571
======== ======= ======= ======= ========
1995 $ 866 $ 1,039 $40,797 $ (27) $ 42,675
======== ======= ======= ======= ========
Interest Expense 1996 $ 1,974 $ 3,235 $ 586 $ (150) $ 5,645
======== ======= ======= ======= ========
1995 $ 2,807 $ 3,520 $ 522 $ (27) $ 6,822
======== ======= ======= ======= ========
Depreciation and Amortization 1996 $ 1,400 $ 1,288 $ 40 $ 2,728
======== ======= ======= ======= ========
1995 $ 1,508 $ 2,251 $ 164 $ 3,923
======== ======= ======= ======= ========
Capital Expenditures 1996 $ 233 $ 160 $ 126 $ 519
======== ======= ======= ======= ========
1995 $ 558 $ 1,036 $ 266 $ 1,860
======== ======= ======= ======= ========
Identifiable Assets 1996 $112,574 $78,551 $32,349 $(1,245) $222,229
======== ======= ======= ======= ========
1995 $125,659 $90,677 $49,211 $265,547
======== ======= ======= ======= ========
</TABLE>
9
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Santa Fe Gaming Corporation:
We have reviewed the accompanying consolidated condensed balance sheet of Santa
Fe Gaming Corporation and subsidiaries as of December 31, 1996, the related
consolidated condensed statements of operations and of cash flows for the three-
month periods ended December 31, 1996 and 1995, and of stockholders' equity for
the three-month period ended December 31, 1996 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, 1996, 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 20, 1996 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, 1996 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
February 13, 1997
10
<PAGE>
SANTA FE GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - Three Months Ended December 31, 1996 and 1995
- ---------------------------------------------------------------------
CONSOLIDATED
Consolidated revenues for the three month period ended December 31, 1996 were
$25.4 million, a $43.4 million or 63.1% decrease from $68.8 million for the same
period in fiscal 1995, which included the $40.8 million gain on sale of assets.
Excluding the gain on sale in the prior year period, revenues decreased by $2.6
million in the December 1996 quarter, of which $200,000 was attributable to the
Santa Fe Hotel and Casino (the "Santa Fe") and $1.4 million was attributable to
the Pioneer Hotel and Gambling Hall (the "Pioneer").
Consolidated operating income for the three month period ended December 31, 1996
was $600,000, a $42.1 million or 98.7% decrease from $42.7 million for the same
period in fiscal 1995, which included the $40.8 million gain on sale of assets.
Excluding the gain on sale in the prior period, operating income declined $1.9
million in the 1996 quarter, of which $300,000 was attributable to the Santa Fe
and $1.2 million was attributable to the Pioneer.
Consolidated interest expense for the three month period ended December 31, 1996
was $5.6 million, a $1.2 million decrease compared to $6.8 million for the same
period in fiscal 1995. Interest expense decreased by $300,000 at the Santa Fe
and $800,000 at the Pioneer in the 1996 period due to the retirement of
approximately $5.6 million principal amount of 11% First Mortgage Notes due 2000
("11% Notes") issued by Santa Fe Hotel Inc. ("Santa Fe Inc.") in January 1996
and the retirement of approximately $22.8 million principal amount of 13 1/2%
First Mortgage Notes due 1998 issued by Pioneer Finance Corp. ("13 1/2% Notes")
in January and March 1996.
Consolidated net loss before income taxes for the three month period ended
December 31, 1996 was $5.1 million, a $40.9 million decrease compared to net
income of $35.9 million in the same period in the prior year, which included the
$40.8 million gain on sale of assets. Excluding the gain on sale of assets, net
loss before income taxes increased by approximately $750,000 in the December
1996 quarter compared to the prior year. Net loss before income taxes at the
Pioneer increased by $300,000 and was unchanged at the Santa Fe in the quarter
ended December 31, 1996 compared to the prior year period.
11
<PAGE>
SANTA FE
Revenues at the Santa Fe decreased 1.4%, or $200,000, in the three months ended
December 31, 1996 to $15.2 million as compared to $15.4 million in the same
period in the prior year. Casino revenues decreased 2.1%, or $200,000, to $11.4
million from $11.6 million when compared to the same three month period of 1995.
Management believes the decrease is due primarily to continued increased
competition in the Santa Fe market area and to restricted access to the Santa Fe
due to construction of an interchange (at US 95 and Rancho) next to the
property.
Operating expenses increased by 0.5%, or $70,000. Casino expenses increased by
$800,000, or 16.6%, primarily due to increased promotional costs incurred by the
slot club to compete with the competition in the area. This was mostly offset by
a decrease of $700,000, or 27.2%, in selling, general and administrative
expenses resulting from decreased general advertising and promotional costs.
Food and beverage expenses had increases of 10.0%, or $200,000 over the prior
year period. Decreases in depreciation and amortization of 42.8% or $1.0
million, were due to the sale of certain slot equipment in the prior fiscal
year. Utilities and property expenses increased $700,000 primarily attributable
to an increase in rent expense of $600,000 due to sale leaseback transactions
completed in fiscal 1996 with respect to certain gaming equipment. Accordingly,
operating income decreased $300,000 or 26.9% to $800,000 in 1996.
Interest expense decreased $300,000, or 8.1% to $3.2 million in 1996 compared to
$3.5 million 1995, primarily due to the repurchase and retirement of $5.6
million principal amount of 11% Notes in January 1996.
Santa Fe is required to negotiate with the Teamsters, Operating Engineers,
Culinary and Bartenders unions ("Unions") with respect to a collective
bargaining agreement covering certain employees at the Santa Fe. If
negotiations result in an agreement between the Santa Fe and the Unions,
operating expenses may increase. In the event negotiations fail to result in an
agreement and the Unions call a strike, operating revenues may be reduced,
which, in turn could have a material adverse effect on the results of operations
and financial condition of Santa Fe Inc. and the Company.
PIONEER
Revenues at the Pioneer decreased 12.7%, or $1.4 million, to $9.9 million in the
December 1996 quarter compared to the prior year. Casino revenues were $8.5
million in 1996, representing a decrease of 15.7%, or $1.6 million compared to
the 1995 period, comprised primarily of a $1.3 million or 14.7% decrease in slot
revenue and a $200,000 or 23.0% decrease in table games revenues. The decrease
is believed to be primarily due to the competitive gaming market environment in
and around Laughlin, including Indian gaming facilities opened in Arizona and
Southern California.
12
<PAGE>
Operating expenses decreased $300,000 or 3.1% to $10.2 million in the quarter
ended December 31, 1996. Casino expenses decreased 8.6%, or $400,000. Selling,
general and administration expenses had an increase of $300,000 or 21.6% to $1.4
million in 1996 from $1.2 million in 1995. Rent expense increased to $300,000 in
the current period compared to $200,000 in the December 1995 quarter as the
result of an operating lease entered into during fiscal 1996. Decreases in
depreciation and amortization expenses of 7.2% or $100,000 were related to the
sale of certain equipment. Accordingly, operating income decreased by 128.8% or
$1.1 million, to a loss of $200,000 in the fiscal 1997 quarter from income of
$900,000 in the fiscal 1996 quarter.
Interest expense decreased $800,000 or 30.0% to $2.0 million in the December
1996 quarter compared to $2.8 million in the December 1995 quarter, primarily
due to the repurchase and retirement of approximately $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 $3.3 million and $46.6 million for the quarters ended December
31, 1996 and 1995, respectively. The Company's EBITDA in 1995 includes the $40.8
million gain on sale of assets. The Company's EBITDA in the 1995 quarter
excluding that gain was $5.8 million. EBITDA is presented to enhance the
understanding of the financial performance of the Company and its ability to
service its indebtedness, but should not be construed as an alternative to
operating income (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance, or to cash
flows from operating activities (as determined in accordance with generally
accepted accounting principles) as a measure of liquidity.
Management believes the current year decline is, in part, due to a decline in
operating results at the Santa Fe due to increased competition and restricted
access to the Santa Fe resulting from road construction, as well as declining
operating results at the Pioneer attributable primarily to market conditions in
the Laughlin market. Management believes that Santa Fe's EBITDA in future
periods may continue to be adversely impacted by restricted access to the
Santa Fe during construction of an interchange (at US 95 and Rancho) next to the
Santa Fe which commenced in April 1996. Northbound access from US 95 was opened
at the end of July 1996 and the Company has been advised by the Nevada
Department of Transportation that southbound access is anticipated to reopen in
the early part of 1997. The Company has also been advised that construction work
is planned during 1997 at the intersection of Lone Mountain Road and US 95 next
to the Santa Fe, which management believes may result in reduced traffic flow by
the Santa Fe during construction. The Company believes that when completed the
construction work will ultimately improve traffic flow to the Santa Fe.
13
<PAGE>
Prior to fiscal 1996, the Company generally generated sufficient cash liquidity
from operations to finance operations, meet existing debt service obligations,
complete capital improvements, maintain existing facilities, and provide working
capital. However, during fiscal year 1996, the Pioneer Hotel Inc. ("Pioneer
Inc.") expended the balance of its restricted working capital and Santa Fe Inc.
sold assets and entered into financing arrangements to generate working capital
necessary to satisfy its cash requirements. Indenture restrictions on Santa Fe
Inc. and Pioneer Inc. restrict the distribution of cash to the Company, and cash
flow from these subsidiaries is not currently, and is not expected in the
foreseeable future to be, available for distribution to the Company. In
addition, indenture restrictions limit additional indebtedness at Santa Fe Inc.
and at Pioneer Inc. Therefore, the Company and its subsidiaries other than
Pioneer Inc. and Santa Fe Inc. (collectively "Corporate") must rely on existing
cash and available resources to provide liquidity to fund Corporate cash
requirements. Corporate consists primarily of non-operating entities which do
not generate cash flow from operations.
LIQUIDITY - CORPORATE - Approximately $5.1 million of the Company's current
- ---------------------
assets at December 31, 1996, including approximately $2.4 million of cash and
short-term investments, was held by Corporate.
Corporate's principal uses of cash are for debt service, administrative and
professional expenses of the parent company, and costs associated with the
evaluation and development of proposed projects. Corporate debt service includes
payment obligations on $9.0 million principal amount of 10 1/4% Subordinated
Debentures due June 1998 (the "10 1/4% Debentures"), a $5.8 million note payable
to Sierra Construction Corp. ("Sierra Construction") due 1998 and $20 million
principal amount of 12% Notes due 1999 (the "12% Notes"). See "Debt Obligations"
below.
The Company has in the past satisfied 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 will accrue on the
preferred stock. The Company is a party to 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 currently prohibit the payment of
cash dividends on the preferred stock.
Additional potential uses of cash by Corporate include, (i) the payment of a
guaranteed tenant loan if the Company terminates the lease to which the parcel
on Las Vegas Boulevard South is subject (which loan had an outstanding balance
of $5.7 million as of February 28, 1997) and (ii) the payment of $750,000 to the
recreational vehicle park operator to which the Company transferred its rights
and obligations relating to the Camperland recreational vehicle group contracts
if the operator chooses to relocate the Camperland membership to a mutually
acceptable new location. Additionally, in order to pursue possible development
opportunities relating to the Company's real property on Las Vegas Boulevard
South or the real property in Henderson, Nevada owned by a subsidiary
14
<PAGE>
of Pioneer Inc., the Company would be required to obtain project development
financing. No assurance can be given that such financing would be available or,
if available, would be on terms satisfactory to the Company. Furthermore, in the
event that cash at Santa Fe Inc. or Pioneer Inc. is insufficient to meet
liquidity requirements, Corporate may make contributions or loans to either
Santa Fe Inc. or Pioneer Inc. to prevent an event of default under debt
instruments to which Santa Fe Inc. or Pioneer Inc. is a party.
Furthermore, the Company has submitted to the U.S. Bankruptcy Court of New
Orleans a disclosure statement with respect to a plan of reorganization for
Treasure Bay Gaming & Resorts, Inc. ("Treasure Bay"), which disclosure
statement was approved. Confirmation hearings with respect to reorganization
plans of the Company and others have been scheduled for April 7, 1997. The
Company's reorganization plan 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. No
assurance can be given that the Company's plan will be confirmed by the Court.
Additionally, the Company may elect not to proceed with its plan or the Company
may amend its current reorganization plan resulting in changes to the amount
and terms of debt of the reorganized debtor and equity ownership acquired.
Management believes that Corporate has sufficient working capital and available
resources to meet its operating requirements through the twelve month period
ending December 31, 1997. Additionally, management believes that Corporate has
available resources, consisting primarily of approximately 27 acres of real
property on Las Vegas Boulevard South that may be sold or financed to the extent
necessary, to generate the liquidity to meet corporate debt service
requirements, although no assurance can be given to that effect. Management
believes such resources would also enable the Company to make capital
contributions or advances to Santa Fe Inc. and/or Pioneer Inc. if necessary.
See "Liquidity -Santa Fe," "Liquidity - Pioneer" and "Debt Obligations." To the
extent Corporate pursues development of new projects or proceeds with the
Treasure Bay reorganization plan, additional funds will be required. The Company
has no arrangements to obtain such funds, and no assurance can be given that
such funds can be obtained.
LIQUIDITY - SANTA FE - Approximately $9.2 million of the Company's current
- --------------------
assets, including approximately $6.2 million of cash and short term investments,
was held by Santa Fe Inc. at December 31, 1996.
Results from operations at the Santa Fe for the three months ended December 31,
1996 generated EBITDA of $2.1 million, approximately .63 times interest expense
during the same period compared to $3.3 million of EBITDA in 1995, or
approximately .93 times interest expense. In the fiscal 1997 three month period,
the Santa Fe reported approximately $600,000 in rent expenses compared to no
rent expense in the fiscal 1996
15
<PAGE>
period. Santa Fe's operating expenses in fiscal 1997 will be greater than in
fiscal 1996 due to increased lease expenses associated with sale leaseback
transactions completed in fiscal 1996, which will impact EBITDA. Additionally,
management believes that Santa Fe's EBITDA in future periods may continue to be
adversely impacted as a result of expansions at its two nearest competitors,
which expansions opened in April and May 1996, and restricted access to the
property due to road construction work on an interchange near the property which
commenced in April 1996 and which is expected to continue through the early part
of 1997, and by reduced traffic flow around the property expected to result from
construction on another interchange near the property, which is expected to
occur through 1997. The Company believes that when completed the construction
work will ultimately improve traffic flow to the property.
Santa Fe Inc.'s principal uses of cash are for interest payments on indebtedness
and capital expenditures to maintain the facility. Interest expense in fiscal
1997 attributable to the 11% Notes will decrease when compared to fiscal 1996 as
a result of the repurchase and cancellation of $5.6 million principal amount of
11% Notes in January 1996. Interest expense in the first quarter of fiscal 1997
reflects this decrease. Capital expenditures to maintain the facility in fiscal
1997 are expected to be less than in fiscal 1996 and 1995 in which expansion
projects were completed.
Management believes that, based on operations for the three and twelve month
periods ended December 31, 1996, Santa Fe Inc. will have sufficient cash
resources to meet its operating expense requirements through the twelve month
period ending December 31, 1997, although no assurance can be given to that
effect. If operating results do not improve in the future compared to the
quarter ended December 31, 1996, management believes Santa Fe Inc. may not have
sufficient cash from operations to meet its debt service requirements through
December 31, 1997. Santa Fe Inc. is exploring alternatives to improve liquidity,
including, but not limited to, possible reductions of indebtedness and a
possible refinancing of the 11% Notes. To the extent that Santa Fe Inc. is
unable to generate sufficient cash to meet its debt service requirements,
Corporate may, to the extent of available funds, make capital contributions or
advances to Santa Fe Inc. See "Liquidity-Corporate"
LIQUIDITY - PIONEER - At December 31, 1996, approximately $5.0 million of the
- -------------------
Company's current assets, including approximately $3.3 million of cash and short
term investments, was held by Pioneer Inc. At that date, Pioneer Inc. also held,
through a wholly-owned subsidiary, 39 acre parcel of real property in Henderson,
Nevada.
Results from operations at the Pioneer for the three months ended December 31,
1996 generated EBITDA of $1.2 million, approximately .58 times interest expense
during the same period, compared with $2.4 million of EBITDA in fiscal 1995 or
approximately .85 times interest expense. In the fiscal 1997 three month period,
the Pioneer reported rent expenses of approximately $300,000 compared to
$200,000 in rent expense in the
16
<PAGE>
fiscal 1996 period. Pioneer's operating expenses in fiscal 1997 will be greater
than in fiscal 1996 due to increased lease expenses associated with a lease for
new gaming equipment.
Pioneer Inc.'s principal uses of cash are for interest payments on indebtedness
and capital expenditures to maintain the facility. Interest expense attributable
to the 13 1/2% Notes will decrease to $8.1 million in fiscal 1997 as a result of
the retirement of $22.8 million principal amount of 13 1/2% Notes in January and
March 1996. (See Results of Operations - Pioneer). Interest expense in the first
quarter of fiscal 1997 reflects this decrease. Capital expenditures to maintain
the facility in fiscal 1997 are expected to be approximately that expended
during fiscal 1996. However, no assurances can be given to that effect.
Management believes that, based on current operations for the three and twelve
month periods ended December 31, 1996, Pioneer Inc. will have sufficient cash
and available resources to meet its operating requirements through the twelve
months ending December 31, 1997, although no assurance can be given to that
effect. If operating results do not improve in the future compared to the
quarter ended December 31, 1996, management believes Pioneer Inc. may not have
sufficient cash from operations to meet its debt service requirements. However,
Pioneer Inc., through a wholly-owned Subsidiary owns a 39 acre property which
management believes may be sold or financed to the extent necessary to generate
liquidity to meet debt service requirements. Pioneer Inc. is exploring financing
alternatives to improve liquidity, including, but not limited to, the possible
sale of assets, a possible reduction of indebtedness or a refinancing of the 13
1/2% Notes. To the extent that Pioneer Inc. is unable to generate sufficient
cash to meet its debt service requirements, Corporate may, to the extent of
available funds, make capital contributions or advances to Pioneer Inc. See
"Liquidity-Corporate".
Debt Obligations - For the remaining nine months of fiscal 1997 and for the
- ----------------
fiscal year 1998, scheduled maturities of long-term debt net of debt discounts,
due to third parties (excluding capital leases) are $3.7 million and $7.6
million, respectively. The scheduled maturities at Corporate for the balance of
fiscal 1997 and for fiscal 1998 are $3.0 million and $7.2 million, respectively,
consisting primarily of $2.1 million in June 1997 and $6.6 million in June 1998
due on the 10 1/4% Subdebentures.
Additionally, approximately $66.6 million of long-term debt (excluding capital
leases) matures during fiscal 1999, comprising primarily $60.0 million of
principal amount of 13 1/2% Notes in December 1998, and a $4.9 million balloon
payment due in December 1998 on the note payable to Sierra Construction.
Although management has in the past and is currently exploring refinancing
alternatives, as well as possible dispositions or financing 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 or modify some or all of
its indebtedness or dispose of any assets. Any such refinancing or asset sale
would be subject to the Company's future operations and the prevailing market
conditions at the time of such proposed transaction and would likely require the
approval of the Nevada Gaming
17
<PAGE>
Authorities and potentially other state gaming authorities. If the Company is
ultimately unable to refinance or modify any such debt prior to maturity, and/or
obtain sufficient proceeds from asset dispositions or financings to repay such
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
limitation, agreements relating to substantially all of the outstanding long-
term debt of the Company and its subsidiaries.
Related Parties From 1991 through 1993 LICO, a company wholly-owned by Mr.
- ---------------
Lowden, Chairman of the Board, Chief Executive Officer and 52% stockholder of
the Company, borrowed an aggregate of $476,000 from a subsidiary of the Company,
pursuant to an unsecured demand loan which bears interest at 2% over the prime
rate. The outstanding balance of the loan including accrued interest was
$649,000 as of December 31, 1996. In January 1997, the Company and Mr. Lowden
agreed that the Company may offset amounts due Mr. Lowden under certain
compensation arrangements against the outstanding balance of the loan beginning
in 1998.
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. At January 31, 1997, the principal balance
of the loan was approximately $927,000. 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.
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.
18
<PAGE>
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
future operating results, existing and expected competition, financing and
refinancing sources and availability and 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
effects of competition, leverage and debt service, 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.
19
<PAGE>
SANTA FE GAMING CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits:
10.83 Employment Agreement by and between Santa Fe Gaming
Corporation and Thomas K. Land dated October 1, 1996.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
B. Reports: None
20
<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: February 13, 1997
21
<PAGE>
EXHIBIT 10.83
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DATED: October 1, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EMPLOYMENT AGREEMENT
- by and among -
SANTA FE GAMING CORPORATION
("Employer")
- and -
THOMAS K. LAND
("Employee")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
--------------------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on this
1st day of October, 1996, by and among Santa Fe Gaming Corporation, a Nevada
corporation ("Employer"), and Thomas K. Land ("Employee").
W I T N E S S E T H :
WHEREAS, Employer is a corporation duly organized and existing under the
laws of the State of Nevada, maintains its principal place of business at 4949
N. Rancho Drive, Las Vegas, Nevada 89130, and is engaged in the business of
owning and operating casino/hotel properties in Las Vegas and Laughlin, Nevada,
and proposes to expand its legalized casino gaming business both within and
without the State of Nevada;
WHEREAS, Employer has entered into an agreement to operate certain
facilities of Santa Fe Gaming Corporation;
WHEREAS, in furtherance of its business, Employer has need of qualified,
experienced personnel;
WHEREAS, Employee is an adult individual presently residing at 1124 Barton
Green Drive, Las Vegas, Nevada 89128;
WHEREAS, Employee has represented and warranted to Employer that Employee
possesses sufficient qualifications and expertise in order to fulfill the terms
of the employment stated in this Agreement; and
WHEREAS, Employer is willing to employ Employee, and Employee is desirous
of accepting employment from Employer, under the terms and pursuant to the
conditions set forth herein;
NOW, THEREFORE, for and in consideration of the foregoing recitals, and in
consideration of the mutual covenants, agreements, understandings, undertakings,
representations, warranties and promises hereinafter set forth, and intending to
be legally bound thereby, Employer, and Employee do hereby covenant and agree as
follows:
- --------------------------------------------------------------------------------
2
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
1. DEFINITIONS. As used in this Agreement, the words and terms
hereinafter defined have the respective meanings ascribed to them herein, unless
a different meaning clearly appears from the context:
(a) "Cause" - means
(i) the convictions of Employee by a court of competent
jurisdiction of a felony or any other offense involving moral
turpitude or dishonesty;
(ii) the indictment of Employee by a state or federal grand jury
of competent jurisdiction or the filing of a criminal competent
jurisdiction or the embezzlement or misappropriation of funds or
for any act of dishonesty or lack of fidelity;
(iii) a decree of a court of competent jurisdiction that the
Employee is not mentally competent or is unable to handle his own
affairs;
(iv) the written confession by Employee of any act of dishonesty
or any embezzlement or misappropriation of funds;
(v) the payment (or, by the operations solely of the effect of
a deductible, the failure of payment) by a surety or insurer of a
claim under a fidelity bond issued for the benefit of Employer or
Employer's Affiliates reimbursing Employer or Employer's
Affiliates for a loss due the wrongful act or wrongful omission
to act of Employee;
(vi) Employee's breach of the restrictive covenants set forth in
Paragraphs 10 of this Agreement;
(vii) Employee's failure to secure or maintain in force and in
good standing any and all licenses, permits and/or approvals
required of Employee by the relevant governmental authorities for
the discharge of the obligations of Employee under this
Agreement; provided, however, that Employee's disability due to
illness or accident or any other mental or physical incapacity
shall not constitute "Cause" as defined herein;
(viii) Employee's poor work performance resulting in two
consecutive negative written performance appraisals. Performance
appraisals shall occur twice annually and shall serve as a formal
review of the employee's work performance and contribution to the
company. If on two consecutive performance appraisals the
employee is evaluated poorly, the employer reserves the right to
terminate this agreement. Employee's poor work performance would
include, but not be limited to;
(1) engaging in conduct that is injurious, monetarily or
otherwise, to Employer or Employer's Affiliates;
(2) substantial failure to perform in a professional manner, or
refusal to perform in a professional manner, any duty or duties
assigned by Employer;
- --------------------------------------------------------------------------------
3
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
(3) substantial failure to adhere, or refusal to adhere to any
policies, rules or procedures of the Employer; or
(4) engaging in conduct or in past conduct or affiliations which,
in the reasonable opinion of Employer, would adversely impact
Employer's, Employer, would adversely impact Employer's,
Employer's Affiliates' privileged licenses.
(b) "Complete Disability" - means the inability of Employee, due to
illness or accident or other mental or physical incapacity, to perform
his obligations under this Agreement for a period of ninety (90)
calendar days in the aggregate over a period of five hundred (500)
consecutive calendar days or less, such "Complete Disability" to
become effective upon the expiration of such ninetieth (90th) day.
(c) "Effective Date" - means the date first above written.
(d) "Employee" - means Employee as earlier defined in this Agreement.
(e) "Employer" - means Employer as earlier defined in this Agreement.
(f) "Employer's Affiliates" - means any parent, subsidiary or
affiliated corporation or other legal entity of Employer.
(g) "Prior Employment" - means any prior employment Employee has had.
2. PRIOR EMPLOYMENT. This Agreement supersedes and replaces any and all
prior employment agreements, whether written or oral, by and between Employee
and Employer, Employer's Affiliates. From and after the Effective Date,
Employee shall be the employee of Employer under the terms and pursuant to the
conditions set forth in this Agreement.
3. BASIC EMPLOYMENT AGREEMENT. Subject to the terms and pursuant to the
conditions hereinafter set forth, Employer hereby employs Employee during the
Term hereinafter specified to serve in the position of Senior Vice-President and
Chief Financial Officer of Santa Fe Gaming Corporation and with such duties not
inconsistent with those generally understood within the casino/hotel industry to
be those of a Senior Vice-President and Chief Financial Officer, as the same may
be modified and/or assigned to Employee by Employer. Notwithstanding the
foregoing, Employer and Employee hereby covenant and agree that, in the absence
of mutual consent of both Employer and Employee, Employee shall not be assigned
duties by Employer which
- --------------------------------------------------------------------------------
4
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
would diminish Employee's responsibility, authority, general status or
comparative compensation level within Employer's table of organization. In
addition and the foregoing notwithstanding, Employee shall devote such time to
Employer's Affiliates and as required by Employer, provided such duties are not
inconsistent with Employee's primary duties to Employer hereunder ("Position").
4. ACCEPTANCE OF EMPLOYMENT. Employee hereby accepts the employment set
forth hereunder, under the terms and pursuant to the conditions set forth in
this Agreement. Employee hereby covenants and agrees that, during the Term of
this Agreement, Employee will devote the whole of his working time and best
efforts solely to the performance of Employee's duties under this Agreement, and
the Employer shall be entitled to all of the income, benefits, or profits
arising from or incident to all work, work associations, services, or advise of
Employee, unless otherwise authorized by the Employee.
5. TERM. The Term of this Agreement shall consist of a term of one (1)
year commencing as of the Effective Date of this Agreement, unless sooner
terminated as provided in paragraph 6 of this Agreement. Employer must provide
Employee 90 day notice of Employer's intention not to renew this Agreement for
an additional one-year term. If Employer does not provide notice not to renew
this Agreement, the Agreement will automatically extend for a one-year period.
In the event the Employer gives notice not to renew, notice must be accompanied
by Employer's tender to Employee of the lump sum of payments due to Employee
pursuant to Section 7(a), (c), (d), (e), (f), (g) which in no event in the case
of Section 7(a) will be less than one-half of the annual base salary.
6. SPECIAL TERMINATION PROVISIONS. Notwithstanding the provisions of
Paragraph 5 of this Agreement, this Agreement shall terminate upon the
occurrence of any of the following events:
(a) the death of Employee;
(b) the giving of written notice from Employer to Employee of the
termination of this Agreement upon the Complete Disability of
Employee;
(c) the giving of written notice by Employer to Employee of the
termination of this Agreement upon the discharge of Employee for
Cause;
(d) the giving of written notice by Employee to Employer upon a
material breach of this Agreement by Employer, provided however,
Employer shall have a period of thirty (30) days after giving of such
notice to cure the breach or default;
(e) the giving of written notice by Employer to Employee of the
termination of this Agreement without Cause; provided, however, that
such notice
- --------------------------------------------------------------------------------
5
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
must be accompanied by Employer's tender to Employee of the lump sum
of payments due to Employee pursuant to Section 7(a), (c), (d), (e),
(f), (g) which in no event in the case of Section 7(a) will be less
than one-half of the annual base salary and Employer's commitment to
continue to provide to Employee the compensation set forth in the
entirety of Paragraph 7b of this Agreement;
(f) a transfer of substantially all of the assets of Santa Fe Gaming
to a person other than Paul W. Lowden or if Paul Lowden becomes
beneficial owner of less than 50% of the outstanding common stock of
Santa Fe Gaming; provided, however, that upon approval of such an
event by the Board of Directors that the Employer tender to Employee
the lump sum of payments due to Employee for services rendered
pursuant to Section 7(a), (b), (c), (d), (e), (f), (g) which in no
event in the case of Section 7(a) will be less than one-half of the
annual base salary;
(g) non-compliance under any financing agreement, including, but not
limited to, first mortgage financing for Santa Fe Hotel, Inc., Pioneer
Hotel, Inc., Sahara Las Vegas and Santa Fe Gaming Corp.; provided
however, that upon notice to the Board of Directors of Santa Fe Gaming
Corporation or any of its affiliates or subsidiaries of such an
occurence, that Employer tender to Employee the lump sum of payments
due to Employee for services rendered pursuant to Sections 7(a), (b),
(c), (d), (e), (f) which in no event in the case of Section 7(a) will
be less than one-half of the annual base salary;
(h) filing of a bankruptcy petition (voluntarily or involuntary, as
applicable) including in part or together Santa Fe Gaming Corporation,
its affiliates or subsidiaries, including but not limited to, Santa Fe
Hotel, Inc., Pioneer Hotel & Gambling Hall, Sahara Las Vegas Corp.,
and Santa Fe Valley, Inc.; provided, however, that upon the filing of
an involuntary petition or upon approval by the Board of Directors of
a voluntary petition that Employer tender to Employee the lump sum of
payments due to Employee for services rendered pursuant to Section
7(a), (b), (c), (d), (e), (f), (g) which in no event in the case of
Section 7(a) will be less than one-half of the annual base salary.
7. COMPENSATION TO EMPLOYEE. For and in complete consideration of
Employee's full and faithful performance of this duties under this Agreement,
Employer hereby covenants and agrees to pay to Employee, and Employee hereby
covenants and agrees to accept from Employer, the following items of
compensation:
(a) Base Salary. Employer hereby covenants and agrees to pay to Employee,
and Employee hereby agrees to accept from Employer, a minimum annual base
salary of (i) One Hundred Forty Thousand dollars ($140,000), payable in
accordance with the normal payroll practices of the Employer ("the Base
Salary"). Such Base Salary shall be exclusive of and in addition to any
other benefits which Employer may make available to Employee, including,
but
- --------------------------------------------------------------------------------
6
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
not limited to, any profit sharing plans, pension plans, retirement plans,
company life insurance plan, medical and/or hospitalization plans, or any
and all other benefit plans which may be in effect during the Term of this
Agreement. Employer shall deduct from this Base Salary all appropriate or
authorized federal income tax amounts and all other federal, state and
local taxes, including but not limited to existing or future FICA and
similar taxes.
(b) Employee Benefit Plans. Employer hereby covenants and agrees that it
shall include Employee, if otherwise eligible, in any profit sharing plans,
bonus participation plans, stock options plans, pension plans, retirement
plans, company life insurance plans, medical and/or hospitalization plans,
and/or any and all other benefit plans which may be placed in effect by
Employer during the Term of this Agreement. The Employer agrees to pay the
COBRA payments for the employee and one dependent until such time that the
Employee and one dependent are placed under the coverage of the employer.
(c) Expense Reimbursement. During the Term of this Agreement, Employer
shall either pay directly or reimburse Employee for Employee's reasonable,
necessary and customary expenses incurred for the benefit of Employer in
accordance with Employer's general policy regarding reimbursement, as the
same may be amended, modified or changed from time to time. Such
reimbursable expenses shall include, but are not limited to, reasonable
entertainment and promotional expenses, gift and travel expenses,
professional societies and fraternal organizations, and the like; provided,
however, such reimbursable expenses are approvied by Employer. Prior to
reimbursement, Employee shall provide Employer with sufficient detailed
invoices of such expenses in accordance with the then applicable guidelines
of the Internal Revenue Service so as to entitle Employer to a deduction
for such services.
(d) Licensing Expenses. Employer hereby covenants and agrees that the
Employer shall pay all reasonable and ordinary licensing fees and expenses
incurred by Employee in securing and maintaining such licenses and permits
required of Employee in order to perform his duties under this Agreement.
(e) Vacations and Holidays. Commencing as of the Effective Date of this
Agreement, Employee shall be entitled to annual paid vacation leave in
accordance with Employer's standard policy therefor, to be taken at such
times as selected by Employee and approved by Employer.
(f) Transportation Expenses. During the term of this Agreement, Employer
hereby agrees to furnish to Employee for Employee's exclusive use an
automobile. Such automobile shall be either leased or purchased by
Employer and Employer shall pay all insurance, maintenance, and repair
expenses incident to such automobile.
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7
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
8. LICENSING REQUIREMENTS. Employer and Employee hereby covenant and
agree that, in order for Employee to discharge the duties required under this
Agreement, Employee may be required to submit for licensure by gaming regulatory
authorities. Employer shall pay for all licensing fees and expenses incurred by
Employee, including attorneys' fees and costs, in securing and maintaining such
licenses and permits required of Employee in order to perform his duties under
this Agreement. Such expenses shall be bourne by Employer.
9. CONFIDENTIALITY. Employee hereby warrants, covenants and agrees that,
without the prior express written approval of Employer, during such time as
Employee remains employed by Employer and for a period of 2 years after the
termination of this Agreement, Employee shall hold in the strictest confidence,
and shall not disclose to any person, firm, corporation or other entity, any of
Employer's proprietary or confidential date, including but not limited to (i)
information or other documents concerning Employer's, Employer's Affiliates
business, customers or suppliers, (ii) Employer's, Employer's Affiliates
marketing methods, files, and credit and collection techniques and files, (iii)
Employer's, Employer's Affiliates trade secrets and other "know-how" or
information not of public nature, regardless of how such information came to the
custody of Employee. The warranty, covenant and agreement set forth in this
Paragraph 10 shall not expire, shall survive this Agreement and shall be binding
upon Employee without regard to the passage of time or other events except as
expressly set forth herein.
10. RESTRICTIVE COVENANT. Employee hereby covenants and agrees that,
during such time as Employee remains employed by Employer, Employee shall not
directly or indirectly, either as a principal, agent, employee, employer,
consultant, partner, shareholder of a closely held corporation or shareholder in
excess of five per cent (5%) of a publicly traded corporation, corporate officer
or director, or in any other individual or representative capacity, engage or
otherwise participate in any manner or fashion in any business that is in
competition in any manner whatsoever with the principal business activity of
Employer, Employer's Affiliates, in the state of Nevada. Employee hereby further
covenants and agrees that the restrictive covenant contained in this Paragraph
10 is reasonable as to duration, terms and geographical area and that the same
protects the legitimate interests of Employer, imposes no undue hardship on
Employee, and is not injurious to the public.
11. BEST EVIDENCE. This Agreement may be executed in original and "Xerox"
or photostatic copies and each copy bearing original signatures in ink shall be
deemed an original.
- --------------------------------------------------------------------------------
8
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
12. SUCCESSION. This Agreement shall be binding upon and inure to the
benefit of Employer and Employee and their respective successors and assigns.
13. ASSIGNMENT. The rights, benefits and obligations of Employee under
this Agreement shall not be assignable. Any purported assignment in violation
of this Paragraph 14 shall be null and void and of no force and effect.
14. AMENDMENT OR MODIFICATION. This Agreement may not be amended,
modified, changed or altered except by a writing signed by both Employer and
Employee.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of Nevada in effect on the Effective Date
of this Agreement without resort to any conflict of laws principles, and the
parties hereto specifically agree and consent that courts of the state of Nevada
shall have sole and exclusive jurisdiction over any matter brought under, or by
reason of, this Agreement.
16. NOTICES. Any and all notices required under this Agreement shall be
in writing and shall be either hand-delivered or mailed, certified mail, return
receipt requested, addressed to:
TO EMPLOYER: Santa Fe Gaming Corporation
4949 N. Rancho Drive
Las Vegas, NV 89130
Attention: Paul W. Lowden, President
With copy to: William Raggio
Vargas & Bartlett
201 West Liberty Street
PO Box 281
Reno, NV 89504-0281
TO EMPLOYEE: Thomas K. Land
1124 Barton Green Drive
Las Vegas, NV 89128
All notices hand-delivered shall be deemed delivered as of the date actually
delivered. All notices mailed shall be deemed delivered as of three (3) business
days after the date postmarked. Any changes in any of the addresses listed
herein shall be amended by notice as provided in this Paragraph 16.
- --------------------------------------------------------------------------------
9
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
17. INTERPRETATION. The preamble recitals to this Agreement are
incorporated into and made a part of this Agreement; titles of paragraphs are
for convenience only and are not to be considered a part of this Agreement.
18. SEVERABILITY. In the event any one or more provisions of this
Agreement is declared judicially void or otherwise unenforceable, the remainder
of this Agreement shall survive and such provision(s) shall be deemed modified
or amended so as to fulfill the intent of the parties hereto.
19. DISPUTE RESOLUTION. Except for equitable actions seeking to enforce
the provisions of Paragraphs 9 and 10 of this Agreement which may be brought by
the Employer or Employer's Affiliates in any court of competent jurisdiction in
the state of Nevada, any and all claims, disputes, or controversies arising
between the parties hereto regarding any of the terms of this Agreement or the
breach thereof, on the written demand of either of the parties hereto, shall be
submitted to and be determined by final and binding arbitration held in Las
Vegas, Nevada, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. This agreement to arbitrate shall be
specifically enforceable in any state of federal court of competent jurisdiction
in the state of Nevada.
20. WAIVER. None of the terms of this Agreement, including this Paragraph
20, or any term, right or remedy hereunder shall be deemed waived unless such
waiver is in writing and signed by the party to be charged therewith and in no
event by reason of any failure to assert or delay in asserting any such term,
right or remedy or similar term, right or remedy hereunder.
21. PAROL. This Agreement constitutes the entire agreement between
Employer and Employee with respect to the subject matter hereto and this
Agreement supersedes any prior understandings, agreements or undertakings by and
between Employer and Employee with respect to the subject matter hereof.
23. GENERAL PROVISIONS.
(a) Time is of the essence.
(b) This Agreement has been carefully and fully examined by Employee
and Employee represents that the legal and factual contents hereof are
fully appreciated and comprehended by Employee. Further,
- --------------------------------------------------------------------------------
10
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
Employee has had ample opportunity to review this Agreement with legal
and/or such other counsel as deemed appropriate, if any. Employee has
decided to execute this Agreement having considered the various
advantages and possible detriments associated therewith. Although this
Agreement has been prepared by Employer, it is the product of
discussions and negotiations and should be construed fairly
accordingly to its terms and not against one party as the drafter
thereof.
(c) In the event an action is filed in relation to this Agreement, the
unsuccessful party in the action shall pay to the successful party, in
addition to all sums that the party may be order to pay, a reasonable
sum for the successful party's attorney fees.
IN WITNESS WHEREOF AND INTENDING TO BE LEGALLY BOUND THEREBY, the parties hereto
have executed and delivered this Agreement as of the year and date first above
written.
EMPLOYER
Santa Fe Gaming Corporation, a
Nevada Corporation
By: /s/ Paul W. Lowden
------------------------
Paul W. Lowden,
President
EMPLOYEE
/s/ Thomas K. Land
---------------------------
Thomas K. Land
- --------------------------------------------------------------------------------
11
Employment Agreement by and between Santa Fe Gaming Corp. and Thomas K. Land
<PAGE>
EXHIBIT 23
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 December 31, 1996 and 1995,
as indicated in our report dated February 13, 1997; 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 December 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
February 13, 1997
22
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<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,869,673
<SECURITIES> 0
<RECEIVABLES> 2,478,975
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<CURRENT-ASSETS> 21,760,903
<PP&E> 155,780,045
<DEPRECIATION> 44,875,590
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<CURRENT-LIABILITIES> 23,375,320
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0
18,953,233
<COMMON> 61,954
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<TOTAL-LIABILITY-AND-EQUITY> 222,229,423
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<INCOME-PRETAX> (5,073,631)
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